UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended: December 31, 2013

OR

For the transition period from                 to

Commission file number: 0-11668

Inrad Optics, Inc. 

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code 201-767-1910

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

Securities registered pursuant to section 12(g) of the Act:

Common stock, par value $.01 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined inRule 405 of the Securities Act. Yes¨.      No x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨.      No x.

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference inPart III of this Form 10-K or any amendment to this Form 10-K.¨o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $2,938,161$1,659,539 (For purposes of determining this amount, only directors, executive officers and shareholders with voting power of 10% or more of our stock have been deemed affiliates.)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Common Shares outstanding as of March 29, 201328, 2014 – 11,882,12412,051,003 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for the 20132014 Annual Meeting of Shareholders, to be filed with the Commission not later than 120 days after the close of the registrant’s fiscal year, have been incorporated by reference, in whole or in part, into Part III Items 10, 11, 12, 13 and 14 of this Annual Report on 10-K.

Inrad Optics, Inc.

INDEX

PART 1

Caution Regarding Forward Looking Statements

This Annual Report contains forward-looking statements as that term is defined in the federal securities laws. The Company wishes to insure that any forward-looking statements are accompanied by meaningful cautionary statements in order to comply with the terms of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The events described in the forward-looking statements contained in this Annual 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, or 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 that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in Item 1 (Business) and Item 1A (Risk Factors) of Part I and Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of Part II of this Annual Report on Form 10-K. Any one or more of these uncertainties, risks, and other influences could materially affect the Company’s results of operations and whether forward-looking statements made by the Company ultimately prove to be accurate. Readers are further cautioned that the Company’s financial results can vary from quarter to quarter, and the financial results for any period may not necessarily be indicative of future results. The foregoing is not intended to be an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by the Company. The Company’s actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether from new information, future events, or otherwise, except as otherwise required by law.

Inrad Optics, Inc. (the “Company”, “Inrad”), was incorporated in New Jersey in 1973. The Company develops, manufactures and markets products and services for use in photonics industry sectors via three distinct but complimentary product areas - “Crystals and Devices”, “Custom Optics” and “Metal Optics.”

Prior to September 2003 the Company was named and did business as Inrad, Inc. In 2003, the Board of Directors and shareholders approved a name change to Photonic Products Group, Inc. (PPGI) and then to Inrad Optics, Inc. on January 18, 2012.

In November 2003, the Company purchased the assets and certain liabilities of Laser Optics, Inc. of Bethel, CT. Laser Optics, Inc. was a custom optics and optical coating services provider, in business since 1966. PPGI integrated the Bethel team and their operations into the Company’s Northvale, NJ operations in mid-2004. This integration leveraged Inrad’s original crystalline products with the custom optics and optical coating capabilities of Laser Optics to provide an enhanced set of product offerings.

In October 2004, the Company acquired MRC Precision Metal Optics, Inc. of Sarasota, Florida, a precision metal optics and diamond-turned aspheric optics manufacturer, specializing in single point diamond machining, optical polishing, nickel plating, aluminum, AlBeMet™ and Beryllium machining.

In 2011, the Company undertook a significant review of its brand position within the marketplace and concluded that the Company’s name, “Photonics Products Group, Inc.”, due to its composition of common words within our industry, had not achieved the anticipated level of brand equity since its inception in 2003.  In order to solve this issue, the Company developed and is currently implementing a strategic marketing plan around the brand name of Inrad Optics.  In January 2012, the Company’s shareholders approved a name change to Inrad Optics, Inc.Changing the Company’s name to Inrad Optics, Inc. leverages the positive historical and current brand equity of the Inrad name and more clearly communicates the Company’s principal business activities to both our marketplace and the investment community.

The original “Inrad” name was recognized as one of the photonic industry’s seminal crystalline products companies. The Company is now a vertically integrated organizationmanufacturer specializing in crystal-based optical components and devices, custom optical components from both glass and metal, and precision optical and opto-mechanical assemblies. Manufacturing capabilities include solution and high temperature crystal growth, extensive optical fabrication capabilities, including precision diamond turning and the ability to handle large substrates, optical coatings and provide in-process metrology.

Inrad Optics’ customers include leading corporations in the defense, aerospace, laser systems, process control and metrology sectors of the photonics industry, as well as the U.S. Government, National Laboratories and universities worldwide.

Administrative, engineering and manufacturing operations are in a 42,000 square foot building located in Northvale, New Jersey, about 15 miles northwest of New York City, and in a 25,000 square foot building located in Sarasota, FL. The headquarters of the Company are located in the Northvale facility. In November 2013, the Company announced plans to relocate all of the operations from the Sarasota facility to the New Jersey facility. The Company anticipates being out of that facility by March 31, 2014 when the operations in Sarasota will be fully transferred.

The products produced by Inrad Optics, Inc. fall into two main categories: Optical Components and Laser System Devices and Instrumentation.

The Optical Components segment of the business is heavily focused on custom optics manufacturing. The Company specializes in high-end precision components. It develops, manufactures and delivers precision custom optics and thin film optical coating services through its Custom Optics and Metal Optics operations.Glass,operations. Glass, metal, and crystal substrates are processed using modern manufacturing equipment, complex processes and techniques to manufacture components, deposit optical thin films, and assemble sub-components used in advanced photonic systems. The majority of custom optical components and optical coating services supplied are used in inspection, process control systems, defense and aerospace electro-optical systems, laser system applications, industrial scanners, and medical system applications.

The Laser System Devices and Instrumentation category includes the growth and fabrication of crystalline materials with electro-optic (EO) and non-linear optical properties for use in both standard and custom products. This category also includes manufactured crystal based devices and associated instrumentation. The majority of crystals, crystal components and laser devices manufactured are used in laser systems, defense EO systems, medical lasers and R&D applications by engineers within corporations, universities and national laboratories.

The following table summarizes the Company’s net sales by product categories during the past three years. Laser System Devices and Instrumentation includes all non-linear and electro-optical crystal components.

Products Manufactured by the Company

Optical Components

Manufacturing of high-performance custom optics is a major product area for Inrad Optics Inc. and is addressed in the marketplace by each of the product groups - Crystals and Devices, Custom Optics and Metal Optics.

