UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~June~~September 30, 2021

or


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

For the transition period from ___________ to ___________

Commission File Number 0-11668

INRAD OPTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

New Jersey		22-2003247
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

181 Legrand Avenue, Northvale, NJ		07647
Address of Principal Executive Offices		Zip Code

(201) 767-1910

Registrant’s Telephone Number, Including Area Code

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

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


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

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

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

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

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

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

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

The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of ~~August 13,~~November 11, 2021, was 13,967,257.

Table of Contents

INRAD OPTICS, INC AND SUBSIDIARIES

INDEX


Part I.	CONDENSED FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:

	Condensed consolidated balance sheets as of ~~June~~September 30, 2021 (unaudited) and December 31, 2020	3

	Condensed consolidated statements of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (unaudited)	4

	Condensed consolidated statements of shareholders equity for the three and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (unaudited)	5

	Condensed consolidated statements of cash flows for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020 (unaudited)	6

	Notes to condensed consolidated financial statements (unaudited)	7

Item 2.	~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19

Item 4.	Controls and Procedures	19

Part II.	OTHER INFORMATION	20

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20

Item 3.	Defaults upon Senior Securities	20

Item 4.	Mine Safety Disclosures	20

Item 5.	Other Information	20

Item 6.	Exhibits	21

Signatures		22

Table of Contents

INRAD OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	June 30,		December 31,
	2021		2020		September 30,		December 31,
	(Unaudited)				2021		2020
Assets					(Unaudited)
Current assets:
Cash and cash equivalents	$	1,494,346	$	1,129,703	$	1,819,737	$	1,129,703
Accounts receivable, net		1,024,229		824,452		1,293,081		824,452
Inventories, net		3,078,824		3,206,057		2,888,560		3,206,057
Other current assets		102,340		214,748		83,575		214,748
Total current assets		5,699,739		5,374,960		6,084,953		5,374,960

Plant and equipment:
Plant and equipment, at cost		15,205,646		15,191,610		15,232,270		15,191,610
Less: Accumulated depreciation and amortization		(14,629,031)		(14,564,186)		(14,668,346)		(14,564,186)
Total plant and equipment		576,615		627,424		563,924		627,424
Precious metals		561,909		561,909		561,909		561,909
Lease right-of-use, net		272,645		415,377		199,716		415,377
Other assets		48,421		48,421		48,421		48,421
Total Assets	$	7,159,329	$	7,028,091	$	7,458,923	$	7,028,091

Liabilities and Shareholders' Equity
Current liabilities:
Current portion of other long term notes	$	16,288	$	16,288
Current portion of other long-term notes					$	16,288	$	16,288
Accounts payable and accrued liabilities		589,067		717,536		655,797		717,536
Contract liabilities		547,056		856,802		694,835		856,802
Current portion of lease obligation		298,821		304,844		213,916		304,844
Total current liabilities		1,451,232		1,895,470		1,580,836		1,895,470

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

Other long term notes, net of current portion		166,053		1,133,682
Other long-term notes, net of current portion						166,054		1,133,682
Lease obligation, net of current portion		0		144,228		8,159		144,228
Total liabilities		4,117,285		5,673,380		4,255,049		5,673,380

Shareholders' equity:
Common stock: $.01 par value; 60,000,000 authorized shares; 13,967,257 shares issued at June 30, 2021, and 13,824,928 shares issued at December 31, 2020		139,674		138,251
Common stock: $.01 par value; 60,000,000 authorized shares; 13,967,257 shares issued at September 30, 2021, and 13,824,928 shares issued at December 31, 2020						139,674		138,251
Capital in excess of par value		19,687,223		19,516,363		19,709,233		19,516,363
Accumulated deficit		(16,769,903)		(18,284,953)		(16,630,083)		(18,284,953)
		3,056,994		1,369,661		3,218,824		1,369,661
Less - Common stock in treasury, at cost (4,600 shares)		(14,950)		(14,950)		(14,950)		(14,950)
Total shareholders' equity		3,042,044		1,354,711		3,203,874		1,354,711
Total Liabilities and shareholders' equity	$	7,159,329	$	7,028,091	$	7,458,923	$	7,028,091

See Notes to Condensed Consolidated Financial Statements (Unaudited)

3

Table of Contents

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020		2021		2020		2021		2020

Total sales revenue	$	2,881,751	$	2,523,990	$	5,661,299	$	4,574,485
Total revenue									$	2,822,767	$	2,237,711	$	8,484,066	$	6,812,196

Cost and expenses:
Cost of goods sold		1,824,001		1,784,192		3,790,808		3,419,232		1,956,881		1,819,844		5,747,689		5,239,077
Selling, general and administrative expenses		638,691		676,046		1,247,449		1,377,725		683,347		545,272		1,930,796		1,922,996
		2,462,692		2,460,238		5,038,257		4,796,957		2,640,228		2,365,116		7,678,485		7,162,073

Income (loss) from operations		419,059		63,752		623,042		(222,472)		182,539		(127,405)		805,581		(349,877)
Other expense:
Gain on forgiveness of PPP loan		0		0		973,166		0		0		0		973,166		0
Interest expense-net		(44,343)		(37,957)		(81,158)		(76,220)		(42,719)		(36,594)		(123,877)		(112,814)
		(44,343)		(37,957)		892,008		(76,220)		(42,719)		(36,594)		849,289		(112,814)

Income (loss) before income taxes		374,716		25,795		1,515,050		(298,692)		139,820		(163,999)		1,654,870		(462,691)

