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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Inrad Optics Inc (PK) | USOTC:INRD | OTCMarkets | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 1.08 | 1.08 | 1.09 | 25 | 13:09:08 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the quarterly period ended |
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period from ___________ to ___________ |
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
| ||
State or Other Jurisdiction of |
| I.R.S. Employer Identification No. |
|
|
|
| ||
Address of Principal Executive Offices |
| Zip Code |
(
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 |
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.
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).
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 ☐ |
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
The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of August 11, 2023, was
INRAD OPTICS, INC AND SUBSIDIARIES
INDEX
Part I. | CONDENSED FINANCIAL INFORMATION | |
Item 1. | Condensed Consolidated Financial Statements: | |
Condensed consolidated balance sheets as of June 30, 2023 (unaudited) and December 31, 2022 | 1 | |
2 | ||
3 | ||
4 | ||
Notes to condensed consolidated financial statements (unaudited) | 5 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | |
15 | ||
16 | ||
17 | ||
17 | ||
17 | ||
17 | ||
17 | ||
17 | ||
17 | ||
18 | ||
19 |
INRAD OPTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, | December 31, | |||||
| 2023 |
| 2022 | |||
Assets |
| (Unaudited) |
|
| ||
Current assets: |
|
|
| |||
Cash and cash equivalents | $ | | $ | |||
Accounts receivable, net of allowance for credit losses of $ |
| |
| | ||
Inventories, net |
| |
| | ||
Other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Plant and equipment: | ||||||
Plant and equipment, at cost |
| |
| | ||
Less: Accumulated depreciation and amortization |
| ( |
| ( | ||
Total plant and equipment |
| |
| | ||
Precious metals |
| |
| | ||
Lease right-of-use, net | | | ||||
Other assets |
| |
| | ||
Total assets | $ | | $ | | ||
Liabilities and Shareholders’ Equity | ||||||
Current liabilities: | ||||||
Current portion of other long term notes | $ | | $ | | ||
Accounts payable and accrued liabilities |
| |
| | ||
Contract liabilities |
| |
| | ||
Current portion of lease obligation | | | ||||
Total current liabilities |
| |
| | ||
| |
| | |||
Other long term notes, net of current portion |
| |
| | ||
Lease obligation, net of current portion | | | ||||
Total liabilities |
| |
| | ||
Shareholders’ equity: | ||||||
Common stock: $ |
| |
| | ||
Capital in excess of par value |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
| |
| | |||
Less - Common stock in treasury, at cost ( |
| ( |
| ( | ||
Total shareholders’ equity |
| |
| | ||
Total liabilities and shareholders’ equity | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
1
INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Total revenue | $ | | $ | | $ | | $ | | ||||
Cost and expenses: | ||||||||||||
Cost of goods sold |
| |
| |
| |
| | ||||
Selling, general and administrative expenses |
| |
| |
| |
| | ||||
| |
| |
| |
| | |||||
Income from operations |
| |
| |
| |
| | ||||
Other income (expense): |
| |||||||||||
Interest expense-net |
| ( |
| ( |
| ( |
| ( | ||||
| ( |
| ( |
| ( |
| ( | |||||
|
|
|
| |||||||||
Income before income taxes | | | | | ||||||||
Income tax (provision) benefit |
| |
| |
| |
| | ||||
Net income | $ | | $ | | $ | | $ | | ||||
Net income per common share - basic | $ | | $ | | $ | | $ | | ||||
Net income per common share - diluted | $ | | $ | | $ | | $ | | ||||
Weighted average shares outstanding - basic |
| 14,200,975 |
| |
| |
| | ||||
Weighted average shares outstanding - diluted |
| 17,456,084 |
| |
| 17,488,439 |
| |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
2
INRAD OPTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
Capital in | Total | ||||||||||||||||
Common Stock | Excess of | Accumulated | Treasury | Shareholders’ | |||||||||||||
| Shares |
| Amount |
| Par Value |
| Deficit |
| Stock |
| Equity | ||||||
Balance, January 1, 2022 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
401K contribution | | | | | | | |||||||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, March 31, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Common stock options exercised | | | | | | | |||||||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, June 30, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | |
Capital in | Total | ||||||||||||||||
Common Stock | Excess of | Accumulated | Treasury | Shareholders’ | |||||||||||||
| Shares |
| Amount |
| Par Value |
| Deficit |
| Stock |
| Equity | ||||||
Balance, January 1, 2023 |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||
401K contribution | | | | | | | |||||||||||
Stock-based compensation expense | | | | | | | |||||||||||
Common stock options exercised | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, March 31, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Stock-based compensation expense | | | | | | | |||||||||||
Net income | | | | | | | |||||||||||
Balance, June 30, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
3
INRAD OPTICS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended | ||||||
June 30, | ||||||
| 2023 |
| 2022 | |||
Cash flows from operating activities: |
|
| ||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash (used in) provided by operating activities | ||||||
Depreciation and amortization |
| |
| | ||
401K common stock contribution - non cash item | | | ||||
Stock based compensation |
| | | |||
Change in inventory reserve | | ( | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable |
| ( |
| ( | ||
Inventories |
| ( |
| ( | ||
Other current and noncurrent assets |
| |
| | ||
Accounts payable and accrued liabilities |
| ( |
| | ||
Contract liabilities |
| |
| | ||
Other current and noncurrent liabilities | ( | ( | ||||
Total adjustments and changes | ( | ( | ||||
Net cash provided by operating activities |
| |
| | ||
Cash flows from investing activities: | ||||||
Capital expenditures |
| ( |
| ( | ||
Net cash (used in) investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Proceeds from issuance of common stock | | | ||||
Principal payments on notes payable-other |
| ( |
| ( | ||
Net cash (used in) financing activities |
| ( |
| ( | ||
Net increase (decrease) in cash and cash equivalents |
| |
| ( | ||
Cash and cash equivalents at beginning of period |
| |
| | ||
Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental disclosure of cash flow information: |
| |||||
Interest paid | $ | | $ | | ||
Income taxes paid | $ | | $ | | ||
Significant non-cash activities: | ||||||
Lease right-of-use asset | $ | | $ | | ||
Supplemental disclosure of non-cash investing and financing activities: | ||||||
Acquisition of equipment by issuing a note payable | $ | | $ | |
See Notes to Condensed Consolidated Financial Statements (Unaudited)
4
INRAD OPTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Inrad Optics, Inc., and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued.
Management Estimates
These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods.
Accounts Receivable
Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.
The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended June 30, 2023, there were
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost of manufactured goods includes material, labor, and overhead. The Company records a reserve for slow-moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs of completion exceed unbilled revenues.
5
Inventories are comprised of the following and are shown net of inventory reserves of $
June 30, | December 31, | |||||
| 2023 |
| 2022 | |||
| (Unaudited) |
| ||||
(in thousands) | ||||||
Raw materials | $ | | $ | | ||
Work in process, including manufactured parts and components |
| |
| | ||
Finished goods |
| |
| | ||
$ | | $ | |
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse.
In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near-term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth.
On the basis of this evaluation as of June 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $
For the three and six months ended June 30, 2023 and 2022, the Company did
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options, stock grants and warrants using the average market prices during the period, including potential common shares issuable upon conversion of outstanding convertible notes, except if the effect on the per share amounts is anti-dilutive.
For the three and six months ended June 30, 2023,
For the three and six months ended June 30, 2022,
6
A reconciliation of the shares used in the calculation of basic and diluted earnings (loss) per common share is as follows:
Three Months Ended | Three Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | |||||||||||||||
Income(Loss) | Shares | Per Share | Income(Loss) | Shares | Per Share | |||||||||||
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | |||||
Basic income per share |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income | $ | |
| 14,191,454 | $ | | $ | |
| | $ | | ||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Convertible notes |
| |
| |
| |
| |
| |
| | ||||
Accrued interest on convertible notes |
| |
| |
| |
| |
| |
| | ||||
Warrants |
| |
| |
| |
| |
| |
| | ||||
Stock options |
| |
| |
| |
| |
| |
| | ||||
Diluted income per share | $ | |
| 17,283,387 | $ | | $ | |
| | $ | |
Six Months Ended | Six Months Ended | |||||||||||||||
June 30, 2023 | June 30, 2022 | |||||||||||||||
Income(Loss) | Shares | Per Share | Income(Loss) | Shares | Per Share | |||||||||||
| (Numerator) |
| (Denominator) |
| Amount |
| (Numerator) |
| (Denominator) |
| Amount | |||||
Basic income per share |
| |||||||||||||||
Net income | $ | | | $ | | $ | | | $ | | ||||||
Effect of dilutive securities: | ||||||||||||||||
Convertible notes | | | | | | | ||||||||||
Accrued interest on convertible notes | | | | | | | ||||||||||
Warrants | | | | | | | ||||||||||
Stock options | | | | | | | ||||||||||
Diluted income per share | $ | | 17,321,899 | $ | | $ | | | $ | |
Stock-Based Compensation
Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period.