The Custom Optics product linefocuses on products manufactured to specific customer requirements. It specializes in the manufacture of optical components, optical coatings (ultra-violet wavelengths through infra-red wavelengths) and subassemblies for the military, aerospace, industrial and medical marketplace. Planar, prismatic and spherical components are fabricated from glass and synthetic crystals, including fused silica, quartz, germanium, zinc selenide, zinc sulfide, magnesium fluoride and silicon. Components consist of mirrors, lenses, prisms, wave plates, polarizing optics, monochrometers,monochromators, x-ray mirrors, and cavity optics for lasers.

Most optical components and sub-assemblies require thin film coatings on their surfaces. Depending on the design, optical coatings can refract, reflect, or transmit specific wavelengths. The Custom Optics optical coating specialties include high laser damage resistance, polarizing, highly reflective, anti-reflective, infra-red, and coating to complex multi-wavelength requirements on a wide range of substrate materials. Coating deposition process technologies employed included electron beam, thermal, ion and ion assist.plasma assisted deposition systems.

The Metal Optics product line is manufactured in our facility in Sarasota, Florida which is a fully integrated precision metal optics and optical assembly operation which employs high precision CNC and diamond machining, polishing, plating of aluminum, AlBeMet™, beryllium and stainless steel. The Metal Optics product line offers opto-mechanical design and assembly services as part of its manufactured deliverables and can support prototyping through production of large and small metal mirrors, thermally stable optical mirrors, low RMS surface finish polished mirrors, diamond machined precision aspheric and planar mirrors, reflective porro prisms, and arc-second accuracy polygons and motor assemblies. Plating specialties include void-free gold and electroless nickel.

This product line consists of crystals and crystal devices including UV filter materials of both patented and proprietary materials with unique transmission and absorption characteristics. These materials are used in critical applications in defense systems such as missile warning sensors. Such materials include nickel sulfate and other proprietary materials such as UVC-7 and LAC.materials.

Laser System Devices and Instrumentation

This product line consists of crystal-based products for that are used in, or alongside, laser systems. Developing growth processes for high quality synthetic crystals is a core competency of the Crystals and Devices manufacturing team. These crystals are embedded in theour value added devices and instrumentation products manufactured in our crystal growth productionNorthvale facility and include crystals for wavelength conversion, modulation and polarization, Pockels cells, and wavelength conversion instruments. In addition to the filter materials consumed by the UV Filter Optical components described above, current materials produced include Beta Barium Borate (BBO), Lithium Niobate, Zinc Germanium DiPhosphide, Potassium Dihydrogen Phosphate and Potassium Dideuterium Phosphate. Applications for these materials include defense, homeland security, surgical lasers, and industrial processing lasers. The Crystals and Devices team is also engaged in ongoing R & D efforts to develop new materials for evolving applications and offers contract growth of crystalline materials to customer specifications. Some of the major products produced for the photonics marketplace include:

The Company grows and fabricates electro-optic and nonlinear crystal devices for altering the intensity, polarization or wavelength of a laser beam. Other crystal components, produced as part of the Crystals and Devices product line, are used in laser research and in commercial laser systems.

A line of Pockels cells and associated electronics is manufactured for sale in multiple market sectors. Pockels cells are devices that include one or more crystal components and are used in applications that require fast switching of the polarization direction of a beam of light. These uses include Q-switching of laser cavities to generate pulsed laser light, coupling light into and out from regenerative amplifiers, and light intensity modulation. These devices are sold to medical and industrial laser original equipment manufacturers, researcherresearch institutes and laser system design engineers.

The Company designs and manufactures harmonic generation laser systems and accessories for the laser research R & D community. Harmonic generation systems enable the users of lasers to convert the fundamental frequency of the laser to another frequency required for specific applications. Harmonic generators are used in spectroscopy, semiconductor processing, medical lasers, optical data storage and scientific research.

Many commercial lasers have automatic tuning features, allowing them to produce a range of frequencies. The Company’s“Autotracker” product, when used in conjunction with these lasers, automatically generates tunable ultraviolet light or infrared light for use in spectroscopic applications.

Sales by Market

The photonics industry serves a very broad, fragmented and expanding set of markets. As technologies are discovered, developed and commercialized, the applications for photonic systems and devices, and the components embedded within those devices, grow across traditional market boundaries. While a significant part of the Company’sbusiness remains firmly in the defense and aerospace markets, other markets served include the OEM medical and industrial laser market, and the OEM metrology and process control market, university research institutes and national labs worldwide. Scanning, detection and imaging technologies for homeland security and health care markets are beginning to provide opportunities for Inrad Optics, Inc.,the Company and these new sectors are expected toaccount for future growth and demand for Inrad Optics, Inc.’sour products and capabilities.

In 2013, 2012 2011 and 20102011 the Company’s product sales were made to customers in the following market areas:

Defense and Aerospace

This areamarket consists of sales to OEM defense electro-optical systems and subsystems manufacturers, manufacturers of non-military satellite-based electro-optical systems and subsystems, and direct sales to governments where the products have the same end-use.

End-use applications for Inrad Optics’the Company’s products in the defense and aerospace sector include military laser systems, military electro-optical systems, satellite-based systems, and missile warning sensors and systems that protect aircraft. The dollar volume of shipments of product within this sector depends in large measure on the U.S. Defense Department budget and its priorities, that of foreign governments, the timing of their release of contracts to their prime equipment and systems contractors, and the timing of competitive awards from this customer community to the Company.

Defense/Aerospace sector sales represented approximately 44.6%40.2%, 51.1%44.6% and 63.0%51.1% of sales in 2012, 2011 and 2010. In spite of the decreases in percentage of total sales in2013, 2012 and 2011,2011. Despite the decrease in sales over the past three years, the Company believes that the defense and aerospace sector will continue to represent a significant market for the Company’s products and offers an ongoing opportunity for growth given the Company’s capabilities in specialty crystal, glass and metal precision optics.

Process Control and Metrology

This areamarket consists of customers who are manufacturers of capital equipment used in manufacturing process implementation and control, optics-based metrology, and quality assurance and inventory and product control equipment. Examples of applications for such equipment include semiconductor (i.e., chip) fabrication and testing and inventory management and distribution control.

Sales in the Process Control and Metrology market sector, the Company’s second largest market, decreased in 2013 and 2012, both as a percentage of total sales and in relativeactual sales, dollars, compared to 2011. The declinetotal amount of sales in 20122013 was comparable to sales in 2010. The decrease correlates with the decline in business activity experienced by the semiconductor market, as a whole. The Company believes that the optical and x-ray inspection segment of the semiconductor industry offers continued opportunities which match its capabilities in precision optics, crystal products, and monochrometers.monochromators.

