10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2023

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to ___________

Commission File Number 0-11668

INRAD OPTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

New Jersey	22-2003247
State or Other Jurisdiction of Incorporation or Organization	I.R.S. Employer Identification No.
181 Legrand Avenue, Northvale, NJ	07647
Address of Principal Executive Offices	Zip Code

(201) 767-1910

Registrant’s Telephone Number, Including Area Code

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

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

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

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 ☒     No ☐

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

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

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

The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of August 11, 2023, was 14,200,975.

INRAD OPTICS, INC AND SUBSIDIARIES

INDEX

Part I.	CONDENSED FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements:
	Condensed consolidated balance sheets as of June 30, 2023 (unaudited) and December 31, 2022	1
	Condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022 (unaudited)	2
	Condensed consolidated statements of shareholders’ equity for the three and six months ended June 30, 2023 and 2022 (unaudited)	3
	Condensed consolidated statements of cash flows for the three and six months ended June 30, 2023 and 2022 (unaudited)	4
	Notes to condensed consolidated financial statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	15
Item 4.	Controls and Procedures	16
Part II.	OTHER INFORMATION	17
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults upon Senior Securities	17
Item 4.	Mine Safety Disclosures	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
Signatures		19

INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,
	2023		2022
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	2,229,724	$	2,003,485
Accounts receivable, net of allowance for credit losses of $46,000		1,971,830		1,389,867
Inventories, net		2,777,301		2,825,987
Other current assets		366,078		309,287
Total current assets		7,344,933		6,528,626
Plant and equipment:
Plant and equipment, at cost		16,171,151		15,967,537
Less: Accumulated depreciation and amortization		(14,877,335)		(14,723,869)
Total plant and equipment		1,293,816		1,243,668
Precious metals		561,909		561,909
Lease right-of-use, net		592,451		737,743
Other assets		26,993		26,993
Total assets	$	9,820,102	$	9,098,939
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of other long term notes	$	69,411	$	67,513
Accounts payable and accrued liabilities		679,435		741,281
Contract liabilities		1,089,926		1,065,173
Current portion of lease obligation		301,869		295,978
Total current liabilities		2,140,641		2,169,945
Related party convertible notes payable		2,500,000		2,500,000
Other long term notes, net of current portion		281,546		316,740
Lease obligation, net of current portion		290,582		444,462
Total liabilities		5,212,769		5,431,147
Shareholders’ equity:
Common stock: $.01 par value; 60,000,000 authorized shares; 14,205,575 shares issued at June 30, 2023, and 14,092,920 shares issued at December 31, 2022		142,057		140,931
Capital in excess of par value		20,072,561		19,925,292
Accumulated deficit		(15,592,336)		(16,383,481)
		4,622,283		3,682,742
Less - Common stock in treasury, at cost (4,600 shares)		(14,950)		(14,950)
Total shareholders’ equity		4,607,333		3,667,792
Total liabilities and shareholders’ equity	$	9,820,102	$	9,098,939

See Notes to Condensed Consolidated Financial Statements (Unaudited)

1

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Total revenue	$	3,766,382	$	2,740,055	$	6,573,544	$	5,177,151
Cost and expenses:
Cost of goods sold		2,332,719		1,880,437		4,259,610		3,557,967
Selling, general and administrative expenses		696,623		757,820		1,446,986		1,434,372
		3,029,342		2,638,257		5,706,596		4,992,339
Income from operations		737,040		101,798		866,948		184,812
Other income (expense):
Interest expense-net		(37,421)		(42,883)		(75,802)		(84,465)
		(37,421)		(42,883)		(75,802)		(84,465)
Income before income taxes		699,619		58,915		791,146		100,347
Income tax (provision) benefit		—		—		—		—
Net income	$	699,619	$	58,915	$	791,146	$	100,347
Net income per common share - basic	$	0.05	$	—	$	0.06	$	0.01
Net income per common share - diluted	$	0.04	$	—	$	0.05	$	0.01
Weighted average shares outstanding - basic		14,200,975		14,025,820		14,191,454		13,992,068
Weighted average shares outstanding - diluted		17,456,084		14,791,747		17,488,439		14,675,384

See Notes to Condensed Consolidated Financial Statements (Unaudited)

2

INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

				Capital in						Total
	Common Stock			Excess of		Accumulated		Treasury		Shareholders’
	Shares	Amount		Par Value		Deficit		Stock		Equity
Balance, January 1, 2022	13,967,257	$	139,674	$	19,733,996	$	(16,536,056)	$	(14,950)	$	3,322,664
401K contribution	59,663		597		50,158		—		—		50,755
Stock-based compensation expense	—		—		21,558		—		—		21,558
Net income	—		—		—		41,432		—		41,432
Balance, March 31, 2022	14,026,920	$	140,271	$	19,805,712	$	(16,494,624)	$	(14,950)	$	3,436,409
Common stock options exercised	21,000		210		4,860		—		—		5,070
Stock-based compensation expense	—		—		32,604		—		—		32,604
Net income	—		—		—		58,915		—		58,915
Balance, June 30, 2022	14,047,920	$	140,481	$	19,843,176	$	(16,435,709)	$	(14,950)	$	3,532,998

				Capital in						Total
	Common Stock			Excess of		Accumulated		Treasury		Shareholders’
	Shares	Amount		Par Value		Deficit		Stock		Equity
Balance, January 1, 2023	14,092,920	$	140,931	$	19,925,293	$	(16,383,482)	$	(14,950)	$	3,667,792
401K contribution	33,322		333		54,388		—		—		54,721
Stock-based compensation expense	—		—		34,203		—		—		34,203
Common stock options exercised	79,333		793		30,993		—		—		31,786
Net income	—		—		—		91,528		—		91,528
Balance, March 31, 2023	14,205,575	$	142,057	$	20,044,877	$	(16,291,954)	$	(14,950)	$	3,880,030
Stock-based compensation expense	—		—		27,684		—		—		27,684
Net income	—		—		—		699,619		—		699,619
Balance, June 30, 2023	14,205,575	$	142,057	$	20,072,561	$	(15,592,336)	$	(14,950)	$	4,607,333

See Notes to Condensed Consolidated Financial Statements (Unaudited)

3

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	791,146	$	100,347
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization		153,466		74,828
401K common stock contribution - non cash item		54,721		50,755
Stock based compensation		61,887		54,162
Change in inventory reserve		209,030		(62,506)
Changes in operating assets and liabilities:
Accounts receivable		(581,963)		(86,840)
Inventories		(160,344)		(418,369)
Other current and noncurrent assets		88,502		298,932
Accounts payable and accrued liabilities		(61,846)		38,454
Contract liabilities		24,753		126,689
Other current and noncurrent liabilities		(147,989)		(89,922)
Total adjustments and changes		(359,783)		(13,817)
Net cash provided by operating activities		431,363		86,530
Cash flows from investing activities:
Capital expenditures		(203,614)		(302,890)
Net cash (used in) investing activities		(203,614)		(302,890)
Cash flows from financing activities:
Proceeds from issuance of common stock		31,786		5,070
Principal payments on notes payable-other		(33,296)		(71,286)
Net cash (used in) financing activities		(1,510)		(66,216)
Net increase (decrease) in cash and cash equivalents		226,239		(282,576)
Cash and cash equivalents at beginning of period		2,003,485		1,801,188
Cash and cash equivalents at end of period	$	2,229,724	$	1,518,612
Supplemental disclosure of cash flow information:
Interest paid	$	84,664	$	85,584
Income taxes paid	$	—	$	—
Significant non-cash activities:
Lease right-of-use asset	$	—	$	879,300
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment by issuing a note payable	$	—	$	270,320

See Notes to Condensed Consolidated Financial Statements (Unaudited)

4

INRAD OPTICS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued.

Management Estimates

These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

Accounts Receivable

Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended June 30, 2023, there were no changes to the estimate for credit losses. For the period ended June 30, 2022, the estimate for credit losses was $46,000.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost of manufactured goods includes material, labor, and overhead. The Company records a reserve for slow-moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs of completion exceed unbilled revenues.

5

Inventories are comprised of the following and are shown net of inventory reserves of $2,590,000 and $2,398,000 at June 30, 2023 and December 31, 2022, respectively:

	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in thousands)
Raw materials	$	877	$	1,065
Work in process, including manufactured parts and components		1,384		1,282
Finished goods		516		479
	$	2,777	$	2,826

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse.

In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near-term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.

On the basis of this evaluation as of June 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $2,416,000, and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings.

For the three and six months ended June 30, 2023 and 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.

Net Income (Loss) per Common Share

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

For the three and six months ended June 30, 2023, 2,500,000 common shares issuable upon conversion of outstanding related party convertible notes were included in the computation of basic and diluted net income per common share because their effect is dilutive. For the three and six months ended June 30, 2023, 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 35,000 common stock options were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive.

For the three and six months ended June 30, 2022, 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 15,000 common stock options were excluded from basic and diluted net income per common share because their effect is anti-dilutive.

6

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

	Three Months Ended					Three Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	699,619	14,191,454	$	0.05	$	58,915	14,025,820	$	0.00
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	582,412		—		—	765,927		—
Diluted income per share	$	737,119	17,283,387	$	0.04	$	58,915	14,791,747	$	0.00

	Six Months Ended					Six Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	791,146	14,191,454	$	0.06	$	100,347	13,992,068	$	0.01
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	630,445		—		—	683,316		—
Diluted income per share	$	828,696	17,321,899	$	0.05	$	100,347	14,675,384	$	0.01

Stock-Based Compensation

Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period.

Recent Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

NOTE 2 – CONCENTRATION OF CASH

In May 2023, the Company entered into an Insured Cash Sweep (“ICS”) agreement with Valley National Bank, where funds are placed at destination institutions through the service of the Promontory Interfinancial Network, LLC. Such funds placed into the deposit account will not exceed the Federal Deposit Insurance Corporation (“FDIC”) standard maximum deposit insurance amount, currently $250,000, at any one destination institution thereby eliminating credit risk on cash balances over $250,000. The Company was subject to credit risk due to the concentration of cash balances that exceeded the federally insured limits by approximately $1.75 million at December 31, 2022, on cash balances of approximately $2.0 million at December 31, 2022.

7

NOTE 3 – REVENUE

The Company’s revenues are comprised of product sales as well as products and services provided under long-term government contracts with its customers. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of a standalone selling price for each distinct product or service in the contract, which is generally based on an observable price.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.

