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 March 31, 2023

~~For the quarterly period ended~~ ~~March 31, 2022~~


	☐	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 May ~~13, 2022,~~15, 2023, was ~~14,022,320.~~14,200,975.

Table of Contents

INRAD OPTICS, INC AND SUBSIDIARIES

INDEX


Part I.	CONDENSED FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:

	Condensed consolidated balance sheets as of March 31, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	1

	Condensed consolidated statements of operations for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	2

	Condensed consolidated statements of ~~shareholders~~shareholders’ equity for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 (unaudited)	3

	Condensed consolidated statements of cash flows for the three months ended March 31, ~~2022~~2023 and ~~2021~~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	1311

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	1614

Item 4.	Controls and Procedures	1614

Part II.	OTHER INFORMATION	1715

Item 1.	Legal Proceedings	1715

Item 1A.	Risk Factors	1715

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1715

Item 3.	Defaults upon Senior Securities	1715

Item 4.	Mine Safety Disclosures	1715

Item 5.	Other Information	1715

Item 6.	Exhibits	1816

Signatures			1917

Table of Contents

INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Assets	(Unaudited)				(Unaudited)
Current assets:
Cash and cash equivalents	$	1,792,800	$	1,801,188	$	1,994,833	$	2,003,485
Accounts receivable, net		1,200,372		1,287,653
Accounts receivable, net of allowance for credit losses of $46,000, respectively						1,468,332		1,389,867
Inventories, net		2,892,823		2,524,871		3,003,356		2,825,987
Other current assets		142,834		260,116		159,167		309,287
Total current assets		6,028,829		5,873,828		6,625,688		6,528,626

Plant and equipment:
Plant and equipment, at cost		15,909,169		15,393,241		16,155,498		15,967,537
Less: Accumulated depreciation and amortization		(14,764,389)		(14,709,744)		(14,798,222)		(14,723,869)
Total plant and equipment		1,144,780		683,497		1,357,276		1,243,668
Precious metals		561,909		561,909		561,909		561,909
Lease right-of-use, net		50,654		125,724		665,557		737,743
Other assets		26,993		26,993		26,993		26,993
Total Assets	$	7,813,165	$	7,271,951	$	9,237,423	$	9,098,939

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of other long term notes	$	60,029	$	16,403	$	68,455	$	67,513
Accounts payable and accrued liabilities		706,342		554,604		744,958		741,281
Contract liabilities		672,644		576,474		1,079,156		1,065,173
Current portion of lease obligation		65,265		141,536		298,067		295,978
Total current liabilities		1,504,280		1,289,017		2,190,636		2,169,945

Related party convertible notes payable		2,500,000		2,500,000		2,500,000		2,500,000

Other long term notes, net of current portion		372,476		157,578		299,266		316,740
Lease obligation, net of current portion		0		2,692		367,491		444,462
Total liabilities		4,376,756		3,949,287		5,357,393		5,431,147

Shareholders’ equity:
Common stock: $.01 par value; 60,000,000 authorized shares; 14,026,920 shares issued at March 31, 2022, and 13,967,257 shares issued at December 31, 2021		140,271		139,674
Common stock: $.01 par value; 60,000,000 authorized shares; 14,205,575 shares issued at March 31, 2023, and 14,092,920 shares issued at December 31, 2022						142,057		140,931
Capital in excess of par value		19,805,712		19,733,996		20,044,877		19,925,292
Accumulated deficit		(16,494,624)		(16,536,056)		(16,291,954)		(16,383,481)
		3,451,359		3,337,614		3,894,980		3,682,742
Less - Common stock in treasury, at cost (4,600 shares)		(14,950)		(14,950)		(14,950)		(14,950)
Total shareholders’ equity		3,436,409		3,322,664		3,880,030		3,667,792
Total Liabilities and shareholders’ equity	$	7,813,165	$	7,271,951	$	9,237,423	$	9,098,939

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of Contents

INRAD OPTICS, ~~INC~~INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,				Three Months Ended March 31,
	2022		2021		2023		2022