Income tax (provision) benefit		0		0		0		0		0		0		0		0

Net income (loss)	$	374,716	$	25,795	$	1,515,050	$	(298,692)	$	139,820	$	(163,999)	$	1,654,870	$	(462,691)

Net income (loss) per common share - basic	$	0.03	$	0.00	$	0.11	$	(0.02)	$	0.01	$	(0.01)	$	0.12	$	(0.03)

Net income (loss) per common share - diluted	$	0.03	$	0.00	$	0.11	$	(0.02)	$	0.01	$	(0.01)	$	0.12	$	(0.03)

Weighted average shares outstanding - basic		13,844,050		13,745,536		13,827,106		13,734,851		13,962,657		13,820,328		13,851,957		13,750,522

Weighted average shares outstanding - diluted		14,128,491		14,145,909		14,103,797		13,734,851		14,297,879		13,820,328		14,135,274		13,750,522

See Notes to Condensed Consolidated Financial Statements (Unaudited)

4

Table of Contents

INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS'~~SHAREHOLDERS’ EQUITY

(Unaudited)

Capital in

Total

Common Stock

excess of

Accumulated

Treasury

Shareholders'


Shares

Amount

par value

Deficit

Stock

Equity

Balance, January 1, 2020

13,735,177

$
137,353

$
19,281,255

$
(17,386,392)

$
(14,950)

$
2,017,266
401K contribution

0

0

0

0

0

0
Stock-based compensation expense

—

0

27,980

0

0

27,980
Net income (loss) March 31, 2020

—

0

0

(324,487)

0

(324,487)
Balance, March 31, 2020

13,735,177

$
137,353

$
19,309,235

$
(17,710,879)

$
(14,950)

$
1,720,759

401K contribution

89,751

898

123,457

0

0

124,355
Stock-based compensation expense

—

0

28,157

0

0

28,157
Net income (loss) June 30, 2020

—

0

0

25,795

0

25,795
Balance, June 30, 2020

13,824,928

$
138,251

$
19,460,849

$
(17,685,084)

$
(14,950)

$
1,899,066


				Capital in						Total
	Common Stock			excess of		Accumulated		Treasury		Shareholders'
	Shares	Amount		par value		Deficit		Stock		Equity

Balance, January 1, 2020	13,735,177	$	137,353	$	19,281,255	$	(17,386,392)	$	(14,950)	$	2,017,266
401K contribution	0		0		0		0		0		0
Stock-based compensation expense	0		0		27,980		0		0		27,980
Net income (loss) March 31, 2020	0		0		0		(324,487)		0		(324,487)
Balance, March 31, 2020	13,735,177	$	137,353	$	19,309,235	$	(17,710,879)	$	(14,950)	$	1,720,759

401K contribution	89,751		898		123,457		0		0		124,355
Stock-based compensation expense	0		0		28,157		0		0		28,157
Net income (loss) June 30, 2020	0		0		0		25,795		0		25,795
Balance, June 30, 2020	13,824,928	$	138,251	$	19,460,849	$	(17,685,084)	$	(14,950)	$	1,899,066

401K contribution	0		0		0		0		0		0
Stock-based compensation expense	0		0		27,764		0		0		27,764
Net income (loss) September 30, 2020	0		0		0		(163,999)		0		(163,999)
Balance, September 30, 2020	13,824,928	$	138,251	$	19,488,613	$	(17,849,083)	$	(14,950)	$	1,762,831

Capital in

Total

Common Stock

excess of

Accumulated

Treasury

Shareholders'


Shares

Amount

par value

Deficit

Stock

Equity
Balance, January 1, 2021

13,824,928

$
138,251

$
19,516,363

$
(18,284,953)

$
(14,950)

$
1,354,711
401K contribution

0

0

0

0

0

0
Stock-based compensation expense

—

0

29,303

0

0

29,303
Net income (loss) March 31, 2021

—

0

0

1,140,334

0

1,140,334
Balance, March 31, 2021

13,824,928

$
138,251

$
19,545,666

$
(17,144,619)

$
(14,950)

$
2,524,348

401K contribution

142,329

1,423

101,926

0

0

103,349
Stock-based compensation expense

—

0

39,631

0

0

39,631
Net income (loss) June 30, 2021

—

0

0

374,716

0

374,716
Balance, June 30, 2021

13,967,257

$
139,674

$
19,687,223

$
(16,769,903)

$
(14,950)

$
3,042,044


				Capital in						Total
	Common Stock			excess of		Accumulated		Treasury		Shareholders'
	Shares	Amount		par value		Deficit		Stock		Equity
Balance, January 1, 2021	13,824,928	$	138,251	$	19,516,363	$	(18,284,953)	$	(14,950)	$	1,354,711
401K contribution	0		0		0		0		0		0
Stock-based compensation expense	0		0		29,303		0		0		29,303
Net income (loss) March 31, 2021	0		0		0		1,140,334		0		1,140,334
Balance, March 31, 2021	13,824,928	$	138,251	$	19,545,666	$	(17,144,619)	$	(14,950)	$	2,524,348

401K contribution	142,329		1,423		101,926		0		0		103,349
Stock-based compensation expense	0		0		39,631		0		0		39,631
Net income (loss) June 30, 2021	0		0		0		374,716		0		374,716
Balance, June 30, 2021	13,967,257	$	139,674	$	19,687,223	$	(16,769,903)	$	(14,950)	$	3,042,044