The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was 100% of revenue for each of the three and six months ended June 30, 2023 and 2022, respectively. The Company recognizes revenue at the point in time in which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment. In limited cases, title does not transfer, and revenue is not recognized until the customer has received the products at its physical location.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Aerospace & Defense	$	694,660	$	774,627	$	1,139,112	$	1,621,920
Process Control & Metrology		2,551,428		1,704,461		4,782,744		3,107,594
Laser Systems		—		38,724		43,080		103,291
Scientific / R&D		520,294		222,243		608,608		344,346
Total	$	3,766,382	$	2,740,055	$	6,573,544	$	5,177,151

The timing of revenue recognition, billings and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities, previously deferred revenue) on the Consolidated Balance Sheet. Contract liabilities also include customer advances or prepayments.

For the three months ended June 30, 2023 four customers represented 10% or more of sales. For the three months ended June 30, 2022, three customers represented 10% or more of sales. For each of the six months ended June 30, 2023 and 2022, three customers represented 10% or more of sales.

The Company’s top five customers represented 73.8% and 63.8% of sales in the three month periods ended June 30, 2023 and 2022, respectively. The Company’s top five customers represented 73.6% in the six month period ended June 30, 2023, compared to 64.2% in the six month period ended June 30, 2022.

On June 30, 2023, the Company had approximately $16.9 million of performance obligations, which is also referred to as backlog. Approximately 12.2% of the June 30, 2023, backlog is related to projects that will extend beyond June 30, 2024.

8

NOTE 4- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

a)    Stock Option Expense

The Company’s results of operations for the three months ended June 30, 2023 and 2022, include stock-based compensation expense for stock option grants totaling $27,684 and $32,604, respectively. For the six months ended June 30, 2023 and 2022, stock-based compensation expense for stock option grants totaled $61,887 and $54,162, respectively. The following table shows the amounts for stock-based compensation included in cost of sales and selling, general and administrative expense for the three and six months  ended June 30, 2023 and 2022:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Cost of sales	$	3,243	$	3,369	$	6,486	$	6,621
Selling, general and administrative		24,441		29,235		55,401		47,541
Total stock-based compensation expense	$	27,684	$	32,604	$	61,887	$	54,162

As of June 30, 2023 and 2022, there were $208,000 and $299,000 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over a weighted average period of approximately 1.26 years and 1.54 years, respectively.

There were 20,000 stock options granted during the six months ended June 30, 2023, and 200,000 stock options granted during the six months ended June 30, 2022. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the three and six months ended June 30, 2023 and 2022:

	Six Months Ended
	June 30,
	2023		2022
Expected Dividend yield	—	%	—	%
Expected Volatility	92	%	105	%
Risk-free interest rate	0.86	%	1.54	%
Expected term	10	years	10	years

b)    Stock Option Activity

The following table represents stock options granted, exercised, and forfeited during the three and six months ended June 30, 2023:

		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value
Outstanding January 1, 2023	1,286,667	$	0.71	5.95	$	854,550
Granted	20,000		1.72
Exercised	(79,333)		0.40
Expired/Forfeited	(51,667)		0.91
Outstanding June 30, 2023	1,175,667	$	0.71	7.62	$	511,229
Exercisable at June 30, 2023	965,658	$	0.64	6.90	$	495,994

9

The following table represents non-vested stock options granted, vested, and forfeited for the three and six months ended June 30, 2023:

	Weighted-average
	Grant-date Fair Value
	Options	($)
Non-Vested - January 1, 2023	340,835	0.89
Granted	20,000	1.48
Vested	(134,160)	0.86
Forfeited	(16,667)	0.97
Non-Vested - June 30, 2023	210,008	0.92

NOTE 5 - STOCKHOLDERS’ EQUITY

The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2022, in February 2023. The Company contributed 33,322 common shares of Inrad Optics, Inc., and cash of $82,000 to the Plan in February 2023.

NOTE 6 – RELATED PARTY TRANSACTIONS

On August 10, 2023, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to August 15, 2024, from April 1, 2024. The notes bear interest at 6%. Interest accrues yearly and is payable on maturity. Unpaid interest, along with principal, may be converted into securities of the Company as follows: the notes are convertible in the aggregate into 1,500,000 units and 1,000,000 units, respectively, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to acquire 0.75 shares of common stock at a price of $1.35 per share. As part of the agreement to extend the maturity date of the notes, the expiration dates of the warrants were extended from April 1, 2027 to August 15, 2027.

NOTE 7 – OTHER LONG-TERM NOTES

Other Long-Term Notes consist of the following:

	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in thousands)
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in July 2029	$	149	$	160
Long-term equipment financing in equal installments of $5,236 and bearing an interest rate of 6.1% and expiring in January 2027 (1)		202		225
Less current portion		(69)		(68)
Long-term debt, excluding current portion	$	282	$	317

(1) The Company purchased certain equipment in the six months ended June 30, 2022, financing approximately $270,000 at a fixed annual interest rate of 6.1% for five years payable in equal monthly installments.

10

NOTE 8 – LEASE AMENDMENT

The Company entered into an amendment and extension of its building lease on July 25, 2022, retroactive to June 1, 2022. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company must determine if such an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease at inception of the arrangement. The Company determined that this lease is an operating lease and presented as a right-of-use lease asset, short term lease liability and long-term lease liability on the consolidated balance sheet. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate.

Lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and general and administrative expenses on the consolidated statement of operations.

An initial right-of-use asset of approximately $0.9 million was recognized as a non-cash asset addition with the signing of the July 29, 2022, lease amendment. Cash paid for amounts included in the present value of the operating lease liability was $0.2 million during the year ended December 31, 2022, and is included in operating cash flows.

Operating lease costs were $0.1 million during each of the three and six months ended June 30, 2023 and 2022, respectively.

11

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Caution Regarding Forward Looking Statements

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The Company wishes to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to comply with the terms of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The events described in the forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of the Company’s plans or strategies, projected or anticipated benefits of acquisitions made by the Company, projections involving anticipated revenues, earnings, or other aspects of the Company’s operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward-looking statements. The Company cautions you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the Company’s control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may affect the Company’s results include, but are not limited to, the risks and uncertainties discussed in Items 1A, 7 and 7A of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 30, 2023. Any one or more of these uncertainties, risks, and other influences could materially affect the Company’s results of operations and whether forward-looking statements made by the Company ultimately prove to be accurate. Readers are further cautioned that the Company’s financial results can vary from quarter to quarter, and the financial results for any period may not necessarily be indicative of future results. The foregoing is not intended to be an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by the Company. The Company’s actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether from the latest information, future events, or otherwise.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 1 of the accompanying condensed consolidated financial statements and further discussed in our annual financial statements included in our annual report on Form 10-K for the year ended December 31, 2022. In preparing our unaudited condensed consolidated financial statements, we made estimates and judgments that affect the results of our operations and the value of assets and liabilities we report. Our inventories are stated at the lower of cost (first-in-first-out basis) and net realizable value. The Company records a reserve for slow moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs-of-completion exceed unbilled revenues. The Company’s estimates also include the amount and timing of future taxable income in determining the valuation allowance for deferred income tax assets. Our actual results may differ from these estimates under different assumptions or conditions.

For additional information regarding our critical accounting policies and estimates, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report filed with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2022.

Results of Operations

The Company is a vertically integrated manufacturer specializing in glass, crystal, and metal based optical components, and sub-assemblies. Manufacturing capabilities include super-precision optical surfacing, precision diamond turning, the ability to manage large substrates, proprietary optical contacting processes, thin film coatings, and high resolution in-process metrology.

Inrad Optics’ customers include leading corporations in the semiconductor equipment, process control and metrology, defense, aerospace, and laser systems sectors of the broad set of photonics enabled industries, as well as the U.S. Government, National Laboratories, universities and institutions worldwide.

All R&D, engineering, manufacturing, and administrative operations are undertaken in our 42,000 square foot facility in Northvale, New Jersey.

12

Revenue

Sales for the three months ended June 30, 2023, were $3.8 million, an increase of $1.1 million, or 36.6% compared to $2.7 million, for the three months ended June 30, 2022. For the six months ended June 30, 2023, sales were $6.6 million, an increase of $1.4 million or 57.3% compared to sales of $5.2 million, for the six months ended June 30, 2022.

Sales to the defense/aerospace market decreased by $0.1 million or 10.3% to $0.7 million in the three months ended June 30, 2023, compared to $0.8 million for the three months ended June 30, 2022. For the six months ended June 30, 2023, sales to the defense/aerospace market were $1.1 million, a decrease of $0.5 million, or 29.8%, compared to $1.6 million for the six months ended June 30, 2022. The decrease in sales in the defense/aerospace market was due to manufacturing capacity constraints and the impact of tight labor markets.

Sales to the process control and metrology (“PC&M”) market were $2.6 million for the three months ended June 30, 2023, an increase of $0.8 million or 49.7% compared to sales of $1.7 million in the three months ended June 30, 2022. For the six months ended June 30, 2023, sales to the PC&M market were $4.8 million, an increase of $1.7 million, or 53.9%, compared to $3.1 million for the six months ended June 30, 2022. The increase in sales in the PC&M market for the three and six months ended June 30, 2023, is due to the increase in demand for products used in PC&M applications, especially the semiconductor equipment market.

Sales to customers in the laser systems market were $43,000 for the three and six months ended June 30, 2023, compared to $103,000 and $39,000 for the three and six months ended June 30, 2022, respectively. Products sold into this market segment largely consist of legacy materials for replacement units and small volume last time buys.

Sales to customers in the Scientific/R&D market were $0.5 million for the three months ended June 30, 2023, an increase of $0.3 million, or 134.1%, compared to sales in the Scientific/R&D market of $0.2 million for the three months ended June 30, 2022. Sales in the Scientific/R&D market were $0.6 million for the six months ended June 30, 2023, an increase of $0.3 million, or 76.7%, compared to $0.3 million in sales for the six months ended June 30, 2022. The increase in sales in the Scientific/R&D sector is due to increased demand for our products from U.S. national labs for energy research purposes.

For the three months ended June 30, 2023 four customers represented 10% or more of sales. For the three months ended June 30, 2022, three customers represented 10% or more of sales. For each of the six months ended June 30, 2023 and 2022, three customers represented 10% or more of sales.

The Company’s top five customers represented 73.8% and 63.8% of sales in the three month periods ended June 30, 2023 and 2022, respectively. The Company’s top five customers represented 73.6% in the six month period ended June 30, 2023, compared to 64.2% in the six month period ended June 30, 2022.