Total revenue	$	2,437,096	$	2,779,548	$	2,807,161	$	2,437,096

Cost and expenses:
Cost of goods sold		1,677,531		1,966,807		1,926,891		1,677,531
Selling, general and administrative expenses		676,551		608,758		750,362		676,551
		2,354,082		2,575,565		2,677,253		2,354,082

Income from operations		83,014		203,983		129,908		83,014
Other income (expense):
Gain on forgiveness of PPP loan		0		973,166
Interest expense-net		(41,582)		(36,815)		(38,381)		(41,582)
		(41,582)		936,351		(38,381)		(41,582)

Income before income taxes		41,432		1,140,334		91,528		41,432

Income tax (provision) benefit		0		0		—		—

Net income	$	41,432	$	1,140,334	$	91,528	$	41,432

Net income per common share - basic	$	0.00	$	0.08	$	0.01	$	0.00

Net income per common share - diluted	$	0.00	$	0.08	$	0.01	$	0.00

Weighted average shares outstanding - basic		13,992,489		13,820,328		14,088,320		13,992,489

Weighted average shares outstanding - diluted		14,586,524		14,099,251		14,759,188		14,586,524

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of Contents

INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


				Capital in						Total					Capital in						Total
	Common Stock			excess of		Accumulated		Treasury		Shareholders’		Common Stock			excess of		Accumulated		Treasury		Shareholders’
	Shares	Amount		par value		Deficit		Stock		Equity		Shares	Amount		par value		Deficit		Stock		Equity
Balance, January 1, 2021	13,824,928	$	138,251	$	19,516,363	$	(18,284,953)	$	(14,950)	$	1,354,711
Balance, January 1, 2022												13,967,257	$	139,674	$	19,733,996	$	(16,536,056)	$	(14,950)	$	3,322,664
401K contribution	0		0		0		0		0		0	59,663		597		50,158		—		—		50,755
Stock-based compensation expense	0		0		29,303		0		0		29,303	—		—		21,558		—		—		21,558
Net income March 31, 2021	0		0		0		1,140,334		0		1,140,334
Balance, March 31, 2021	13,824,928	$	138,251	$	19,545,666	$	(17,144,619)	$	(14,950)	$	2,524,348
Net income March 31, 2022												—		—		—		41,432		—		41,432
Balance, March 31, 2022												14,026,920	$	140,271	$	19,805,712	$	(16,494,624)	$	(14,950)	$	3,436,409

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

0

0

50,755
Stock-based compensation expense

0

0

21,558

0

0

21,558
Net income March 31, 2022

0

0

0

41,432

0

41,432
Balance, March 31, 2022

14,026,920

$
140,271

$
19,805,712

$
(16,494,624)

$
(14,950)

$
3,436,409


				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
Stock options exercised	79,333		793		30,993		—		—		31,786
Net income March 31, 2023	—		—		—		91,528		—		91,528
Balance, March 31, 2023	14,205,575	$	142,057	$	20,044,877	$	(16,291,954)	$	(14,950)	$	3,880,030

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of Contents

INRAD OPTICS, ~~INC~~INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended

March 31,


2022

2021
Cash flows from operating activities:




Net income

$
41,432

$
1,140,334

Adjustments to reconcile net income to net cash (used in) provided by operating activities

Depreciation and amortization

54,645

42,375
401K common stock contribution - non cash item

50,755

0
Stock based compensation

21,558

29,303
Gain on forgiveness of PPP loan

0

(973,166)
Changes in operating assets and liabilities:

Accounts receivable

87,281

(451,809)
Inventories, net

(367,952)

177,885
Other assets

117,282

19,966
Accounts payable and accrued liabilities

147,846

145,992
Contract liabilities

96,170

(200,659)
Total adjustments and changes

251,211

(1,210,113)
Net cash provided by (used in) operating activities

292,643

(69,779)

Cash flows from investing activities:

Capital expenditures

(515,928)

(13,554)
Net cash (used in) investing activities

(515,928)

(13,554)

Cash flows from financing activities:

Principal payments on notes payable-other

214,897

0
Net cash (used in) financing activities

214,897

0

Net (decrease) in cash and cash equivalents

(8,388)

(83,333)

Cash and cash equivalents at beginning of period

1,801,188

1,129,703
Cash and cash equivalents at end of period

$
1,792,800

$
1,046,370

Supplemental disclosure of cash flow information:

Interest paid

$
42,113

$
37,824
Income taxes paid

$
0

$
0
Supplemental disclosure of non-cash investing and financing activities:

Acquisition of equipment by issuing a note payable

$
270,320

$
0


	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	91,528	$	41,432

Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		74,353		54,645
401K common stock contribution - non cash item		54,721		50,755
Stock based compensation		34,203		21,558
Change in inventory reserve		149,667		(82,080)
Changes in operating assets and liabilities:
Accounts receivable		(78,464)		87,281
Inventories		(327,036)		(285,872)
Other current and non-current assets		222,306		192,352
Other current and non-current liabilities		3,677		(35,337)
Accounts payable and accrued liabilities		(74,882)		151,739
Contract liabilities		13,983		96,170
Total adjustments and changes		72,528		251,211
Net cash provided by operating activities		164,056		292,643

Cash flows from investing activities:
Capital expenditures		(187,961)		(515,928)
Net cash (used in) investing activities		(187,961)		(515,928)

Cash flows from financing activities:
Proceeds from issuance of common stock		31,786		—
Proceeds from issuance of a note payable		—		226,694
Principal payments on notes payable-other, net		(16,533)		(11,797)
Net cash provided by financing activities		15,253		214,897

Net (decrease) in cash and cash equivalents		(8,652)		(8,388)

Cash and cash equivalents at beginning of period		2,003,485		1,801,188
Cash and cash equivalents at end of period	$	1,994,833	$	1,792,800

Supplemental disclosure of cash flow information:
Interest paid	$	42,454	$	42,113
Income taxes paid	$	—	$	—
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)

Table of Contents

INRAD OPTICS, ~~INC~~INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~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 ~~carried at~~recorded net ~~realizable value, net~~ of ~~write-offs and allowances. The Company establishes~~ an allowance for ~~doubtful accounts~~credit losses. The Company estimates the allowance for credit losses based on ~~estimates as to~~an analysis of the ~~collectability~~aging of accounts ~~receivable. Management specifically analyzes past-due accounts~~ receivable, ~~balances~~assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and ~~additionally, considers bad debt history, customer credit-worthiness,~~an evaluation of current economic ~~trends and~~conditions. Actual write-off of receivables may differ from estimates due to changes in customer ~~payment terms when evaluating~~and economic circumstances. For the ~~adequacy of~~period ended March 31, 2023, there were no changes to the ~~allowance~~estimate for ~~doubtful accounts. Uncollectible accounts receivable are written-off when it is determined that~~credit losses. For the balance will not be collected. Reserves for uncollectible accounts receivable are recorded as part of selling, general and administrative expenses in the Consolidated Statements of Operations, and were $46,000 atperiod ended March 31, 2022, ~~and $90,000 at December 31, 2021.~~the estimate for credit losses was reduced by $44,000.

Inventories

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

Table of Contents

Inventories are comprised of the following and are shown net of inventory reserves of ~~$2,398,000~~$2,530,000 and ~~$2,480,000~~$2,398,000 at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively:


	March 31,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
	(Unaudited)				(Unaudited)
		(in thousands)			(in thousands)
Raw materials	$	1,158	$	1,160	$	931	$	1,065
Work in process, including manufactured parts and components		1,426		1,020		1,393		1,282
Finished goods		309		345		679		479
	$	2,893	$	2,525	$	3,003	$	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-year period ended December 31, ~~2021.~~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 March 31, ~~2022,~~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 ~~$3,302,000~~$2,967,000, 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 months ended March 31, ~~2022~~2023 and ~~2021,~~2022, the Company did 0tnot record a current provision for income taxes due to ~~the permanent difference related to loan forgiveness and~~ 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 months ended March 31, 2023, 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, 161,000 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 months ended March 31, 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, 162,500 ~~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 months ended March 31, 2021, 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, 476,300 common stock options were excluded from basic and diluted net income per common share because their effect is anti-dilutive.