401K contribution	0		0		0		0		0		0
Stock-based compensation expense	0		0		22,010		0		0		22,010
Net income (loss) September 30, 2021	0		0		0		139,820		0		139,820
Balance, September 30, 2021	13,967,257	$	139,674	$	19,709,233	$	(16,630,083)	$	(14,950)	$	3,203,874

See Notes to Condensed Consolidated Financial Statements (Unaudited)

5

Table of Contents

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended				Nine Months Ended
	June 30,				September 30,
	2021		2020		2021		2020
Cash flows from operating activities:
Net income (loss)	$	1,515,050	$	(298,692)	$	1,654,870	$	(462,691)

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization		64,845		138,287		104,160		212,292
401K common stock contribution - non cash item		103,349		124,355		103,349		124,355
Stock based compensation		68,934		56,137		90,944		83,901
Gain on forgiveness of PPP loan		(973,166)		0		(973,166)		0
Capitalized interest on promissory note		5,538		0		5,538		0
Changes in operating assets and liabilities:
Accounts receivable		(120,917)		178,382		(468,629)		87,521
Inventories, net		127,232		(383,589)		317,497		(395,335)
Other current assets						131,173		88,473
Other assets		112,408		47,288		0		(3,842)
Accounts payable and accrued liabilities		(135,989)		83,379		(73,075)		(229,858)
Contract liabilities		(388,605)		258,613		(161,967)		341,933
Total adjustments and changes		(1,136,371)		502,852		(924,176)		309,440
Net cash provided by operating activities		378,679		204,160
Net cash provided by (used in) operating activities						730,694		(153,251)

Cash flows from investing activities:
Capital expenditures		(14,036)		(100,081)		(40,660)		(158,855)
Net cash (used in) investing activities		(14,036)		(100,081)
Net cash used in investing activities						(40,660)		(158,855)

Cash flows from financing activities:
Proceeds from PPP Loan		0		973,166
Proceeds from PPP loan						0		973,166
Principal payments on notes payable-other		0		(6,567)		0		(6,566)
Net cash provided by financing activities		0		966,599
Net cash provided by (used in) financing activities						0		966,600

Net increase in cash and cash equivalents		364,643		1,070,678
Net increase (decrease) in cash and cash equivalents						690,034		654,494

Cash and cash equivalents at beginning of period		1,129,703		950,705		1,129,703		950,705

Cash and cash equivalents at end of period	$	1,494,346	$	2,021,383	$	1,819,737	$	1,605,199

Supplemental disclosure of cash flow information:
Interest paid	$	83,070	$	3,043	$	126,584	$	187,500
Income taxes paid	$	0	$	0

See Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Table of Contents

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, 2020.

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 ~~$91,000~~$90,000 at ~~June~~September 30, 2021, and $91,000 at December 31, 2020.

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.

7

Table of Contents

Inventories are comprised of the following and are shown net of inventory reserves of ~~$2,829,000~~$2,886,000 and $2,489,000 at ~~June~~September 30, 2021 and December 31, 2020, respectively:


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
	(Unaudited)				(Unaudited)
		(in thousands)				(in thousands)
Raw materials	$	973	$	1,130	$	1,097	$	1,130
Work in process, including manufactured parts and components		1,488		1,718		1,331		1,718
Finished goods		618		358		461		358
	$	3,079	$	3,206	$	2,889	$	3,206

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, 2020. 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~~September 30, 2021, 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 asset balance of ~~$3,480,000~~$3,160,000 and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings.

For the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Company did 0t 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.

For the three months and nine months ended ~~June~~September 30, 2020, the Company did 0t 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. For the six months ended June 30, 2020, the Company did 0t 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.

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~~nine months ended ~~June~~September 30, 2021, a total of 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes in addition to ~~190,000~~274,300 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~~nine months ended ~~June~~September 30, 2020, a total of 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes in addition to ~~368,400 and 1,160,567~~1,155,567 common stock options infor each ~~respective~~ period, were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive.

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


	Three Months Ended					Three Months Ended					Three Months Ended					Three Months Ended
	June 30, 2021					June 30, 2020					September 30, 2021					September 30, 2020
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	374,716	13,844,050	$	0.03	$	25,795	13,745,536	$	0.00
Basic income (loss) per share:
Net income (loss)											$	139,820	13,962,657	$	0.01	$	(163,999)	13,820,328	$	(0.01)
Effect of dilutive securities:		—	—		—		—	—		—		—	—		—		—	—		—
Convertible Notes		0	0		0		0	0		0
Accrued Interest on Convertible Notes		0	0		0		0	0		0
Convertible notes												0	0		0		0	0		0
Accrued interest on convertible notes												0	0		0		0	0		0
Warrants		0	0		0		0	0		0		0	0		0		0	0		0
Stock Options		0	284,441		0		0	400,373		0
Diluted Income (Loss) Per Share:	$	374,716	14,128,491	$	0.03	$	25,795	14,145,909	$	0.00
Stock options												0	335,222		0		0	0		0
Diluted income (loss) per share:											$	139,820	14,297,879	$	0.01	$	(163,999)	13,820,328	$	(0.01)