Laser Systems

This market consists principally of customers who are OEM manufacturers of industrial, medical, and R&D lasers which the Company serves as an OEM supplier of standard and custom optical components and laser accessories, as well as, representing related markets that are not currently large enough to list individually. The increaseWhile sales to our OEM customers remained fairly constant, sales to customers in Salesother smaller markets increased in 2012 and 2011 is mainly due to a new OEM customer that manufactures lasers used in medical applications.2013.

Universities and National Laboratories

These sales consist of product sales directly to researchers at various educational and research institutions.institutions and through distributors into that market. Sales to customers within the University and National Laboratories market sector consist primarily of the Company’s legacy systems, Pockels cells and related repairs. Sales in 2013 increased by approximately 160% over 2012, primarily the result of increased demand from one large customer. Sales for 2012 andcompared to 2011 were relatively unchanged and the total dollar amount from sales to this market remained relatively stable over the past threetwo years and is dependent on research projects and the availability of funding for such projects. The sales in 2010 reflect an increase in the availability of stimulus funding for the National Labs.

Major Customers

Historically, the Company’s sales have been concentrated within a small number of customers, although the top customers have varied from year to year. In 2012,2013, the Company had sales to three major customers which accounted for 11.2%9.4%, 10.7%8.2% and 8.6%7.3% of sales, respectively. One customer is a domestic manufacturer of medical laser systems. The two other major customers in 2013 are electro-optical systems divisions of major U.S. defense industry corporations who manufacture systems for the U.S. and foreign governments. In 2012, the top three customers represented 11.2%, 10.7% and 8.6% of sales, respectively. In 2011, the top three customers represented 20.9%, 15.4% and 10.8% of sales, respectively. In 2010, the top three customers represented 15.3%, 10.3% and 10.1% of sales, respectively.

Sales to the Company’s top five customers represented approximately 43.1%37.7%, 58.1%43.1% and 54.3%58.1% of sales, in 2013, 2012 2011 and 2010,2011, respectively. These customers are all OEM manufacturers either within the defense, process control and metrology sector or laser systems sector. The concentration of sales within a small number of customers presents the risk that the loss of any of these customers could have a significant negative impact on the Company.

Export Sales

The Company’s export sales are primarily to customers in Europe, Israel, Asia and Japan and amounted to approximately 14.3%14.5%, 22.8%14.3%, and 14.9%22.8% of product sales in 2013, 2012 and 2011, and 2010, respectively.

Long-Term Contracts

Certain of the Company’s agreements with customers provide for periodic deliveries at fixed prices over a long period of time. In such cases, as in most other cases as well, the Company attemptsnegotiates to obtain firm price commitments, as well as, cash advances from its suppliers for the purchase of the materials necessary to fulfill the order.

Marketing and Business Development

The Company markets its products domestically, through the coordinated efforts of the sales, marketing and customer service teams.

The Company has moved towards a strategy of utilizing these combined sales and marketing resources for cross-selling all products, across all business lines. This strategy is well suited to the diverse and fragmented markets that utilize photonic technologies.

Independent sales agents are used in countries in major non-U.S. markets, including Canada, the United Kingdom, the European Union, Israel, and Japan.

Sales and marketing efforts to promote our product lines and our participation in trade shows, internet-based marketing, media and non-media advertising and promotion, and management of international sales representatives and distributor relationships are coordinated at the corporate level under the auspices of the Vice President, Sales and Marketing.

In 2011, the Company undertook a significant marketing effort in the form of a corporate name change and a new branding strategy around the “Inrad Optics” name which was supported by the development of a new website and other brand identity marketing efforts.

Backlog

The Company’s order backlog at December 31, 20122013 was $5,898,000, essentially all of which is expected to be shipped in 2013.$4,357,000. The Company’s order backlog as of December 31, 2012 and 2011 was $5,898,000 and 2010 was $5,021,000, and $5,047,000, respectively.

We anticipate shipping a substantial majority of the present backlog during fiscal year 2013.2014. However, our backlog at any given date is not necessarily indicative of actual sales for any future period.

Competition

Within each product category in which the Company’s business units are active, there is competition.

Changes in the photonics industry have had an effect on suppliers of custom optics. As end users have introduced products requiring large volumes of optical components, suppliers have responded either by staying small and carving out niche product areas, or by ramping up manufacturing capacity and modernizing their manufacturing methods to meet higher volume production rates. Additionally the availability of an increasingly large variety of inventoried inexpensive catalog optics has led some OEM manufacturers to “design in” these low-cost solutions rather than utilizing custom designed and manufactured products.

Competition for the Company’s crystal devices and instrumentation is more limited and the Company’s laser devices are considered to be high quality and generally offer a combination of features not available elsewhere. As a result of the Company’s in-house crystal growth capability, this area of the business is highly vertically integrated, providing a competitive advantage over other suppliers.

Our metal optics product line has several key competitors who are larger and better equipped to compete on high volume work. There are also several large and small competitors who compete with our products on large form factor optics. The Company has made recent inroads within this competitive landscape, and is building brand awareness in the marketplace.

For crystal products, the market is highly competitive. Many of the Company’s competitors who supply non-linear optical crystals are located overseas, and can offer significantly reduced pricing for some crystal materials. On many occasions, the quality of the crystal component drives the ultimate performance of the component or instrument into which it is installed. Quality and technical support are considered to be valuable attributes for a crystal supplier by some, but not all, OEM customers.

Our metal optics product line has several key competitors who are larger and better equipped to compete on high volume work. There are also several large and small competitors who compete with our products on large form factor optics. The Company has made recent inroads within this competitive landscape, and is building brand awareness in the marketplace.

Although price is a principal factor in many product categories, competition is also based on product design, performance, customer confidence, quality, delivery, and customer service. Based on its performance to date, the Company believes that it can continue to compete successfully, although no assurances can be given in this regard.

Employees

As of the close of business on March 27, 2013,28, 2014, the Company had 7771 full-time employees.

Patents and Licenses

The Company mainly relies on its manufacturing and technological expertise, know-how and trade secrets in addition to its patents, to maintain its competitive position in the industry. The Company takes precautionary and protective measures to safeguard its technical design and manufacturing processes. The Company executes nondisclosure agreements with its employees and, where appropriate, with its customers, suppliers and other associates.

