10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 0-11668

INRAD OPTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

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

(201) 767-1910

Registrant’s Telephone Number, Including Area Code

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x     No  ¨

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

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer  x	Smaller reporting company x
	Emerging growth company ¨

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

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

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

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

The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of August 14, 2019, was 13,735,177.

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, 2019 (unaudited) and December 31, 2018	1
	Condensed consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 (unaudited)	2
	Condensed consolidated shareholders equity for the three months and six months ended June 30, 2019 and 2018 (unaudited)	3
	Condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 (unaudited)	4
	Notes to condensed consolidated financial statements (unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	15
Item 4.	Controls and Procedures	15
Part II.	OTHER INFORMATION	16
Item 1.	Legal Proceedings	16
Item 1A.	Risk Factors	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults upon Senior Securities	16
Item 4.	Mine Safety Disclosures	16
Item 5.	Other Information	16
Item 6.	Exhibits	16
Signatures		17

INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2019			2018
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	830,463		$	1,185,553
Accounts receivable (net of allowance for doubtful accounts of $15,000 in 2019 and 2018)		1,481,172			1,296,487
Inventories, net		2,844,996			3,015,883
Other current assets		159,089			180,893
Total current assets		5,315,720			5,678,816
Plant and equipment:
Plant and equipment,  at cost		14,887,658			14,696,966
Less: Accumulated depreciation and amortization		(14,191,461	)		(14,069,880	)
Total plant and equipment		696,197			627,086
Precious metals		561,909			562,347
Intangible assets, net		22,500			32,156
Lease Right-of-Use		819,612			-
Other assets		32,020			32,020
Total Assets	$	7,447,958		$	6,932,425
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of other long term notes	$	12,960		$	12,960
Accounts payable and accrued liabilities		940,168			835,015
Contract liabilities		591,179			772,927
Current portion of Lease Obligation		264,297			-
Total current liabilities		1,808,604			1,620,902
Related party convertible notes payable		2,500,000			2,500,000
Other long term notes, net of current portion		238,337			244,781
Lease obligation, net of current portion		555,315			-
Total liabilities		5,102,256			4,365,683
Commitments
Shareholders' equity:
Common stock: $.01 par value; 60,000,000 authorized shares; 13,735,177 shares issued at June 30, 2019, and 13,636,988 shares issued at December 31, 2018		137,353			136,371
Capital in excess of par value		19,210,938			19,055,615
Accumulated deficit		(16,987,639	)		(16,610,294	)
		2,360,652			2,581,692
Less - Common stock in treasury, at cost (4,600 shares)		(14,950	)		(14,950	)
Total shareholders' equity		2,345,702			2,566,742
Total Liabilities and shareholders' equity	$	7,447,958		$	6,932,425

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,
	2019			2018			2019			2018
Total revenue	$	2,619,623		$	2,723,474		$	5,220,683		$	6,025,903
Cost and expenses:
Cost of goods sold		2,172,649			2,144,902			4,128,930			4,597,107
Selling, general and administrative expenses		749,064			524,676			1,391,318			1,068,675
		2,921,713			2,669,578			5,520,248			5,665,782
Income (loss) from operations		(302,090	)		53,896			(299,565	)		360,121
Other expense:
Interest expense-net		(38,682	)		(39,792	)		(77,343	)		(79,566	)
Loss on exchange of precious metals		(438	)		-			(438	)		(2,288	)
		(39,120	)		(39,792	)		(77,781	)		(81,854	)
Income (loss) before income taxes		(341,210	)		14,104			(377,346	)		278,267
Income tax (provision) benefit		-			-			-			-
Net income (loss)	$	(341,210	)	$	14,104		$	(377,346	)	$	278,267
Net (loss) income per common share - basic	$	(0.02	)	$	0.00		$	(0.03	)	$	0.02
Net (loss) income per common share - diluted	$	(0.02	)	$	0.00		$	(0.03	)	$	0.02
Weighted average shares outstanding - basic		13,653,353			13,535,148			13,641,664			13,521,899
Weighted average shares outstanding - diluted		13,653,353			13,914,524			13,641,664			13,912,209

See Notes to Condensed Consolidated Financial Statements (Unaudited)

2

INRAD OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

					Capital in								Total
	Common Stock				excess of		Accumulated			Treasury			Shareholders'
	Shares		Amount		par value		Deficit			Stock			Equity
Balance, January 1, 2018		13,521,200	$	135,213	$	18,882,086	$	(17,316,902	)	$	(14,950	)		1,685,447
401K contribution		-		-		-		-			-			-
Stock-based compensation expense		-		-		13,035		-			-			13,035
														-
Net income March 31, 2018		-		-		-		264,163			-			264,163
Balance, March 31, 2018		13,521,200	$	135,213	$	18,895,121	$	(17,052,739	)	$	(14,950	)	$	1,962,645
401K contribution		111,288		1,113		-		-			-			1,113
Stock-based compensation expense		-		-		104,632		-			-			104,632
Net income June 30, 2018		-		-		-		14,104			-			14,104
Balance, June 30, 2018		13,632,488	$	136,326	$	18,999,753	$	(17,038,635	)	$	(14,950	)	$	2,082,494

					Capital in								Total
	Common Stock				excess of		Accumulated			Treasury			Shareholders'
	Shares		Amount		par value		Deficit			Stock			Equity
Balance, January 1, 2019		13,636,988	$	136,371	$	19,055,615	$	(16,610,294	)	$	(14,950	)		2,566,742
401K contribution		-		-		-		-			-			-
Stock-based compensation expense		-		-		29,375		-			-			29,375
Net income (loss) March 31, 2019		-		-		-		(36,135	)		-			(36,135	)
Balance, March 31, 2019		13,636,988	$	136,371	$	19,084,990	$	(16,646,429	)	$	(14,950	)	$	2,559,982
401K contribution		98,189		982		92,605		-			-			93,587
Stock-based compensation expense		-		-		33,343		-			-			33,343
Net income (loss) June 30, 2019		-		-		-		(341,210	)		-			(341,210	)
Balance, June 30, 2019		13,735,177	$	137,353	$	19,210,938	$	(16,987,639	)	$	(14,950	)	$	2,345,702

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,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(377,346	)	$	278,267
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Depreciation and amortization		131,237			141,913
(Gain) loss on exchange of precious metals		438			2,288
401K common stock contribution - non cash item		93,587			92,779
Stock based compensation		62,719			26,001
Changes in operating assets and liabilities:
Accounts receivable		(184,685	)		(522,079	)
Inventories, net		170,887			461,838
Other current assets		21,804			2,115
Other assets		-			13,246
Accounts payable and accrued liabilities		105,153			(306,329	)
Contract liabilities		(181,748	)		(198,089	)
Total adjustments and changes		219,392			(286,317	)
Net cash (used in) operating activities		(157,954	)		(8,050	)
Cash flows from investing activities:
Capital expenditures		(190,692	)		(87,136	)
Purchase of precious metals		-			(875	)
Net cash (used in) investing activities		(190,692	)		(88,011	)
Cash flows from financing activities:
Principal payments on notes payable-other		(6,444	)		(6,194	)
Net cash (used in) financing activities		(6,444	)		(6,194	)
Net (decrease) in cash and cash equivalents		(355,090	)		(102,255	)
Cash and cash equivalents at beginning of period		1,185,553			799,953
Cash and cash equivalents at end of period	$	830,463		$	697,698
Supplemental disclosure of cash flow information:
Interest paid	$	80,088		$	80,339
Income taxes paid	$	-		$	-
Significant non-cash activities:
Lease right-of-use asset	$	819,612		$	-

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 of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included.  The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.  For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

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

Accounts receivable are carried at net realizable value, net of write-offs and allowances. The Company establishes an allowance for doubtful accounts based on estimates as to the collectability of accounts receivable. Management specifically analyzes past-due accounts receivable balances and, additionally, considers bad debt history, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Uncollectible accounts receivable are written-off when it is determined that the balance will not be collected. Reserves for uncollectible accounts receivable are recorded as part of selling, general and administrative expenses in the Consolidated Statements of Operations, and were $15,000 at June 30, 2019.

Inventories

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.

5

Inventories are comprised of the following and are shown net of inventory reserves of $2,547,119 and $2,486,209 at June 30, 2019 and December 31, 2018, respectively: 

	June 30,		December 31,
	2019		2018
	(Unaudited)
Raw materials	$	1,253,654	$	1,143,132
Work in process, including manufactured parts and components		1,075,235		1,388,624
Finished goods		516,107		484,127
	$	2,844,996	$	3,015,883

Income Taxes

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

In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three year period ended December 31, 2018. 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, 2019, 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 net deferred tax balance of $3,356,000 and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax 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, 2019, the Company did not record a current provision for either state tax or federal tax due to the losses incurred for both income tax and financial reporting purposes.