	Six Months Ended					Six Months Ended					Nine Months Ended					Nine Months Ended
	June 30, 2021					June 30, 2020					September 30, 2021					September 30, 2020
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income (Loss) Per Share:
Net Income (Loss)	$	1,515,050	13,827,106	$	0.11	$	(298,692)	13,734,851	$	(0.02)
Basic income (loss) per share:
Net income (loss)											$	1,654,870	13,851,957	$	0.12	$	(462,691)	13,750,522	$	(0.03)
Effect of dilutive securities:		—	—		—		—	—		—		—	—		—		—	—		—
Convertible Notes		0	0		0		0	0		0
Accrued Interest on Convertible Notes		0	0		0		0	0		0
Convertible notes												0	0		0		0	0		0
Accrued interest on convertible notes												0	0		0		0	0		0
Warrants		0	0		0		0	0		0		0	0		0		0	0		0
Stock Options		0	276,691		0		0	0		0
Diluted Income (Loss) Per Share:	$	1,515,050	14,103,797	$	0.11	$	(298,692)	13,734,851	$	(0.02)
Stock options												0	283,317		0		0	0		0
Diluted income (loss) per share:											$	1,654,870	14,135,274	$	0.12	$	(462,691)	13,750,522	$	(0.03)

Stock-Based Compensation

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

Recent Accounting Standards

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

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance was effective for entities with fiscal years beginning after December 15, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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NOTE 2 – SALES REVENUE

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

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

The Company’s performance obligations under long-term government contracts are generally satisfied over time. Revenue from products or services transferred to customers under these performance obligations accounted for approximately 0% and ~~0.7%~~0.5% of revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2021, and 0%3.4% and 1.1% of revenue for the three and ~~six~~nine months ended ~~June~~September 30, ~~2020.~~2020, 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 ~~99.3%~~99.5% and ~~100%~~98.9% of revenue for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, 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.

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


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Aerospace & Defense	$	1,055,936	$	940,727	$	2,232,266	$	1,820,639	$	604,221	$	846,304	$	2,833,925	$	2,666,943
Process Control & Metrology		1,171,856		1,093,022		2,249,232		1,945,397		1,825,609		826,402		4,074,841		2,771,799
Laser Systems		276,483		150,451		391,229		361,493		168,201		180,253		561,992		541,746
Scientific / R&D		377,476		339,790		788,572		446,956		224,736		384,752		1,013,308		831,708
Total	$	2,881,751	$	2,523,990	$	5,661,299	$	4,574,485	$	2,822,767	$	2,237,711	$	8,484,066	$	6,812,196

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


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Transfer at point in time	$	2,881,751	$	2,523,990	$	5,621,080	$	4,574,485	$	2,822,767	$	2,161,878	$	8,443,847	$	6,736,363
Transfer over time		0		0		40,219		0		0		75,833		40,219		75,833
Total net sales	$	2,881,751	$	2,523,990	$	5,661,299	$	4,574,485	$	2,822,767	$	2,237,711	$	8,484,066	$	6,812,196

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~~September 30, 2021 or 2020. The Company had 0 remaining revenue to be recognized from long-term government contracts at ~~June~~September 30, 2021 or 2020.

On ~~June~~September 30, 2021, the Company had approximately ~~$9.4~~$9.8 million of performance obligations, which is also referred to as backlog. Approximately ~~12.9%~~5.9% of the ~~June~~September 30, 2021 backlog, is related to projects that will extend beyond ~~June~~September 30, 2022.

NOTE 3- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

a) Stock Option Expense

The ~~Company's~~Company’s results of operations for the three months ended ~~June~~September 30, 2021 and 2020, include stock-based compensation expense for stock option grants totaling ~~$39,631~~$22,010 and ~~$28,157,~~$27,764, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, stock-based compensation expense for stock option grants totaled ~~$68,934~~$90,944 and ~~$56,137,~~$83,901, respectively. The following table shows the amounts for stock-based compensation included in cost of sales and selling, general and administrative expense for the three months and ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
	June 30,				June 30,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020		2021		2020
Cost of sales	$	8,750	$	7,201	$	15,952	$	14,402	$	4,101	$	7,201	$	17,285	$	21,604
Selling, general and administrative		30,881		20,956		52,982		41,735		17,909		20,563		73,659		62,297
Total stock-based compensation expense	$	39,631	$	28,157	$	68,934	$	56,137	$	22,010	$	27,764	$	90,944	$	83,901

As of ~~June~~September 30, 2021 and 2020, there were ~~$171,000~~$144,878 and ~~$153,000~~$125,399 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 1.57 years and 1.16 years, respectively.

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There were 200,000 stock options granted during the ~~six~~nine months ended ~~June~~September 30, 2021, and 22,500 stock options granted during the ~~six~~nine months ended ~~June~~September 30, 2020. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


	Six Months Ended				Nine months Ended
	June 30,				September 30,
	2021		2020		2021		2020
Expected Dividend yield	0	%	0	%	0	%	0	%
Expected Volatility	106	%	122	%	106	%	122	%
Risk-free interest rate	0.86	%	1.96	%	0.86	%	1.96	%
Expected term	10	years	10	years	10	years	10	years

b) Stock Option Activity

The following table represents stock options granted, exercised and forfeited during the ~~six~~nine months ended ~~June~~September 30, 2021:


		Weighted		Weighted				Weighted		Weighted
		Average		Average				Average		Average
		Exercise		Remaining	Aggregate			Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic		Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value		Options	Option		Term (years)	Value
Outstanding January 1, 2021	1,150,867	$	0.64	6.61	$	107,573	1,150,867	$	0.64	6.61	$	107,573
Granted	200,000		0.62				200,000		0.62
Exercised	0		0				0		0
Expired/Forfeited	(72,400)		0.98				(126,400)		0.81
Outstanding June 30, 2021	1,278,467	$	0.62	6.81	$	258,107
Outstanding September 30, 2021							1,224,467	$	0.64	6.81	$	341,514