Orders booked during the six months ended June 30, 2023 and 2022, totaled $2.9 million and $13.5 million respectively. The decrease in bookings is due to extraordinary demand from several key customers in the six month period ended June 30, 2022, seeking to secure multi-year capacity. Order backlog at June 30, 2023 and 2022, was $16.9 million and $21.3 million, respectively. While we anticipate shipping a considerable portion of the present backlog during the remainder of fiscal year 2023, our current backlog consists of orders with delivery schedules that extend beyond 12 months into the future.

Cost of Goods Sold

For the three months ended June 30, 2023 and 2022, cost of goods sold was $2.3 million and $1.9 million, or 61.9% and 68.6% of total sales, respectively. Cost of goods sold for the six months ended June 30, 2023 and 2022, were $4.3 million and $3.6 million, or 64.8% and 68.7% of total sales, respectively. The increase in costs of goods sold reflects the increase in sales during the three and six month periods ended June 30, 2023.

Gross profit for the three months ended June 30, 2023, was $1.4 million or 38.1% of sales compared to $0.9 million or 31.4% of sales in the same quarter last year. Gross profit for the year-to-date period ending June 30, 2023, was $2.3 million or 35.2% of sales, an increase of $0.7 million, compared to $1.6 million or 31.3% of sales, for the six-month period ended June 30, 2022. The increase in gross profit for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, is due to higher sales and efficiency gains from strategic product focus and improvements in production processes.

13

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A” expenses) were $0.7 million in the three months ended June 30, 2023, or 18.5% of sales and $0.8 million, or 27.7% of sales, in the three months ended June 30, 2022. The decrease in SG&A expenses in the three months ended June 30, 2023, reflects lower wages in that time period. SG&A expenses in each of the six-month periods ended June 30, 2023 and 2022, were $1.4 million, or 22.0% and 27.7% of sales, respectively.

Income from Operations

The Company realized income from operations of $0.7 million for the three months ended June 30, 2023, compared with net income from operations of $0.1 million in the three months ended June 30, 2022. The increase in income primarily reflects an increase in sales coupled with lower SG&A expenses. The Company realized income from operations of $0.9 million for the six months ended June 30, 2023, compared income from operations for the six months ended June 30, 2022, of $0.2 million. The increase in income from operations is primarily due to higher revenues.

Other Income (Expense)

Other income reflects the interest expense on the Company’s related party convertible notes and the financing of certain equipment purchases.

Income Taxes

For the three and six months ended June 30, 2023 and June 30, 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.

Net Income

The Company had net income of $0.7 million for the three months ended June 30, 2023, compared to net income of $0.1 million for the three months ended June 30, 2022. The change primarily reflects an increase in sales coupled with a decrease in SG&A costs. For the six months ended June 30, 2023, the Company recorded net income of $0.8 million compared to net income of $0.1 million for the six months ended June 30, 2022. The increase in net income reflects higher sales in the six months ended June 30, 2023.

Liquidity and Capital Resources

The Company’s primary source of liquidity is cash and cash equivalents and on-going collection of accounts receivable. The Company’s major use of cash in recent years has been for financing operations, for payment of accrued and current interest on convertible debt, for servicing of long-term debt, and for capital expenditures.

As of June 30, 2023 and December 31, 2022, the Company had cash and cash equivalents of $2.2 million and $2.0 million, respectively. Although the Company has a concentration of cash balances that exceed the federally insured balances, Inrad Optics entered into an Insured Cash Sweep (“ICS”) agreement with Valley National Bank, where funds are placed at destination institutions through the service of the Promontory Interfinancial Network, LLC. Such funds placed into the deposit account will not exceed the Federal Deposit Insurance Corporation (“FDIC”) standard maximum deposit insurance amount, currently $250,000, at any one destination institution.

The Company occupies approximately 42,000 square feet of space located at 181 Legrand Avenue, Northvale, New Jersey pursuant to a net lease which was amended on July 29, 2022, retroactive to June 1, 2022, for an additional three-year term. The current lease term expires on May 31, 2025. Under the terms of the lease, the Company is obligated for all real estate taxes, maintenance, and operating costs of the facility.

14

On August 10, 2023, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to August 15, 2024, from April 1, 2024. The notes bear interest at 6%. Interest accrues yearly and is payable on maturity. Unpaid interest, along with principal, may be converted into securities of the Company as follows: the notes are convertible in the aggregate into 1,500,000 units and 1,000,000 units, respectively, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to acquire 0.75 shares of common stock at a price of $1.35 per share. As part of the agreement to extend the maturity date of the notes, the expiration dates of the warrants were extended from April 1, 2027 to August 15, 2027.

The following table summarizes net cash (used in) operating, investing, and financing activities for the six months ended June 30, 2023 and 2022:

	Six Months Ended
	June 30,
	2023		2022
	(in thousands)
Net cash provided by operating activities	$	431	$	87
Net cash (used in) investing activities		(204)		(303)
Net cash (used in) financing activities		(2)		(66)
Net (decrease) increase in cash and cash equivalents	$	227	$	(282)

Net cash provided by operating activities was $431,000 for the six months ended June 30, 2023, compared to net cash provided by operating activities of $87,000 in the same period last year. Net cash provided by operating activities in the six months ended June 30, 2023, resulted primarily from an increase in net income and a decrease in inventories offset by a decrease in other current and non-current assets, a decrease in accounts payable and accrued liabilities, and an increase in accounts receivable. The net cash provided by operating activities in the six months ended June 30, 2022, resulted primarily from operating income and increases in accounts payable and contract liabilities, offset increases in accounts receivable and inventories.

Net cash used in investing activities was $204,000 during the six months ended June 30, 2023, compared to $303,000 in the same period last year reflecting capital expenditures in both periods.

In the six months ended June 30, 2023, proceeds from financing activities included cash received for the issuance of common stock net of principal payments on notes payable. In the six months ended June 30, 2022, the Company purchased certain equipment, financing approximately $270,000 at a fixed annual interest rate of 6.1% for five years payable in equal monthly installments.

Overall, cash and cash equivalents increased by $226,000 for the six months ended June 30, 2023. Cash and cash equivalents decreased by $282,000 in the six months ended June 30, 2022.

Management believes, based on the Company’s operations and its existing working capital resources together with existing cash flows, that the Company has sufficient cash flows to fund operations through at least August 15, 2024.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is a smaller reporting company and not required to provide the information required under this item.

15

ITEM 4. CONTROLS AND PROCEDURES

a.    Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2023 (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (2) is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

b.    Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

16

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not applicable

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UNDER SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None.

17

ITEM 6. EXHIBITS

4.1	Note dated August 10, 2023, held by Clarex, Ltd.*
4.2	Note dated August 10, 2023, held by Welland, Ltd.*
31.1	Certificate of the Registrant’s Chief Executive Officer, Amy Eskilson, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2	Certificate of the Registrant’s Chief Financial Officer, Theresa A. Balog, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1	Certificate of the Registrant’s Chief Executive Officer, Amy Eskilson, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2	Certificate of the Registrant’s Chief Financial Officer, Theresa A. Balog, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS	Inline XBRL Instance Document*
101.SCH	Inline XBRL Taxonomy Extension Schema*
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase*
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase*
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase*
104	Cover Page Interactive Data File (embedded within the Inline XBRL and Contained in Exhibit 101)

* Filed herewith

** Furnished herewith

18

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		Inrad Optics, Inc.
	By:	/s/ Amy Eskilson
		Amy Eskilson
		President and Chief Executive Officer
	By:	/s/ Theresa A. Balog
		Theresa A. Balog
		Chief Financial Officer,
		Secretary and Treasurer
Date: August 11, 2023

19

EX-4.1

Exhibit 4.1

THIS CONVERTIBLE PROMISSORY NOTE HAS BEEN, AND ANY SHARES ISSUED UPON CONVERSION PURSUANT TO THE TERMS HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THIS CONVERTIBLE PROMISSORY NOTE, AND ANY SECURITIES ISSUED UPON CONVERSION PURSUANT TO THIS NOTE, HAVE NOT BEEN REGISTERED UNDER THE ACT OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT OR THOSE LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

SUBORDINATED CONVERTIBLE PROMISSORY NOTE

THIS NOTE IS ISSUED IN SUBSTITUTION FOR, AND SUPERSEDES, THE ORIGINAL NOTE DATED OCTOBER 31, 2003 AND ALL NOTES SUBSEQUENTLY ISSUED TO EXTEND THE ORIGINAL TERM.

Principal Amount: $1,500,000 August 10, 2023

FOR VALUE RECEIVED, INRAD OPTICS, INC.  (FORMERLY PHOTONIC

PRODUCTS GROUP INC., AND INRAD, INC.),  a New Jersey corporation (hereinafter called “Issuer”), hereby promises to pay to the order of CLAREX,  LIMITED. and its successors and assigns (hereinafter called the “Holder”), at such address as the Holder may designate in writing to Issuer, the principal sum of ONE MILLION DOLLARS FIVE HUNDRED THOUSAND ($1,500,000) plus all accrued interest owing hereunder in lawful money of the United States of America on or before the Maturity Date (as defined below), unless this Convertible Promissory Note (the “Note”) is converted by the Holder as set forth herein.  For purposes of this Note, “Maturity Date” shall mean August 15, 2024.

1.Interest.  Interest shall accrue on the unpaid principal amount of this Note at the rate of six percent (6%) per annum and shall be due and payable on the Maturity Date.  Interest shall be computed on the basis of a 360 day year for the actual number of days elapsed.

2.Optional Prepayment; Order of Payments. Issuer may prepay this Note at any time, in whole or in part, without premium or penalty; provided, however, Issuer shall provide to the Holder written notice at least ten (10) business days prior to such prepayment.  All payments made on account of this Note shall be applied first to the payment of any costs of enforcement then due hereunder, second to the payment of accrued and unpaid interest then due hereunder, and the remainder, if any, shall be applied to the unpaid principal balance of this Note.