For the three and six months ended June 30, 2018, 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 federal and state tax 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, 2019, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes. In addition 1,218,367 and 1,228,267 common stock options in each respective period, 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, 2018, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes. In addition 183,141 and 100,641 common stock options in each respective period, were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive.

6

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

	Three Months Ended								Three Months Ended
	June 30, 2019								June 30, 2018
	Income(Loss)			Shares		Per Share			Income(Loss)		Shares		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)		(Denominator)		Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(341,210	)		13,653,353	$	(0.02	)	$	14,104		13,535,148	$	0.00
Effect of dilutive securities:		-			-		-			-		-		-
Convertible Notes		-			-		-			-		-		-
Accrued Interest on Convertible Notes		-			-		-			-		-		-
Warrants		-			-		-			-		-		-
Stock Options		-			-		-			-		379,376		-
Diluted Income (Loss) Per Share:	$	(341,210	)		13,653,353	$	(0.02	)	$	14,104		13,914,524	$	0.00

	Six Months Ended								Six Months Ended
	June 30, 2019								June 30, 2018
	Income(Loss)			Shares		Per Share			Income(Loss)		Shares		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)		(Denominator)		Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(377,346	)		13,641,664	$	(0.03	)	$	278,267		13,521,899	$	0.02
Effect of dilutive securities:		-			-		-			-		-		-
Convertible Notes		-			-		-			-		-		-
Accrued Interest on Convertible Notes		-			-		-			-		-		-
Warrants		-			-		-			-		-		-
Stock Options		-			-		-			-		390,310		-
Diluted Income (Loss) Per Share:	$	(377,346	)		13,641,664	$	(0.03	)	$	278,267		13,912,209	$	0.02

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.

Recently Adopted Accounting Standards

In February 2016, the FASB created Topic 842 and issued ASU 2016-02, Leases (Topic 842), which created new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted the requirements of the new standard effective January 1, 2019, using the modified retrospective transition method, which applies the provisions of the standard at the effective date without adjustment to the comparative periods presented.  The Company adopted the following practical expedients and elected the following accounting policies related to this standard:

7

· Carry forward of historical lease classifications and accounting treatment;

· Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and

· The option to not separate lease and non-lease components for certain equipment lease categories such as office printers and copiers. 

Adoption of this standard had no effect on the consolidated balance sheet as of January 1, 2019, and therefore, did not materially impact operating results or liquidity.  The Company signed an amended lease on its facility effective June 1, 2019, and recognized a lease right-of-use asset and corresponding lease liability of $0.8 million at June 1, 2019. Disclosures related to the amount, timing and uncertainty of cash flows arising from this lease are included in Note 7. 

NOTE 2 – REVENUE

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

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

The Company’s performance obligations under long-term government contracts are generally satisfied over time. Revenue from products or services transferred to customers under these performance obligations accounted for approximately 4.0% and 5.1% of revenue for the six months ended June 30, 2019 and 2018, respectively. This revenue is generally recognized using an input measure based upon the proportion of actual costs incurred to estimated total project costs, which is a method used to best depict the Company’s performance to date under the terms of the contract.

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

The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was approximately 96.0% and 94.9% of revenue for the six months ended June 30, 2019 and 2018, 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.

8

As part of the adoption of Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” the Company reviewed its sales by market area and reassigned certain customers within the existing markets.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Aerospace & Defense	$	979,004	$	395,749	$	2,019,561	$	1,425,288
Process Control & Metrology		993,355		1,555,662		2,114,342		3,114,101
Laser Systems		324,282		511,689		609,272		877,919
Scientific / R&D		322,982		260,374		477,508		608,595
Total	$	2,619,623	$	2,723,474	$	5,220,683	$	6,025,903

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Transfer at point in time	$	2,506,028	$	2,520,975	$	5,013,534	$	5,719,755
Transfer over time		113,595		202,499		207,149		306,148
Total net sales	$	2,619,623	$	2,723,474	$	5,220,683	$	6,025,903

The timing of revenue recognition, billings and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities, previously deferred revenue) on the Consolidated Balance Sheet. Contract liabilities also include customer advances or prepayments. Costs in excess of billings and billings in excess of costs associated with long-term government contracts were not significant at June 30, 2019 or 2018. At June 30, 2019 and 2018, the remaining revenue to be recognized from the long-term government contracts was $105,000 and $420,000, respectively.

On June 30, 2019, the Company had approximately $4.8 million of remaining performance obligations, which is also referred to as backlog. Approximately 15% of the June 30, 2019 backlog is related to projects that will extend beyond June 30, 2020.

NOTE 3 – EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

a) Stock Option Expense

The Company's results of operations for the three months ended June 30, 2019 and 2018, include stock-based compensation expense for stock option grants totaling $33,591 and $12,966, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations within cost of goods sold in the amount of $9,493 ($3,514 for 2018), and selling, general and administrative expenses in the amount of $24,098 ($9,452 for 2018).

The Company's results of operations for the six months ended June 30, 2019 and 2018, include stock-based compensation expense for stock option grants totaling $62,719 and $26,001, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations within cost of goods sold in the amount of $17,719 ($7,097 for 2018), and selling, general and administrative expenses in the amount of $45,000 ($18,904 for 2018).

As of June 30, 2019 and 2018, there were $99,627 and $63,485 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 1.95 years and 1.11 years, respectively.

There were 200,000 stock options granted during the six months ended June 30, 2019, and no stock options granted in the six months ended June 30, 2018. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the six months ended June 30, 2019 and 2018:

9

	Six months Ended
	June 30,
	2019			2018
Expected Dividend yield		-	%		-	%
Expected Volatility		125.13	%		-	%
Risk-free interest rate		2.83	%		-	%
Expected term		10 years			10 years

b) Stock Option Activity

The following table represents stock options granted, exercised and forfeited during the six months ended June 30, 2019:

				Weighted		Weighted
				Average		Average
				Exercise		Remaining		Aggregate
	Number of			Price per		Contractual		Intrinsic
Stock Options	Options			Option		Term (years)		Value
Outstanding January 1, 2019		1,058,208		$	0.64		5.58	$	337,997
Granted		200,000			0.79
Exercised
Expired/Forfeited		(39,841	)		1.27
Outstanding June 30, 2019		1,218,367		$	0.65		6.75	$	1,451,860
Exercisable at June 30, 2019		841,698		$	0.58		4.87	$	913,580

The following table represents non-vested stock options granted, vested and forfeited for the six months ended June 30, 2019:

	Weighted-average
	Grant-date Fair Value
	Options			($)
Non-Vested - January 1, 2019		349,491			0.74
Granted		200,000			0.76
Vested		(172,822	)		0.65
Forfeited		-
Non-Vested - June 30, 2019		376,669			0.80

NOTE 4 – STOCKHOLDERS’ EQUITY

The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2018, in February 2019. Cash in the amount of $31,196 and 98,189 common shares of Inrad Optics, Inc. were contributed to the Plan in the second quarter of 2019.

NOTE 5 – RELATED PARTY TRANSACTIONS

On April 12, 2018, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to April 1, 2021 from April 1, 2018. The notes bear interest at an annual rate of 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, the expiration dates of the warrants were extended from April 1, 2022 to April 1, 2024. As of June 30, 2019, the Company had accrued interest in the amount of $112,500 associated with these notes.

10

NOTE 6 – OTHER LONG TERM NOTES

Other Long Term Notes consist of the following:

	June 30,			December 31,
	2019			2018
	(in thousands)
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in April 2032.	$	251,297		$	257,741
Less current portion		(12,960	)		(12,960	)
Long-term debt, excluding current portion	$	238,337		$	244,781

NOTE 7 – LEASE AMENDMENT

The Company entered into an amendment and extension of its building lease on July 8, 2019, retroactive to June 1, 2019. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company determines 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 as of June 30, 2019.  These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate. 

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

An initial right-of-use asset of $0.8 million was recognized as a non-cash asset addition with the signing of the July 8, 2019, lease amendment. Cash paid for amounts included in the present value of operating lease liability was $26,000 during the six months ended June 30, 2019, and is included in operating cash flows.     

Operating lease costs were $0.2 million and $0.4 million during the three and six months ended June 2019. 