Exercisable at June 30, 2021	998,465	$	0.59	5.85	$	229,707
Exercisable at September 30, 2021							947,797	$	0.62	5.81	$	239,525

The following table represents non-vested stock options granted, vested and forfeited for the three months ended ~~June~~September 30, 2021:


	Weighted-average		Weighted-average
	Grant-date Fair Value		Grant-date Fair Value
	Options	($)	Options	($)
Non-Vested - January 1, 2021	210,840	0.89	210,840	0.89
Granted	200,000	0.57	200,000	0.57
Vested	(130,838)	0.90	(130,837)	0.22
Forfeited	0	0	(3,333)	0.68
Non-Vested - June 30, 2021	280,002	0.66
Non-Vested - September 30, 2021			276,670	0.66

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, 2020, in February 2021. A total of 142,329 common shares of Inrad Optics, Inc. and $42,000 were contributed to the Plan in June 2021.

NOTE 5 – RELATED PARTY TRANSACTIONS

On July 22, 2020, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to April 1, 2024 from April 1, 2021. The notes bear interest at 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 1 share of common stock and 1 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, 2024 to April 1, 2027. As of ~~June~~September 30, 2021, the Company had accrued interest in the amount of $37,500 associated with these notes.

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NOTE 6 – OTHER LONG-TERM NOTES

Other Long-Term Notes consist of the following:


	June 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
	(Unaudited)				(Unaudited)
	(in thousands)				(in thousands)
U.S. Small Business Administration term note payable in equal monthly installments of $1,922 and bearing an interest rate of 4.0% and expiring in July 2029.	$	182	$	177	$	182	$	177
Less current portion		(16)		(16)		(16)		(16)
PPP Loan		0		973		0		973
Long-term debt, excluding current portion	$	166	$	1,134	$	166	$	1,134

NOTE 7 – PAYROLL PROTECTION PROGRAM

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

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the 24-week period after the loan origination for certain eligible purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during a covered eight-week or twenty-four-week period qualify for forgiveness. Any forgiveness of the PPP Loan is subject to approval by the Small Business Administration. At December 31, 2020, the PPP Loan is included in other long-term notes on the accompanying balance sheet.

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

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NOTE 8 – LEASES

Maturities of lease liabilities as of ~~June~~September 30, 2021, were as follows:


	(in thousands)
Maturity of Lease Liability			(in thousands)
2021 (Remaining)	$	161	$	81
2022		144		144
2023 and beyond		3
2023				3
Total undiscounted lease payments		308		228

Less: imputed interest		(9)		(5)
Present value of lease liabilities	$	299
Present value of operating lease liability			$	223

The Company’s lease liabilities consist of a financing lease for certain computer equipment and an operating lease for the Company’s facility. Operating lease costs were $0.1 and ~~$0.2~~$0.3 million during the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

NOTE 9 – IMPACT OF COVID-19

We are conducting business to ensure the safety of our employees and associates actively and earnestly, following all best practice CDC guidelines for prevention in the workplace. We have applied social distancing in our operations and implemented a connected, remote workforce where practicable. We cannot predict what actions may be required by federal, state, or local authorities in the future, nor can we predict what actions any new mandates may have on our customers and suppliers. We continue to actively monitor the situation and may be required to take further actions that alter our business operations or that we determine are in the best interests of our employees, customers, partners, suppliers and shareholders. The total impact of the global emergence of COVID-19 on our business and financial results are not completely known, and we cannot predict what impact it may have on our continuing operations and the effect to our financial results.

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ITEM 2.

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

Caution Regarding Forward Looking Statements

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The Company wishes to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to comply with the terms of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The events described in the forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of the Company’s plans or strategies, projected or anticipated benefits of acquisitions made by the Company, projections involving anticipated revenues, earnings, or other aspects of the Company’s operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward-looking statements. The Company cautions you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the Company’s control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may affect the Company’s results include, but are not limited to, the risks and uncertainties discussed in Items 1A and 7 of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 30, 2021. 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, 2020. In preparing our unaudited condensed consolidated financial statements, we made estimates and judgments that affect the results of our operations and the value of assets and liabilities we report. Our inventories are stated at the lower of cost (first-in-first-out basis) and net realizable value. The Company records a reserve for slow moving inventory as a charge against earnings for all products identified as surplus, slow-moving or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs-of-completion exceed unbilled revenues. The Company’s estimates also include the amount and timing of future taxable income in determining the valuation allowance for deferred income tax assets. Our actual results may differ from these estimates under different assumptions or conditions.

For additional information regarding our critical accounting policies and estimates, see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report filed with the Securities and Exchange Commission on Form 10-K for the year ended December 31, 2020.

Impact of COVID-19

We are conducting business to ensure the safety of our employees and associates actively and earnestly, following all best practice CDC guidelines for prevention in the workplace. We have applied social distancing in our operations and implemented a connected, remote workforce where practicable. We cannot predict what actions may be required by federal, state, or local authorities in the future, nor can we predict what actions any new mandates may have on our customers and suppliers. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our financial results. We will continue to actively monitor the situation and may be required to take further actions that alter our business operations or that we determine are in the best interests of our employees, customers, partners, suppliers and shareholders. The total impact of the global emergence of COVID-19 on our business and financial results are not completely known, and we cannot predict what impact it may have on our continuing operations and the effect to our financial results.