3.Event of Default Defined; Acceleration of Maturity.  If one or more of the following events (“Events of Default”) shall have occurred:

(a)a default in the payment of all or any part of the principal or interest due under this Note as and when the same shall become due and payable, at maturity, by declaration as permitted hereunder, upon acceleration or otherwise;

(b)Issuer shall merge or consolidate with or into any other person or entity, sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets or adopt a plan of liquidation or dissolution; provided, however, that Issuer shall have the right to merge with any other entity so long as Issuer shall be the surviving entity in any such merger;

(c)Issuer shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with the consent of Issuer; or Issuer is generally not paying its debts as they become due or is insolvent, or has made a general assignment for the benefits of its creditors; or Issuer files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with its creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within sixty (60) days after the commencement of any proceeding against Issuer seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of Issuer or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or if, within sixty (60) days after the expiration of any such stay, such order or appointment shall not have been vacated (all such events, collectively “Insolvency Events”);

Then Holder, by notice in writing to Issuer (the “Acceleration Notice”), may declare the principal amount of this Note and all accrued but unpaid interest to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable; provided that if an Insolvency Event occurs, the principal amount of this Note and all accrued but unpaid interest shall become and be immediately due and payable without any declaration or other act on the part of the Holder.

4.Conversion.  The Holder may, at any time prior to the earlier of the Maturity Date or the prepayment of this Note by Issuer, convert all or a portion of the principal and accrued interest then outstanding under this Note into one Unit for each dollar converted (or an aggregate of 1,500,000 Units, exclusive of accrued interest) with each Unit consisting of one fully paid and non-assessable share of Issuer’s Common Stock (the “Common Stock”) and one Warrant in the form of Exhibit A hereto to acquire 0.75 shares of Issuer’s Common Stock at a price of $1.35 up to August 15, 2027 (i.e. if this Note were converted in full, for principal amount other than accrued interest, the Holder would receive 1,500,000 shares of Common Stock and 1,125,000 Warrants).  Such conversion shall be effected by the Holder by sending a written notice of conversion and this Note to Issuer for cancellation and issuance of the number of shares of Common Stock and Warrants into which this Note is being converted.  In the event this Note is being converted in part, a replacement Note representing the unconverted portion of this Note shall be delivered to the Holder.  Upon conversion of this Note, only whole shares of Common Stock shall be issued.  Any remainder due hereunder which is insufficient to purchase a whole share of Common Stock shall be paid by Issuer in cash.

-2-

4.1Subdivision or Combination of Common Stock.  In case Issuer shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.

4.2Reorganization or Reclassification.  If any capital reorganization or reclassification of the capital stock of Issuer (other than in connection with a merger or other reorganization in which Issuer is not the surviving entity) shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby the Holder shall thereupon have the right to receive upon the conversion of this Note, upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of this Note, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the shares of Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.

4.3Notice of Adjustment.  Upon any adjustment of the Conversion Price, then and in each such case Issuer shall give written notice thereof, by delivery in person, certified or registered mail, return receipt requested, telecopier or telex, addressed to the Holder at the address of the Holder, as provided to Issuer, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based.

4.4Due Issuance of Shares Upon Conversion.  Issuer covenants and agrees that all shares of Common Stock or any such other securities which may be issued upon any whole or partial conversion of this Note will, upon issuance, be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.

4.5Stock to be Reserved.  Issuer will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of this Note as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion hereof.  Issuer will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of this Note would, when added to the number of shares of Common Stock then reserved for issuance, exceed the total number of shares of Common Stock then authorized by Issuer’s Certificate of Incorporation.

5.Subordination.  The Issuer hereby agrees, and the Holder of this Note by its acceptance agrees, that the payment of the principal of and interest on the Note is hereby expressly made subordinate and junior in right of payment, to the extent set forth in the following paragraphs

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(a), (b) and (c), to the prior payment in full of all Senior Debt of the Issuer, whether such Senior Debt, except as provided in Section 5 below, is incurred prior to, on or after the date hereof:

(a)In the event of insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to the Issuer or to any of the property of the Issuer, or in the event or any proceedings for voluntary liquidation, dissolution, or other winding-up of the Issuer, whether or not involving insolvency or bankruptcy, then the holders of Senior Debt shall be entitled to receive payment in full of all principal of and interest on all Senior Debt before the Holder of this Note shall be entitled to receive any payment on account of principal or interest on this Note, and to that end the holders of Senior Debt shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, which may be payable or deliverable in any such proceedings in respect of this Note.

(b)In the event that this Note is declared due and payable prior to its stated maturity, by reason of the occurrence of an Event of Default hereunder (under circumstances when the provisions of the foregoing paragraph (a) shall not be applicable), then all principal of and interest on all Senior Debt outstanding at the time of such declaration shall first be paid in full, before any payment on account of principal or interest is made upon this Note.

(c)The Issuer may make payments and, subject to Section 1 of this Note, prepayments of the principal of and interest of this Note if, at the time of the payment and immediately after giving effect thereto, (i) there exists no default in any payment with respect to any Senior Debt and (ii) there shall not have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Debt, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, other than an event of default which shall have been cured or waived or shall have ceased to exist.  Should the Holder of this Note, while there exists a default or an event of default as provided in the immediately preceding sentence, and after being notified by the holder of the Senior Debt of the default, receive any such payment, or should the Holder of this Note receive any distribution in bankruptcy, dissolution, or similar insolvency proceedings in regard to the Issuer, the Holder of the Note will hold such payment or distribution in trust for the holder of the Senior Debt and will pay over such amounts to such holder to apply to the Senior Debt until the same is paid in full.

The provisions of this Section 5 are for the purpose of defining the relative rights of the holders of Senior Debt and the Holder of the Note against the Issuer and its property.  Nothing herein shall impair, as between the Issuer and the Holder of this Note, the obligation of the Issuer, which is unconditional and absolute, to pay to the Holder the principal and interest in accordance with the terms and the provisions hereof; nor shall anything herein prevent the Holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default under this Note, subject to the rights, if any, under this Section 5 of holders of Senior Debt to receive cash, property, stock or obligation otherwise payable or deliverable to the Holder of this Note.  The Issuer acknowledges and agrees that the rights of the Holder of this Note with respect to the Issuer’s cash, property, rights and other assets of any kind are senior and prior to the rights of any holder of capital stock of the Issuer arising from such capital stock.

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(d)Definition. “Senior Debt” shall mean the principal of, interest on and, if applicable, any premium on (i) the debt of the Issuer outstanding as of the date hereof, (ii) additional indebtedness incurred by the Issuer after date hereof for money borrowed from a bank, savings and loan association trust Issuer, insurance Issuer or similar financial institution, (iii) purchase money secured debt, (iv) obligations of the Issuer as lessee under leases of real or personal property which are treated as capital lease obligations under generally accepted accounting principles, and (v) any deferrals, renewals, re-financings or extensions of any of the foregoing.

6.Miscellaneous.

6.1Binding Effect; Assignability. This Note shall be binding upon Issuer, its successors and its assigns, and shall inure to the benefit of Holder, its successors and its assigns.  This Note is transferable or assignable by the Holder or any transferee of the Holder only to an Affiliate or a partner, or an heir, administrator, executor or successor of the Holder; provided that such transfer or assignment is made in compliance with the Act and any applicable state and foreign securities laws.

6.2Governing Law; Jurisdiction; Venue.  This Note has been executed in and shall be governed by the laws of the State of New Jersey. Issuer irrevocably submits to the exclusive jurisdiction of the courts of the State of New Jersey which will be the exclusive jurisdiction for disputes arising under the Note and the United States District Court for the District of New Jersey for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Note.

IN WITNESS WHEREOF, Issuer has caused this Note to be signed in its name by its duly authorized officer and its corporate seal to be affixed hereto.

INRAD OPTICS, INC.
By:
Theresa A. Balog,
Chief Financial Officer, Secretary and Treasurer

Acknowledged and accepted on behalf of CLAREX, LIMITED
By:		Date:	August 11, 2023
	Denora Marshall-Mcphee & Dwight Dorsett
	On behalf of Erie Limited, Sole Director
	Authorized Signatories
By:		Date:

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EX-4.2

Exhibit 4.2

THIS CONVERTIBLE PROMISSORY NOTE HAS BEEN, AND ANY SHARES ISSUED UPON CONVERSION PURSUANT TO THE TERMS HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").  THIS CONVERTIBLE PROMISSORY NOTE, AND ANY SECURITIES ISSUED UPON CONVERSION PURSUANT TO THIS NOTE, HAVE NOT BEEN REGISTERED UNDER THE ACT OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT OR THOSE LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

SUBORDINATED CONVERTIBLE PROMISSORY NOTE

THIS NOTE IS ISSUED IN SUBSTITUTION FOR, AND SUPERSEDES, THE ORIGINAL NOTE DATED DECEMBER 31, 2002 AND ALL NOTES SUBSEQUENTLY ISSUED TO EXTEND THE ORIGINAL TERM.

Principal Amount: $1,000,000 August 10, 2023

FOR VALUE RECEIVED, INRAD OPTICS, INC.  (FORMERLY PHOTONIC PRODUCTS GROUP INC., AND INRAD, INC.), a New Jersey corporation (hereinafter called "Issuer"), hereby promises to pay to the order of WELLAND, LIMITED and its successors and assigns (hereinafter called the "Holder"), at such address as the Holder may designate in writing to Issuer, the principal sum of ONE MILLION ($1,000,000) plus all accrued interest owing hereunder in lawful money of the United States of America on or before the Maturity Date (as defined below), unless this Convertible Promissory Note (the "Note") is converted by the Holder as set forth herein.  For purposes of this Note, "Maturity Date" shall mean August 15, 2024.

1.Interest.  Interest shall accrue on the unpaid principal amount of this Note at the rate of six percent (6%) per annum and shall be due and payable on the Maturity Date.  Interest shall be computed on the basis of a 360 day year for the actual number of days elapsed.

2.Optional Prepayment; Order of Payments. Issuer may prepay this Note at any time, in whole or in part, without premium or penalty; provided, however, Issuer shall provide to the Holder written notice at least ten (10) business days prior to such prepayment.  All payments made on account of this Note shall be applied first to the payment of any costs of enforcement then due hereunder, second to the payment of accrued and unpaid interest then due hereunder, and the remainder, if any, shall be applied to the unpaid principal balance of this Note.

3.Event of Default Defined; Acceleration of Maturity.  If one or more of the following events ("Events of Default") shall have occurred:

(a)a default in the payment of all or any part of the principal or interest due under this Note as and when the same shall become due and payable, at maturity, by declaration as permitted hereunder, upon acceleration or otherwise;

(b)Issuer shall merge or consolidate with or into any other person or entity, sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets or adopt a

plan of liquidation or dissolution; provided, however, that Issuer shall have the right to merge with any other entity so long as Issuer shall be the surviving entity in any such merger;

(c)Issuer shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with the consent of Issuer; or Issuer is generally not paying its debts as they become due or is insolvent, or has made a general assignment for the benefits of its creditors; or Issuer files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with its creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within sixty (60) days after the commencement of any proceeding against Issuer seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of Issuer or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or if, within sixty (60) days after the expiration of any such stay, such order or appointment shall not have been vacated (all such events, collectively "Insolvency Events");

Then Holder, by notice in writing to Issuer (the "Acceleration Notice"), may declare the principal amount of this Note and all accrued but unpaid interest to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable; provided that if an Insolvency Event occurs, the principal amount of this Note and all accrued but unpaid interest shall become and be immediately due and payable without any declaration or other act on the part of the Holder.

4.Conversion.  The Holder may, at any time prior to the earlier of the Maturity Date or the prepayment of this Note by Issuer, convert all or a portion of the principal and accrued interest then outstanding under this Note into one Unit for each dollar converted (or an aggregate of 1,000,000 Units, exclusive of accrued interest) with each Unit consisting of one fully paid and non-assessable share of Issuer’s Common Stock (the "Common Stock") and one Warrant in the form of Exhibit A hereto to acquire 0.75 shares of Issuer’s Common Stock at a price of $1.35 up to August 15, 2027 (i.e. if this Note were converted in full, for principal amount other than accrued interest, the Holder would receive 1,000,000 shares of Common Stock and 750,000 Warrants).  Such conversion shall be effected by the Holder by sending a written notice of conversion and this Note to Issuer for cancellation and issuance of the number of shares of Common Stock and Warrants into which this Note is being converted.  In the event this Note is being converted in part, a replacement Note representing the unconverted portion of this Note shall be delivered to the Holder.  Upon conversion of this Note, only whole shares of Common Stock shall be issued.  Any remainder due hereunder which is insufficient to purchase a whole share of Common Stock shall be paid by Issuer in cash.

4.1Subdivision or Combination of Common Stock.  In case Issuer shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of

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Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.

4.2Reorganization or Reclassification.  If any capital reorganization or reclassification of the capital stock of Issuer (other than in connection with a merger or other reorganization in which Issuer is not the surviving entity) shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby the Holder shall thereupon have the right to receive upon the conversion of this Note, upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of this Note, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the shares of Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.

4.3Notice of Adjustment.  Upon any adjustment of the Conversion Price, then and in each such case Issuer shall give written notice thereof, by delivery in person, certified or registered mail, return receipt requested, telecopier or telex, addressed to the Holder at the address of the Holder, as provided to Issuer, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based.

4.4Due Issuance of Shares Upon Conversion.  Issuer covenants and agrees that all shares of Common Stock or any such other securities which may be issued upon any whole or partial conversion of this Note will, upon issuance, be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.

4.5Stock to be Reserved.  Issuer will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of this Note as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion hereof.  Issuer will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of this Note would, when added to the number of shares of Common Stock then reserved for issuance, exceed the total number of shares of Common Stock then authorized by Issuer’s Certificate of Incorporation.

5.Subordination.  The Issuer hereby agrees, and the Holder of this Note by its acceptance agrees, that the payment of the principal of and interest on the Note is hereby expressly made subordinate and junior in right of payment, to the extent set forth in the following paragraphs (a), (b) and (c), to the prior payment in full of all Senior Debt of the Issuer, whether such Senior Debt, except as provided in Section 5 below, is incurred prior to, on or after the date hereof:

(a)In the event of insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to the Issuer or to any of the property of the Issuer, or in the event or any proceedings for voluntary liquidation,

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dissolution, or other winding-up of the Issuer, whether or not involving insolvency or bankruptcy, then the holders of Senior Debt shall be entitled to receive payment in full of all principal of and interest on all Senior Debt before the Holder of this Note shall be entitled to receive any payment on account of principal or interest on this Note, and to that end the holders of Senior Debt shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, which may be payable or deliverable in any such proceedings in respect of this Note.

(b)In the event that this Note is declared due and payable prior to its stated maturity, by reason of the occurrence of an Event of Default hereunder (under circumstances when the provisions of the foregoing paragraph (a) shall not be applicable), then all principal of and interest on all Senior Debt outstanding at the time of such declaration shall first be paid in full, before any payment on account of principal or interest is made upon this Note.

(c)The Issuer may make payments and, subject to Section 1 of this Note, prepayments of the principal of and interest of this Note if, at the time of the payment and immediately after giving effect thereto, (i) there exists no default in any payment with respect to any Senior Debt and (ii) there shall not have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Debt, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, other than an event of default which shall have been cured or waived or shall have ceased to exist.  Should the Holder of this Note, while there exists a default or an event of default as provided in the immediately preceding sentence, and after being notified by the holder of the Senior Debt of the default, receive any such payment, or should the Holder of this Note receive any distribution in bankruptcy, dissolution, or similar insolvency proceedings in regard to the Issuer, the Holder of the Note will hold such payment or distribution in trust for the holder of the Senior Debt and will pay over such amounts to such holder to apply to the Senior Debt until the same is paid in full.

The provisions of this Section 5 are for the purpose of defining the relative rights of the holders of Senior Debt and the Holder of the Note against the Issuer and its property.  Nothing herein shall impair, as between the Issuer and the Holder of this Note, the obligation of the Issuer, which is unconditional and absolute, to pay to the Holder the principal and interest in accordance with the terms and the provisions hereof; nor shall anything herein prevent the Holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default under this Note, subject to the rights, if any, under this Section 5 of holders of Senior Debt to receive cash, property, stock or obligation otherwise payable or deliverable to the Holder of this Note.  The Issuer acknowledges and agrees that the rights of the Holder of this Note with respect to the Issuer’s cash, property, rights and other assets of any kind are senior and prior to the rights of any holder of capital stock of the Issuer arising from such capital stock.

(d)Definition.  “Senior Debt” shall mean the principal of, interest on and, if applicable, any premium on (i) the debt of the Issuer outstanding as of the date hereof, (ii) additional indebtedness incurred by the Issuer after date hereof for money borrowed from a bank, savings and loan association trust Issuer, insurance Issuer or similar financial institution, (iii) purchase money secured debt, (iv) obligations of the Issuer as lessee under leases of real or personal property which are treated as capital lease obligations under generally accepted accounting principles, and (v) any deferrals, renewals, re-financings or extensions of any of the foregoing.

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6.Miscellaneous.

6.1Binding Effect; Assignability.  This Note shall be binding upon Issuer, its successors and its assigns, and shall inure to the benefit of Holder, its successors and its assigns.  This Note is transferable or assignable by the Holder or any transferee of the Holder only to an Affiliate or a partner, or an heir, administrator, executor or successor of the Holder; provided that such transfer or assignment is made in compliance with the Act and any applicable state and foreign securities laws.

6.2Governing Law; Jurisdiction; Venue.  This Note has been executed in and shall be governed by the laws of the State of New Jersey.  Issuer irrevocably submits to the exclusive jurisdiction of the courts of the State of New Jersey which will be the exclusive jurisdiction for disputes arising under the Note and the United States District Court for the District of New Jersey for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Note.

IN WITNESS WHEREOF, Issuer has caused this Note to be signed in its name by its duly authorized officer and its corporate seal to be affixed hereto.

INRAD OPTICS, INC.
By:
Theresa A. Balog,
Chief Financial Officer, Secretary and Treasurer

Acknowledged and accepted on behalf of WELLAND, LIMITED
By:		Date:	August 11, 2023
	Denora Marshall-Mcphee & Dwight Dorsett
	Authorized Signatories
By:		Date:

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Amy Eskilson certify that:

1. I have reviewed the quarterly report on Form 10-Q of Inrad Optics, 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 13(a)-15(f) and 15d -15(f)) for the registrants and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 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 evaluations; 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; and

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 function(s):

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.

Dated: August 11, 2023	/s/Amy Eskilson
	President and Chief Executive Officer

A signed original of this written statement required by Section 302 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Theresa A. Balog certify that:

1. I have reviewed the quarterly report on Form 10-Q of Inrad Optics, 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 13(a)-15(f) and 15d -15(f)) for the registrants and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under 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 evaluations; 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; and

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 function(s):

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.

Dated: August 11, 2023	/s/ Theresa A. Balog
	Chief Financial Officer,
	Secretary and Treasurer

A signed original of this written statement required by Section 302 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Inrad Optics, Inc. on Form 10-Q for the period ended June 30, 2023, filed with the Securities and Exchange Commission (the “Report”), I, Amy Eskilson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

Dated: August 11, 2023	/s/Amy Eskilson
	President and Chief Executive Officer

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Inrad Optics, Inc. on Form 10-Q for the period ended June 30, 2023, filed with the Securities and Exchange Commission (the “Report”), I, Theresa A. Balog of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented.

Dated: August 11, 2023	/s/ Theresa A. Balog
	Chief Financial Officer,
	Secretary and Treasurer

This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2023	Aug. 11, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2023
Document Transition Report	false
Entity File Number	0-11668
Entity Registrant Name	INRAD OPTICS, INC.
Entity Incorporation, State or Country Code	NJ
Entity Tax Identification Number	22-2003247
Entity Address, Postal Zip Code	07647
Entity Address, Address Line One	181 Legrand Avenue
Entity Address, City or Town	Northvale
Entity Address, State or Province	NJ
City Area Code	201
Local Phone Number	767-1910
Title of 12(b) Security	None
No Trading Symbol Flag	true
Security Exchange Name	NONE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		14,200,975
Entity Central Index Key	0000719494
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 2,229,724	$ 2,003,485
Accounts receivable, net of allowance for credit losses of $46,000	1,971,830	1,389,867
Inventories, net	2,777,301	2,825,987
Other current assets	366,078	309,287
Total current assets	7,344,933	6,528,626
Plant and equipment:
Plant and equipment, at cost	16,171,151	15,967,537
Less: Accumulated depreciation and amortization	(14,877,335)	(14,723,869)
Total plant and equipment	1,293,816	1,243,668
Precious metals	561,909	561,909
Lease right-of-use, net	592,451	737,743
Other assets	26,993	26,993
Total assets	9,820,102	9,098,939
Current liabilities:
Current portion of other long term notes	69,411	67,513
Accounts payable and accrued liabilities	679,435	741,281
Contract liabilities	1,089,926	1,065,173
Current portion of lease obligation	301,869	295,978
Total current liabilities	2,140,641	2,169,945
Related party convertible notes payable	$ 2,500,000	$ 2,500,000
Notes Payable, Noncurrent, Related Party, Type [Extensible Enumeration]	us-gaap:RelatedPartyMember	us-gaap:RelatedPartyMember
Other long term notes, net of current portion	$ 281,546	$ 316,740
Lease obligation, net of current portion	290,582	444,462
Total liabilities	5,212,769	5,431,147
Shareholders' equity:
Common stock: $.01 par value; 60,000,000 authorized shares; 14,205,575 shares issued at June 30, 2023, and 14,092,920 shares issued at December 31, 2022	142,057	140,931
Capital in excess of par value	20,072,561	19,925,292
Accumulated deficit	(15,592,336)	(16,383,481)
Stockholders' equity before treasury stock	4,622,283	3,682,742
Less - Common stock in treasury, at cost (4,600 shares)	(14,950)	(14,950)
Total shareholders' equity	4,607,333	3,667,792
Total Liabilities and shareholders' equity	$ 9,820,102	$ 9,098,939

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for credit losses	$ 46,000	$ 46,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	14,205,575	14,092,920
Treasury stock, shares	4,600	4,600

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Total revenue	$ 3,766,382	$ 2,740,055	$ 6,573,544	$ 5,177,151
Cost and expenses:
Cost of goods sold	2,332,719	1,880,437	4,259,610	3,557,967
Selling, general and administrative expenses	696,623	757,820	1,446,986	1,434,372
Cost and expenses, Total	3,029,342	2,638,257	5,706,596	4,992,339
Income from operations	737,040	101,798	866,948	184,812
Other income (expense):
Interest expense-net	(37,421)	(42,883)	(75,802)	(84,465)
Nonoperating Income (Expense)	(37,421)	(42,883)	(75,802)	(84,465)
Income before income taxes	699,619	58,915	791,146	100,347
Income tax (provision) benefit	0	0	0	0
Net income	$ 699,619	$ 58,915	$ 791,146	$ 100,347
Net income per common share - basic	$ 0.05	$ 0	$ 0.06	$ 0.01
Net income per common share - diluted	$ 0.04	$ 0	$ 0.05	$ 0.01
Weighted average shares outstanding - basic		14,025,820	14,191,454	13,992,068
Weighted average shares outstanding - diluted		14,791,747		14,675,384

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)	Common stock	Capital in excess of par value	Accumulated Deficit	Treasury Stock	Total
Beginning balance at Dec. 31, 2021	$ 139,674	$ 19,733,996	$ (16,536,056)	$ (14,950)	$ 3,322,664
Beginning balance (in shares) at Dec. 31, 2021	13,967,257
401K contribution	$ 597	50,158	0	0	50,755
401K contribution (in shares)	59,663
Stock-based compensation expense	$ 0	21,558	0	0	21,558
Net income	0	0	41,432	0	41,432
Ending balance at Mar. 31, 2022	$ 140,271	19,805,712	(16,494,624)	(14,950)	3,436,409
Ending balance (in shares) at Mar. 31, 2022	14,026,920
Beginning balance at Dec. 31, 2021	$ 139,674	19,733,996	(16,536,056)	(14,950)	3,322,664
Beginning balance (in shares) at Dec. 31, 2021	13,967,257
Net income					100,347
Ending balance at Jun. 30, 2022	$ 140,481	19,843,176	(16,435,709)	(14,950)	3,532,998
Ending balance (in shares) at Jun. 30, 2022	14,047,920
Beginning balance at Mar. 31, 2022	$ 140,271	19,805,712	(16,494,624)	(14,950)	3,436,409
Beginning balance (in shares) at Mar. 31, 2022	14,026,920
Stock-based compensation expense	$ 0	32,604	0	0	32,604
Common stock options exercised	$ 210	4,860	0	0	5,070
Common stock options exercised (in shares)	21,000
Net income	$ 0	0	58,915	0	58,915
Ending balance at Jun. 30, 2022	$ 140,481	19,843,176	(16,435,709)	(14,950)	3,532,998
Ending balance (in shares) at Jun. 30, 2022	14,047,920
Beginning balance at Dec. 31, 2022	$ 140,931	19,925,293	(16,383,482)	(14,950)	3,667,792
Beginning balance (in shares) at Dec. 31, 2022	14,092,920
401K contribution	$ 333	54,388	0	0	54,721
401K contribution (in shares)	33,322
Stock-based compensation expense	$ 0	34,203	0	0	34,203
Stock-based compensation expense (in shares)	0
Common stock options exercised	$ 793	30,993	0	0	31,786
Common stock options exercised (in shares)	79,333
Net income	$ 0	0	91,528	0	91,528
Ending balance at Mar. 31, 2023	$ 142,057	20,044,877	(16,291,954)	(14,950)	3,880,030
Ending balance (in shares) at Mar. 31, 2023	14,205,575
Beginning balance at Dec. 31, 2022	$ 140,931	19,925,293	(16,383,482)	(14,950)	3,667,792
Beginning balance (in shares) at Dec. 31, 2022	14,092,920
Net income					791,146
Ending balance at Jun. 30, 2023	$ 142,057	20,072,561	(15,592,336)	(14,950)	4,607,333
Ending balance (in shares) at Jun. 30, 2023	14,205,575
Beginning balance at Mar. 31, 2023	$ 142,057	20,044,877	(16,291,954)	(14,950)	3,880,030
Beginning balance (in shares) at Mar. 31, 2023	14,205,575
Stock-based compensation expense	$ 0	27,684	0	0	27,684
Net income	0	0	699,619	0	699,619
Ending balance at Jun. 30, 2023	$ 142,057	$ 20,072,561	$ (15,592,336)	$ (14,950)	$ 4,607,333
Ending balance (in shares) at Jun. 30, 2023	14,205,575

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash flows from operating activities:
Net income	$ 791,146	$ 100,347
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization	153,466	74,828
401K common stock contribution - non cash item	54,721	50,755
Stock based compensation	61,887	54,162
Change in inventory reserve	209,030	(62,506)
Changes in operating assets and liabilities:
Accounts receivable	(581,963)	(86,840)
Inventories	(160,344)	(418,369)
Other current and noncurrent assets	88,502	298,932
Accounts payable and accrued liabilities	(61,846)	38,454
Contract liabilities	24,753	126,689
Other current and noncurrent liabilities	(147,989)	(89,922)
Total adjustments and changes	(359,783)	(13,817)
Net cash provided by operating activities	431,363	86,530
Cash flows from investing activities:
Capital expenditures	(203,614)	(302,890)
Net cash (used in) investing activities	(203,614)	(302,890)
Cash flows from financing activities:
Proceeds from issuance of common stock	31,786	5,070
Principal payments on notes payable-other	(33,296)	(71,286)
Net cash (used in) financing activities	(1,510)	(66,216)
Net increase (decrease) in cash and cash equivalents	226,239	(282,576)
Cash and cash equivalents at beginning of period	2,003,485	1,801,188
Cash and cash equivalents at end of period	2,229,724	1,518,612
Supplemental disclosure of cash flow information:
Interest paid	84,664	85,584
Income taxes paid	0	0
Significant non-cash activities:
Lease right-of-use asset	0	879,300
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment by issuing a note payable	$ 0	$ 270,320

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued.

Management Estimates

These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

Accounts Receivable

Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended June 30, 2023, there were no changes to the estimate for credit losses. For the period ended June 30, 2022, the estimate for credit losses was $46,000.

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost of manufactured goods includes material, labor, and overhead. The Company records a reserve for slow-moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs of completion exceed unbilled revenues.

Inventories are comprised of the following and are shown net of inventory reserves of $2,590,000 and $2,398,000 at June 30, 2023 and December 31, 2022, respectively:

	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in thousands)
Raw materials	$	877	$	1,065
Work in process, including manufactured parts and components		1,384		1,282
Finished goods		516		479
	$	2,777	$	2,826

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse.

In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near-term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.

On the basis of this evaluation as of June 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $2,416,000, and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings.

For the three and six months ended June 30, 2023 and 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.

Net Income (Loss) per Common Share

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

For the three and six months ended June 30, 2023, 2,500,000 common shares issuable upon conversion of outstanding related party convertible notes were included in the computation of basic and diluted net income per common share because their effect is dilutive. For the three and six months ended June 30, 2023, 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 35,000 common stock options were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive.

For the three and six months ended June 30, 2022, 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 15,000 common stock options were excluded from basic and diluted net income per common share because their effect is anti-dilutive.

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

	Three Months Ended					Three Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	699,619	14,191,454	$	0.05	$	58,915	14,025,820	$	0.00
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	582,412		—		—	765,927		—
Diluted income per share	$	737,119	17,283,387	$	0.04	$	58,915	14,791,747	$	0.00

	Six Months Ended					Six Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	791,146	14,191,454	$	0.06	$	100,347	13,992,068	$	0.01
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	630,445		—		—	683,316		—
Diluted income per share	$	828,696	17,321,899	$	0.05	$	100,347	14,675,384	$	0.01

Stock-Based Compensation

Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period.

Recent Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

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CONCENTRATION OF CASH

6 Months Ended

Jun. 30, 2023

CONCENTRATION OF CASH

CONCENTRATION OF CASH

NOTE 2 – CONCENTRATION OF CASH

In May 2023, the Company entered into an Insured Cash Sweep (“ICS”) agreement with Valley National Bank, where funds are placed at destination institutions through the service of the Promontory Interfinancial Network, LLC. Such funds placed into the deposit account will not exceed the Federal Deposit Insurance Corporation (“FDIC”) standard maximum deposit insurance amount, currently $250,000, at any one destination institution thereby eliminating credit risk on cash balances over $250,000. The Company was subject to credit risk due to the concentration of cash balances that exceeded the federally insured limits by approximately $1.75 million at December 31, 2022, on cash balances of approximately $2.0 million at December 31, 2022.

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REVENUE

6 Months Ended

Jun. 30, 2023

REVENUE

REVENUE

NOTE 3 – REVENUE

The Company’s revenues are comprised of product sales as well as products and services provided under long-term government contracts with its customers. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of a standalone selling price for each distinct product or service in the contract, which is generally based on an observable price.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.

The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was 100% of revenue for each of the three and six months ended June 30, 2023 and 2022, respectively. The Company recognizes revenue at the point in time in which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment. In limited cases, title does not transfer, and revenue is not recognized until the customer has received the products at its physical location.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Aerospace & Defense	$	694,660	$	774,627	$	1,139,112	$	1,621,920
Process Control & Metrology		2,551,428		1,704,461		4,782,744		3,107,594
Laser Systems		—		38,724		43,080		103,291
Scientific / R&D		520,294		222,243		608,608		344,346
Total	$	3,766,382	$	2,740,055	$	6,573,544	$	5,177,151

The timing of revenue recognition, billings and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities, previously deferred revenue) on the Consolidated Balance Sheet. Contract liabilities also include customer advances or prepayments.

For the three months ended June 30, 2023 four customers represented 10% or more of sales. For the three months ended June 30, 2022, three customers represented 10% or more of sales. For each of the six months ended June 30, 2023 and 2022, three customers represented 10% or more of sales.

The Company’s top five customers represented 73.8% and 63.8% of sales in the three month periods ended June 30, 2023 and 2022, respectively. The Company’s top five customers represented 73.6% in the six month period ended June 30, 2023, compared to 64.2% in the six month period ended June 30, 2022.

On June 30, 2023, the Company had approximately $16.9 million of performance obligations, which is also referred to as backlog. Approximately 12.2% of the June 30, 2023, backlog is related to projects that will extend beyond June 30, 2024.

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

6 Months Ended

Jun. 30, 2023

EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

NOTE 4- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

a)    Stock Option Expense

The Company’s results of operations for the three months ended June 30, 2023 and 2022, include stock-based compensation expense for stock option grants totaling $27,684 and $32,604, respectively. For the six months ended June 30, 2023 and 2022, stock-based compensation expense for stock option grants totaled $61,887 and $54,162, respectively. The following table shows the amounts for stock-based compensation included in cost of sales and selling, general and administrative expense for the three and six months  ended June 30, 2023 and 2022:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Cost of sales	$	3,243	$	3,369	$	6,486	$	6,621
Selling, general and administrative		24,441		29,235		55,401		47,541
Total stock-based compensation expense	$	27,684	$	32,604	$	61,887	$	54,162

As of June 30, 2023 and 2022, there were $208,000 and $299,000 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over a weighted average period of approximately 1.26 years and 1.54 years, respectively.

There were 20,000 stock options granted during the six months ended June 30, 2023, and 200,000 stock options granted during the six months ended June 30, 2022. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the three and six months ended June 30, 2023 and 2022:

	Six Months Ended
	June 30,
	2023		2022
Expected Dividend yield	—	%	—	%
Expected Volatility	92	%	105	%
Risk-free interest rate	0.86	%	1.54	%
Expected term	10	years	10	years

b)    Stock Option Activity

The following table represents stock options granted, exercised, and forfeited during the three and six months ended June 30, 2023:

		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value
Outstanding January 1, 2023	1,286,667	$	0.71	5.95	$	854,550
Granted	20,000		1.72
Exercised	(79,333)		0.40
Expired/Forfeited	(51,667)		0.91
Outstanding June 30, 2023	1,175,667	$	0.71	7.62	$	511,229
Exercisable at June 30, 2023	965,658	$	0.64	6.90	$	495,994

The following table represents non-vested stock options granted, vested, and forfeited for the three and six months ended June 30, 2023:

	Weighted-average
	Grant-date Fair Value
	Options	($)
Non-Vested - January 1, 2023	340,835	0.89
Granted	20,000	1.48
Vested	(134,160)	0.86
Forfeited	(16,667)	0.97
Non-Vested - June 30, 2023	210,008	0.92

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STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2023

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 5 - STOCKHOLDERS’ EQUITY

The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2022, in February 2023. The Company contributed 33,322 common shares of Inrad Optics, Inc., and cash of $82,000 to the Plan in February 2023.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2023

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 6 – RELATED PARTY TRANSACTIONS

On August 10, 2023, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to August 15, 2024, from April 1, 2024. The notes bear interest at 6%. Interest accrues yearly and is payable on maturity. Unpaid interest, along with principal, may be converted into securities of the Company as follows: the notes are convertible in the aggregate into 1,500,000 units and 1,000,000 units, respectively, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to acquire 0.75 shares of common stock at a price of $1.35 per share. As part of the agreement to extend the maturity date of the notes, the expiration dates of the warrants were extended from April 1, 2027 to August 15, 2027.

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OTHER LONG-TERM NOTES

6 Months Ended

Jun. 30, 2023

OTHER LONG-TERM NOTES

OTHER LONG-TERM NOTES

NOTE 7 – OTHER LONG-TERM NOTES

Other Long-Term Notes consist of the following:

	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in thousands)
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in July 2029	$	149	$	160
Long-term equipment financing in equal installments of $5,236 and bearing an interest rate of 6.1% and expiring in January 2027 (1)		202		225
Less current portion		(69)		(68)
Long-term debt, excluding current portion	$	282	$	317

(1) The Company purchased certain equipment in the six months ended June 30, 2022, financing approximately $270,000 at a fixed annual interest rate of 6.1% for five years payable in equal monthly installments.

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LEASE AMENDMENT

6 Months Ended

Jun. 30, 2023

LEASE AMENDMENT

LEASE AMENDMENT

NOTE 8 – LEASE AMENDMENT

The Company entered into an amendment and extension of its building lease on July 25, 2022, retroactive to June 1, 2022. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company must determine if such an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease at inception of the arrangement. The Company determined that this lease is an operating lease and presented as a right-of-use lease asset, short term lease liability and long-term lease liability on the consolidated balance sheet. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate.

Lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and general and administrative expenses on the consolidated statement of operations.

An initial right-of-use asset of approximately $0.9 million was recognized as a non-cash asset addition with the signing of the July 29, 2022, lease amendment. Cash paid for amounts included in the present value of the operating lease liability was $0.2 million during the year ended December 31, 2022, and is included in operating cash flows.

Operating lease costs were $0.1 million during each of the three and six months ended June 30, 2023 and 2022, respectively.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Basis of Presentation

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

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued.

Management Estimates

Management Estimates

These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.

Accounts receivable

Accounts Receivable

Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.

The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended June 30, 2023, there were no changes to the estimate for credit losses. For the period ended June 30, 2022, the estimate for credit losses was $46,000.

Inventories

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost of manufactured goods includes material, labor, and overhead. The Company records a reserve for slow-moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs of completion exceed unbilled revenues.

Inventories are comprised of the following and are shown net of inventory reserves of $2,590,000 and $2,398,000 at June 30, 2023 and December 31, 2022, respectively:

	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in thousands)
Raw materials	$	877	$	1,065
Work in process, including manufactured parts and components		1,384		1,282
Finished goods		516		479
	$	2,777	$	2,826

Income Taxes

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse.

In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near-term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.

On the basis of this evaluation as of June 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $2,416,000, and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings.

For the three and six months ended June 30, 2023 and 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.

Net Income (Loss) per Common Share

Net Income (Loss) per Common Share

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

For the three and six months ended June 30, 2023, 2,500,000 common shares issuable upon conversion of outstanding related party convertible notes were included in the computation of basic and diluted net income per common share because their effect is dilutive. For the three and six months ended June 30, 2023, 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 35,000 common stock options were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive.

For the three and six months ended June 30, 2022, 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 15,000 common stock options were excluded from basic and diluted net income per common share because their effect is anti-dilutive.

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

	Three Months Ended					Three Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	699,619	14,191,454	$	0.05	$	58,915	14,025,820	$	0.00
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	582,412		—		—	765,927		—
Diluted income per share	$	737,119	17,283,387	$	0.04	$	58,915	14,791,747	$	0.00

	Six Months Ended					Six Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	791,146	14,191,454	$	0.06	$	100,347	13,992,068	$	0.01
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	630,445		—		—	683,316		—
Diluted income per share	$	828,696	17,321,899	$	0.05	$	100,347	14,675,384	$	0.01

Stock-Based Compensation

Stock-Based Compensation

Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period.

Recent Accounting Standards

Recent Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of inventory reserves

	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in thousands)
Raw materials	$	877	$	1,065
Work in process, including manufactured parts and components		1,384		1,282
Finished goods		516		479
	$	2,777	$	2,826

Schedule of reconciliation of shares used in calculation of basic and diluted earnings (loss) per common share

	Three Months Ended					Three Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	699,619	14,191,454	$	0.05	$	58,915	14,025,820	$	0.00
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	582,412		—		—	765,927		—
Diluted income per share	$	737,119	17,283,387	$	0.04	$	58,915	14,791,747	$	0.00

	Six Months Ended					Six Months Ended
	June 30, 2023					June 30, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic income per share
Net income	$	791,146	14,191,454	$	0.06	$	100,347	13,992,068	$	0.01
Effect of dilutive securities:
Convertible notes		37,500	2,500,000		—		—	—		—
Accrued interest on convertible notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock options		—	630,445		—		—	683,316		—
Diluted income per share	$	828,696	17,321,899	$	0.05	$	100,347	14,675,384	$	0.01

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REVENUE (Tables)

6 Months Ended

Jun. 30, 2023

REVENUE

Schedule of company's sales by market area

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Aerospace & Defense	$	694,660	$	774,627	$	1,139,112	$	1,621,920
Process Control & Metrology		2,551,428		1,704,461		4,782,744		3,107,594
Laser Systems		—		38,724		43,080		103,291
Scientific / R&D		520,294		222,243		608,608		344,346
Total	$	3,766,382	$	2,740,055	$	6,573,544	$	5,177,151

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2023

EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

Schedule of stock-based compensation included in cost of sales and selling, general and administrative expense

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Cost of sales	$	3,243	$	3,369	$	6,486	$	6,621
Selling, general and administrative		24,441		29,235		55,401		47,541
Total stock-based compensation expense	$	27,684	$	32,604	$	61,887	$	54,162

Schedule of fair value of stock option grants

	Six Months Ended
	June 30,
	2023		2022
Expected Dividend yield	—	%	—	%
Expected Volatility	92	%	105	%
Risk-free interest rate	0.86	%	1.54	%
Expected term	10	years	10	years

Schedule of company's outstanding stock options

		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value
Outstanding January 1, 2023	1,286,667	$	0.71	5.95	$	854,550
Granted	20,000		1.72
Exercised	(79,333)		0.40
Expired/Forfeited	(51,667)		0.91
Outstanding June 30, 2023	1,175,667	$	0.71	7.62	$	511,229
Exercisable at June 30, 2023	965,658	$	0.64	6.90	$	495,994