The following table presents information about the amount and timing of cash flows arising from the Company’s operating lease as of June 30, 2019:

Maturity of Lease Liability	in thousands
2019 (Remaining)	$	153
2020		306
2021		306
2022		128
Total undiscounted operating lease payments		893
Less: imputed interest		(73	)
Present value of operating lease liability	$	820
Other Information
Remaining lease term (in months)		35
Discount rate for operating leases		5.80	%

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 insure that any forward-looking statements are accompanied by meaningful cautionary statements in order to comply with the terms of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The events described in the forward-looking statements contained in this 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, 2018, as filed with the Securities and Exchange Commission on April 1, 2019. Any one or more of these uncertainties, risks, and other influences could materially affect the Company’s results of operations and whether forward-looking statements made by the Company ultimately prove to be accurate. Readers are further cautioned that the Company’s financial results can vary from quarter to quarter, and the financial results for any period may not necessarily be indicative of future results. The foregoing is not intended to be an exhaustive list of all factors that could cause actual results to differ materially from those expressed in forward-looking statements made by the Company. The Company’s actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward looking statements, whether from new information, future events, or otherwise.

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, 2018. 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. These include estimates used in evaluating intangibles for impairment such as market multiples used in determining the fair value of reporting units, discount rates applicable in determining net present values of future cash flows, projections of future sales, earnings and cash flow and capital expenditures. It also includes estimates about the amount and timing of future taxable income in determining the Company’s 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, 2018.

Results of Operations

Inrad Optics, Inc.’s business falls into two main categories: Optical Components and Laser Devices/Instrumentation.

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

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

The Company operates a manufacturing facility in Northvale, New Jersey and has its corporate offices in the same location.

12

Revenue

Sales for the three months ended June 30, 2019, were $2.6 million, a decrease of 3.8%, or $0.1 million, compared to $2.7 million for the three months ended June 30, 2018. For the six months ended June 30, 2019, sales were $5.2 million a decrease of 13.4%, or $0.8 million, compared to the six month period ending June 30, 2018.

Sales to the defense/aerospace market increased by $0.6 million or 147.4% to $1.0 million in the three months ended June 30, 2019, compared to $0.4 million for the three months ended June 30, 2018. For the six months ending June 30, 2019, sales to the defense/aerospace market increased $0.6 million, or 41.7%, to $2.0 million compared to sales of $1.4 million in the six month period ending June 30, 2018. The significant increase is mainly attributable to increased demand for our products in this market.

Process control and metrology (“PC&M”) sales were $1.0 million for the three months ended June 30, 2019, a decrease of $0.6 million, or 36.1%, from $1.6 million for the three months ended June 30, 2018.  For the six months ended June 30, 2019, sales were $2.1 million compared to $3.1 million for the year ago period, a decrease of $1.0 million or 32.1%. Reduced demand and the timing of delivery schedules in the PC&M market resulted in the decrease in sales to several existing customers in the three and six months ended June 30, 2019, compared to the three and six months ended June 30, 2018.

For the three months ended June 30, 2019, sales to customers in the laser systems market were $0.3 million, a decrease of $0.2 million, or 36.6%, from $0.5 million for the three months ended June 30, 2018. For the six months ended June 30, 2019, sales in the laser systems market were $0.6 million compared to sales of $0.9 million for the six months ended June 30, 2018, a decline of $0.3 million or 30.6%. The decrease in sales is due to the timing of delivery schedules to an international distributor and one large OEM, partially offset by increases in shipments to several newer customers.

Sales to customers in the Scientific/R&D market increased by $0.1 million, or 24%, to $0.3 million for the three months ended June 30, 2019, compared to sales of $0.2 million for the three months ended June 30, 2018. Sales to customers in the Scientific/R&D market for the six month period ending June 30, 2019, were $0.5 million, compared to $0.6 million, a decrease of $0.1 million or 21.5% for the six month period ending June 30, 2018. The increase for the quarter ending June 30, 2019, is mainly due to order placement timing from one large national lab customer. The year to date decline reflects timing of orders and a decrease in billings to one U.S. Government customer.

For the three months ended June 30, 2019, there were two customers that each represented 10% or more of total sales. For the three months ended June 30, 2018, only one of those customers represented more than 10% of sales for that period. For the six months ended June 30, 2019 and June 30, 2018, the same two customers represented more than 10% of total sales in each period.

The Company’s top five customers represented 45.1% of sales in the three month period ended June 30, 2019, compared to 56.4% in the same period in 2018. For the six month period ended June 30, 2019 and 2018, the Company’s top five customers represented 48.3% and 54.3%, respectively.

Orders booked during the first six months of 2019, totaled $3.6 million, compared to $6.5 million for the same period last year.

Order backlog at June 30, 2019 and 2018, was $4.8 million and $7.0 million, respectively. A significant portion of the year-over-year decrease has been impacted by a delay in anticipated orders from several large customers.

Cost of Goods Sold

For the three months ended June 30, 2019 and 2018, cost of goods sold was $2.2 million and $2.1 million, respectively, reflecting an increase of $0.1 million or 1.0%. The increase in 2019, is attributable to an increase in material costs for certain product categories, partially offset by a decrease in manufacturing and other expenses.

For the six months ended June 30, 2019, cost of goods sold were $4.1 million compared to $4.6 million, a decrease of $0.5 million or 10.9%. The decrease is largely due to the decrease in sales, partially offset by an increase in material costs year over year reflecting the mix of sales for the Company’s products.

Gross profit for the three months ended June 30, 2019, was $0.4 million or 17.1% of sales, compared to $0.6 million or 21.3% in the same quarter last year. Gross profit for the six months ended June 30, 2019, was $1.1 million, or 20.9% of sales, compared to $1.4 million or 23.7% of sales, the decline reflecting the reduction in total sales and the impact of the material costs related to the sales mix.

13

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A” expenses) in the three and six months ended June 30, 2019, amounted to $0.7 million, or 28.6% of sales, and $1.4 million, or 26.7% of sales, respectively. Compared to $0.5 million, or 19.3% of sales, and $1.1 million, or 17.7% of sales, respectively, for the same period a year ago, SG&A expenses reflect an increase in salaries and wages and related health and other benefits costs, increased travel expenses and increased legal fees.

Income (Loss) from Operations

The Company incurred a net loss from operations of $0.3 million for the three months ended June 30, 2019, compared to operating income of $0.1 million in the three months ended June 30, 2018. The decrease in operating income primarily reflects the impact of the Company’s lower sales in the three months ended June 30, 2019, compared to the same period last year, an increase in the cost of goods sold and increased SG&A costs. For the six months ended June 30, 2019, the Company incurred a net loss from operations of $0.3 million, compared to operating income of $0.4 million for the six months ended June 30, 2018. The decrease in operating income reflects the impact of lower sales and an increase in SG&A costs.

Other Expense

Net interest expense for the three months ended June 30, 2019 was $39,000 compared to $40,000 in the same period in 2018, as there was no significant change in the Company’s borrowing level. For the six months ended June 30, 2019, other expense was lower than the six months ended June 30, 2018, due to a reduction in both interest expense and loss on the exchange of precious metals.

Income Taxes

For the three months and six months ended June 30, 2019, the Company did not record a current provision for either state tax or federal alternative minimum tax due to the losses incurred for both income tax and financial reporting purposes.

For the three months and six months ended June 30, 2018, 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 federal and state tax purposes.

Net Income (Loss)

The Company had a net loss of $0.3 million for the three months ended June 30, 2019, compared to a net income of $0.0 million for the three months ended June 30, 2018. The net loss primarily reflects the decrease in sales for the three months ended June 30, 2019, compared to the 2018 period, combined with the increase in costs of goods sold and SG&A expenses. For the six months ended June 30, 2019, the Company incurred a net loss of $0.4 million, compared with net income of $0.3 million. Lower sales, combined with a less favorable product mix, higher related material costs and higher SG&A costs led to the decrease in net income.

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, 2019 and December 31, 2018, the Company had cash and cash equivalents of $0.8 million and $1.2 million, respectively.

The Company occupies approximately 42,000 square feet of space located at 181 Legrand Avenue, Northvale, New Jersey pursuant to a net lease which was amended on July 8, 2019, retroactive to June 1, 2019, for an additional three year term. Under the terms of the lease, the Company is obligated for all real estate taxes, maintenance and operating costs of the facility.

On April 12, 2018, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to April 1, 2021 from April 1, 2019. The notes bear interest at an annual rate of 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, the expiration dates of the warrants were extended from April 1, 2022 to April 1, 2024. As of June 30, 2019, the Company had accrued interest in the amount of $112,500 associated with these notes.

14

The following table summarizes net cash (used in) operating, investing and financing activities for the six months ended June 30, 2019 and 2018:

	Six Months Ended
	June 30,
	2019			2018
Net cash (used in) operating activities	$	(158,000	)	$	(8,000	)
Net cash (used in) investing activities		(191,000	)		(88,000	)
Net (used in) financing activities		(6,000	)		(6,000	)
Net (decrease) in cash and cash equivalents	$	(355,000	)	$	(102,000	)

Net cash used in operating activities was $158,000 for the six months ended June 30, 2019, compared to net cash used in operations of $8,000 in the same period last year.

Net cash used in operating activities in the six months ended June 30, 2019, resulted primarily from a reduction in accounts receivable and a reduction in the Company’s contract liabilities, which largely consist of pre-payments from customers. The net cash used in operating activities of $8,000 in the six months ended June 30, 2018, resulted from an increases in accounts receivable, reductions in accounts payable and accrued liabilities, and lower contract liabilities which were partially offset by reduced inventory levels during the 2018 period.

Net cash used in investing activities was $191,000 during the six months ended June 30, 2019, compared to $88,000 in the same period last year reflecting capital expenditures in both periods. Net cash used in financing activities during the six months ended June 30, 2019 and 2018, relates to required principal payments.

Overall, cash and cash equivalents decreased by $355,000 and $102,000 for the six months ended June 30, 2019 and 2018, respectively.

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 14, 2020.

ITEM  3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM  4. CONTROLS AND PROCEDURES

a. Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of June 30, 2019 (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.

15

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

ITEM 6. EXHIBITS

10.1 Amendment and Extension of Lease, dated July 8,2019, by and between V&R Costa Management, LLC, and Inrad Optics, Inc.*

11. An exhibit showing the computation of per-share earnings is omitted because the computation can be clearly determined from the material contained in this Quarterly Report on Form 10-Q.

31.1 Certificate of the Registrant’s Chief Executive Officer, Amy Eskilson, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2 Certificate of the Registrant’s Chief Financial Officer, Theresa A. Balog, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1 Certificate of the Registrant’s Chief Executive Officer, Amy Eskilson, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2 Certificate of the Registrant’s Chief Financial Officer, Theresa A. Balog, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS XBRL Instance Document*

101.SCH XBRL Taxonomy Extension Schema*

101.CAL XBRL Taxonomy Extension Calculation Linkbase*

101.DEF XBRL Taxonomy Extension Definition Linkbase*

101.LAB XBRL Taxonomy Extension Label Linkbase*

101.PRE XBRL Taxonomy Extension Presentation Linkbase*

* Filed herewith

** Furnished herewith

16

SIGNATURES

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

		Inrad Optics, Inc.
	By:	/s/ Amy Eskilson
		Amy Eskilson
		President and Chief Executive Officer
	By:	/s/ Theresa A. Balog
		Theresa A. Balog
		Chief Financial Officer,
		Secretary and Treasurer
Date: August 14, 2019

17

EX-10.1

Exhibit 10.1

 

July 8, 2019

Mr. Robert Costa

V&R Costa Management, LLC

325 South Rivet Street, Suite 302

Hackensack, New Jersey 07647-2498

Re: Amendment and Extension of Lease (this “Amendment”) between V&R Costa Management, LLC, as successor-in-interest to S & R Costa Realty, L.P. (“Landlord”), and Inrad, Inc. (“Tenant”), dated as of November 1, 2003 (as amended and extended, the “Lease”) concerning 41,935 sq. ft. located at certain premises commonly known as 181 Legrand Avenue, Northvale, New Jersey (the “Premises”)

Dear Mr. Costa:

The following are the terms upon which Landlord and Tenant agree to amend the Lease, effective as of June 1, 2019 (all capitalized terms not otherwise set forth herein shall have those meanings ascribed to them in the Lease):

Extension of Term:	The term of the Lease shall be extended for a period of three (3) years, commencing June 1, 2019 and expiring May 31. 2022 (the “Extended Term”).
Base Rent:	Base rent during the Extended Term (6/1/19 — 5/31/2022) shall be $7.30 per square foot, net:

Annual Rent		Monthly Rent
$	306,125.50	$	25,510.46

Renewal Option: Tenant shall have the option to renew the Lease for an additional term of three (3) years (the “Renewal Term”) under the same terms, covenants and conditions of the Lease upon providing written notice to Landlord of such option exercise no later than six (6) months prior to the expiration of the Extended Term, subject to an increase in Base Rent during such Renewal Term (6/1/22 — 5/31/2025) to $7.75 per square foot, net:

Annual Rent		Monthly Rent
$	324,996.25	$	27,083.02

Security Deposit: The Security Deposit of $47,176.88 shall be increased by $3,844.04 upon the execution of this amendment. Landlord acknowledges and confirms receipt of said Security Deposit (as increased hereby).

181 Legrand Avenue, Northvale, NJ 07647      www.inradoptics.com      P: 201-767-1910      F: 201-767-9644

Mr. Robert Costa	July 8, 2019
V&R Costa Management, LLC	Page 2
Hackensack, NJ 07601

Work by Landlord:

Landlord has agreed, at its sole cost and expense, to (i) complete all repairs to the roof and safely secure the exterior metal stairs; (ii) bring the roof access into regulatory compliance; (iii) replace stained ceiling tiles throughout the Premises; (iv) repave and restripe the entire parking lot serving the Premises; and (v) repair or replace three non-functioning HVAC units (as identified by Tenant) (collectively, the “Landlord’s Work”). The parties agree that Landlord’s Work shall be completed by no later than December 31, 2019.

Broker

Landlord and Tenant each represents that it dealt with no broker in connection with this Amendment. Landlord and Tenant each indemnifies and holds the other harmless from any and all loss, cost, liability, claim, damage or expense (including court costs and attorneys’ fees) arising out of any inaccuracy or alleged inaccuracy of the above representation.

All other terms and conditions of the Lease remain in full force and effect. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties.

This Amendment shall be binding upon and shall inure to the benefit of the parties and their permitted successors and/or assigns. This Amendment becomes effective only upon execution and delivery hereof by Landlord and Tenant The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof.

If the foregoing Amendment is acceptable, kindly countersign this Amendment where indicated below.

Sincerely,

/s/ Theresa A. Balog

Theresa A. Balog

CFO, Secretary and Treasurer

cc        Ms. Amy Eskilson
AGREED:
By Landlord:
V&R Costa Management, LLC
By:	/s/ Mr. Robert Costa
	Mr. Robert Costa

Via Regular Mail & Hand Delivery

Inrad Optics

181 Legrand Avenue

Northvale, New Jersey 07647

RE: Management Letter

520 Main Street, Fort Lee, New Jersey

Dear Occupants/Licensees:

I, the undersigned, hereby give you notice that I have transferred management and are in the process of transferring ownership of the premises situated at 181 Legrand Avenue, Northvale, New Jersey 07647, which you currently occupy as a licensee, to V & R Costa Management, LLC.

Therefore, effective February 1, 2019, I hereby authorize and request you forthwith to pay all rents and obligations under your lease to V & R Costa Management, LLC, the manager of the premises. All future rental payments shall be sent to V & R Costa Management, LLC, c/o Costa Engineering Corp., 325 South River Street, Suite 302, Hackensack, New Jersey 07601.

Thank you.

Very truly yours,

The S & R Costa Realty Limited Partnership

/s/ Anglo Costa

Anglo Costa, Authorized Signatory

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Amy Eskilson certify that:

1. I have reviewed the quarterly report on Form 10-Q of Inrad Optics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d -15(f)) for the registrants and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function(s):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 14, 2019	/s/ Amy Eskilson
	President and Chief Executive Officer

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

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Theresa A. Balog certify that:

1. I have reviewed the quarterly report on Form 10-Q of Inrad Optics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13(a)-15(f) and 15d -15(f)) for the registrants and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function(s):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 14, 2019	/s/ Theresa A. Balog
	Chief Financial Officer, Secretary and Treasurer

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

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Inrad Optics, Inc. on Form 10-Q for the period ended June 30, 2019, 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 14, 2019
	/s/ Amy Eskilson
	President and Chief Executive Officer

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

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

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Inrad Optics, Inc. on Form 10-Q for the period ended June 30, 2019, filed with the Securities and Exchange Commission (the “Report”), I, Theresa A. Balog, Chief Financial 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 14, 2019
	/s/ Theresa A. Balog
	Chief Financial Officer, Secretary and Treasurer