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Total sales for the year ended December 31, 2020 were negatively impacted by business factors resulting from COVID-19 and governmental restrictions, including disruptions to our customers’ and suppliers’ operations. Our sales and marketing efforts were negatively impacted due to travel and other operational restrictions. While the Company has seen improved results, the total impact of the global emergence of COVID-19 on our business and financial results are not completely known, and we cannot predict what impact it may have on our continuing operations and the effect to our financial results in the future.

Results of Operations

Inrad Optics ~~Inc.~~ is a vertically integrated manufacturer specializing in glass, crystal, and metal based optical components and ~~subsystems manufacturer focused in three areas: Crystal-based Optical Components~~subassemblies. Manufacturing capabilities include crystal growth, extensive optical fabrication capacity, super-precision optical surfacing, handling of large form factor optics, precision diamond turning, proprietary optical contacting processes, thin film coatings, and ~~Assemblies, Custom Optical Components from both glass and metal, and Optical and Opto-mechanical assemblies.~~high resolution in-process metrology.

The Crystal-based Optical Components and Devices 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. The majority of crystal components and assemblies manufactured are used in laser systems, defense EO systems, medical lasers and R&D applications by engineers within corporations, universities and national laboratories.

The Optical Components and Assembly categories are focused on custom optics manufacturing. The Company specializes in high-end precision components and assemblies. It develops, manufactures and delivers precision custom optics, optical assemblies and opto-mechanical assemblies through its advanced manufacturing operations. Glass, metal, and single-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 ofthe Company’s custom optical components and assemblies ~~along with thin film coatings,~~ are used in optical inspection applications, process control systems, defense and aerospace ~~electro-optical~~ systems, laser ~~system applications,~~systems, industrial scanners, medical applications, and ~~medical system applications.~~in physics research.

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

~~The Company operates~~Manufacturing, engineering and administrative operations are in a ~~manufacturing facility~~42,000 square foot building located in Northvale, New Jersey. ~~Its corporate offices are located in the same facility.~~

Sales Revenue

Sales for the three months ended ~~June~~September 30, 2021, were ~~$2.9~~$2.8 million, an increase of ~~14.2%~~26.1%, or ~~$0.4~~$0.6 million, compared to ~~$2.5~~$2.2 million for the three months ended ~~June~~September 30, 2020. For the ~~six~~nine months ended ~~June~~September 30, 2021, sales were ~~$5.7~~$8.5 million, an increase of ~~23.8%~~24.5%, or ~~$1.1~~$1.7 million, compared to sales of ~~$4.6~~$6.8 million for the ~~six~~nine months ended ~~June~~September 30, 2020.

For the three months ended ~~June~~September 30, 2021 and 2020, sales to the defense/aerospace market were ~~$1.1~~$0.6 million and $0.9 million, respectively. This 28.6% decrease of $0.3 million is the result of the timing of delivery schedules and a large program that was completed and shipped in the third quarter of 2020. For the ~~six~~nine months ending ~~June~~September 30, 2021 and 2020, sales to the defense/aerospace market were ~~$2.2~~$2.9 million and ~~$1.8~~$2.7 million, respectively. The increase in sales ~~in the three months and six months ended June 30, 2021,~~ of $0.2 million, or ~~22.2% and $0.4 million, or 22.6%~~6.3%, ~~respectively, reflect a continued~~reflects an increase in ~~demand in this market.~~demand.

Process control and metrology (“PC&M”) sales were ~~$1.2~~$1.8 million for the three months ended ~~June~~September 30, 2021, an increase of ~~$0.1~~$1.0 million, or ~~0.7%~~120.9%, from ~~$1.1~~$0.8 million for the three months ended ~~June~~September 30, ~~2020, reflecting stronger~~2020. The increase reflects strong sales into the semi-conductor industry. For the ~~six~~nine months ended ~~June~~September 30, 2021, sales increased ~~15.6%~~47.0% or ~~$0.3~~$1.3 million to ~~$2.3~~$4.1 million from ~~$2.0~~$2.8 million for the ~~six~~nine months ended ~~June~~September 30, 2020. Sales in the PC&M market continue to increase due to demand in the semi-conductor industry.

For the three months ended ~~June~~September 30, 2021 and 2020, sales to customers in the laser systems market were ~~$0.3~~$0.2 million in each period. Sales for the nine months ended September 30, 2021 and 2020, were $0.6 million and ~~$0.2~~$0.5 million, respectively. The ~~increase of~~ $0.1 million, or ~~83.8%~~3.7%, increase reflects an increase in demand for ~~laser-based~~our laser products. ~~Sales for the six months ended June 30, 2021 and 2020, were $0.4 million in each period.~~

Sales to customers in the Scientific/R&D market were ~~$0.4~~$0.2 million and ~~$0.3~~$0.4 million for the three months ended ~~June~~September 30, 2021 and 2020, respectively, ~~an increase~~a decrease of ~~$0.1~~$0.2 million, or ~~11.1%~~41.6%. The ~~increase~~decrease reflects ~~stronger demand from national laboratories.~~timing of deliveries in this market. For the ~~six-month~~nine-month period ending ~~June~~September 30, 2021, sales increased ~~$0.4~~$0.2 million to $1.0 million, compared to $0.8 million ~~compared to $0.4 million~~ for ~~six~~nine months ended ~~June~~September 30, 2020. The increase in sales for the ~~six-month~~nine-month period ~~ending June~~ended September 30, 2021, ~~largely~~ reflects the revenues from a federal government R&D contract completed in the first quarter of ~~2021.~~2021 and stronger sales to national laboratories.