Recent Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.
NOTE 2 – CONCENTRATION OF CASH
In May 2023, the Company entered into an Insured Cash Sweep (“ICS”) agreement with Valley National Bank, where funds are placed at destination institutions through the service of the Promontory Interfinancial Network, LLC. Such funds placed into the deposit account will not exceed the Federal Deposit Insurance Corporation (“FDIC”) standard maximum deposit insurance amount, currently $250,000, at any one destination institution thereby eliminating credit risk on cash balances over $
7
NOTE 3 – REVENUE
The Company’s revenues are comprised of product sales as well as products and services provided under long-term government contracts with its customers. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of a standalone selling price for each distinct product or service in the contract, which is generally based on an observable price.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.
The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was
The following table summarizes the Company’s sales by market area:
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Aerospace & Defense | $ | | $ | | $ | | $ | | ||||
Process Control & Metrology | | | | | ||||||||
Laser Systems | | | | | ||||||||
Scientific / R&D | | | | | ||||||||
Total | $ | | $ | | $ | | $ | |
The timing of revenue recognition, billings and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities, previously deferred revenue) on the Consolidated Balance Sheet. Contract liabilities also include customer advances or prepayments.
For the three months ended June 30, 2023
The Company’s top five customers represented
On June 30, 2023, the Company had approximately $
8
NOTE 4- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
a) Stock Option Expense
The Company’s results of operations for the three months ended June 30, 2023 and 2022, include stock-based compensation expense for stock option grants totaling $
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Cost of sales | $ | | $ | | $ | | $ | | ||||
Selling, general and administrative | | | | | ||||||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | |
As of June 30, 2023 and 2022, there were $
There were
| Six Months Ended |
| |||
June 30, |
| ||||
2023 |
| 2022 |
| ||
Expected Dividend yield |
| | % | | % |
Expected Volatility |
| | % | | % |
Risk-free interest rate |
| | % | | % |
Expected term |
| years | years |
b) Stock Option Activity
The following table represents stock options granted, exercised, and forfeited during the three and six months ended June 30, 2023:
|
| Weighted |
| Weighted |
| |||||
Average | Average | |||||||||
Exercise | Remaining | Aggregate | ||||||||
Number of | Price per | Contractual | Intrinsic | |||||||
Stock Options |
| Options |
| Option |
| Term (years) |
| Value | ||
Outstanding January 1, 2023 |
| | $ | |
| $ | | |||
Granted |
| |
| |
|
| ||||
Exercised |
| ( |
| |
|
| ||||
Expired/Forfeited |
| ( |
| |
|
| ||||
Outstanding June 30, 2023 |
| | $ | |
| $ | | |||
Exercisable at June 30, 2023 |
| | $ | | $ | |
9
The following table represents non-vested stock options granted, vested, and forfeited for the three and six months ended June 30, 2023:
Weighted-average | ||||
Grant-date Fair Value | ||||
| Options |
| ($) | |
Non-Vested - January 1, 2023 |
| | | |
Granted |
| |
| |
Vested |
| ( |
| |
Forfeited |
| ( |
| |
Non-Vested - June 30, 2023 |
| |
| |
NOTE 5 - STOCKHOLDERS’ EQUITY
The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2022, in February 2023. The Company contributed
NOTE 6 – RELATED PARTY TRANSACTIONS
On August 10, 2023, the maturity dates of a $
NOTE 7 – OTHER LONG-TERM NOTES
Other Long-Term Notes consist of the following:
June 30, | December 31, | |||||
| 2023 |
| 2022 | |||
(Unaudited) | ||||||
(in thousands) | ||||||
U.S. Small Business Administration term note payable in equal monthly installments of $ | $ | | $ | | ||
Long-term equipment financing in equal installments of $ | | | ||||
Less current portion |
| ( |
| ( | ||
Long-term debt, excluding current portion | $ | | $ | |
(1) | The Company purchased certain equipment in the six months ended June 30, 2022, financing approximately $ |
10
NOTE 8 – LEASE AMENDMENT
The Company entered into an amendment and extension of its building lease on July 25, 2022, retroactive to June 1, 2022. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company must determine if such an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease at inception of the arrangement. The Company determined that this lease is an operating lease and presented as a right-of-use lease asset, short term lease liability and long-term lease liability on the consolidated balance sheet. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate.
Lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and general and administrative expenses on the consolidated statement of operations.
An initial right-of-use asset of approximately $
Operating lease costs were $
11
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Caution Regarding Forward Looking Statements
This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The Company wishes to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to comply with the terms of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The events described in the forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of the Company’s plans or strategies, projected or anticipated benefits of acquisitions made by the Company, projections involving anticipated revenues, earnings, or other aspects of the Company’s operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward-looking statements. The Company cautions you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the Company’s control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may affect the Company’s results include, but are not limited to, the risks and uncertainties discussed in Items 1A, 7 and 7A of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 30, 2023. Any one or more of these uncertainties, risks, and other influences could materially affect the Company’s results of operations and whether forward-looking statements made by the Company ultimately prove to be accurate. Readers are further cautioned that the Company’s financial results can vary from quarter to quarter, and the financial results for any period may not necessarily be indicative of future results. The foregoing is not intended to be an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by the Company. The Company’s actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether from the latest information, future events, or otherwise.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in Note 1 of the accompanying condensed consolidated financial statements and further discussed in our annual financial statements included in our annual report on Form 10-K for the year ended December 31, 2022. In preparing our unaudited condensed consolidated financial statements, we made estimates and judgments that affect the results of our operations and the value of assets and liabilities we report. Our inventories are stated at the lower of cost (first-in-first-out basis) and net realizable value. The Company records a reserve for slow moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs-of-completion exceed unbilled revenues. The Company’s estimates also include the amount and timing of future taxable income in determining the valuation allowance for deferred income tax assets. Our actual results may differ from these estimates under different assumptions or conditions.
For additional information regarding our critical accounting policies and estimates, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report filed with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2022.
Results of Operations
The Company is a vertically integrated manufacturer specializing in glass, crystal, and metal based optical components, and sub-assemblies. Manufacturing capabilities include super-precision optical surfacing, precision diamond turning, the ability to manage large substrates, proprietary optical contacting processes, thin film coatings, and high resolution in-process metrology.
Inrad Optics’ customers include leading corporations in the semiconductor equipment, process control and metrology, defense, aerospace, and laser systems sectors of the broad set of photonics enabled industries, as well as the U.S. Government, National Laboratories, universities and institutions worldwide.
All R&D, engineering, manufacturing, and administrative operations are undertaken in our 42,000 square foot facility in Northvale, New Jersey.
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Revenue
Sales for the three months ended June 30, 2023, were $3.8 million, an increase of $1.1 million, or 36.6% compared to $2.7 million, for the three months ended June 30, 2022. For the six months ended June 30, 2023, sales were $6.6 million, an increase of $1.4 million or 57.3% compared to sales of $5.2 million, for the six months ended June 30, 2022.
Sales to the defense/aerospace market decreased by $0.1 million or 10.3% to $0.7 million in the three months ended June 30, 2023, compared to $0.8 million for the three months ended June 30, 2022. For the six months ended June 30, 2023, sales to the defense/aerospace market were $1.1 million, a decrease of $0.5 million, or 29.8%, compared to $1.6 million for the six months ended June 30, 2022. The decrease in sales in the defense/aerospace market was due to manufacturing capacity constraints and the impact of tight labor markets.
Sales to the process control and metrology (“PC&M”) market were $2.6 million for the three months ended June 30, 2023, an increase of $0.8 million or 49.7% compared to sales of $1.7 million in the three months ended June 30, 2022. For the six months ended June 30, 2023, sales to the PC&M market were $4.8 million, an increase of $1.7 million, or 53.9%, compared to $3.1 million for the six months ended June 30, 2022. The increase in sales in the PC&M market for the three and six months ended June 30, 2023, is due to the increase in demand for products used in PC&M applications, especially the semiconductor equipment market.