Regulation

Foreign sales of certain of the Company’s products to certain countries may require export licenses from the United States Department of Commerce. Such licenses are obtained when required. All requested export licenses of Inrad Optics products have been granted or deemed not-required.

ITAR regulations governInternational Traffic in Arms Regulations (“ITAR”) governs much of the Company’s domestic defense sector business, and the Company is capable of handling its customers’ technical information under these regulations. Inrad Optics, Inc. is registered with the Directorate of Defense Trade Controls, and utilizes a supplier base of similarly registered companies.

There are no other federal regulations or any unusual state regulations that directly affect the sale of the Company’s products other than those environmental compliance regulations that generally affect companies engaged in manufacturing operations in New Jersey and Florida.

Availability of Reports

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports are available free of charge on our web site atwww.inradoptics.com as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”) (www.sec.gov ). We will also provide electronic or paper copies of such reports free of charge, upon request made to our Corporate Secretary.

The Company cautions investors that its performance (and, therefore, any forward looking statement) is subject to risks and uncertainties. Various important factors, including but not limited to the following, may cause the Company’s future results to differ materially from those projected in any forward looking statement.

The Company has historically incurred substantial net losses. We had a net loss of $(1,421,000), $(734,000)$1.6 million, and $(2,800,000) in$1.4 million for the fiscal years ended December 31, 2013 and 2012, 2010respectively. We expect our losses to continue in the near term. These losses have had an adverse effect on our working capital, total assets and 2009, respectively. Ifstockholders’ equity. We are uable to predict when we will become profitable and the Company wereinability to achieve and sustain future major losses, thereprofitability would negatively affect our business, financial condition, results of operations and cash flows.

We may need to raise additional financing to repay our outstanding indebtedness of approximately $3.2 million, as well as, to fund our current level of operations. Additional financing, which is no assurance thatnot in place at this time, may be from the Company willsale of equity or convertible or other debt securities in a public or private offering, or from an additional credit facility. We may be ableunable to obtain the financing requiredraise sufficient additional capital on favorable terms, if at all, to supply the working capital needs of itsour existing operations or to continue to implement its growth strategy.expand our business.

Significant economic downturns or recessions in the United States, Europe or Asia could adversely affect the Company’s business by causing a temporary or longer term decline in demand for the Company’s goods and services and thus its revenues.

Sales to customers in the defense industry represent a significant part of our business. These customers in turn generally contract with government agencies. Most governmental programs are subject to funding approval through congressional appropriations which can be modified or terminated without warning upon the determination of a legislative or administrative body.Appropriations can also be affected by legislation that addresses larger budgetary issues of the U.S. Government such as the Budget Control Act of 2011 and its sequestration provisions which will, unless amended, significantly reducereduced appropriations below currently forecasted levels for most federal agencies, including the Department of Defense. In addition, the 2015 Presidential Budget includes reductions in spending for the defense department.It is difficult to assess how this will impact our defense industry customers and the business we do with them, in the future. The loss or failure to obtain certain contracts or a loss of a major government customer could have a material adverse effect on our business, results of operations or financial condition.

For the year ended December 31, 2012,2013, five customer accounts represented approximately 43%38% of total revenues and twoalthough none of these customers individually accounted for more than 10% of revenues. These two customers each represented approximately 11% and 11% of sales, respectively.revenues in 2013. Since we are a supplier of custom manufactured components to OEM customers, and have a number of large customers in both the commercial and defense markets, the relative size and identity of our largest customers change somewhat from year to year. In the short term, the loss of any of these large customer accounts or a decline in demand in the markets which they represent could have a material adverse effect on our business, results of operations, and financial condition.

To meet the Company’s strategic objectives, the Company needs to continue to develop new processes, improve existing processes, and manufacture and market new products. As a result, the Company may continue to make investments in process development and additions to its product portfolio. There can be no assurance that the Company will be able to develop and introduce new products or enhancements to its existing products and processes in a way that achieves market acceptance or other pertinent targeted results. The Company also cannot be sure that it will have the human or financial resources to pursue or succeed in such activities.

The Company’s stock is thinly traded. Many factors, including, but not limited to, future announcements concerning the Company, its competitors or customers, as well as quarterly variations in operating results, announcements of technological innovations, seasonal or other variations in anticipated or actual results of operations, changes in earnings estimates by analysts or reports regarding the Company’s industries in the financial press or investment advisory publications, could cause the market price of the Company’s stock to fluctuate substantially. In addition, the Company’s stock price may fluctuate widely for reasons which may be unrelated to operating results. These fluctuations, as well as general economic, political and market conditions such as recessions, military conflicts, or market or related declines, may materially and adversely affect the market price of the Company’s Common Stock.common stock. In addition, any information concerning the Company, including projections of future operating results, appearing in investment advisory publications or on-line bulletin boards or otherwise emanating from a source other than the Company could in the future contribute to volatility in the market price of the Company’s Common Stock.common stock.

The Company depends on the expertise, experience, and continuing services of certain scientists, engineers, production and management personnel, and on the Company’s ability to recruit additional personnel. There is competition for the services of these personnel, and there is no assurance that the Company will be able to retain or attract the personnel necessary for its success, despite the Company’s efforts to do so. The loss of the services of the Company’s key personnel could have a material adverse effect on its business, results of operations, or financial condition.

The Company’s business is significantly dependent on the demand its customers experience for their products. Many of their end users are in industries that historically have experienced a cyclical demand for their products. The industries include, but are not limited to, the defense electro-optics industry and the manufacturers of process control capital equipment for the semiconductor tools industry. As a result, demand for the Company’s products are subject to cyclical fluctuations, and this could have a material adverse effect on our business, results of operations, or financial condition.

The Company utilizes many relatively uncommon materials and compounds to manufacture its products. Examples include optical grade quartz, specialty optical glasses, scarce natural and manmade crystals, beryllium and its alloys, and high purity chemical compounds. The Company’s suppliers could fail to deliver sufficient quantities of these necessary materials on a timely basis, or deliver contaminated or inferior quality materials, or to markedly increase their prices. Any such actions could have an adverse effect on the Company’s business, despite the Company’s efforts to secure long term commitments from its suppliers. Adverse results might include reducing the Company’s ability to meet commitments to its customers, compromising the Company’s relationship with its customers, adversely affecting the Company’s ability to meet expanding demand for its products, or causing the Company’s financial results to deteriorate.