For the three months ended September 30, 2021, three customers represented 10% or more of sales. For the three months ended September 2020, only one customer represented 10% or more of sales. For the nine months ended September 30, 2021, two customers represented 10.0% or more of sales, and for the nine months ended September 30, 2020 no customer represented 10.0% or more of sales.

The Company’s top five customers represented 67.1% of sales in the three-month period ended September 30, 2021, compared to 44.1% in the same period in 2020. For the nine-month period ended September 30, 2021 and 2020, the Company’s top five customers represented 50.5% and 37.5% of sales, respectively.

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For each of the three months ended June 30, 2021 and 2020, three customers represented 10% or more of sales. For the six months ended June 30, 2021, two customers represented 10.0% or more of sales, compared to one customer representing 10.0% of sales for the six months ended June 30, 2020.

The Company’s top five customers represented 57.4% of sales in the three-month period ended June 30, 2021, compared to 50.9% in the same period in 2020. For the six-month period ended June 30, 2021 and 2020, the Company’s top five customers represented 50.0% and 44.4% of sales, respectively.

Orders booked during the first ~~six~~nine months of 2021, totaled ~~$9.1~~$12.4 million, compared to ~~$5.9~~$8.2 million for the same period last year. Order backlog at ~~June~~September 30, 2021 and 2020, was ~~$9.4~~$9.8 million and $6.4 million, respectively.

Cost of Goods Sold

For the three months ended ~~June~~September 30, 2021 and 2020, cost of goods sold was ~~$1.8~~$2.0 million and $1.8 million, or ~~63.3%~~69.3% and ~~70.7%~~81.3% of total revenues, respectively. Cost of goods sold in the three-month period ending ~~June~~September 30, 2021, was lower as a percentage of sales due to lower ~~material~~direct and ~~services costs,~~ indirect labor costs, ~~and~~lower employee related ~~costs. Direct labor,~~costs, and lower manufacturing ~~expenses were~~depreciation, offset by higher ~~in the three-month period ending June 30, 2021.~~material and outside service costs. Cost of goods sold for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020, were ~~$3.8~~$5.7 million and ~~$3.4~~$5.2 million, respectively. Cost of goods sold increased ~~10.9%~~9.7% or ~~$0.4~~$0.5 million reflecting higher material and outside services costs, ~~direct labor,~~ and manufacturing expenses and overhead, offset by a decrease in ~~employee related costs~~direct and indirect ~~labor.~~labor and related employee costs.

Gross profit for the three months ended ~~June~~September 30, 2021, was ~~$1.1~~$0.9 million or ~~36.7%~~30.7% of sales, compared to ~~$0.7~~$0.4 million or ~~29.3%~~18.7% of sales in the same quarter last year. Gross profit for the year-to-date period ending ~~June~~September 30, 2021, was ~~$1.9~~$2.7 million or ~~33.0%~~32.3% of sales, an increase of ~~$0.7~~$1.1 million, compared to ~~$1.2~~$1.6 million or ~~25.3%~~23.1% of sales, for the ~~six-month~~nine-month period ending ~~June~~September 30, 2020. The increase in gross profit for the three and ~~six~~nine months ended ~~June~~September 30, 2021, compared to the three and ~~six~~nine months ended ~~June~~September 30, 2020, is due to higher sales revenues combined with lower employee related costs offset by the material costs reflective of sales ~~mix and lower employee related costs.~~

mix.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A” expenses) were ~~$0.6~~$0.7 million in the three months ended ~~June~~September 30, 2021, or ~~22.2%~~24.2% of sales and ~~0.7~~$0.5 million, or ~~26.8%~~24.4% of sales, in the three months ended ~~June~~September 30, 2020. The ~~decrease~~increase in SG&A expenses in the three months ended ~~June~~September 30, 2021, reflects ~~a reduction~~an increase in travel and entertainment costs, and marketing ~~related~~ costs due to ~~restrictions on~~the easing of travel related restrictions due to ~~COVID-19, and employee related expenses.~~COVID-19. SG&A expenses for the ~~six-month~~nine-month period ending ~~June~~September 30, 2021 and 2020, were ~~$1.2~~$1.9 million, or ~~22.0%~~22.8% of sales, and ~~$1.4~~$1.9 million or ~~30.1%~~28.2% of sales, respectively. The decrease in SG&A expenses as a percentage of sales for the year-to-date period ~~reflects a reduction in~~is reflective of reduced travel and entertainment costs ~~marketing related costs due to restrictions on travel related to COVID-19, and employee related~~as well as employee-related expenses.

Income (Loss) from Operations

The Company realized net income from operations of ~~$0.4~~$0.2 million for the three months ended ~~June~~September 30, 2021, compared with a net ~~income~~loss from operations of $0.1 million in the three months ended ~~June~~September 30, 2020. The increase in income primarily reflects an increase in ~~sales coupled with lower SG&A expenses.~~sales. The Company incurred net income from operations of ~~$0.6~~$0.8 million for the ~~six~~nine months ended ~~June~~September 30, 2021,compared to a net loss from operations for the ~~six~~nine months ended ~~June~~September 30, 2020, of ~~$0.2~~$0.3 million. The increase in net income from operations is primarily due to an increase in revenues and increased gross profit margins, coupled with a decrease in ~~SG&A expenses.~~employee-related costs.

Other Income and Expense

There was no significant change in net interest expense for the three months or ~~six~~nine months periods ended ~~June~~September 30, 2021, compared to the same periods ended ~~June~~September 30, 2020. Other income reflects the gain on the forgiveness of the PPP loan of $1.0 million in the ~~six~~nine months ended ~~June~~September 30, 2021.