Schedule of non-vested stock options granted, vested, and forfeited

	Weighted-average
	Grant-date Fair Value
	Options	($)
Non-Vested - January 1, 2023	340,835	0.89
Granted	20,000	1.48
Vested	(134,160)	0.86
Forfeited	(16,667)	0.97
Non-Vested - June 30, 2023	210,008	0.92

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OTHER LONG-TERM NOTES (Tables)

6 Months Ended

Jun. 30, 2023

OTHER LONG-TERM NOTES

Schedule of other long-term notes

	June 30,		December 31,
	2023		2022
	(Unaudited)
	(in thousands)
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in July 2029	$	149	$	160
Long-term equipment financing in equal installments of $5,236 and bearing an interest rate of 6.1% and expiring in January 2027 (1)		202		225
Less current portion		(69)		(68)
Long-term debt, excluding current portion	$	282	$	317

(1) The Company purchased certain equipment in the six months ended June 30, 2022, financing approximately $270,000 at a fixed annual interest rate of 6.1% for five years payable in equal monthly installments.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventories (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Raw materials	$ 877,000	$ 1,065,000
Work in process, including manufactured parts and components	1,384,000	1,282,000
Finished goods	516,000	479,000
Inventories, net	$ 2,777,301	$ 2,825,987

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Basic and diluted earnings (loss) per common share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income(Loss) (Numerator)
Net income	$ 699,619	$ 58,915	$ 791,146	$ 100,347
Convertible notes	37,500	0	37,500	0
Accrued interest on convertible notes	0	0	0	0
Warrants	0	0	0	0
Stock options	0	0	0	0
Diluted income per share
Net income	$ 737,119	$ 58,915	$ 828,696	$ 100,347
Shares (Denominator)
Net income		14,025,820	14,191,454	13,992,068
Convertible notes	2,500,000	0	2,500,000	0
Accrued interest on convertible notes	0	0	0	0
Warrants	0	0	0	0
Stock options	582,412	765,927	630,445	683,316
Diluted income per share
Diluted income per share		14,791,747		14,675,384
Earnings per share diluted
Net income per common share - basic	$ 0.05	$ 0	$ 0.06	$ 0.01
Earnings per share diluted, conversion notes	0	0	0	0
Earnings per Share diluted, accrued interest on convertible notes	0	0	0	0
Earnings per share diluted, warrants	0	0	0	0
Earnings per share diluted, stock options	0	0	0	0
Diluted income (loss) per share
Diluted income per share	$ 0.04	$ 0	$ 0.05	$ 0.01

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimate for credit losses			$ 0	$ 46,000
Inventory reserves	$ 2,590,000		2,590,000		$ 2,398,000
Deferred tax assets, valuation allowance, total	2,416,000		2,416,000
Income tax expenses	$ 0	$ 0	$ 0	$ 0
Employee Stock Option
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Antidilutive securities excluded from computation of earnings per share, amount	35,000	15,000	35,000	15,000
Warrant
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Antidilutive securities excluded from computation of earnings per share, amount	1,875,000	1,875,000	1,875,000	1,875,000
Common stock
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Antidilutive securities excluded from computation of earnings per share, amount	2,500,000	2,500,000	2,500,000	2,500,000

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CONCENTRATION OF CASH (Details) - USD ($)	Jun. 30, 2023	May 31, 2023	Dec. 31, 2022
CONCENTRATION OF CASH
Cash balances	$ 2,229,724		$ 2,003,485
Credit risk
CONCENTRATION OF CASH
Cash balances		$ 250,000	$ 1,750,000

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REVENUE - Company's sales by market area (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
REVENUE
Revenue	$ 3,766,382	$ 2,740,055	$ 6,573,544	$ 5,177,151
Aerospace & Defense
REVENUE
Revenue	694,660	774,627	1,139,112	1,621,920
Process Control & Metrology
REVENUE
Revenue	2,551,428	1,704,461	4,782,744	3,107,594
Laser Systems
REVENUE
Revenue	0	38,724	43,080	103,291
Scientific / R&D
REVENUE
Revenue	$ 520,294	$ 222,243	$ 608,608	$ 344,346

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REVENUE - Additional Information (Details) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2023 USD ($) customer	Jun. 30, 2022 customer	Jun. 30, 2023 USD ($) customer	Jun. 30, 2022 customer
REVENUE
Remaining performance obligations | $	$ 16.9		$ 16.9
Percentage of remaining performance obligation	12.20%		12.20%
Transfer at point in time
REVENUE
Percentage of revenue from products or services	100.00%	100.00%	100.00%	100.00%
Customer concentration risk | Sales revenue | Four customers
REVENUE
Number of major customers	4	3
Customer concentration risk | Sales revenue | Three customers
REVENUE
Number of major customers			3	3
Customer concentration risk | Sales revenue | Top five customers
REVENUE
Concentration risk percentage	73.80%	63.80%	73.60%	64.20%

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Options, granted			20,000	200,000
Employee Stock Option
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Allocated share-based compensation expense	$ 27,684	$ 32,604	$ 61,887	$ 54,162
Employee service share-based compensation, unrecognized compensation costs, net of estimated forfeitures	208,000	299,000	$ 208,000	$ 299,000
Employee service share-based compensation, expected to be recognized over a weighted average period (in years)			1 year 3 months 3 days	1 year 6 months 14 days
Employee Stock Option | Cost of sales
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Allocated share-based compensation expense	3,243	3,369	$ 6,486	$ 6,621
Employee Stock Option | Selling, general and administrative
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Allocated share-based compensation expense	$ 24,441	$ 29,235	$ 55,401	$ 47,541

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Weighted-average assumptions (Details)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Expected Dividend yield	0.00%	0.00%
Expected Volatility	92.00%	105.00%
Risk-free interest rate	0.86%	1.54%
Expected term	10 years	10 years

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION- Stock option activity (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Options, granted	20,000	200,000
Employee Stock Option
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Options Outstanding at Beginning	1,286,667
Options, granted	20,000
Options, Exercised	(79,333)
Option, Expired/Forfeited	(51,667)
Options Outstanding at ending	1,175,667		1,286,667
Options, Exercisable at Ending	965,658
Weighted Average Exercise Price Per Options Outstanding at Beginning (in dollars per share)	$ 0.71
Weighted Average Exercise Price per Option, Granted	1.72
Weighted Average Exercise Price per Option, Exercised	0.40
Weighted Average Exercise Price per Option, Expired/Forfeited	0.91
Weighted Average Exercise Price Options Outstanding at Ending (in dollars per share)	0.71		$ 0.71
Weighted Average Exercise Price per Option, Exercisable at ending	$ 0.64
Weighted Average Remaining Contractual Term, Options Outstanding at Beginning	7 years 7 months 13 days		5 years 11 months 12 days
Weighted Average Remaining Contractual Term, Options Outstanding at Ending	7 years 7 months 13 days		5 years 11 months 12 days
Weighted Average Remaining Contractual Term, Exercisable at Ending	6 years 10 months 24 days
Aggregate Intrinsic Value, Options Outstanding at Beginning (in dollars)	$ 854,550
Aggregate Intrinsic Value, Options Outstanding at Ending (in dollars)	511,229		$ 854,550
Aggregate Intrinsic Value, Options Exercisable at Ending	$ 495,994

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Non-vested stock option activity (Details)	6 Months Ended
	Jun. 30, 2023 $ / shares shares
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Options - Non-vested | shares	340,835
Granted | shares	20,000
Vested | shares	(134,160)
Forfeited | shares	(16,667)
Options - Non-vested | shares	210,008
Weighted-average Grant-date Fair Value - Non-vested at beginning balance (in dollars per share) | $ / shares	$ 0.89
Granted (in dollars per share) | $ / shares	1.48
Vested (in dollars per share) | $ / shares	0.86
Forfeited (in dollars per share) | $ / shares	0.97
Weighted-average Grant-date Fair Value - Non-vested at ending balance (in dollars per share) | $ / shares	$ 0.92

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STOCKHOLDERS' EQUITY (Details)	1 Months Ended
	Feb. 28, 2023 USD ($) shares
STOCKHOLDERS' EQUITY
Contribution to common shares | shares	33,322
Cash contributions | $	$ 82,000

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RELATED PARTY TRANSACTIONS (Details) - Subordinated convertible note	Aug. 10, 2023 USD ($) item $ / shares shares
RELATED PARTY TRANSACTIONS
Debt instrument, interest rate, stated percentage	6.00%
Common stock
RELATED PARTY TRANSACTIONS
Number of shares/warrants comprised in a unit (in shares)	1
Debt instrument, convertible, number of equity instruments	0.75
Investment warrants, exercise price | $ / shares	$ 1.35
Warrant
RELATED PARTY TRANSACTIONS
Number of shares/warrants comprised in a unit (in shares)	1
Clarex
RELATED PARTY TRANSACTIONS
Convertible subordinated debt | $	$ 1,500,000
Debt instrument, convertible, number of equity instruments | item	1,500,000
Affiliate of Clarex
RELATED PARTY TRANSACTIONS
Convertible subordinated debt | $	$ 1,000,000
Debt instrument, convertible, number of equity instruments | item	1,000,000

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OTHER LONG-TERM NOTES (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
OTHER LONG-TERM NOTES
Less current portion	$ (69,411)	$ (67,513)
Long-term debt, excluding current portion	282,000	317,000
U.S. small business administration note payable
OTHER LONG-TERM NOTES
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in July 2029	149,000	160,000
Long-term equipment financing
OTHER LONG-TERM NOTES
Long-term equipment financing in equal installments of $5,236 and bearing an interest rate of 6.1% and expiring in January 2027 (1)	$ 202,000	$ 225,000

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OTHER LONG-TERM NOTES - Additional information (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
U.S. small business administration note payable
OTHER LONG-TERM NOTES
Monthly installment payment	$ 1,922,000		$ 1,922,000
Fixed interest rate	4.00%		4.00%
Long-term equipment financing
OTHER LONG-TERM NOTES
Fixed interest rate	6.10%	6.10%	6.10%
Equal installment	$ 5,236,000		$ 5,236,000
Debt, face amount		$ 270,000
Debt term		5 years

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LEASE AMENDMENT (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022	Jul. 29, 2022
LEASE AMENDMENT
Operating lease, right-of-use asset	$ 592,451		$ 592,451		$ 737,743	$ 900,000
Operating lease payments					$ 200,000
Operating lease costs	$ 100,000	$ 100,000	$ 100,000	$ 100,000