The Company encounters substantial competition from other companies positioned to serve the same market sectors. Some competitors may have financial, technical, capacity, marketing or other resources more extensive than ours, or may be able to respond more quickly than the Company to new or emerging technologies and other competitive pressures. Some competitors have manufacturing operations in low-cost labor regions such as the Far East and Eastern Europe and can offer products at lower prices than the Company. The Company may not be successful in winning orders against the Company’s present or future competitors, and competition may have a material adverse effect on our business, results of operations or financial condition.

The Company currently holds one material patent applicable to an important product, but does not in general rely on patents to protect its products or manufacturing processes. The Company generally relies on a combination of trade secret and employee non-competition and nondisclosure agreements to protect its intellectual property rights. There can be no assurance that the steps the Company takes will be adequate to prevent misappropriation of the Company’s technology. In addition, there can be no assurance that, in the future, third parties will not assert infringement claims against the Company. Asserting the Company’s rights or defending against third-party claims could involve substantial expense, thus materially and adversely affecting the Company’s business, results of operations or financial condition.

Not applicable

None

Administrative, engineering and manufacturing operations are housed in a 42,000 square foot building located in Northvale, New Jersey and in a 25,000 square foot building located in Sarasota, Florida. The headquarters of the Company are in its Northvale facility. On November 1, 2011,The lease for the Northvale facility expired on October 31, 2013 and the Company negotiatedis currently in negotiations for a reduction in rentnew lease for this facility on its Northvale lease and extended the term until October 31, 2013.more favorable terms. The Company also hascontinues to occupy the optionfacility under the terms of renewing the expired lease for one year, at fixed terms, through October 31, 2014.paying a reduced amount of monthly rent that includes all real estate taxes, maintenance and operating costs.

The Company’s wholly-owned subsidiary, MRC Precision Metal Optics Inc., (DBA Inrad Optics) has its manufacturing operations in a leased facility located in the Sarasota, Florida pursuant to a net lease expiringthat expired on August 31, 2013. The Company announced plans in 2013 to relocate this operation into the Northvale, New Jersey facility and continues to occupy the facility under the terms of the expired lease, on a month to month basis, at the same amount of rent which includes real estate taxes, maintenance and operating costs. The Company expects to vacate the facility by March 31, 2014 when the operations in Sarasota have been fully consolidated within the Northvale facility.

TheseWe believe that our existing facilities are adequate to meet current and future projected production requirements.needs.

The total rent for these leases was approximately $485,000, $519,000 and $569,000 in 2012, 2011 and 2010, respectively. The Company also paid real estate taxes and insurance premiums that totaled approximately $160,000 in 2012, $162,000 in 2011 and $165,000 in 20010.

There

We are nonot party to any legal proceedings involving the Company as of the date hereof.

Not Applicable

PART II

The Company’s Common Stock, with a par value of $0.01 per share, is traded on the OTC Bulletin Board under the symbol INRD. Prior to the name change in 2012, the Company’s Common Stock traded under the symbol INRD.PHPG.

The following table sets forth the range of high and low closing prices for the Company’s Common Stock in each fiscal quarter from the quarter ended March 31, 20112012 through the quarter ended December 31, 2012,2013, as reported by the National Association of Securities Dealers NASDAQ System. Such over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of March 27, 201328, 2014 the Company’s closing stock price was $0.22$0.35 per share.

As of March 18, 2013,28, 2014, there were approximately 141136 shareholders of record of our Common Stock based upon the Shareholders’ Listing provided by the Company’s Transfer Agent. As of the same date, the Company estimates that there are an additional 346 beneficial shareholders.

The Company has not historically paid cash dividends. Payment of cash dividends is at the discretion of the Company’s Board of Directors and depends, among other factors, upon the earnings, capital requirements, operations and financial condition of the Company. The Company does not anticipate paying cash dividends in the immediate future.

There have been no sales of unregistered securities during the past three years.

The following data is qualified in its entirety by the financial statements presented elsewhere in this Annual Report on Form 10-K.

The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the notes thereto presented elsewhere herein. The discussion of results should not be construed to imply any conclusion that such results will necessarily continue in the future.

Critical Accounting Policies

The Company’s significant accounting policies are described in Note 1 of the Consolidated Financial Statements that were prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the Company’s financial statements, the Company made estimates and judgments that affect the results of its operations and the value of assets and liabilities the Company reports. The Company’s actual results may differ from these estimates.

The Company believes that the following summarizes critical accounting policies that require significant judgments and estimates in the preparation of the Company’s consolidated financial statements.

Revenue Recognition

The Company records revenue from the sale of its products and services when all four of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the sales price is fixed or determinable; and collectability is reasonably assured. Losses on contracts are recorded when identified.

Inventory

Inventories are stated at the lower of cost (first-in, first-out method) or market. 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.

Goodwill and Intangible assets

Intangible assets with finite lives are amortized on a straight-line basis over the assets’ estimated useful life up to 14 years. The Company periodically evaluates on an annual basis, or more frequently when conditions require, whether events or circumstances have occurred indicating the carrying amount of intangible assets may not be recoverable. When factors indicate that intangible assets should be evaluated for possible impairment, the Company uses an estimate of the associated undiscounted future cash flows compared to the related carrying amount of assets to determine if an impairment loss should be recognized.

Goodwill and intangible assets not subject to amortization are tested in December of each year for impairment, or more frequently if events and circumstances indicate that the assets might have become impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value.

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 estimated 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.

Income Taxes

Deferred income taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the amounts of assets and liabilities recorded for income tax and financial reporting purposes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company recognizes the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

The Company classifies interest and penalties related to income taxes as income tax expense in its Consolidated Financial Statements

Results of Operations

The following table summarizes the Company’s product sales by product categories during the past three years:

The following table provides information on the Company’s sales to its major business sectors during the past three years:

The following table sets forth, for the past three years, the percentage relationship of statement of operations categories to total revenues.

Revenues

The consolidated revenue for all business operations was $11,404,000$11,236,000 in 2012,2013, a decrease of 13.5%1.5% compared to $13,177,000$11,404,000 in 2011 and up 3.2% compared to $11,054,000 in 2010.2012.

By product category, the net decrease in 20122013 consisted of a decrease of 25.9%1.5% or $3,054,000$130,000 in shipments of optical components offset by an increaseand a decrease of $1,281,0001.4% or $38,000 in laser systems devices and instrumentation almost double this category in 2011.compared to the prior year.