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

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

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 14, 2019
Document and Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Entity Registrant Name	Inrad Optics, Inc.
Entity Central Index Key	0000719494
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Trading Symbol	INRD
Entity Common Stock, Shares Outstanding		13,735,177
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 830,463	$ 1,185,553
Accounts receivable (net of allowance for doubtful accounts of $15,000 in 2019 and 2018)	1,481,172	1,296,487
Inventories, net	2,844,996	3,015,883
Other current assets	159,089	180,893
Total current assets	5,315,720	5,678,816
Plant and equipment:
Plant and equipment, at cost	14,887,658	14,696,966
Less: Accumulated depreciation and amortization	(14,191,461)	(14,069,880)
Total plant and equipment	696,197	627,086
Precious metals	561,909	562,347
Intangible assets, net	22,500	32,156
Lease Right-of-Use	819,612
Other assets	32,020	32,020
Total Assets	7,447,958	6,932,425
Current liabilities:
Current portion of other long term notes	12,960	12,960
Accounts payable and accrued liabilities	940,168	835,015
Contract liabilities	591,179	772,927
Current portion of Lease Obligation	264,297
Total current liabilities	1,808,604	1,620,902
Related party convertible notes payable	2,500,000	2,500,000
Other long term Notes, net of current portion	238,337	244,781
Lease obligation, net of current portion	555,315
Total liabilities	5,102,256	4,365,683
Commitments
Shareholders' equity:
Common stock: $.01 par value; 60,000,000 authorized shares; 13,735,177 shares issued at June 30, 2019, and 13,636,988 shares issued at December 31, 2018	137,353	136,371
Capital in excess of par value	19,210,938	19,055,615
Accumulated deficit	(16,987,639)	(16,610,294)
Stockholders' Equity before Treasury Stock	2,360,652	2,581,692
Less - Common stock in treasury, at cost (4,600 shares)	(14,950)	(14,950)
Total shareholders' equity	2,345,702	2,566,742
Total Liabilities and shareholders' equity	$ 7,447,958	$ 6,932,425

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts (in dollars)	$ 15,000	$ 15,000
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	13,735,177	13,636,988
Treasury stock, shares	4,600	4,600

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Total revenue	$ 2,619,623	$ 2,723,474	$ 5,220,683	$ 6,025,903
Cost and expenses:
Cost of goods sold	2,172,649	2,144,902	4,128,930	4,597,107
Selling, general and administrative expenses	749,064	524,676	1,391,318	1,068,675
Costs and Expenses, Total	2,921,713	2,669,578	5,520,248	5,665,782
Income (loss) from operations	(302,090)	53,896	(299,565)	360,121
Other expense:
Interest expense-net	(38,682)	(39,792)	(77,343)	(79,566)
Loss on exchange of precious metals	(438)		(438)	(2,288)
Nonoperating Income (Expense)	(39,120)	(39,792)	(77,781)	(81,854)
Income (loss) before income taxes	(341,210)	14,104	(377,346)	278,267
Income tax (provision) benefit	0	0	0	0
Net income (loss)	$ (341,210)	$ 14,104	$ (377,346)	$ 278,267
Net (loss) income per common share - basic	$ (0.02)	$ 0.00	$ (0.03)	$ 0.02
Net (loss) income per common share - diluted	$ (0.02)	$ 0.00	$ (0.03)	$ 0.02
Weighted average shares outstanding - basic	13,653,353	13,535,148	13,641,664	13,521,899
Weighted average shares outstanding - diluted	13,653,353	13,914,524	13,641,664	13,912,209

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)	Common Stock	Capital in excess of par value	Accumulated Deficit	Treasury Stock	Total
Balance at Dec. 31, 2017	$ 135,213	$ 18,882,086	$ (17,316,902)	$ (14,950)	$ 1,685,447
Balance (in shares) at Dec. 31, 2017	13,521,200
401K contribution	$ 0	0	0	0	0
401K contribution (in shares)	0
Stock-based compensation expense	$ 0	13,035	0	0	13,035
Net income (loss) for the year			264,163		264,163
Balance at Mar. 31, 2018	$ 135,213	18,895,121	(17,052,739)	(14,950)	1,962,645
Balance (in shares) at Mar. 31, 2018	13,521,200
Balance at Dec. 31, 2017	$ 135,213	18,882,086	(17,316,902)	(14,950)	1,685,447
Balance (in shares) at Dec. 31, 2017	13,521,200
Net income (loss) for the year					278,267
Balance at Jun. 30, 2018	$ 136,326	18,999,753	(17,038,635)	(14,950)	2,082,494
Balance (in shares) at Jun. 30, 2018	13,632,488
Balance at Mar. 31, 2018	$ 135,213	18,895,121	(17,052,739)	(14,950)	1,962,645
Balance (in shares) at Mar. 31, 2018	13,521,200
401K contribution	$ 1,113				1,113
401K contribution (in shares)	111,288
Stock-based compensation expense		104,632			104,632
Net income (loss) for the year	$ 0	0	14,104	0	14,104
Balance at Jun. 30, 2018	$ 136,326	18,999,753	(17,038,635)	(14,950)	2,082,494
Balance (in shares) at Jun. 30, 2018	13,632,488
Balance at Dec. 31, 2018	$ 136,371	19,055,615	(16,610,294)	(14,950)	2,566,742
Balance (in shares) at Dec. 31, 2018	13,636,988
401K contribution	$ 0	0	0	0	0
401K contribution (in shares)	0
Stock-based compensation expense	$ 0	29,375	0	0	29,375
Net income (loss) for the year			(36,135)		(36,135)
Balance at Mar. 31, 2019	$ 136,371	19,084,990	(16,646,429)	(14,950)	2,559,982
Balance (in shares) at Mar. 31, 2019	13,636,988
Balance at Dec. 31, 2018	$ 136,371	19,055,615	(16,610,294)	(14,950)	2,566,742
Balance (in shares) at Dec. 31, 2018	13,636,988
Net income (loss) for the year					(377,346)
Balance at Jun. 30, 2019	$ 137,353	19,210,938	(16,987,639)	(14,950)	2,345,702
Balance (in shares) at Jun. 30, 2019	13,735,177
Balance at Mar. 31, 2019	$ 136,371	19,084,990	(16,646,429)	(14,950)	2,559,982
Balance (in shares) at Mar. 31, 2019	13,636,988
401K contribution	$ 982	92,605			93,587
401K contribution (in shares)	98,189
Stock-based compensation expense		33,343			33,343
Net income (loss) for the year	$ 0	0	(341,210)	0	(341,210)
Balance at Jun. 30, 2019	$ 137,353	$ 19,210,938	$ (16,987,639)	$ (14,950)	$ 2,345,702
Balance (in shares) at Jun. 30, 2019	13,735,177

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net income (loss)	$ (377,346)	$ 278,267
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Depreciation and amortization	131,237	141,913
(Gain) loss on exchange of precious metals	438	2,288
401K common stock contribution - non cash item	93,587	92,779
Stock based compensation	62,719	26,001
Changes in operating assets and liabilities:
Accounts receivable	(184,685)	(522,079)
Inventories, net	170,887	461,838
Other current assets	21,804	2,115
Other assets		13,246
Accounts payable and accrued liabilities	105,153	(306,329)
Contract liabilities	(181,748)	(198,089)
Total adjustments and changes	219,392	(286,317)
Net cash (used in) operating activities	(157,954)	(8,050)
Cash flows from investing activities:
Capital expenditures	(190,692)	(87,136)
Purchase of precious metals		(875)
Net cash (used in) investing activities	(190,692)	(88,011)
Cash flows from financing activities:
Principal payments on notes payable-other	(6,444)	(6,194)
Net cash (used in) financing activities	(6,444)	(6,194)
Net (decrease) in cash and cash equivalents	(355,090)	(102,255)
Cash and cash equivalents at beginning of period	1,185,553	799,953
Cash and cash equivalents at end of period	830,463	697,698
Supplemental disclosure of cash flow information:
Interest paid	80,088	80,339
Income taxes paid	0	$ 0
Significant non-cash activities:
Lease right-of-use asset	$ 819,612

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2019

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 of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018.

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

Accounts receivable are carried at net realizable value, net of write-offs and allowances. The Company establishes an allowance for doubtful accounts based on estimates as to the collectability of accounts receivable. Management specifically analyzes past-due accounts receivable balances and, additionally, considers bad debt history, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Uncollectible accounts receivable are written-off when it is determined that the balance will not be collected. Reserves for uncollectible accounts receivable are recorded as part of selling, general and administrative expenses in the Consolidated Statements of Operations, and were $15,000 at June 30, 2019.

Inventories

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.

Inventories are comprised of the following and are shown net of inventory reserves of $2,547,119 and $2,486,209 at June 30, 2019 and December 31, 2018, respectively:

	June 30,		December 31,
	2019		2018
	(Unaudited)
Raw materials	$	1,253,654	$	1,143,132
Work in process, including manufactured parts and components		1,075,235		1,388,624
Finished goods		516,107		484,127
	$	2,844,996	$	3,015,883

Income Taxes

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

In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three year period ended December 31, 2018. 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, 2019, 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 net deferred tax balance of $3,356,000 and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax 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, 2019, the Company did not record a current provision for either state tax or federal tax due to the losses incurred for both income tax and financial reporting purposes.

For the three and six months ended June 30, 2018, 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 federal and state tax 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, 2019, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes. In addition 1,218,367 and 1,228,267 common stock options in each respective period, 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, 2018, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes. In addition 183,141 and 100,641 common stock options in each respective period, were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive.

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

	Three Months Ended					Three Months Ended
	June 30, 2019					June 30, 2018
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(341,210)	13,653,353	$	(0.02)	$	14,104	13,535,148	$	0.00
Effect of dilutive securities:		—	—		—		—	—		—
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	—		—		—	379,376		—
Diluted Income (Loss) Per Share:	$	(341,210)	13,653,353	$	(0.02)	$	14,104	13,914,524	$	0.00

	Six Months Ended					Six Months Ended
	June 30, 2019					June 30, 2018
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(377,346)	13,641,664	$	(0.03)	$	278,267	13,521,899	$	0.02
Effect of dilutive securities:		—	—		—		—	—		—
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	—		—		—	390,310		—
Diluted Income (Loss) Per Share:	$	(377,346)	13,641,664	$	(0.03)	$	278,267	13,912,209	$	0.02

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.

Recently Adopted Accounting Standards

In February 2016, the FASB created Topic 842 and issued ASU 2016-02, Leases (Topic 842), which created new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted the requirements of the new standard effective January 1, 2019, using the modified retrospective transition method, which applies the provisions of the standard at the effective date without adjustment to the comparative periods presented.  The Company adopted the following practical expedients and elected the following accounting policies related to this standard:

· Carry forward of historical lease classifications and accounting treatment;

· Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and

· The option to not separate lease and non-lease components for certain equipment lease categories such as office printers and copiers.

Adoption of this standard had no effect on the consolidated balance sheet as of January 1, 2019, and therefore, did not materially impact operating results or liquidity.  The Company signed an amended lease on its facility effective June 1, 2019, and recognized a lease right-of-use asset and corresponding lease liability of $0.8 million at June 1, 2019.  Disclosures related to the amount, timing and uncertainty of cash flows arising from this lease are included in Note 7.

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REVENUE

6 Months Ended

Jun. 30, 2019

REVENUE

REVENUE

NOTE 2 – REVENUE

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

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

The Company’s performance obligations under long-term government contracts are generally satisfied over time. Revenue from products or services transferred to customers under these performance obligations accounted for approximately 4.0% and 5.1% of revenue for the six months ended June 30, 2019 and 2018, respectively. This revenue is generally recognized using an input measure based upon the proportion of actual costs incurred to estimated total project costs, which is a method used to best depict the Company’s performance to date under the terms of the contract.

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

The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was approximately 96.0% and 94.9% of revenue for the six months ended June 30, 2019 and 2018, 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.

As part of the adoption of Accounting Standards Update (“ASU”) 2014‑09, “Revenue from Contracts with Customers (Topic 606),” the Company reviewed its sales by market area and reassigned certain customers within the existing markets.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Aerospace & Defense	$	979,004	$	395,749	$	2,019,561	$	1,425,288
Process Control & Metrology		993,355		1,555,662		2,114,342		3,114,101
Laser Systems		324,282		511,689		609,272		877,919
Scientific / R&D		322,982		260,374		477,508		608,595
Total	$	2,619,623	$	2,723,474	$	5,220,683	$	6,025,903

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Transfer at point in time	$	2,506,028	$	2,520,975	$	5,013,534	$	5,719,755
Transfer over time		113,595		202,499		207,149		306,148
Total net sales	$	2,619,623	$	2,723,474	$	5,220,683	$	6,025,903

The timing of revenue recognition, billings and cash collections results in billed receivables, costs in excess of billings (contract assets), and billings in excess of costs (contract liabilities, previously deferred revenue) on the Consolidated Balance Sheet. Contract liabilities also include customer advances or prepayments. Costs in excess of billings and billings in excess of costs associated with long-term government contracts were not significant at June 30, 2019 or 2018. At June 30, 2019 and 2018, the remaining revenue to be recognized from the long-term government contracts was $105,000 and $420,000, respectively.

On June 30, 2019, the Company had approximately $4.8 million of remaining performance obligations, which is also referred to as backlog. Approximately 15% of the June 30, 2019 backlog is related to projects that will extend beyond June 30, 2020.

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

6 Months Ended

Jun. 30, 2019

EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

NOTE 3‑ EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

a)    Stock Option Expense

The Company's results of operations for the three months ended June 30, 2019 and 2018, include stock-based compensation expense for stock option grants totaling $33,591 and $12,966, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations within cost of goods sold in the amount of $9,493 ($3,514 for 2018), and selling, general and administrative expenses in the amount of $24,098 ($9,452 for 2018).

The Company's results of operations for the six months ended June 30, 2019 and 2018, include stock-based compensation expense for stock option grants totaling $62,719 and $26,001, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations within cost of goods sold in the amount of $17,719  ($7,097 for 2018), and selling, general and administrative expenses in the amount of $45,000  ($18,904 for 2018).

As of June 30, 2019 and 2018, there were $99,627 and $63,485 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 1.95 years and 1.11 years, respectively.

There were 200,000 stock options granted during the six months ended June 30, 2019, and no stock options granted in the six months ended June 30, 2018. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the six months ended June 30, 2019 and 2018:

	Six Months Ended
	June 30,
	2019		2018
Expected Dividend yield	—	%	—	%
Expected Volatility	125.13	%	—	%
Risk-free interest rate	2.83	%	—	%
Expected term	10 years		10 years

b)    Stock Option Activity

The following table represents stock options granted, exercised and forfeited during the six months ended June 30, 2019:

		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value
Outstanding January 1, 2019	1,058,208	$	0.64	5.58	$	337,997
Granted	200,000		0.79
Exercised
Expired/Forfeited	(39,841)		1.27
Outstanding June 30, 2019	1,218,367	$	0.65	6.75	$	1,451,860
Exercisable at June 30, 2019	841,698	$	0.58	4.87	$	913,580

The following table represents non-vested stock options granted, vested and forfeited for the six months ended June 30, 2019:

	Weighted-average
	Grant-date Fair Value
	Options	($)
Non-Vested - January 1, 2019	349,491	0.74
Granted	200,000	0.76
Vested	(172,822)	0.65
Forfeited	—
Non-Vested – June 30, 2019	376,669	0.80

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STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2019

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 4 - STOCKHOLDERS’ EQUITY

The Company approved a matching contribution to participants in the Inrad Optics 401k Plan (the “Plan”) for the year ended December 31, 2018, in February 2019. Cash in the amount of $31,196 and 98,189 common shares of Inrad Optics, Inc. were contributed to the Plan in the second quarter of 2019.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2019

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 5 – RELATED PARTY TRANSACTIONS

On April 12, 2018, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to April 1, 2021 from April 1, 2018. The notes bear interest at an annual rate of 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, the expiration dates of the warrants were extended from April 1, 2022 to April 1, 2024. As of June 30, 2019, the Company had accrued interest in the amount of $112,500 associated with these notes.

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OTHER LONG TERM NOTES

6 Months Ended

Jun. 30, 2019

OTHER LONG TERM NOTES

OTHER LONG TERM NOTES

NOTE 6 – OTHER LONG TERM NOTES

Other Long Term Notes consist of the following:

	June 30,		December 31,
	2019		2018
	(in thousands)
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in April 2032.	$	251,297	$	257,741
Less current portion		(12,960)		(12,960)
Long-term debt, excluding current portion	$	238,337	$	244,781

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LEASE AMENDMENT

6 Months Ended

Jun. 30, 2019

LEASE AMENDMENT

LEASE AMENDMENT

NOTE 7 – LEASE AMENDMENT

The Company entered into an amendment and extension of its building lease on July 8, 2019, retroactive to June 1, 2019. Under the guidance of ASU 2016-02, Leases (Topic 842), the Company determines 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 as of June 30, 2019. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate.

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

An initial right-of-use asset of $0.8 million was recognized as a non-cash asset addition with the signing of the July 8, 2019, lease amendment. Cash paid for amounts included in the present value of operating lease liability was $26,000 during the six months ended June 30, 2019, and is included in operating cash flows.

Operating lease costs were $0.2 million and $0.4 million during the three and six months ended June 2019.

The following table presents information about the amount and timing of cash flows arising from the Company’s operating lease as of June 30, 2019:

Maturity of Lease Liability	in thousands
2019 (Remaining)	$	153
2020		306
2021		306
2022		128
Total undiscounted operating lease payments		893
Less: imputed interest		(73)
Present value of operating lease liability	$	820

Other Information
Remaining lease term (in months)	35
Discount rate for operating leases	5.80	%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2019

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 of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2018.

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

Management Estimates

Management Estimates

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

Accounts Receivable

Accounts Receivable

Accounts receivable are carried at net realizable value, net of write-offs and allowances. The Company establishes an allowance for doubtful accounts based on estimates as to the collectability of accounts receivable. Management specifically analyzes past-due accounts receivable balances and, additionally, considers bad debt history, customer credit-worthiness, current economic trends and changes in customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. Uncollectible accounts receivable are written-off when it is determined that the balance will not be collected. Reserves for uncollectible accounts receivable are recorded as part of selling, general and administrative expenses in the Consolidated Statements of Operations, and were $15,000 at June 30, 2019.

Inventories

Inventories

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.

Inventories are comprised of the following and are shown net of inventory reserves of $2,547,119 and $2,486,209 at June 30, 2019 and December 31, 2018, respectively:

	June 30,		December 31,
	2019		2018
	(Unaudited)
Raw materials	$	1,253,654	$	1,143,132
Work in process, including manufactured parts and components		1,075,235		1,388,624
Finished goods		516,107		484,127
	$	2,844,996	$	3,015,883

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 year period ended December 31, 2018. 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, 2019, 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 net deferred tax balance of $3,356,000 and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax 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, 2019, the Company did not record a current provision for either state tax or federal tax due to the losses incurred for both income tax and financial reporting purposes.

For the three and six months ended June 30, 2018, 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 federal and state tax purposes.

Net Income (Loss) per Common Share

Net Income (Loss) per Common Share

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

For the three and six months ended June 30, 2019, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes. In addition 1,218,367 and 1,228,267 common stock options in each respective period, 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, 2018, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes. In addition 183,141 and 100,641 common stock options in each respective period, were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive.

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

	Three Months Ended					Three Months Ended
	June 30, 2019					June 30, 2018
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(341,210)	13,653,353	$	(0.02)	$	14,104	13,535,148	$	0.00
Effect of dilutive securities:		—	—		—		—	—		—
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	—		—		—	379,376		—
Diluted Income (Loss) Per Share:	$	(341,210)	13,653,353	$	(0.02)	$	14,104	13,914,524	$	0.00

	Six Months Ended					Six Months Ended
	June 30, 2019					June 30, 2018
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(377,346)	13,641,664	$	(0.03)	$	278,267	13,521,899	$	0.02
Effect of dilutive securities:		—	—		—		—	—		—
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	—		—		—	390,310		—
Diluted Income (Loss) Per Share:	$	(377,346)	13,641,664	$	(0.03)	$	278,267	13,912,209	$	0.02

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.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

In February 2016, the FASB created Topic 842 and issued ASU 2016-02, Leases (Topic 842), which created new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted the requirements of the new standard effective January 1, 2019, using the modified retrospective transition method, which applies the provisions of the standard at the effective date without adjustment to the comparative periods presented.  The Company adopted the following practical expedients and elected the following accounting policies related to this standard:

· Carry forward of historical lease classifications and accounting treatment;

· Short-term lease accounting policy election allowing lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and

· The option to not separate lease and non-lease components for certain equipment lease categories such as office printers and copiers.

Adoption of this standard had no effect on the consolidated balance sheet as of January 1, 2019, and therefore, did not materially impact operating results or liquidity.  The Company signed an amended lease on its facility effective June 1, 2019, and recognized a lease right-of-use asset and corresponding lease liability of $0.8 million at June 1, 2019.  Disclosures related to the amount, timing and uncertainty of cash flows arising from this lease are included in Note 7.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of Inventory, Current

	June 30,		December 31,
	2019		2018
	(Unaudited)
Raw materials	$	1,253,654	$	1,143,132
Work in process, including manufactured parts and components		1,075,235		1,388,624
Finished goods		516,107		484,127
	$	2,844,996	$	3,015,883

Schedule Of Reconciliation Of Shares Used In Calculation Of Basic And Diluted Earnings Per Common Share

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, 2019					June 30, 2018
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(341,210)	13,653,353	$	(0.02)	$	14,104	13,535,148	$	0.00
Effect of dilutive securities:		—	—		—		—	—		—
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	—		—		—	379,376		—
Diluted Income (Loss) Per Share:	$	(341,210)	13,653,353	$	(0.02)	$	14,104	13,914,524	$	0.00

	Six Months Ended					Six Months Ended
	June 30, 2019					June 30, 2018
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	(377,346)	13,641,664	$	(0.03)	$	278,267	13,521,899	$	0.02
Effect of dilutive securities:		—	—		—		—	—		—
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	—		—		—	390,310		—
Diluted Income (Loss) Per Share:	$	(377,346)	13,641,664	$	(0.03)	$	278,267	13,912,209	$	0.02

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REVENUE (Tables)

6 Months Ended

Jun. 30, 2019

REVENUE

Schedule of Disaggregation of Revenue

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Aerospace & Defense	$	979,004	$	395,749	$	2,019,561	$	1,425,288
Process Control & Metrology		993,355		1,555,662		2,114,342		3,114,101
Laser Systems		324,282		511,689		609,272		877,919
Scientific / R&D		322,982		260,374		477,508		608,595
Total	$	2,619,623	$	2,723,474	$	5,220,683	$	6,025,903

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Transfer at point in time	$	2,506,028	$	2,520,975	$	5,013,534	$	5,719,755
Transfer over time		113,595		202,499		207,149		306,148
Total net sales	$	2,619,623	$	2,723,474	$	5,220,683	$	6,025,903

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2019

EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the six months ended June 30, 2019 and 2018:

	Six Months Ended
	June 30,
	2019		2018
Expected Dividend yield	—	%	—	%
Expected Volatility	125.13	%	—	%
Risk-free interest rate	2.83	%	—	%
Expected term	10 years		10 years

Schedule of Share-based Compensation, Stock Options, Activity

The following table represents stock options granted, exercised and forfeited during the six months ended June 30, 2019:

		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value
Outstanding January 1, 2019	1,058,208	$	0.64	5.58	$	337,997
Granted	200,000		0.79
Exercised
Expired/Forfeited	(39,841)		1.27
Outstanding June 30, 2019	1,218,367	$	0.65	6.75	$	1,451,860
Exercisable at June 30, 2019	841,698	$	0.58	4.87	$	913,580

Schedule of Share Based Compensation Arrangement By Share Based Payment Award Options Non Vested

The following table represents non-vested stock options granted, vested and forfeited for the six months ended June 30, 2019:

	Weighted-average
	Grant-date Fair Value
	Options	($)
Non-Vested - January 1, 2019	349,491	0.74
Granted	200,000	0.76
Vested	(172,822)	0.65
Forfeited	—
Non-Vested – June 30, 2019	376,669	0.80

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OTHER LONG TERM NOTES (Tables)

6 Months Ended

Jun. 30, 2019

OTHER LONG TERM NOTES

Schedule of Debt

Other Long Term Notes consist of the following:

	June 30,		December 31,
	2019		2018
	(in thousands)
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in April 2032.	$	251,297	$	257,741
Less current portion		(12,960)		(12,960)
Long-term debt, excluding current portion	$	238,337	$	244,781

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LEASE AMENDMENT (Tables)

6 Months Ended

Jun. 30, 2019

LEASE AMENDMENT

Schedule of operating lease liability

The following table presents information about the amount and timing of cash flows arising from the Company’s operating lease as of June 30, 2019:

Maturity of Lease Liability	in thousands
2019 (Remaining)	$	153
2020		306
2021		306
2022		128
Total undiscounted operating lease payments		893
Less: imputed interest		(73)
Present value of operating lease liability	$	820

Schedule of other information

Other Information
Remaining lease term (in months)	35
Discount rate for operating leases	5.80	%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Inventories (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Raw materials	$ 1,253,654	$ 1,143,132
Work in process, including manufactured parts and components	1,075,235	1,388,624
Finished goods	516,107	484,127
Inventories, net	$ 2,844,996	$ 3,015,883

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Basic and diluted earnings (loss) per common share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income(Loss) (Numerator)
Net Income (Loss)	$ (341,210)	$ 14,104	$ (377,346)	$ 278,267
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Convertible Securities	0	0	0	0
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Accrued Interest On Convertible Notes	0	0	0	0
Dilutive Securities, Effect on Basic Earnings Per Share, Dilutive Warrants	0	0	0	0
Dilutive Securities, Effect on Basic Earnings Per Share, Options and Restrictive Stock Units	0	0	0	0
Diluted Income (Loss) Per Share:
Net Income (Loss)	$ (341,210)	$ 14,104	$ (377,346)	$ 278,267
Shares (Denominator)
Weighted Average Number of Shares Outstanding, Basic	13,653,353	13,535,148	13,641,664	13,521,899
Incremental Common Shares Attributable to Dilutive Effect of Conversion of Debt Securities	0	0	0	0
Incremental Common Shares Attributable to Dilutive Effect of Accrued Interest On Convertible Notes	0	0	0	0
Incremental Common Shares Attributable to Dilutive Effect of Call Options and Warrants	0	0	0	0
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	0	379,376	0	390,310
Diluted Income (Loss) Per Share:
Weighted Average Number of Shares Outstanding, Diluted	13,653,353	13,914,524	13,641,664	13,912,209
Basic Income (Loss) Per Share:
Earnings Per Share, Basic	$ (0.02)	$ 0.00	$ (0.03)	$ 0.02
Diluted Income (Loss) Per Share:
Earnings per share diluted, conversion notes	0.00	0.00	0.00	0.00
Earnings per Share diluted, accrued interest on convertible notes	0.00	0.00	0.00	0.00
Earnings per share diluted, warrants	0.00	0.00	0.00	0.00
Earnings per share diluted, stock options	0.00	0.00	0.00	0.00
Earnings Per Share, Diluted	$ (0.02)	$ 0.00	$ (0.03)	$ 0.02

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jul. 08, 2019	Jun. 01, 2019	Dec. 31, 2018
Nature Of Business And Operations And Summary Of Significant Accounting Policies And Estimates [Line Items]
Deferred Tax Assets, Valuation Allowance	$ 3,356,000		$ 3,356,000
Inventory Valuation Reserves	2,547,119		2,547,119				$ 2,486,209
Operating Lease, Right-of-Use Asset	819,612		819,612		$ 800,000	$ 800,000
Operating Lease, Liability	$ 820,000		820,000			$ 800,000
Selling Expense [Member]
Nature Of Business And Operations And Summary Of Significant Accounting Policies And Estimates [Line Items]
Provision for Doubtful Accounts			$ 15,000
Employee Stock Option [Member]
Nature Of Business And Operations And Summary Of Significant Accounting Policies And Estimates [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,218,367	183,141	1,228,267	100,641
Warrant [Member]
Nature Of Business And Operations And Summary Of Significant Accounting Policies And Estimates [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount			1,875,000	1,875,000
Common Stock
Nature Of Business And Operations And Summary Of Significant Accounting Policies And Estimates [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,500,000	2,500,000

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REVENUE (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Disaggregation of Revenue [Line Items]
Revenues	$ 2,619,623	$ 2,723,474	$ 5,220,683	$ 6,025,903
Transferred at Point in Time [Member]
Disaggregation of Revenue [Line Items]
Revenues	2,506,028	2,520,975	5,013,534	5,719,755
Transferred over Time [Member]
Disaggregation of Revenue [Line Items]
Revenues	113,595	202,499	207,149	306,148
Aerospace & Defense [Member]
Disaggregation of Revenue [Line Items]
Revenues	979,004	395,749	2,019,561	1,425,288
Process Control & Metrology [Member]
Disaggregation of Revenue [Line Items]
Revenues	993,355	1,555,662	2,114,342	3,114,101
Laser Systems [Member]
Disaggregation of Revenue [Line Items]
Revenues	324,282	511,689	609,272	877,919
Scientific / R&D [Member]
Disaggregation of Revenue [Line Items]
Revenues	$ 322,982	$ 260,374	$ 477,508	$ 608,595

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REVENUE - Additional Information (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Disaggregation of Revenue [Line Items]
Remaining revenue to be recognized from the long-term government contracts	$ 105,000	$ 420,000
Revenue, Remaining Performance Obligation	$ 4,800,000
Revenue, Remaining Performance Obligation, Percentage	15.00%
Transferred over Time [Member]
Disaggregation of Revenue [Line Items]
Percentage of Revenue from Products or Services	4.00%	5.10%
Transferred at Point in Time [Member]
Disaggregation of Revenue [Line Items]
Percentage of Revenue from Products or Services	96.00%	94.90%

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Stock Option Expense (Details)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Expected Dividend yield	0.00%	0.00%
Expected Volatility	125.13%	0.00%
Risk-free interest rate	2.83%	0.00%
Expected term	10 years	10 years

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Stock Option Activity (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Granted	200,000	0
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options, Outstanding at January 1, 2019	1,058,208
Options, Granted	200,000
Options, Exercised	0
Option, Expired/Forfeited	(39,841)
Options, Outstanding June 30, 2019	1,218,367		1,058,208
Options, Exercisable June 30, 2019	841,698
Weighted Average Exercise Price Per Options Outstanding at January 1, 2019(in dollars per share)	$ 0.64
Weighted Average Exercise Price per Option, Granted	0.79
Weighted Average Exercise Price per Option, Exercised	0.00
Weighted Average Exercise Price per Option, Expired/Forfeited	1.27
Weighted Average Exercise Price Options, Outstanding at June 30, 2019 (in dollars per share)	0.65		$ 0.64
Weighted Average Exercise Price per Option, Exercisable at June 30, 2019	$ 0.58
Weighted Average Remaining Contractual Term, Options Outstanding	6 years 9 months		5 years 6 months 29 days
Weighted Average Remaining Contractual Term, Exercisable at June 30, 2019	4 years 10 months 13 days
Aggregate Intrinsic Value, Options Outstanding (in dollars)	$ 1,451,860		$ 337,997
Aggregate Intrinsic Value, Options Exercisable at June 30, 2019	$ 913,580

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Non-vested stock option activity (Details)	6 Months Ended
	Jun. 30, 2019 $ / shares shares
EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION
Options - Non-vested - January 1, 2019 | shares	349,491
Options - Granted | shares	200,000
Options - Vested | shares	(172,822)
Options - Forfeited | shares	0
Options - Non-vested - June 30, 2019 | shares	376,669
Weighted-Average Grant-Date Fair Value - Non-vested at January 1, 2019 (in dollars per share) | $ / shares	$ 0.74
Weighted-Average Grant-Date Fair Value - Granted (in dollars per share) | $ / shares	0.76
Weighted-Average Grant-Date Fair Value - Vested (in dollars per share) | $ / shares	0.65
Weighted-Average Grant-Date Fair Value - Forfeited (in dollars per share) | $ / shares	0
Weighted-Average Grant-Date Fair Value - Non-vested at June 30, 2019 (in dollars per share) | $ / shares	$ 0.80

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EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures			200,000	0
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized	$ 99,627	$ 63,485	$ 99,627	$ 63,485
Employee Service Share-based Compensation, Nonvested Awards, Total Compensation Cost Not yet Recognized, Period for Recognition (in years)			1 year 11 months 12 days	1 year 1 month 10 days
Allocated Share-based Compensation Expense	33,591	12,966	$ 62,719	$ 26,001
Employee Stock Option [Member] | Cost of Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	9,493	3,514	17,719	7,097
Employee Stock Option [Member] | Selling, General and Administrative Expenses [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 24,098	$ 9,452	$ 45,000	$ 18,904

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STOCKHOLDERS' EQUITY (Details)	3 Months Ended
	Jun. 30, 2019 USD ($) shares
STOCKHOLDERS' EQUITY
Stock Issued During Period, Value, Employee Benefit Plan | $	$ 31,196
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period | shares	98,189

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RELATED PARTY TRANSACTIONS (Details)	Apr. 12, 2018 USD ($) $ / shares shares	Jun. 30, 2019 USD ($)
Related Party Transaction [Line Items]
Debt Instrument, Interest Rate, Stated Percentage		4.00%
Interest Payable		$ 112,500
Clarex [Member]
Related Party Transaction [Line Items]
Warrants To Purchase Common Stock Number Of Shares Per Warrant | shares	0.75
Investment Warrants, Exercise Price | $ / shares	$ 1.35
Convertible Subordinated Debt [Member] | Clarex [Member]
Related Party Transaction [Line Items]
Convertible Subordinated Debt	$ 1,500,000
Debt Instrument, Convertible, Number of Equity Instruments	1,500,000
Convertible Subordinated Debt [Member] | Affiliate Of Clarex [Member]
Related Party Transaction [Line Items]
Convertible Subordinated Debt	$ 1,000,000
Debt Instrument, Interest Rate, Stated Percentage	6.00%
Debt Instrument, Convertible, Number of Equity Instruments	1,000,000

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OTHER LONG TERM NOTES (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
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 April 2032.	$ 251,297	$ 257,741
Less current portion	(12,960)	(12,960)
Long-term debt, excluding current portion	$ 238,337	$ 244,781

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OTHER LONG TERM NOTES - Additional Information (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)
OTHER LONG TERM NOTES
Debt Instrument, Periodic Payment	$ 1,922
Debt Instrument, Interest Rate, Stated Percentage	4.00%

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LEASE AMENDMENT - Future minimum lease payments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jun. 01, 2019
LEASE AMENDMENT
2019 (Remaining)	$ 153
2020	306
2021	306
2022	128
Total undiscounted operating lease payments	893
Less: imputed interest	73
Present value of operating lease liability	$ 820	$ 800
Other Information
Remaining lease term (in months)	35 months
Discount rate for operating leases	5.80%

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LEASE AMENDMENT - Additional information (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Jul. 08, 2019	Jun. 01, 2019
LEASE AMENDMENT
Operating Lease, Right-of-Use Asset	$ 819,612	$ 819,612	$ 800,000	$ 800,000
Operating Lease, Payments		26,000
Operating Lease, Cost	$ 200,000	$ 400,000