Table of Contents

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					Three Months Ended					Three Months Ended
	March 31, 2022					March 31, 2021					March 31, 2023					March 31, 2022
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share		Income (Loss)		Shares	Per Share		Income (Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income Per Share:
Net Income	$	41,432	13,992,489	$	0.00	$	1,140,334	13,820,328	$	0.08	$	91,528	14,088,320	$	0.01	$	41,432	13,992,489	$	0.00
Effect of dilutive securities:
Convertible Notes		0	0		0		0	0		0		—	—		—		—	—		—
Accrued Interest on Convertible Notes		0	0		0		0	0		0		—	—		—		—	—		—
Warrants		0	0		0		0	0		0		—	—		—		—	—		—
Stock Options		0	594,035		0		0	278,923		0		—	670,868		—		—	594,035		—
Diluted Income Per Share:	$	41,432	14,586,524	$	0.00	$	1,140,334	14,099,251	$	0.08	$	91,528	14,759,188	$	0.01	$	41,432	14,586,524	$	0.00

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 June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) which amended guidance on the accounting for credit losses on financial instruments within its scope. The guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss model. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for interim and annual periods beginning in 2023, with earlier application permitted. The Company does not expect that the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

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

The Company is subject to credit risk due to the concentration of cash balances that exceed the federally insured limits by approximately $1.75 million at March 31, 2023 and December 31, 2022, on cash balances of approximately $2.0 million at March 31, 2023 and December 31, 2022.

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NOTE ~~2 –REVENUE~~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 Company’s performance obligations under long-term government contracts are generally satisfied over time. Revenue from products or services transferred to customers under these performance obligations accounted for approximately 0% and 1.5% of revenue for the three months ended March 31, 2022 and 2021, respectively. This revenue is generally recognized using an input measure based upon the proportion of actual costs incurred to estimated total project costs, which is a method used to best depict the Company’s performance to date under the terms of the contract.

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

~~The~~ majority of the Company’s revenue is from products and services transferred to customers at a point in time and was ~~approximately~~ 100% ~~and 98.5%~~ of revenue for each of the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The Company recognizes revenue at the point in

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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.

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

Three Months Ended

March 31,

2022

2021
Aerospace & Defense

$
847,293

$
1,176,330
Process Control & Metrology

1,403,133

1,077,376
Laser Systems

64,567

114,746
Scientific / R&D

122,103

411,096
Total

$
2,437,096

$
2,779,548

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


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2022		2021		2023		2022
Transfer at point in time	$	2,437,096	$	2,739,329
Transfer over time		0		40,219
Total net sales	$	2,437,096	$	2,779,548
Aerospace & Defense					$	444,451	$	847,293
Process Control & Metrology						2,231,316		1,403,133
Laser Systems						43,080		64,567
Scientific / R&D						88,314		122,103
Total					$	2,807,161	$	2,437,096

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. Costs in excess of billings and billings in excess of costs associated with long-term government contracts were not significant at March 31, 2022 or 2021. At March 31, 2022 and 2021, there was 0 remaining revenue to be recognized from the long-term government contracts.

On March 31, ~~2022,~~2023, the Company had approximately ~~$17.4~~$19.5 million of performance obligations, which is also referred to as backlog. Approximately ~~22%~~16.1% of the March 31, ~~2022,~~2023, backlog is related to projects that will extend beyond March 31, ~~2023.~~2024.

NOTE 3-4- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

a) Stock Option Expense

The Company’s results of operations for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, include stock-based compensation expense for stock option grants totaling ~~$21,558~~$34,203 and ~~$29,302,~~$21,558, 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 months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2022		2021		2023		2022
Cost of sales	$	3,252	$	7,202	$	3,243	$	3,252
Selling, general and administrative		18,306		22,101		30,960		18,306
Total stock-based compensation expense	$	21,558	$	29,303	$	34,203	$	21,558

As of March 31, ~~2022~~2023 and ~~2021,~~2022, there were ~~$299,000~~$208,000 and ~~$211,000~~$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 ~~1.54~~1.26 years and ~~1.57~~1.54 years respectively.

There were 20,000 stock options granted during the three months ended March 31, 2023, and 200,000 stock options granted during the three months ended March 31, 2022. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the three months ended March 31, 2023 and 2022:


	Three Months Ended
	March 31,
	2023		2022
Expected Dividend yield	—	%	—	%
Expected Volatility	92	%	105	%
Risk-free interest rate	0.86	%	1.54	%
Expected term	10	years	10	years

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There were 200,000 stock options granted during each of the three months ended March 31, 2022, and 2021. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the three months ended March 31, 2022 and 2021:

Three Months Ended

March 31,

2022

2021

Expected Dividend yield

0
%
0
%
Expected Volatility

105
%
106
%
Risk-free interest rate

1.54
%
0.86
%
Expected term

10
years
10
years

b) Stock Option Activity

The following table represents stock options granted, exercised, and forfeited during the three months ended March 31, ~~2022:~~2023:


		Weighted		Weighted				Weighted		Weighted
		Average		Average				Average		Average
		Exercise		Remaining	Aggregate			Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic		Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value		Options	Option		Term (years)	Value
Outstanding January 1, 2022	1,152,667	$	0.60	7.40	$	107,573
Outstanding January 1, 2023							1,286,667	$	0.71	5.95	$	854,550
Granted	200,000		1.20	—		—	20,000		1.72
Exercised	0		0	—		—	(79,333)		0.40
Expired/Forfeited	0		0	—		—	(51,667)		0.91
Outstanding March 31, 2022	1,352,667	$	0.69	7.38	$	970,105
Outstanding March 31, 2023							1,175,667	$	0.71	7.62	$	1,161,409

Exercisable at March 31, 2022	1,011,832	$	0.59	5.95	$	854,550
Exercisable at March 31, 2023							965,658	$	0.66	6.90	$	1,046,420

The following table represents non-vested stock options granted, vested, and forfeited for the three months ended March 31, ~~2022:~~2023:


	Weighted-average		Weighted-average
	Grant-date Fair Value		Grant-date Fair Value
	Options	($)	Options	($)
Non-Vested - January 1, 2022	276,670	0.89
Non-Vested - January 1, 2023			340,835	0.89
Granted	200,000	1.09	20,000	1.48
Vested	(135,835)	0.70	(134,160)	0.86
Forfeited	0	0	(16,667)	0.97
Non-Vested - March 31, 2022	340,835	0.89
Non-Vested - March 31, 2023			210,008	0.91

NOTE 45 - STOCKHOLDERS’ EQUITY

The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, ~~2021,~~2022, in February ~~2022.~~2023. The Company contributed ~~59,663~~33,332 common shares of Inrad Optics, Inc., and cash of ~~$76,133~~$82,000 to the Plan in ~~March, 2022.~~February 2023.

NOTE 56 – RELATED PARTY TRANSACTIONS

On July 22, 2020, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to April 1, 2024, from April 1, 2021. 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 1one share of common stock and 1one 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, 2024 to April 1, 2027.

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NOTE 67 – OTHER LONG-TERM NOTES

Other Long-Term Notes consist of the following:


	March 31,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
	(Unaudited)				(Unaudited)
	(in thousands)				(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	$	170	$	174	$	153	$	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⁾		262		—		214		225
Less current portion		(60)		(16)		(68)		(68)
Long-term debt, excluding current portion	$	372	$	158	$	299	$	317

(1)	The Company purchased certain equipment in the three months ended March 31, 2022, financing approximately $270,000 at a fixed annual interest rate of 6.1% for five years payable in equal monthly installments.

~~NOTE 7 – PAYROLL PROTECTION PROGRAM~~

On May 6, 2020, the Company received loan proceeds of approximately $973,000 (the “PPP Loan”), under the Paycheck Protection Program (“PPP”). The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) which was enacted March 27, 2020. The PPP Loan, which was in the form of a promissory note, dated May 4, 2020, issued by the Company, initially matured on May 4, 2022, and bore interest at a rate of 1.0% per annum.

On January 19, 2021, the Company received notification from the Small Business Association that the Company’s Forgiveness Application of the PPP Loan and accrued interest, totaling $980,000, was approved in full, and the Company had no further obligations related to the PPP Loan. Accordingly, the Company recorded a gain on the forgiveness of the PPP Loan in the three-month period ending March 31, 2021.

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NOTE 8 – LEASE AMENDMENT

The Company entered into an amendment and extension of its building lease on July ~~8, 2019,~~25, 2022, retroactive to June 1, ~~2019.~~2022. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company ~~determines~~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 ~~$0.8~~approximately $0.9 million was recognized as a non-cash asset addition with the signing of the July ~~8, 2019, office lease.~~29, 2022, lease amendment. Cash paid for amounts included in the present value of the operating lease liability was ~~$0.1~~$0.2 million during the ~~three months~~year ended ~~March~~December 31, ~~2021,~~2022, and is included in operating cash flows.

Operating lease costs were $0.1 million during each of the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

~~NOTE 9 – IMPACT OF COVID-19~~

The COVID-19 pandemic has created significant volatility and economic disruption and the impact on our future consolidated results of operations remains uncertain. The extent to which COVID-19 impacts our employees, operations, customers, suppliers and financial results depends on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic (and whether there is a resurgence or multiple resurgences in the future, including the impact of new variants); government actions taken in response to the pandemic, including required shutdowns, vaccine or testing mandates; supply chain disruptions; rising inflation; labor shortages; and the effect on our customers demand for our products. We may also be impacted by state actions, orders and policies regarding the COVID-19 pandemic. While our operations were considered essential business under the Executive Orders of New Jersey’s Governor, we cannot predict whether new temporary closures, shelter-in-place orders, travel, or quarantine policies will have an impact on our operations.

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Caution Regarding Forward Looking Statements

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The Company wishes to 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, ~~2021,~~2022, as filed with the Securities and Exchange Commission on March 30, ~~2022.~~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 ~~new~~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, ~~2021.~~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, ~~2021.~~2022.

~~Ongoing Impact of COVID-19~~

~~Table of Contents~~

Results of Operations

~~Inrad Optics~~The Company is a vertically integrated manufacturer specializing in glass, crystal, and metal based optical components, and ~~assemblies.~~sub-assemblies. Manufacturing capabilities include super-precision optical surfacing, precision diamond turning, the ability to ~~handle~~manage large substrates, proprietary optical contacting processes, thin film coatings, and high resolution in-process metrology. The Company built its reputation on the growth and fabrication of UV filter crystals and non-linear crystals and devices. Today, product offerings include optical components and assemblies for the ultraviolet to infrared range, and bent crystal assemblies for x-ray applications.

Inrad Optics’ customers include leading corporations in the semiconductor ~~wafer inspection, industrial and scientific~~equipment, process control and metrology, defense, ~~space,~~aerospace, and laser systems sectors of the broad set of photonics enabled industries, as well as the U.S. Government, National Laboratories and 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.

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Revenue

Sales for the three months ended March 31, ~~2022,~~2023, were ~~$2.4~~$2.8 million, ~~a decrease~~an increase of ~~12.3%~~15.2%, or ~~$0.3~~$0.4 million, compared to ~~$2.8~~$2.4 million for the three months ended March 31, ~~2021.~~2022.

Sales to the defense/aerospace market decreased by ~~$0.3~~$0.4 million or ~~28.8%~~47.5% to ~~$0.8~~$0.4 million in the three months ended March 31, ~~2022,~~2023, compared to ~~$1.2~~$0.8 million for the three months ended March 31, ~~2021.~~2022. The decrease in sales in the defense/aerospace market was due to timing of deliveries.

Process control and metrology (“PC&M”) sales were $2.2 million for the three months ended March 31, 2023, an increase of $0.8 million, or 59.0%, from $1.4 million for the three months ended March 31, ~~2022, an increase of $0.3 million, or 30.2%, from $1.1 million for the three months ended March 31, 2021.~~2022. The increase in demand, particularly in the semi-conductor industry, has contributed to the increase in sales in the PC&M market for the three months ended March 31, ~~2022,~~2023, compared to the three months ended March 31, ~~2021.~~2022.

Sales to customers in the laser systems market were ~~$0.1 million in each of~~$43,000 for the three months ended March 31, ~~2022 and 2021.~~2023, compared to $65,000 for the three months ended March 31, 2022. Products sold into this market segment largely consist of legacy materials for replacement units and small volume buys.

Sales to customers in the Scientific/R&D market were $0.1 million for each of the three months ended March 31, 2022, compared to $0.4 million for the three months ended March 31, 2021. The decrease in sales in the Scientific/R&D market is due to the completion of a federal government R&D contract that ended in March 2021.2023 and 2022.

In ~~the~~each three-month period ended March 31, 2023 and 2022, three customers represented 10% or more of ~~revenues while only one customer represented 10% or more of revenues in the three-month period ended March 31, 2021.~~revenues.

The Company’s top five customers represented ~~64.7%~~79.8% of sales in the three-month period ended March 31, ~~2022,~~2023, compared to ~~51.5%~~64.7% in the same period in ~~2021.~~2022.

Orders booked during the first three months of ~~2022,~~2023, totaled ~~$7.4~~$1.8 million, compared to ~~$3.1~~$7.4 million for the same period last year, ~~an increase~~a decrease of ~~138.7%~~75.7%. The decrease in bookings is due to extraordinary demand from several key customers in the period ended March 31, 2022, seeking to secure capacity through 2023. Order backlog at March 31, 2023 and 2022, ~~and 2021,~~ was ~~$17.4~~$19.5 million and ~~$7.9~~$17.4 million, respectively. We anticipate shipping a ~~majority~~significant portion of the present backlog during fiscal year ~~2022.~~2023. However, 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 March 31, ~~2022~~2023 and ~~2021,~~2022, cost of goods sold ~~was~~were $1.9 million and $1.7 million, or 68.6% and ~~$2.0 million, or~~ 68.8% ~~and 70.8%~~ of total revenues, respectively. Cost of goods sold ~~decreased~~increased as a result of ~~sales mix and lower sales year over year.~~increased sales.

Gross profit for each of the three months ended March 31, 2023 and 2022, was $0.9 million and ~~2021, was~~ $0.8 million. Gross profit was 31.4% of sales in the three months ended March 31, 2023, and 31.2% of sales in the three months ended March 31, ~~2022, and 29.2% of sales in the three months ended March 31, 2021.~~2022.

~~Table of Contents~~

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A” expenses) in the three months ended March 31, ~~2022,~~2023, amounted to $0.8 million, or 26.7% of sales compared to $0.7 million, or 27.8% ~~of sales compared to $0.6 million, or 21.9%~~ of sales, for the same period a year ago. The increase in SG&A expenses reflects an increase in personnel related costs, legal fees, travel, and ~~insurance, offset by a reduction in uncollectible accounts.~~sales related expenses.

Income from Operations

The Company had operating income of $0.1 million ~~for~~in each of the three months ended March 31, ~~2022, compared to operating income of $0.2 million for the three months ended March 31, 2021. The decrease in operating~~2023 and 2022. Operating income reflects the ~~impact of the Company’s lower~~increase in sales in the three months ended March ~~31, 2022,~~30, 2023, offset by an increase in cost of goods sold and SG&A expenses, compared to the same period last ~~year, coupled with an increase in SG&A costs, partially offset by a decrease in cost of goods sold.~~year.

Other Income (Expense)

Other income ~~in 2021~~ reflects the ~~gain~~interest expense on the ~~forgiveness~~Company’s related party convertible notes and the financing of ~~the PPP loan~~certain equipment purchases.