Lower sales from customers in the defense and aerospace, and process control and metrology markets was partially offset by an increase in shipments to customers in the laser systems market. Sales tomarket and the university and national laboratories market decreased slightly from 2011.compared with 2012.

The defense and aerospace market declined 24.4%11.2% to $4,520,000 compared to $5,089,000 compared to $6,734,000 in 2011 and down 27% from $6,968,000 in 2010.2012. This decline reflects the ongoing flow through impact that the economic downturn has had on our customers spending patterns, driven by changes in government defense spending on the products or systems supplied by our customers.

Sales in the process control and metrology market the Company’s second largest, decreased in 20122013 by 26.7%23.5% to $2,664,000 compared to $3,484,000 in 2012. The decrease was the result of lower orders or the delay in receiving orders from several larger customers compared to $4,752,0002012. The decline in 2011. The decreasesales in 2012 compared to 2011 was mainly the result of lower orders from one largelarger customer compared to 2011 and 2010, as sales of the customer’swhose systems containing our products experiencedresulting in a decline. The impact was partially offset by orders from new customers and increases in orders from other existing customers in this market.decrease of approximately $1,750,000 or 81%.

The Company serves the non-military laser industry as an OEM supplier of standard and custom optical components and laser accessories. This market’s salesSales to this market were $1,473,000 in 2013 and $1,471,000 and $539,000 in 2012 increased to $1,471,000 from $539,000 in 2011.and 2011, respectively. Overall, the market forsales of laser systemsdevices and related products represented 26.6% of sales in 2013 and 21.2% and 9.5% of total sales in 2012 and 9.5% and 7.2 % of total sales in 2011, and 2010, respectively.

Sales to customers within the Universityuniversity and National Laboratoriesnational laboratories market sector decreasedincreased in 2013 to $1,064,000 compared to $410,000 in 2012 to $410,000 compared to $436,000 in 2011 but showed a slight increasemainly as a percentageresult of sales to 3.7%an increase in customer orders from 3.3%a catalogue distributor that sells our products in 2011.this market.

In 2011,2012, the Company’s overall revenues increased 19.2%decreased 13.5% compared to 20102011 as increasethe decrease sales of optical components increased 16.8% andof 25.9% was offset by an increase in sales of laser system devices and instrumentation rose 45.4%, compared to 2010.that were almost double their sales in 2011. Sales to the defense and aerospace market wereof $5,089,000 in 2012 declined 24.4% from sales of $6,734,000 was down slightly from $6,968,000 in 20102011 while sales to the process control and metrology market increasedalso decreased by 72.7%26.7% to $3,484,000 in 2012 from 2010, as a result of added demand from new$4,752,000 in 2011. These declines were partially offset by an increase to the overall the market for laser systems and existing customers.

Non-military laser revenues alsorelated products which increased in 20112012 to $539,000$2,421,000 from $193,000$1,255,000 in 2010, principally due to increased demand from customers in the medical laser industry.2011.

In 2011,2012, sales to university and national laboratories decreased to $436,000$410,000 compared to $539,000$436,000 in 2010.2011. Although the results as a percentage of total sales vary slightly from year to year, the total dollar amount remained relatively unchanged over the past three years and is dependent on research projects and the availability of funding for such projects.

Bookings

The Company booked new orders totaling $9.8 million in 2013, a decrease of 20.3% from $12.3 million in 2012 as orders from aerospace and defense and government entities continued to be slow reflecting the ongoing reduction for certain U.S defense spending.

The Company booked new orders totaling $12.3 million in 2012, a decrease of 4.7% from $12.9 million in 2011. The decrease reflected the net effect of a decline in process control and metrology bookings. This was mostly offset by increases in both defense and aerospace, and laser systems bookings.

In 2011, the Company had bookings for new orders totaling $12.9 million, an increase of 4.9% from $12.3 million in 2010. This increase was generally across all business sectors and consisted of orders from the new customers along with increases from most of our existing customer base. While the timing of the orders placed by customers varied from quarter to quarter, the second half of the year was only slightly better.

The Company’s backlog as of December 31, 20122013 also showed an increasea decrease of approximately 18%25% to $4.4 million from $5.9 million as of December 31, 2012 and 12% from $5.0 million as of December 31, 2011 and 2010.2011.

Cost of Goods Sold and Gross Profit Margin

Cost of goods sold as a percentage of sales was 78.2%, 73.0%85.1% and 77.3%78.2% for the years ended December 31, 2013 and 2012, 2011respectively. In 2013, cost of goods sold was $9,561,000 and 2010, respectively. included restructuring costs of $313,000, which are described in Note 16 of the Consolidated Financial Statements, related to the closing of the Sarasota, FL facility and the associated relocation of the operations to the Northvale, NJ facility.

The increase in the cost of goods sold in 2013, was mainly due to restructuring costs and an increase in the overhead cost component of product shipped, partially offset by a decrease in material costs that was mainly due to the mix of products sold in 2013. Manufacturing wages and salaries and related fringe benefit expenses were relatively unchanged in 2013 compared to 2012.

In 2012, cost of goods sold was $8,914,000 or 78.2% of sales compared to $9,615,000 or 73.9% in 2011, reflecting the overallimpact of a sales decrease in sales in 2012.2012 of 13.5%. However, the decrease in cost of goods sold was at a slower rate than sales due to the relatively fixed nature of the Company’s overhead expenses. In 2011, cost of goods sold was $9,615,000 an increase from $8,545,000 in 2010 as a result of the sales increase in 2011 vs. 2010.

Materials costs and direct manufacturing expenses were lower in 2012 compared to 2011, commensurate with decreases in sales. Compared to 2011, material costs decreased by $463,000 but as a percentage of sales remained unchanged. Non-labor manufacturing expenses excluding depreciation also decreased by $135,000 in 2012. Although the cost of manufacturing wages and salaries remained relatively unchanged from 2011, the cost of related fringe benefits increased by 14% mainly as a result of increases in employee health benefits costs.

The increase in cost of goods sold in 2011 compared to 2010 is due to increases in material costs, manufacturing labor and operating costs. Compared to 2010, material costs increased by $591,000 attributable to a product mix which had higher percentage of material costs. In addition, the cost of manufacturing wages and salaries and related fringe benefits increased by $398,000 as direct labor expenses rose in line with higher production and shipping demand.