Sales to customers in the laser systems market were $43,000 for the three and six months ended June 30, 2023, compared to $103,000 and $39,000 for the three and six months ended June 30, 2022, respectively. Products sold into this market segment largely consist of legacy materials for replacement units and small volume last time buys.
Sales to customers in the Scientific/R&D market were $0.5 million for the three months ended June 30, 2023, an increase of $0.3 million, or 134.1%, compared to sales in the Scientific/R&D market of $0.2 million for the three months ended June 30, 2022. Sales in the Scientific/R&D market were $0.6 million for the six months ended June 30, 2023, an increase of $0.3 million, or 76.7%, compared to $0.3 million in sales for the six months ended June 30, 2022. The increase in sales in the Scientific/R&D sector is due to increased demand for our products from U.S. national labs for energy research purposes.
For the three months ended June 30, 2023 four customers represented 10% or more of sales. For the three months ended June 30, 2022, three customers represented 10% or more of sales. For each of the six months ended June 30, 2023 and 2022, three customers represented 10% or more of sales.
The Company’s top five customers represented 73.8% and 63.8% of sales in the three month periods ended June 30, 2023 and 2022, respectively. The Company’s top five customers represented 73.6% in the six month period ended June 30, 2023, compared to 64.2% in the six month period ended June 30, 2022.
Orders booked during the six months ended June 30, 2023 and 2022, totaled $2.9 million and $13.5 million respectively. The decrease in bookings is due to extraordinary demand from several key customers in the six month period ended June 30, 2022, seeking to secure multi-year capacity. Order backlog at June 30, 2023 and 2022, was $16.9 million and $21.3 million, respectively. While we anticipate shipping a considerable portion of the present backlog during the remainder of fiscal year 2023, our current backlog consists of orders with delivery schedules that extend beyond 12 months into the future.
Cost of Goods Sold
For the three months ended June 30, 2023 and 2022, cost of goods sold was $2.3 million and $1.9 million, or 61.9% and 68.6% of total sales, respectively. Cost of goods sold for the six months ended June 30, 2023 and 2022, were $4.3 million and $3.6 million, or 64.8% and 68.7% of total sales, respectively. The increase in costs of goods sold reflects the increase in sales during the three and six month periods ended June 30, 2023.
Gross profit for the three months ended June 30, 2023, was $1.4 million or 38.1% of sales compared to $0.9 million or 31.4% of sales in the same quarter last year. Gross profit for the year-to-date period ending June 30, 2023, was $2.3 million or 35.2% of sales, an increase of $0.7 million, compared to $1.6 million or 31.3% of sales, for the six-month period ended June 30, 2022. The increase in gross profit for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, is due to higher sales and efficiency gains from strategic product focus and improvements in production processes.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses (“SG&A” expenses) were $0.7 million in the three months ended June 30, 2023, or 18.5% of sales and $0.8 million, or 27.7% of sales, in the three months ended June 30, 2022. The decrease in SG&A expenses in the three months ended June 30, 2023, reflects lower wages in that time period. SG&A expenses in each of the six-month periods ended June 30, 2023 and 2022, were $1.4 million, or 22.0% and 27.7% of sales, respectively.
Income from Operations
The Company realized income from operations of $0.7 million for the three months ended June 30, 2023, compared with net income from operations of $0.1 million in the three months ended June 30, 2022. The increase in income primarily reflects an increase in sales coupled with lower SG&A expenses. The Company realized income from operations of $0.9 million for the six months ended June 30, 2023, compared income from operations for the six months ended June 30, 2022, of $0.2 million. The increase in income from operations is primarily due to higher revenues.
Other Income (Expense)
Other income reflects the interest expense on the Company’s related party convertible notes and the financing of certain equipment purchases.
Income Taxes
For the three and six months ended June 30, 2023 and June 30, 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.
Net Income
The Company had net income of $0.7 million for the three months ended June 30, 2023, compared to net income of $0.1 million for the three months ended June 30, 2022. The change primarily reflects an increase in sales coupled with a decrease in SG&A costs. For the six months ended June 30, 2023, the Company recorded net income of $0.8 million compared to net income of $0.1 million for the six months ended June 30, 2022. The increase in net income reflects higher sales in the six months ended June 30, 2023.
Liquidity and Capital Resources
The Company’s primary source of liquidity is cash and cash equivalents and on-going collection of accounts receivable. The Company’s major use of cash in recent years has been for financing operations, for payment of accrued and current interest on convertible debt, for servicing of long-term debt, and for capital expenditures.
As of June 30, 2023 and December 31, 2022, the Company had cash and cash equivalents of $2.2 million and $2.0 million, respectively. Although the Company has a concentration of cash balances that exceed the federally insured balances, Inrad Optics entered into an Insured Cash Sweep (“ICS”) agreement with Valley National Bank, where funds are placed at destination institutions through the service of the Promontory Interfinancial Network, LLC. Such funds placed into the deposit account will not exceed the Federal Deposit Insurance Corporation (“FDIC”) standard maximum deposit insurance amount, currently $250,000, at any one destination institution.
The Company occupies approximately 42,000 square feet of space located at 181 Legrand Avenue, Northvale, New Jersey pursuant to a net lease which was amended on July 29, 2022, retroactive to June 1, 2022, for an additional three-year term. The current lease term expires on May 31, 2025. Under the terms of the lease, the Company is obligated for all real estate taxes, maintenance, and operating costs of the facility.
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On August 10, 2023, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to August 15, 2024, from April 1, 2024. The notes bear interest at 6%. Interest accrues yearly and is payable on maturity. Unpaid interest, along with principal, may be converted into securities of the Company as follows: the notes are convertible in the aggregate into 1,500,000 units and 1,000,000 units, respectively, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to acquire 0.75 shares of common stock at a price of $1.35 per share. As part of the agreement to extend the maturity date of the notes, the expiration dates of the warrants were extended from April 1, 2027 to August 15, 2027.
The following table summarizes net cash (used in) operating, investing, and financing activities for the six months ended June 30, 2023 and 2022:
| Six Months Ended | |||||
June 30, | ||||||
| 2023 |
| 2022 | |||
| (in thousands) | |||||
Net cash provided by operating activities | $ | 431 | $ | 87 | ||
Net cash (used in) investing activities | (204) | (303) | ||||
Net cash (used in) financing activities | (2) | (66) | ||||
Net (decrease) increase in cash and cash equivalents | $ | 227 | $ | (282) |
Net cash provided by operating activities was $431,000 for the six months ended June 30, 2023, compared to net cash provided by operating activities of $87,000 in the same period last year. Net cash provided by operating activities in the six months ended June 30, 2023, resulted primarily from an increase in net income and a decrease in inventories offset by a decrease in other current and non-current assets, a decrease in accounts payable and accrued liabilities, and an increase in accounts receivable. The net cash provided by operating activities in the six months ended June 30, 2022, resulted primarily from operating income and increases in accounts payable and contract liabilities, offset increases in accounts receivable and inventories.
Net cash used in investing activities was $204,000 during the six months ended June 30, 2023, compared to $303,000 in the same period last year reflecting capital expenditures in both periods.
In the six months ended June 30, 2023, proceeds from financing activities included cash received for the issuance of common stock net of principal payments on notes payable. In the six months ended June 30, 2022, the Company purchased certain equipment, financing approximately $270,000 at a fixed annual interest rate of 6.1% for five years payable in equal monthly installments.
Overall, cash and cash equivalents increased by $226,000 for the six months ended June 30, 2023. Cash and cash equivalents decreased by $282,000 in the six months ended June 30, 2022.
Management believes, based on the Company’s operations and its existing working capital resources together with existing cash flows, that the Company has sufficient cash flows to fund operations through at least August 15, 2024.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is a smaller reporting company and not required to provide the information required under this item.