Table of ~~$1.0 million. There was a slight increase in interest expense for~~Contents

Income Taxes

For the three months ended March 31, ~~2022, compared to the same period in 2021 due to the financing of new equipment.~~

~~Income Taxes~~

~~For the three months ended~~2023 and March 31, 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. For the three months ended March 31, 2021, the Company did not record a current provision for income taxes due to the permanent difference related to loan forgiveness and 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 ~~$41,000~~$92,000 for the three months ended March 31, ~~2022,~~2023, compared to net income of ~~$1.1 million~~$42,000 for the three months ended March 31, ~~2021. The 2021 results reflect higher sales, and the gain resulting from the PPP loan forgiveness.~~2022.

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 March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had cash and cash equivalents of ~~$1.8~~$2.0 million. The Company is subject to credit risk due to the concentration of cash balances that exceed the federally insure limits by approximately $1.75 million at March 31, 2023 and ~~$1.8 million, respectively.~~December 31, 2022.

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 ~~8, 2019,~~29, 2022, retroactive to June 1, ~~2019,~~2022, for an additional three-year term. The current lease term expires on May 31, ~~2022.~~2025. The Company is currently negotiating an extension of the lease. Under the terms of the lease, the Company is obligated for all real estate taxes, maintenance, and operating costs of the facility.

On July 22, 2020, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to April 1, 2024, from April 1, 2021. 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, 2024 to April 1, 2027.

~~Table of Contents~~

The following table summarizes net cash (used in) operating, investing, and financing activities for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:

	��
	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2022		2021		2023		2022

	(in thousands)				(in thousands)
Net cash provided by (used in) operating activities	$	249	$	(70)
Net cash provided by operating activities					$	164	$	293
Net cash (used in) investing activities		(246)		(14)		(188)		(516)
Net cash (used in) by financing activities		(12)		—
Net cash provided by financing activities						15		215
Net (decrease) in cash and cash equivalents	$	(8)	$	(83)	$	(9)	$	(8)

Net cash provided by operating activities was ~~$249,000~~$164,000 for the three months ended March 31, ~~2022,~~2023, compared to net cash ~~used in~~provided by operating activities of ~~$70,000~~$293,000 in the same period last year. Net cash provided by operating activities in the three months ended March 31, ~~2022,~~2023, resulted primarily from ~~an increase~~a decrease in ~~inventories,~~other current and non-current assets, an increase in accounts payable and accrued liabilities, and an increase in contract ~~liabilities.~~liabilities offset by an increase in inventories, net, and an increase in accounts receivable.

Net cash used in investing activities was ~~$246,000~~$188,000 during the three months ended March 31, ~~2022,~~2023, compared to ~~$14,000~~$246,000 in the same period last year reflecting capital expenditures in both periods.

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In the three months ended March 31, 2023, proceeds from financing activities included cash received for the issuance of common stock. In the three months ended March 31, 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 decreased by ~~$8,000~~$9,000 and ~~$83,000~~$8,000 for the three months ended March 31, 2023 and 2022, ~~and 2021,~~ respectively.

On May 6, 2020, the Company received loan proceeds of approximately $973,000 (the “PPP Loan”), under the Paycheck Protection Program (“PPP”). The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) which was enacted March 27, 2020. The PPP Loan, which is in the form of a promissory note, dated May 4, 2020, issued by the Company, initially matured on May 4, 2022, and bore interest at a rate of 1.0% per annum.

On January 19, 2021, the Company received notification from the Small Business Association that the Company’s Forgiveness Application of the PPP Loan and accrued interest, totaling $980,000, was approved in full, and the Company had no further obligations related to the PPP Loan. Accordingly, the Company recognized a gain from forgiveness on PPP Loan in the three months ended March 31, 2021.

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 May ~~13, 2023.~~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.

ITEM 4.

CONTROLS AND PROCEDURES

a. Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of March 31, ~~2022~~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.

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PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

Not applicable

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UNDER SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.

OTHER INFORMATION

~~None~~None.

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ITEM 6.

EXHIBITS


	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

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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: May ~~13, 2022~~15, 2023

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