Gross margin in 20122013 was $2,490,000$1,675,000 or 21.8%14.9% which is a decrease from 20112012 from $3,562,000$2,490,000 or 27%21.8%. This compares with a gross margin of $2,509,000$3,562,000 or 22.7%27% or approximately $1,773,000 in 2010.2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) were $3,173,000 in 2013, a decrease of $166,000 or 5% from 2012. The decrease reflects the impact of the workforce reduction in 2013 and the absence of marketing costs incurred in 2012 associated with the Company’s name change and re-branding. As a percentage of sales, SG&A also decreased to 28.2% of sales in 2013 compared to 29.3% in 2012.

Selling, general and administrative expenses were $3,339,000 in 2012, up $84,000 or 2.6% from 2011. This reflects additional marketing costs associated with the Company’s name change and re-branding in early 2012. As a percentage of sales, SG&A expenses increased to 29.3% of 2012 sales compared to 24.7% of sales in 2011 as a result of the name change, as well as the impact of lower sales and fixed SG&A expenses.

Selling, general and administrative expenses (“SG&A”) were $3,255,000 in 2011, an increase of $150,000 or 4.8% from 2010. As a percentage of sales, SG&A expenses decreased to 24.7% of 2011 sales compared to 28.1% of sales in 2010. The decline in SG&A expenses, as a percentage of sales, reflects the impact of cost reductions in SG&A salaries and wages and fringe benefits from personnel reductions started in the second half of the prior year, offset by higher expenses related to the increase in sales in the current year.

Operating (Loss) Income

TheIn 2013, the Company had an operating loss $1,497,000 compared to $849,000 last year which primarily reflects the impact of lower sales and the additional expenses related to accrued restructuring costs in 2013. In 2012, the Company had an operating loss of $849,000 compared to operating income of $307,000 in 2011 which primarily reflects the decrease in sales volumes in 2012 from customers that experienced a large decline in demand for systems they manufacture that include our products. In 2011, the Company had an operating income of $307,000 which was an improvement after the losses incurred during the two prior years.

Other Income and Expenses

Net interest expense of $189,000 in 2013 increased 15.3% from $164,000 in 2012. Interest expense was $194,000 in 2013 compared to $181,000 in 2012 mainly due to the full year impact of the term loan payable entered into with Valley National Bank in July 2012 and normal debt repayments. Interest income for 2013 decreased to $8,000 from $16,000 in 2012 mainly as a result of changes in short term cash balances.

In 2013, the Company sold and disposed of surplus equipment and recorded a gain of $32,960.

Net interest expense of $164,000 in 2012 increased 25.8% from $130,000 in 2011. Interest expense was $181,000 in 2012 compared to $164,000 in 2011 which was mainly due to the addition of a term loan payable entered into with Valley National Bank in July 2012 and normal debt repayments. Interest income for 2012 decreased to $16,000 from $33,000 in 2011 mainly as a result of changes in short term cash balances.

Net interest expense of $130,000 in 2011 decreased 5.3% from $138,000 in 2010. Interest expense was $163,000 in 2011 compared to $164,000 in 2010which is the result of the Company’s normal scheduled debt repayments. Interest income for 2011 increased to $33,000 from $26,000 in 2010 mainly as a result of changes in short term cash balances and bank money market interest rates.Income Taxes

Income TaxesIn 2013, the Company did not record a current provision for either state tax or federal alternative minimum tax due to the losses incurred for both income tax and financial reporting purposes.

As of December 31, 2011, the Company had a deferred tax asset of $408,000 which we estimated would be recoverable in future periods. Inperiods.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 that is consistent with the plans and estimates management is using to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three-year period ended December 31, 2012. 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 December 31, 2012, the Company concluded it is more likely than not that it will not be able to realize any portion of the benefit on the deferred tax assets and the valuation allowance was increased by $603,000 to provide a full valuation against the net deferred tax assets as of December 31, 2012. As a result, the Company recorded a provision of $408,000 for federal deferred income tax to write off the balance of the Company’s deferred tax asset.

In 2011, the Company recorded a current provision for state tax and federal alternative minimum tax in the amount of $11,000.

Net (Loss) Income

In 2010,2013, the Company did not recordrecorded a current provision for either state tax or federal alternative minimum tax duenet loss of $1,650,000 compared to a net loss of $1,421,000 in 2012 mainly as a result of the losses incurred for both income tax and financial reporting purposes.

Net (Loss) Income

impact of certain overhead costs included in cost of goods sold described above. In 2012, the Company recorded a net loss of $1,421,000 in 2012 compared to net income of $165,000 in 2011 primarily as a result of lower sales volumes and its impact on the relatively fixed cost structure of the Company and a deferred tax asset write-off of $408,000. In 2011, net income was $165,000, compared to a net loss of $734,000 in 2010 primarily as a result of higher sales and the positive leveraging of higher sales on the Company’s relatively fixed cost structure.

Liquidity and Capital Resources

The Company’s primary source of liquidity is cash and cash equivalents and on-going collection of our accounts receivable. Other sources of liquidity include the proceeds received from the exercise of stock options and proceeds fromterm notes. The Company’s major uses of cash in the past three years have been for operating expenses, capital expenditures and for repayment and servicing of outstanding debt and accrued interest.

As of December 31, 20122013 and December 31, 2011,2012, we had cash and cash equivalents of $3,089,000$2,451,000 and $3,400,000,$3,089,000, respectively.

On July 26, 2012, the Company entered into a term loan agreement with Valley National Bank, Wayne, NJ, in the amount of $750,000. The loan is secured with a Note and a security interest in new equipment acquired by the Company in the amount of $825,000 which will enhance the Company’s thin film coating capabilities. The loan is repayable in equal monthly installments over five years beginning in August 2012 and bears an interest rate of 4.35% annually. During 2012, the Company made a down-payment of $500,000 on the equipment which was included with Other Assets at December 31, 2012. The equipment was delivered in the first quarter of 2013 and the Company made an installment payment in the amount of $242,500. The balance of the purchase price of $325,000 was paid in 2013 when the equipment was placed in service. The full amount of $82,500the asset is due upon final installation which is expectedincluded in April,Machinery and Equipment at December 31, 2013.

In 2012, proceeds from the exercise of 10,700 stock options and issuance of 5,000 common shares totaled $5,349. In 2011, proceeds from the exercise of 20,000 stock options and issuance of 6,239 common shares totaled $18,260.