Income Taxes

For the three months and ~~six~~nine months ended ~~June~~September 30, 2021, 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.

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for the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in net income reflects higher sales, ~~lower SG&A costs,~~increased gross profit, and the gain resulting from forgiveness of the PPP loan.

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~~September 30, 2021 and December 31, 2020, the Company had cash and cash equivalents of ~~$1.4~~$1.8 million and $1.1 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 July 22, 2020, the maturity dates of a $1,500,000 Subordinated Convertible Promissory Note to Clarex Limited (“Clarex”) and a $1,000,000 Subordinated Convertible Promissory Note to an affiliate of Clarex were each extended to April 1, 2024, from April 1, 2021. The notes bear interest at 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, 2024 to April 1, 2027. As of ~~June~~September 30, 2021, the Company had accrued interest in the amount of $37,500 associated with these notes.

The following table summarizes net cash provided by (used in) operating, investing and financing activities for the ~~six~~nine months ended ~~June~~September 30, 2021 and 2020:


	Six Months Ended				Nine Months Ended
	June 30,				September 30,
	2021		2020		2021		2020

	(in thousands)				(in thousands)
Net cash provided by operating activities	$	379	$	204
Net cash (used in) investing activities		(14)		(100)
Net cash provided by (used in) operating activities					$	731	$	(153)
Net cash used in investing activities						(41)		(159)
Net cash provided by financing activities		—		967		—		966
Net increase in cash and cash equivalents	$	365	$	1,071	$	690	$	654

Net cash provided by operating activities was ~~$379,000~~$731,000 for the ~~six~~nine months ended ~~June~~September 30, 2021, compared to net cash ~~provided~~used by operating activities of ~~$204,000~~$153,000 for the same period last year. The net cash provided by operating activities in the ~~six~~nine months ended ~~June~~September 30, 2021, resulted primarily from operating income and a reduction in inventories and other assets, offset by the gain on the forgiveness of the PPP loan, ~~an increase in accounts receivable and decreases~~reductions in accounts payable and contract ~~liabilities.~~liabilities and an increase in accounts receivable. Net cash used in operating activities during the ~~six~~nine months ended ~~June~~September 30, 2020, resulted primarily from ~~a reduction in accounts receivable~~the loss incurred for the period and an increase in inventory, a decrease in accounts payable, ~~and contract liabilities, offset by~~combined with an increase in ~~inventory.~~

contract liabilities.

Net cash used in investing activities was ~~$14,000~~$41,000 during the ~~six~~nine months ended ~~June~~September 30, 2021, compared to ~~$100,000~~$159,000 in the same period last year reflecting capital expenditures in both periods.

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was enacted March 27, 2020. The PPP Loan, which was in the form of a promissory note, dated May 4, 2020, issued by the Company, originally matured on May 4, 2022, and bore an interest at a rate of 1.0% per annum.

The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. The amount of loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including the amount of loan proceeds used by the Company during the 24-week period after the loan origination for certain eligible purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 60% of the loan amount is used for eligible payroll costs; the employer maintaining or rehiring employees and maintaining salaries at certain levels; and other factors. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during a covered eight-week or twenty-four-week period qualify for forgiveness. Any forgiveness of the PPP Loan is subject to approval by the Small Business Administration. At December 31, 2020, the PPP Loan is included in other long-term notes on the accompanying balance sheet.

On January 19, 2021, the Company received notification from the Small Business Administration that the Company’s Forgiveness Application of the PPP Loan and accrued interest, totaling $980,000, was approved in full, and the Company had no further obligations related to the PPP Loan. Accordingly, the Company recognized a gain from forgiveness on PPP Loan in the ~~six~~nine months ended ~~June~~September 30, 2021.

Management believes, based on the Company’s operations and its existing working capital resources together with existing cash flows, that the Company has sufficient cash flows to fund operations through at least the third quarter of 2022.

~~ITEM 3.~~

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~~

ITEM 4.CONTROLS AND PROCEDURES

a.	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~~September 30, 2021 (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.

b.	Changes in Internal Controls over Financial Reporting

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

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PART II.

OTHER INFORMATION

~~ITEM 1.~~

ITEM 1.LEGAL PROCEEDINGS

None.

~~ITEM 1A.~~

ITEM 1A.RISK FACTORS

Not applicable

~~ITEM 2.~~

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

None.

~~ITEM 3.~~

ITEM 3.DEFAULTS UNDER SENIOR SECURITIES

None.

~~ITEM 4.~~

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable

~~ITEM 5.~~

~~OTHER INFORMATION~~

ITEM 5.OTHER INFORMATION

~~None~~None.

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ITEM 6.

EXHIBITS


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

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

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

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

101.INS		Inline XBRL Instance Document*

101.SCH		Inline XBRL Taxonomy Extension Schema*

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase*

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase*

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase*

101.PRE		XBRL Taxonomy Extension Presentation Linkbase*

104		Cover Page Interactive Data File (embedded within the Inline XBRL and Contained in Exhibit 101)

*Filed herewith

**Furnished herewith

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SIGNATURES

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


		Inrad Optics, Inc.

	By:	/s/ Amy Eskilson
		Amy Eskilson
		President and Chief Executive Officer

	By:	/s/ Theresa A. Balog
		Theresa A. Balog
		Chief Financial Officer,
		Secretary and Treasurer
Date: ~~August 13,~~November 12, 2021

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