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ITEM 4. | CONTROLS AND PROCEDURES |
a. Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2023 (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (2) is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
b. Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
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ITEM 6. | EXHIBITS |
101.INS | Inline XBRL Instance Document* | |
101.SCH | Inline XBRL Taxonomy Extension Schema* | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase* | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase* | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase* | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase* | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL and Contained in Exhibit 101) |
* | Filed herewith |
** | Furnished herewith |
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Inrad Optics, Inc. |
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| By: | /s/ Amy Eskilson |
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| Amy Eskilson |
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| President and Chief Executive Officer |
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|
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| By: | /s/ Theresa A. Balog |
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| Theresa A. Balog |
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| Chief Financial Officer, |
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| Secretary and Treasurer |
Date: August 11, 2023 |
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|
19
Exhibit 4.1
THIS CONVERTIBLE PROMISSORY NOTE HAS BEEN, AND ANY SHARES ISSUED UPON CONVERSION PURSUANT TO THE TERMS HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THIS CONVERTIBLE PROMISSORY NOTE, AND ANY SECURITIES ISSUED UPON CONVERSION PURSUANT TO THIS NOTE, HAVE NOT BEEN REGISTERED UNDER THE ACT OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT OR THOSE LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
THIS NOTE IS ISSUED IN SUBSTITUTION FOR, AND SUPERSEDES, THE ORIGINAL NOTE DATED OCTOBER 31, 2003 AND ALL NOTES SUBSEQUENTLY ISSUED TO EXTEND THE ORIGINAL TERM.
Principal Amount: | $1,500,000 | August 10, 2023 |
FOR VALUE RECEIVED, INRAD OPTICS, INC. (FORMERLY PHOTONIC
PRODUCTS GROUP INC., AND INRAD, INC.), a New Jersey corporation (hereinafter called “Issuer”), hereby promises to pay to the order of CLAREX, LIMITED. and its successors and assigns (hereinafter called the “Holder”), at such address as the Holder may designate in writing to Issuer, the principal sum of ONE MILLION DOLLARS FIVE HUNDRED THOUSAND ($1,500,000) plus all accrued interest owing hereunder in lawful money of the United States of America on or before the Maturity Date (as defined below), unless this Convertible Promissory Note (the “Note”) is converted by the Holder as set forth herein. For purposes of this Note, “Maturity Date” shall mean August 15, 2024.
1.Interest. Interest shall accrue on the unpaid principal amount of this Note at the rate of six percent (6%) per annum and shall be due and payable on the Maturity Date. Interest shall be computed on the basis of a 360 day year for the actual number of days elapsed.
2.Optional Prepayment; Order of Payments. Issuer may prepay this Note at any time, in whole or in part, without premium or penalty; provided, however, Issuer shall provide to the Holder written notice at least ten (10) business days prior to such prepayment. All payments made on account of this Note shall be applied first to the payment of any costs of enforcement then due hereunder, second to the payment of accrued and unpaid interest then due hereunder, and the remainder, if any, shall be applied to the unpaid principal balance of this Note.
3.Event of Default Defined; Acceleration of Maturity. If one or more of the following events (“Events of Default”) shall have occurred:
(a)a default in the payment of all or any part of the principal or interest due under this Note as and when the same shall become due and payable, at maturity, by declaration as permitted hereunder, upon acceleration or otherwise;
(b)Issuer shall merge or consolidate with or into any other person or entity, sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets or adopt a plan of liquidation or dissolution; provided, however, that Issuer shall have the right to merge with any other entity so long as Issuer shall be the surviving entity in any such merger;
(c)Issuer shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with the consent of Issuer; or Issuer is generally not paying its debts as they become due or is insolvent, or has made a general assignment for the benefits of its creditors; or Issuer files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with its creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within sixty (60) days after the commencement of any proceeding against Issuer seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of Issuer or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or if, within sixty (60) days after the expiration of any such stay, such order or appointment shall not have been vacated (all such events, collectively “Insolvency Events”);
Then Holder, by notice in writing to Issuer (the “Acceleration Notice”), may declare the principal amount of this Note and all accrued but unpaid interest to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable; provided that if an Insolvency Event occurs, the principal amount of this Note and all accrued but unpaid interest shall become and be immediately due and payable without any declaration or other act on the part of the Holder.
4.Conversion. The Holder may, at any time prior to the earlier of the Maturity Date or the prepayment of this Note by Issuer, convert all or a portion of the principal and accrued interest then outstanding under this Note into one Unit for each dollar converted (or an aggregate of 1,500,000 Units, exclusive of accrued interest) with each Unit consisting of one fully paid and non-assessable share of Issuer’s Common Stock (the “Common Stock”) and one Warrant in the form of Exhibit A hereto to acquire 0.75 shares of Issuer’s Common Stock at a price of $1.35 up to August 15, 2027 (i.e. if this Note were converted in full, for principal amount other than accrued interest, the Holder would receive 1,500,000 shares of Common Stock and 1,125,000 Warrants). Such conversion shall be effected by the Holder by sending a written notice of conversion and this Note to Issuer for cancellation and issuance of the number of shares of Common Stock and Warrants into which this Note is being converted. In the event this Note is being converted in part, a replacement Note representing the unconverted portion of this Note shall be delivered to the Holder. Upon conversion of this Note, only whole shares of Common Stock shall be issued. Any remainder due hereunder which is insufficient to purchase a whole share of Common Stock shall be paid by Issuer in cash.
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4.1Subdivision or Combination of Common Stock. In case Issuer shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.
4.2Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of Issuer (other than in connection with a merger or other reorganization in which Issuer is not the surviving entity) shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby the Holder shall thereupon have the right to receive upon the conversion of this Note, upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of this Note, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the shares of Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.
4.3Notice of Adjustment. Upon any adjustment of the Conversion Price, then and in each such case Issuer shall give written notice thereof, by delivery in person, certified or registered mail, return receipt requested, telecopier or telex, addressed to the Holder at the address of the Holder, as provided to Issuer, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based.
4.4Due Issuance of Shares Upon Conversion. Issuer covenants and agrees that all shares of Common Stock or any such other securities which may be issued upon any whole or partial conversion of this Note will, upon issuance, be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.
4.5Stock to be Reserved. Issuer will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of this Note as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion hereof. Issuer will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of this Note would, when added to the number of shares of Common Stock then reserved for issuance, exceed the total number of shares of Common Stock then authorized by Issuer’s Certificate of Incorporation.
5.Subordination. The Issuer hereby agrees, and the Holder of this Note by its acceptance agrees, that the payment of the principal of and interest on the Note is hereby expressly made subordinate and junior in right of payment, to the extent set forth in the following paragraphs
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(a), (b) and (c), to the prior payment in full of all Senior Debt of the Issuer, whether such Senior Debt, except as provided in Section 5 below, is incurred prior to, on or after the date hereof:
(a)In the event of insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to the Issuer or to any of the property of the Issuer, or in the event or any proceedings for voluntary liquidation, dissolution, or other winding-up of the Issuer, whether or not involving insolvency or bankruptcy, then the holders of Senior Debt shall be entitled to receive payment in full of all principal of and interest on all Senior Debt before the Holder of this Note shall be entitled to receive any payment on account of principal or interest on this Note, and to that end the holders of Senior Debt shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, which may be payable or deliverable in any such proceedings in respect of this Note.
(b)In the event that this Note is declared due and payable prior to its stated maturity, by reason of the occurrence of an Event of Default hereunder (under circumstances when the provisions of the foregoing paragraph (a) shall not be applicable), then all principal of and interest on all Senior Debt outstanding at the time of such declaration shall first be paid in full, before any payment on account of principal or interest is made upon this Note.
(c)The Issuer may make payments and, subject to Section 1 of this Note, prepayments of the principal of and interest of this Note if, at the time of the payment and immediately after giving effect thereto, (i) there exists no default in any payment with respect to any Senior Debt and (ii) there shall not have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Debt, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, other than an event of default which shall have been cured or waived or shall have ceased to exist. Should the Holder of this Note, while there exists a default or an event of default as provided in the immediately preceding sentence, and after being notified by the holder of the Senior Debt of the default, receive any such payment, or should the Holder of this Note receive any distribution in bankruptcy, dissolution, or similar insolvency proceedings in regard to the Issuer, the Holder of the Note will hold such payment or distribution in trust for the holder of the Senior Debt and will pay over such amounts to such holder to apply to the Senior Debt until the same is paid in full.
The provisions of this Section 5 are for the purpose of defining the relative rights of the holders of Senior Debt and the Holder of the Note against the Issuer and its property. Nothing herein shall impair, as between the Issuer and the Holder of this Note, the obligation of the Issuer, which is unconditional and absolute, to pay to the Holder the principal and interest in accordance with the terms and the provisions hereof; nor shall anything herein prevent the Holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default under this Note, subject to the rights, if any, under this Section 5 of holders of Senior Debt to receive cash, property, stock or obligation otherwise payable or deliverable to the Holder of this Note. The Issuer acknowledges and agrees that the rights of the Holder of this Note with respect to the Issuer’s cash, property, rights and other assets of any kind are senior and prior to the rights of any holder of capital stock of the Issuer arising from such capital stock.
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(d)Definition. “Senior Debt” shall mean the principal of, interest on and, if applicable, any premium on (i) the debt of the Issuer outstanding as of the date hereof, (ii) additional indebtedness incurred by the Issuer after date hereof for money borrowed from a bank, savings and loan association trust Issuer, insurance Issuer or similar financial institution, (iii) purchase money secured debt, (iv) obligations of the Issuer as lessee under leases of real or personal property which are treated as capital lease obligations under generally accepted accounting principles, and (v) any deferrals, renewals, re-financings or extensions of any of the foregoing.
6.Miscellaneous.
6.1Binding Effect; Assignability. This Note shall be binding upon Issuer, its successors and its assigns, and shall inure to the benefit of Holder, its successors and its assigns. This Note is transferable or assignable by the Holder or any transferee of the Holder only to an Affiliate or a partner, or an heir, administrator, executor or successor of the Holder; provided that such transfer or assignment is made in compliance with the Act and any applicable state and foreign securities laws.
6.2Governing Law; Jurisdiction; Venue. This Note has been executed in and shall be governed by the laws of the State of New Jersey. Issuer irrevocably submits to the exclusive jurisdiction of the courts of the State of New Jersey which will be the exclusive jurisdiction for disputes arising under the Note and the United States District Court for the District of New Jersey for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Note.
IN WITNESS WHEREOF, Issuer has caused this Note to be signed in its name by its duly authorized officer and its corporate seal to be affixed hereto.
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| INRAD OPTICS, INC. | ||
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| | By: | | |
| | | ||
| | Theresa A. Balog, | ||
| | Chief Financial Officer, Secretary and Treasurer | ||
| | |
| By: | Date: | August 11, 2023 | |
| | Denora Marshall-Mcphee & Dwight Dorsett | ||
| | On behalf of Erie Limited, Sole Director | ||
| | Authorized Signatories | ||
| | |||
| By: | | Date: | |
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Exhibit 4.2
THIS CONVERTIBLE PROMISSORY NOTE HAS BEEN, AND ANY SHARES ISSUED UPON CONVERSION PURSUANT TO THE TERMS HEREOF WILL BE, ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THIS CONVERTIBLE PROMISSORY NOTE, AND ANY SECURITIES ISSUED UPON CONVERSION PURSUANT TO THIS NOTE, HAVE NOT BEEN REGISTERED UNDER THE ACT OR ANY STATE SECURITIES LAW, AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF THE ACT OR THOSE LAWS OR IF AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
THIS NOTE IS ISSUED IN SUBSTITUTION FOR, AND SUPERSEDES, THE ORIGINAL NOTE DATED DECEMBER 31, 2002 AND ALL NOTES SUBSEQUENTLY ISSUED TO EXTEND THE ORIGINAL TERM.
Principal Amount: | $1,000,000 | August 10, 2023 |
FOR VALUE RECEIVED, INRAD OPTICS, INC. (FORMERLY PHOTONIC PRODUCTS GROUP INC., AND INRAD, INC.), a New Jersey corporation (hereinafter called "Issuer"), hereby promises to pay to the order of WELLAND, LIMITED and its successors and assigns (hereinafter called the "Holder"), at such address as the Holder may designate in writing to Issuer, the principal sum of ONE MILLION ($1,000,000) plus all accrued interest owing hereunder in lawful money of the United States of America on or before the Maturity Date (as defined below), unless this Convertible Promissory Note (the "Note") is converted by the Holder as set forth herein. For purposes of this Note, "Maturity Date" shall mean August 15, 2024.
1.Interest. Interest shall accrue on the unpaid principal amount of this Note at the rate of six percent (6%) per annum and shall be due and payable on the Maturity Date. Interest shall be computed on the basis of a 360 day year for the actual number of days elapsed.
2.Optional Prepayment; Order of Payments. Issuer may prepay this Note at any time, in whole or in part, without premium or penalty; provided, however, Issuer shall provide to the Holder written notice at least ten (10) business days prior to such prepayment. All payments made on account of this Note shall be applied first to the payment of any costs of enforcement then due hereunder, second to the payment of accrued and unpaid interest then due hereunder, and the remainder, if any, shall be applied to the unpaid principal balance of this Note.
3.Event of Default Defined; Acceleration of Maturity. If one or more of the following events ("Events of Default") shall have occurred:
(a)a default in the payment of all or any part of the principal or interest due under this Note as and when the same shall become due and payable, at maturity, by declaration as permitted hereunder, upon acceleration or otherwise;
(b)Issuer shall merge or consolidate with or into any other person or entity, sell, transfer, lease or otherwise dispose of all or any substantial portion of its assets or adopt a
plan of liquidation or dissolution; provided, however, that Issuer shall have the right to merge with any other entity so long as Issuer shall be the surviving entity in any such merger;
(c)Issuer shall have applied for or consented to the appointment of a custodian, receiver, trustee or liquidator, or other court-appointed fiduciary of all or a substantial part of its properties; or a custodian, receiver, trustee or liquidator or other court appointed fiduciary shall have been appointed with the consent of Issuer; or Issuer is generally not paying its debts as they become due or is insolvent, or has made a general assignment for the benefits of its creditors; or Issuer files a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with its creditors or seeking to take advantage of any insolvency law, or an answer admitting the material allegations of a petition in any bankruptcy, reorganization or insolvency proceeding or has taken action for the purpose of effecting any of the foregoing; or if, within sixty (60) days after the commencement of any proceeding against Issuer seeking any reorganization, rehabilitation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under the Federal bankruptcy code or similar order under future similar legislation, the appointment of any trustee, receiver, custodian, liquidator, or other court-appointed fiduciary of Issuer or of all or any substantial part of its properties, such order or appointment shall not have been vacated or stayed on appeal or if, within sixty (60) days after the expiration of any such stay, such order or appointment shall not have been vacated (all such events, collectively "Insolvency Events");
Then Holder, by notice in writing to Issuer (the "Acceleration Notice"), may declare the principal amount of this Note and all accrued but unpaid interest to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable; provided that if an Insolvency Event occurs, the principal amount of this Note and all accrued but unpaid interest shall become and be immediately due and payable without any declaration or other act on the part of the Holder.
4.Conversion. The Holder may, at any time prior to the earlier of the Maturity Date or the prepayment of this Note by Issuer, convert all or a portion of the principal and accrued interest then outstanding under this Note into one Unit for each dollar converted (or an aggregate of 1,000,000 Units, exclusive of accrued interest) with each Unit consisting of one fully paid and non-assessable share of Issuer’s Common Stock (the "Common Stock") and one Warrant in the form of Exhibit A hereto to acquire 0.75 shares of Issuer’s Common Stock at a price of $1.35 up to August 15, 2027 (i.e. if this Note were converted in full, for principal amount other than accrued interest, the Holder would receive 1,000,000 shares of Common Stock and 750,000 Warrants). Such conversion shall be effected by the Holder by sending a written notice of conversion and this Note to Issuer for cancellation and issuance of the number of shares of Common Stock and Warrants into which this Note is being converted. In the event this Note is being converted in part, a replacement Note representing the unconverted portion of this Note shall be delivered to the Holder. Upon conversion of this Note, only whole shares of Common Stock shall be issued. Any remainder due hereunder which is insufficient to purchase a whole share of Common Stock shall be paid by Issuer in cash.
4.1Subdivision or Combination of Common Stock. In case Issuer shall at any time subdivide (by any stock split, stock dividend or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the outstanding shares of
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Common Stock shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased.
4.2Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of Issuer (other than in connection with a merger or other reorganization in which Issuer is not the surviving entity) shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby the Holder shall thereupon have the right to receive upon the conversion of this Note, upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of this Note, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for the shares of Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights.
4.3Notice of Adjustment. Upon any adjustment of the Conversion Price, then and in each such case Issuer shall give written notice thereof, by delivery in person, certified or registered mail, return receipt requested, telecopier or telex, addressed to the Holder at the address of the Holder, as provided to Issuer, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the method upon which such calculation is based.
4.4Due Issuance of Shares Upon Conversion. Issuer covenants and agrees that all shares of Common Stock or any such other securities which may be issued upon any whole or partial conversion of this Note will, upon issuance, be validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issue thereof.
4.5Stock to be Reserved. Issuer will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of this Note as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion hereof. Issuer will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock issued and issuable after such action upon conversion of this Note would, when added to the number of shares of Common Stock then reserved for issuance, exceed the total number of shares of Common Stock then authorized by Issuer’s Certificate of Incorporation.
5.Subordination. The Issuer hereby agrees, and the Holder of this Note by its acceptance agrees, that the payment of the principal of and interest on the Note is hereby expressly made subordinate and junior in right of payment, to the extent set forth in the following paragraphs (a), (b) and (c), to the prior payment in full of all Senior Debt of the Issuer, whether such Senior Debt, except as provided in Section 5 below, is incurred prior to, on or after the date hereof:
(a)In the event of insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to the Issuer or to any of the property of the Issuer, or in the event or any proceedings for voluntary liquidation,
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dissolution, or other winding-up of the Issuer, whether or not involving insolvency or bankruptcy, then the holders of Senior Debt shall be entitled to receive payment in full of all principal of and interest on all Senior Debt before the Holder of this Note shall be entitled to receive any payment on account of principal or interest on this Note, and to that end the holders of Senior Debt shall be entitled to receive for application in payment thereof any payment or distribution of any kind or character, whether in cash or property or securities, which may be payable or deliverable in any such proceedings in respect of this Note.
(b)In the event that this Note is declared due and payable prior to its stated maturity, by reason of the occurrence of an Event of Default hereunder (under circumstances when the provisions of the foregoing paragraph (a) shall not be applicable), then all principal of and interest on all Senior Debt outstanding at the time of such declaration shall first be paid in full, before any payment on account of principal or interest is made upon this Note.
(c)The Issuer may make payments and, subject to Section 1 of this Note, prepayments of the principal of and interest of this Note if, at the time of the payment and immediately after giving effect thereto, (i) there exists no default in any payment with respect to any Senior Debt and (ii) there shall not have occurred an event of default (other than a default in the payment of amounts due thereon) with respect to any Senior Debt, as defined in the instrument under which the same is outstanding, permitting the holders thereof to accelerate the maturity thereof, other than an event of default which shall have been cured or waived or shall have ceased to exist. Should the Holder of this Note, while there exists a default or an event of default as provided in the immediately preceding sentence, and after being notified by the holder of the Senior Debt of the default, receive any such payment, or should the Holder of this Note receive any distribution in bankruptcy, dissolution, or similar insolvency proceedings in regard to the Issuer, the Holder of the Note will hold such payment or distribution in trust for the holder of the Senior Debt and will pay over such amounts to such holder to apply to the Senior Debt until the same is paid in full.
The provisions of this Section 5 are for the purpose of defining the relative rights of the holders of Senior Debt and the Holder of the Note against the Issuer and its property. Nothing herein shall impair, as between the Issuer and the Holder of this Note, the obligation of the Issuer, which is unconditional and absolute, to pay to the Holder the principal and interest in accordance with the terms and the provisions hereof; nor shall anything herein prevent the Holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default under this Note, subject to the rights, if any, under this Section 5 of holders of Senior Debt to receive cash, property, stock or obligation otherwise payable or deliverable to the Holder of this Note. The Issuer acknowledges and agrees that the rights of the Holder of this Note with respect to the Issuer’s cash, property, rights and other assets of any kind are senior and prior to the rights of any holder of capital stock of the Issuer arising from such capital stock.
(d)Definition. “Senior Debt” shall mean the principal of, interest on and, if applicable, any premium on (i) the debt of the Issuer outstanding as of the date hereof, (ii) additional indebtedness incurred by the Issuer after date hereof for money borrowed from a bank, savings and loan association trust Issuer, insurance Issuer or similar financial institution, (iii) purchase money secured debt, (iv) obligations of the Issuer as lessee under leases of real or personal property which are treated as capital lease obligations under generally accepted accounting principles, and (v) any deferrals, renewals, re-financings or extensions of any of the foregoing.
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6.Miscellaneous.
6.1Binding Effect; Assignability. This Note shall be binding upon Issuer, its successors and its assigns, and shall inure to the benefit of Holder, its successors and its assigns. This Note is transferable or assignable by the Holder or any transferee of the Holder only to an Affiliate or a partner, or an heir, administrator, executor or successor of the Holder; provided that such transfer or assignment is made in compliance with the Act and any applicable state and foreign securities laws.
6.2Governing Law; Jurisdiction; Venue. This Note has been executed in and shall be governed by the laws of the State of New Jersey. Issuer irrevocably submits to the exclusive jurisdiction of the courts of the State of New Jersey which will be the exclusive jurisdiction for disputes arising under the Note and the United States District Court for the District of New Jersey for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Note.
IN WITNESS WHEREOF, Issuer has caused this Note to be signed in its name by its duly authorized officer and its corporate seal to be affixed hereto.
| INRAD OPTICS, INC. | |
| | |
| By: | |
| | |
| Theresa A. Balog, | |
| Chief Financial Officer, Secretary and Treasurer |
| Acknowledged and accepted on behalf of WELLAND, | |||
| | |||
| By: | Date: | August 11, 2023 | |
| Denora Marshall-Mcphee & Dwight Dorsett | |||
| Authorized Signatories | |||
| ||||
| | |||
| By: | | Date: | |
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Exhibit 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Amy Eskilson certify that:
1. | I have reviewed the quarterly report on Form 10-Q of Inrad Optics, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d -15(f)) for the registrants and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function(s): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: August 11, 2023 | /s/Amy Eskilson |
| President and Chief Executive Officer |
A signed original of this written statement required by Section 302 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.
Exhibit 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Theresa A. Balog certify that:
1. | I have reviewed the quarterly report on Form 10-Q of Inrad Optics, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d -15(f)) for the registrants and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function(s): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: August 11, 2023 | /s/ Theresa A. Balog |
| Chief Financial Officer, |
| Secretary and Treasurer |
A signed original of this written statement required by Section 302 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inrad Optics, Inc. on Form 10-Q for the period ended June 30, 2023, filed with the Securities and Exchange Commission (the “Report”), I, Amy Eskilson, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. |
Dated: August 11, 2023 | /s/Amy Eskilson |
| President and Chief Executive Officer |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Inrad Optics, Inc. on Form 10-Q for the period ended June 30, 2023, filed with the Securities and Exchange Commission (the “Report”), I, Theresa A. Balog of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. |
Dated: August 11, 2023 | /s/ Theresa A. Balog |
| Chief Financial Officer, |
| Secretary and Treasurer |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and has not been filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to Inrad Optics, Inc. and will be retained by Inrad Optics, Inc. and furnished to the Securities Exchange Commission or its staff upon request.
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Allowance for credit losses | $ 46,000 | $ 46,000 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 60,000,000 | 60,000,000 |
Common stock, shares issued | 14,205,575 | 14,092,920 |
Treasury stock, shares | 4,600 | 4,600 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
Total revenue | $ 3,766,382 | $ 2,740,055 | $ 6,573,544 | $ 5,177,151 |
Cost and expenses: | ||||
Cost of goods sold | 2,332,719 | 1,880,437 | 4,259,610 | 3,557,967 |
Selling, general and administrative expenses | 696,623 | 757,820 | 1,446,986 | 1,434,372 |
Cost and expenses, Total | 3,029,342 | 2,638,257 | 5,706,596 | 4,992,339 |
Income from operations | 737,040 | 101,798 | 866,948 | 184,812 |
Other income (expense): | ||||
Interest expense-net | (37,421) | (42,883) | (75,802) | (84,465) |
Nonoperating Income (Expense) | (37,421) | (42,883) | (75,802) | (84,465) |
Income before income taxes | 699,619 | 58,915 | 791,146 | 100,347 |
Income tax (provision) benefit | 0 | 0 | 0 | 0 |
Net income | $ 699,619 | $ 58,915 | $ 791,146 | $ 100,347 |
Net income per common share - basic | $ 0.05 | $ 0 | $ 0.06 | $ 0.01 |
Net income per common share - diluted | $ 0.04 | $ 0 | $ 0.05 | $ 0.01 |
Weighted average shares outstanding - basic | 14,025,820 | 14,191,454 | 13,992,068 | |
Weighted average shares outstanding - diluted | 14,791,747 | 14,675,384 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Inrad Optics, Inc., and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated. The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued. Management Estimates These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods. Accounts Receivable Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended June 30, 2023, there were no changes to the estimate for credit losses. For the period ended June 30, 2022, the estimate for credit losses was $46,000. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost of manufactured goods includes material, labor, and overhead. The Company records a reserve for slow-moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs of completion exceed unbilled revenues. Inventories are comprised of the following and are shown net of inventory reserves of $2,590,000 and $2,398,000 at June 30, 2023 and December 31, 2022, respectively:
Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near-term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation as of June 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $2,416,000, and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings. For the three and six months ended June 30, 2023 and 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes. Net Income (Loss) per Common Share Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options, stock grants and warrants using the average market prices during the period, including potential common shares issuable upon conversion of outstanding convertible notes, except if the effect on the per share amounts is anti-dilutive. For the three and six months ended June 30, 2023, 2,500,000 common shares issuable upon conversion of outstanding related party convertible notes were included in the computation of basic and diluted net income per common share because their effect is dilutive. For the three and six months ended June 30, 2023, 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 35,000 common stock options were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. For the three and six months ended June 30, 2022, 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 15,000 common stock options were excluded from basic and diluted net income per common share because their effect is anti-dilutive. A reconciliation of the shares used in the calculation of basic and diluted earnings (loss) per common share is as follows:
Stock-Based Compensation Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period. Recent Accounting Standards In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements. |
CONCENTRATION OF CASH |
6 Months Ended |
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Jun. 30, 2023 | |
CONCENTRATION OF CASH | |
CONCENTRATION OF CASH | NOTE 2 – CONCENTRATION OF CASH In May 2023, the Company entered into an Insured Cash Sweep (“ICS”) agreement with Valley National Bank, where funds are placed at destination institutions through the service of the Promontory Interfinancial Network, LLC. Such funds placed into the deposit account will not exceed the Federal Deposit Insurance Corporation (“FDIC”) standard maximum deposit insurance amount, currently $250,000, at any one destination institution thereby eliminating credit risk on cash balances over $250,000. The Company was subject to credit risk due to the concentration of cash balances that exceeded the federally insured limits by approximately $1.75 million at December 31, 2022, on cash balances of approximately $2.0 million at December 31, 2022. |
REVENUE |
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REVENUE | NOTE 3 – REVENUE The Company’s revenues are comprised of product sales as well as products and services provided under long-term government contracts with its customers. All revenue is recognized when the Company satisfies its performance obligation(s) under the contract (either implicit or explicit) by transferring the promised product or service to its customer either when (or as) its customer obtains control of the product or service. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using the Company’s best estimate of a standalone selling price for each distinct product or service in the contract, which is generally based on an observable price. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold. The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was 100% of revenue for each of the three and six months ended June 30, 2023 and 2022, respectively. The Company recognizes revenue at the point in time in which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment. In limited cases, title does not transfer, and revenue is not recognized until the customer has received the products at its physical location. The following table summarizes the Company’s sales by market area:
The timing of revenue recognition, billings and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities, previously deferred revenue) on the Consolidated Balance Sheet. Contract liabilities also include customer advances or prepayments. For the three months ended June 30, 2023 four customers represented 10% or more of sales. For the three months ended June 30, 2022, three customers represented 10% or more of sales. For each of the six months ended June 30, 2023 and 2022, three customers represented 10% or more of sales. The Company’s top five customers represented 73.8% and 63.8% of sales in the three month periods ended June 30, 2023 and 2022, respectively. The Company’s top five customers represented 73.6% in the six month period ended June 30, 2023, compared to 64.2% in the six month period ended June 30, 2022. On June 30, 2023, the Company had approximately $16.9 million of performance obligations, which is also referred to as backlog. Approximately 12.2% of the June 30, 2023, backlog is related to projects that will extend beyond June 30, 2024. |
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION |
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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION | NOTE 4- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION a) Stock Option Expense The Company’s results of operations for the three months ended June 30, 2023 and 2022, include stock-based compensation expense for stock option grants totaling $27,684 and $32,604, respectively. For the six months ended June 30, 2023 and 2022, stock-based compensation expense for stock option grants totaled $61,887 and $54,162, respectively. The following table shows the amounts for stock-based compensation included in cost of sales and selling, general and administrative expense for the three and six months ended June 30, 2023 and 2022:
As of June 30, 2023 and 2022, there were $208,000 and $299,000 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over a weighted average period of approximately 1.26 years and 1.54 years, respectively. There were 20,000 stock options granted during the six months ended June 30, 2023, and 200,000 stock options granted during the six months ended June 30, 2022. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the three and six months ended June 30, 2023 and 2022:
b) Stock Option Activity The following table represents stock options granted, exercised, and forfeited during the three and six months ended June 30, 2023:
The following table represents non-vested stock options granted, vested, and forfeited for the three and six months ended June 30, 2023:
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STOCKHOLDERS' EQUITY |
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STOCKHOLDERS' EQUITY | NOTE 5 - STOCKHOLDERS’ EQUITY The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2022, in February 2023. The Company contributed 33,322 common shares of Inrad Optics, Inc., and cash of $82,000 to the Plan in February 2023. |
RELATED PARTY TRANSACTIONS |
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Jun. 30, 2023 | |
RELATED PARTY TRANSACTIONS | |
RELATED PARTY TRANSACTIONS | NOTE 6 – RELATED PARTY TRANSACTIONS On August 10, 2023, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to August 15, 2024, from April 1, 2024. The notes bear interest at 6%. Interest accrues yearly and is payable on maturity. Unpaid interest, along with principal, may be converted into securities of the Company as follows: the notes are convertible in the aggregate into 1,500,000 units and 1,000,000 units, respectively, with each unit consisting of one share of common stock and one warrant. Each warrant allows the holder to acquire 0.75 shares of common stock at a price of $1.35 per share. As part of the agreement to extend the maturity date of the notes, the expiration dates of the warrants were extended from April 1, 2027 to August 15, 2027. |
OTHER LONG-TERM NOTES |
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OTHER LONG-TERM NOTES | NOTE 7 – OTHER LONG-TERM NOTES Other Long-Term Notes consist of the following:
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LEASE AMENDMENT |
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Jun. 30, 2023 | |
LEASE AMENDMENT | |
LEASE AMENDMENT | NOTE 8 – LEASE AMENDMENT The Company entered into an amendment and extension of its building lease on July 25, 2022, retroactive to June 1, 2022. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company must determine if such an arrangement contains a lease and whether that lease meets the classification criteria of a finance or operating lease at inception of the arrangement. The Company determined that this lease is an operating lease and presented as a right-of-use lease asset, short term lease liability and long-term lease liability on the consolidated balance sheet. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate. Lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and general and administrative expenses on the consolidated statement of operations. An initial right-of-use asset of approximately $0.9 million was recognized as a non-cash asset addition with the signing of the July 29, 2022, lease amendment. Cash paid for amounts included in the present value of the operating lease liability was $0.2 million during the year ended December 31, 2022, and is included in operating cash flows. Operating lease costs were $0.1 million during each of the three and six months ended June 30, 2023 and 2022, respectively.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Inrad Optics, Inc., and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated. The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued. |
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Management Estimates | Management Estimates These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods. |
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Accounts receivable | Accounts Receivable Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended June 30, 2023, there were no changes to the estimate for credit losses. For the period ended June 30, 2022, the estimate for credit losses was $46,000. |
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Inventories | Inventories Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost of manufactured goods includes material, labor, and overhead. The Company records a reserve for slow-moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs of completion exceed unbilled revenues. Inventories are comprised of the following and are shown net of inventory reserves of $2,590,000 and $2,398,000 at June 30, 2023 and December 31, 2022, respectively:
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Income Taxes | Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near-term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation as of June 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $2,416,000, and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings. For the three and six months ended June 30, 2023 and 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes. |
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Net Income (Loss) per Common Share | Net Income (Loss) per Common Share Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options, stock grants and warrants using the average market prices during the period, including potential common shares issuable upon conversion of outstanding convertible notes, except if the effect on the per share amounts is anti-dilutive. For the three and six months ended June 30, 2023, 2,500,000 common shares issuable upon conversion of outstanding related party convertible notes were included in the computation of basic and diluted net income per common share because their effect is dilutive. For the three and six months ended June 30, 2023, 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 35,000 common stock options were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. For the three and six months ended June 30, 2022, 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 15,000 common stock options were excluded from basic and diluted net income per common share because their effect is anti-dilutive. A reconciliation of the shares used in the calculation of basic and diluted earnings (loss) per common share is as follows:
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Stock-Based Compensation | Stock-Based Compensation Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period. |
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Recent Accounting Standards | Recent Accounting Standards In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventory reserves |
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Schedule of reconciliation of shares used in calculation of basic and diluted earnings (loss) per common share |
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REVENUE (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of company's sales by market area |
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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of stock-based compensation included in cost of sales and selling, general and administrative expense |
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Schedule of fair value of stock option grants |
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Schedule of company's outstanding stock options |
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Schedule of non-vested stock options granted, vested, and forfeited |
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OTHER LONG-TERM NOTES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER LONG-TERM NOTES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of other long-term notes |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventories (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Raw materials | $ 877,000 | $ 1,065,000 |
Work in process, including manufactured parts and components | 1,384,000 | 1,282,000 |
Finished goods | 516,000 | 479,000 |
Inventories, net | $ 2,777,301 | $ 2,825,987 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||
Estimate for credit losses | $ 0 | $ 46,000 | |||
Inventory reserves | $ 2,590,000 | 2,590,000 | $ 2,398,000 | ||
Deferred tax assets, valuation allowance, total | 2,416,000 | 2,416,000 | |||
Income tax expenses | $ 0 | $ 0 | $ 0 | $ 0 | |
Employee Stock Option | |||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||
Antidilutive securities excluded from computation of earnings per share, amount | 35,000 | 15,000 | 35,000 | 15,000 | |
Warrant | |||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||
Antidilutive securities excluded from computation of earnings per share, amount | 1,875,000 | 1,875,000 | 1,875,000 | 1,875,000 | |
Common stock | |||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||
Antidilutive securities excluded from computation of earnings per share, amount | 2,500,000 | 2,500,000 | 2,500,000 | 2,500,000 |
CONCENTRATION OF CASH (Details) - USD ($) |
Jun. 30, 2023 |
May 31, 2023 |
Dec. 31, 2022 |
---|---|---|---|
CONCENTRATION OF CASH | |||
Cash balances | $ 2,229,724 | $ 2,003,485 | |
Credit risk | |||
CONCENTRATION OF CASH | |||
Cash balances | $ 250,000 | $ 1,750,000 |
REVENUE - Company's sales by market area (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
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REVENUE | ||||
Revenue | $ 3,766,382 | $ 2,740,055 | $ 6,573,544 | $ 5,177,151 |
Aerospace & Defense | ||||
REVENUE | ||||
Revenue | 694,660 | 774,627 | 1,139,112 | 1,621,920 |
Process Control & Metrology | ||||
REVENUE | ||||
Revenue | 2,551,428 | 1,704,461 | 4,782,744 | 3,107,594 |
Laser Systems | ||||
REVENUE | ||||
Revenue | 0 | 38,724 | 43,080 | 103,291 |
Scientific / R&D | ||||
REVENUE | ||||
Revenue | $ 520,294 | $ 222,243 | $ 608,608 | $ 344,346 |
REVENUE - Additional Information (Details) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2023
USD ($)
customer
|
Jun. 30, 2022
customer
|
Jun. 30, 2023
USD ($)
customer
|
Jun. 30, 2022
customer
|
|
REVENUE | ||||
Remaining performance obligations | $ | $ 16.9 | $ 16.9 | ||
Percentage of remaining performance obligation | 12.20% | 12.20% | ||
Transfer at point in time | ||||
REVENUE | ||||
Percentage of revenue from products or services | 100.00% | 100.00% | 100.00% | 100.00% |
Customer concentration risk | Sales revenue | Four customers | ||||
REVENUE | ||||
Number of major customers | 4 | 3 | ||
Customer concentration risk | Sales revenue | Three customers | ||||
REVENUE | ||||
Number of major customers | 3 | 3 | ||
Customer concentration risk | Sales revenue | Top five customers | ||||
REVENUE | ||||
Concentration risk percentage | 73.80% | 63.80% | 73.60% | 64.20% |
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Weighted-average assumptions (Details) |
6 Months Ended | |
---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION | ||
Expected Dividend yield | 0.00% | 0.00% |
Expected Volatility | 92.00% | 105.00% |
Risk-free interest rate | 0.86% | 1.54% |
Expected term | 10 years | 10 years |
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Non-vested stock option activity (Details) |
6 Months Ended |
---|---|
Jun. 30, 2023
$ / shares
shares
| |
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION | |
Options - Non-vested | shares | 340,835 |
Granted | shares | 20,000 |
Vested | shares | (134,160) |
Forfeited | shares | (16,667) |
Options - Non-vested | shares | 210,008 |
Weighted-average Grant-date Fair Value - Non-vested at beginning balance (in dollars per share) | $ / shares | $ 0.89 |
Granted (in dollars per share) | $ / shares | 1.48 |
Vested (in dollars per share) | $ / shares | 0.86 |
Forfeited (in dollars per share) | $ / shares | 0.97 |
Weighted-average Grant-date Fair Value - Non-vested at ending balance (in dollars per share) | $ / shares | $ 0.92 |
STOCKHOLDERS' EQUITY (Details) |
1 Months Ended |
---|---|
Feb. 28, 2023
USD ($)
shares
| |
STOCKHOLDERS' EQUITY | |
Contribution to common shares | shares | 33,322 |
Cash contributions | $ | $ 82,000 |
RELATED PARTY TRANSACTIONS (Details) - Subordinated convertible note |
Aug. 10, 2023
USD ($)
item
$ / shares
shares
|
---|---|
RELATED PARTY TRANSACTIONS | |
Debt instrument, interest rate, stated percentage | 6.00% |
Common stock | |
RELATED PARTY TRANSACTIONS | |
Number of shares/warrants comprised in a unit (in shares) | 1 |
Debt instrument, convertible, number of equity instruments | 0.75 |
Investment warrants, exercise price | $ / shares | $ 1.35 |
Warrant | |
RELATED PARTY TRANSACTIONS | |
Number of shares/warrants comprised in a unit (in shares) | 1 |
Clarex | |
RELATED PARTY TRANSACTIONS | |
Convertible subordinated debt | $ | $ 1,500,000 |
Debt instrument, convertible, number of equity instruments | item | 1,500,000 |
Affiliate of Clarex | |
RELATED PARTY TRANSACTIONS | |
Convertible subordinated debt | $ | $ 1,000,000 |
Debt instrument, convertible, number of equity instruments | item | 1,000,000 |
OTHER LONG-TERM NOTES (Details) - USD ($) |
Jun. 30, 2023 |
Dec. 31, 2022 |
---|---|---|
OTHER LONG-TERM NOTES | ||
Less current portion | $ (69,411) | $ (67,513) |
Long-term debt, excluding current portion | 282,000 | 317,000 |
U.S. small business administration note payable | ||
OTHER LONG-TERM NOTES | ||
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in July 2029 | 149,000 | 160,000 |
Long-term equipment financing | ||
OTHER LONG-TERM NOTES | ||
Long-term equipment financing in equal installments of $5,236 and bearing an interest rate of 6.1% and expiring in January 2027 (1) | $ 202,000 | $ 225,000 |
OTHER LONG-TERM NOTES - Additional information (Details) - USD ($) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
|
U.S. small business administration note payable | |||
OTHER LONG-TERM NOTES | |||
Monthly installment payment | $ 1,922,000 | $ 1,922,000 | |
Fixed interest rate | 4.00% | 4.00% | |
Long-term equipment financing | |||
OTHER LONG-TERM NOTES | |||
Fixed interest rate | 6.10% | 6.10% | 6.10% |
Equal installment | $ 5,236,000 | $ 5,236,000 | |
Debt, face amount | $ 270,000 | ||
Debt term | 5 years |
LEASE AMENDMENT (Details) - USD ($) |
3 Months Ended | 6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Dec. 31, 2022 |
Jul. 29, 2022 |
|
LEASE AMENDMENT | ||||||
Operating lease, right-of-use asset | $ 592,451 | $ 592,451 | $ 737,743 | $ 900,000 | ||
Operating lease payments | $ 200,000 | |||||
Operating lease costs | $ 100,000 | $ 100,000 | $ 100,000 | $ 100,000 |
1 Year Inrad Optics (PK) Chart |
1 Month Inrad Optics (PK) Chart |
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