In July 2012, 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 extended to April 1, 2015 from April 1, 2013. The remaining terms and conditions of the notes were unchanged. These notes were previously issued on April 1, 2009 and had a maturity date of April 1, 2011 which was extended to April 1, 2013. The notes bear interest at 6%. Interest accrues yearly, is payable on maturity and 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 and havehas an expiration date of April 1, 2016. Clarex is a significant shareholder of the Company.

During 2012, theThe Company paid $150,000 of current interest on the two notes.notes during 2013 and 2012, respectively. During 2011, the Company paid a total of $1,125,000 of accrued interest and $150,000 of current interest on the notes.

The Company expects to make quarterly interest payments of $37,500 through the maturity dates of the notes.

In additionThe Company had capital expenditures in 2013 of $456,000 that consists of the remaining balance payment for the new thin film coating equipment of $325,000 and other expenditures to the operating facilities and the purchase of new or replacement manufacturing equipment.

In 2012, the Company made a $500,000 deposit paid on new equipment in 2012 shown within Other Assets on the Consolidated Balance Sheets at December 31, 2012, the Companyand had capital expenditures of $293,000 primarily to refurbish operating facilities, purchase new or replacement manufacturing equipment and re-design the Company website.

In 2011, the Company had capital expenditures of $304,000 primarily to replace equipment or refurbish facilities, purchase equipment upgrades to the computer information system and manufacturing equipment. In 2011, the Company also purchased additional manufacturing tools made from platinum at a net cost of $318,000 to further increase our crystal growth capacity at our Northvale, New Jersey facility. In 2010, the Company had capital expenditures in the amount of $278,000, primarily to replace or refurbish manufacturing equipment and for additional equipment required to increase our crystal growth capacity at our Northvale, New Jersey location.

In 2012,2013, cash decreased by $311,000$638,000 compared to a decrease of $965,000$311,000 in 2011.2012. In 2011, cash decreased by $965,000 compared to an increase of $296,000 in 2010.$965,000.

Supplemental informationCash flows pertaining to our source and use of cash isare presented below (in thousands):

Contractual Obligations

The following table describes our contractual obligations as of December 31, 2012 (in thousands).

Overview of Financial Condition

As shown in the accompanying financial statements, the Company recorded a net loss of $1,421,000$1,650,000 compared to a net loss of $1,421,000 in 2012 and net income of $165,000 in 2011 and a net loss of $734,000 in 2010.2011. The net loss in 2012 included a non-cash deferred tax provision of $408,000 from an increase to the valuation allowance. During 2013, the Company’s working capital requirements were provided by cash from operation and available cash balances. During 2012, the Company’s working capital requirements were provided by cash from operations, available cash balances and proceeds from a bank term note payable. During 2011, the Company’s working capital requirements were provided by cash from operations and available cash balances.

In 2010,2013, net cash used by operations was $70,000 compared to net cash used by operations of $208,000 in 2012. The decrease was primarily the Company’s working capital requirements were providedresult of a decrease in inventory (excluding reserve) and an increase in accounts payable and accrued expenses, offset primarily by positive cash flow from its operations.a decrease in customer advances and an increase in the net loss generated in 2013 compared to 2012.

In 2012, net cash used by operations was $208,000 compared to net cash used by operations of $358,000 in 2011. The decrease was primarily the result of the payment of accrued interest in 2011, a decrease in accounts receivable and an increase in customer advances, offset primarily by the net loss generated in 2012, an increase in inventory (excluding reserve) during the year, and a decrease in accounts payable and accrued liabilities.

The Company’s management expects that future cash flow from operations and its existing cash reserves will provide adequate liquidity for the Company’s operations and working capital requirements in 2013.2014.

Contractual Obligations

The following table describes our contractual obligations as of December 31, 2013 (in thousands).  

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements at December 31, 2013and 2012 and 2011.

N/A

The financial statements and supplementary financial information required to be filed under this Item are presented commencing on page 2423 of the Annual Report on Form 10-K, and are incorporated herein by reference.

None

The Company’s management, including the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures as of December 31, 20122013 are effective to ensure that information required to be disclosed in the reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding disclosure.

Our management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Our internal control over financial reporting includes those policies and procedures that:

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Our management assessed the effectiveness of our system of internal control over financial reporting as of December 31, 2012.2013 In making this assessment, management used the original framework in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment and the criteria set forth by COSO, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2012.2013.

c)Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the Company’s last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

None

PART III

The information required under this item is incorporated by reference to the Company’s Proxy Statement for the 20132014 Annual Meeting of Stockholders.

The information required under this item is incorporated by reference to the Company’s Proxy Statement for the 20132014 Annual Meeting of Stockholders.

The information required under this item is incorporated by reference to the Company’s Proxy Statement for the 20132014 Annual Meeting of Stockholders.

The information required under this item is incorporated by reference to the Company’s Proxy Statement for the 20132014 Annual Meeting of Stockholders.

The information required under this item is incorporated by reference to the Company’s Proxy Statement for the 20132014 Annual Meeting of Stockholders.

PART IV

(a) (1)     Financial Statements.

Reference is made to the Index to Financial Statements and Financial Statement Schedule commencing on Page 23.24.

(a) (2)     Financial Statement Schedule.

Reference is made to the Index to Financial Statements and Financial Statement Schedule on Page 23.24. All other schedules have been omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Financial Statements or Notes thereto.

(a) (3)Exhibits.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

INRAD OPTICS, INC. AND SUBSIDIARIES

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

THREE YEARS ENDED DECEMBER 31, 20122013

CONTENTS

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Inrad Optics, Inc. and Subsidiaries

Northvale, New Jersey

We have audited the accompanying consolidated balance sheets of Inrad Optics, Inc. (formerly known as Photonic Products Group, Inc.) and Subsidiaries (the “Company”) as of December 31, 20122013 and 2011,2012, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2012.2013. We have also audited the schedule listed in Item 15(a)(2) of this Form 10-K for the years ended December 31, 2013, 2012 2011 and 2010.2011. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Inrad Optics, Inc. and Subsidiaries as of December 31, 20122013 and 2011,2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012,2013, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/Holtz Rubenstein ReminickBaker Tilly Virchow Krause, LLP

New York, New York

April 1, 2013March 31, 2014

INRAD OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements

INRAD OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See notes to consolidated financial statements

INRAD OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY