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Inrad Optics, Inc. – ‘10-Q’ for 6/30/20

On:  Friday, 8/14/20, at 5:19pm ET   ·   For:  6/30/20   ·   Accession #:  1104659-20-95657   ·   File #:  0-11668

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 8/14/20  Inrad Optics, Inc.                10-Q        6/30/20   56:4.1M                                   Toppan Merrill/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    199K 
 2: EX-4.1      Instrument Defining the Rights of Security Holders  HTML     39K 
 3: EX-4.2      Instrument Defining the Rights of Security Holders  HTML     38K 
 4: EX-31.1     Certification -- §302 - SOA'02                      HTML     21K 
 5: EX-31.2     Certification -- §302 - SOA'02                      HTML     21K 
 6: EX-32.1     Certification -- §906 - SOA'02                      HTML     18K 
 7: EX-32.2     Certification -- §906 - SOA'02                      HTML     18K 
14: R1          Document and Entity Information                     HTML     47K 
15: R2          Consolidated Balance Sheets                         HTML     90K 
16: R3          Consolidated Balance Sheets (Parenthetical)         HTML     25K 
17: R4          Condensed Consolidated Statements of Operations     HTML     62K 
18: R5          Condensed Consolidated Statements of Shareholders'  HTML     50K 
                Equity                                                           
19: R6          Condensed Consolidated Statements of Cash Flows     HTML     78K 
20: R7          Summary of Significant Accounting Policies          HTML    193K 
21: R8          Revenue                                             HTML     88K 
22: R9          Equity Compensation Program and Stock Based         HTML    131K 
                Compensation                                                     
23: R10         Stockholders' Equity                                HTML     19K 
24: R11         Related Party Transactions                          HTML     20K 
25: R12         Other Long Term Notes                               HTML     36K 
26: R13         Payroll Protection Program                          HTML     21K 
27: R14         Leases                                              HTML     36K 
28: R15         Impact of Covid-19                                  HTML     22K 
29: R16         Summary of Significant Accounting Policies          HTML    215K 
                (Policies)                                                       
30: R17         Summary of Significant Accounting Policies          HTML    180K 
                (Tables)                                                         
31: R18         Revenue (Tables)                                    HTML     84K 
32: R19         Equity Compensation Program and Stock Based         HTML    138K 
                Compensation (Tables)                                            
33: R20         Other Long Term Notes (Tables)                      HTML     36K 
34: R21         Leases (Tables)                                     HTML     32K 
35: R22         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -        HTML     25K 
                Inventories (Details)                                            
36: R23         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Basic  HTML     71K 
                and diluted earnings (Loss) Per Common Share                     
                (Details)                                                        
37: R24         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -        HTML     40K 
                Additional Information (Details)                                 
38: R25         REVENUE - Disaggregation of Revenue (Details)       HTML     30K 
39: R26         REVENUE - Transfer of Goods and Services (Details)  HTML     25K 
40: R27         REVENUE - Additional Information (Details)          HTML     30K 
41: R28         EQUITY COMPENSATION PROGRAM AND STOCK BASED         HTML     26K 
                COMPENSATION - Share based compensation (Details)                
42: R29         EQUITY COMPENSATION PROGRAM AND STOCK BASED         HTML     25K 
                COMPENSATION - Weighted-average assumptions                      
                (Details)                                                        
43: R30         EQUITY COMPENSATION PROGRAM AND STOCK BASED         HTML     55K 
                COMPENSATION - Stock Option Activity (Details)                   
44: R31         EQUITY COMPENSATION PROGRAM AND STOCK BASED         HTML     34K 
                COMPENSATION - Non-vested stock option activity                  
                (Details)                                                        
45: R32         EQUITY COMPENSATION PROGRAM AND STOCK BASED         HTML     30K 
                COMPENSATION - Additional Information (Details)                  
46: R33         Stockholders' Equity (Details)                      HTML     19K 
47: R34         Related Party Transactions (Details)                HTML     46K 
48: R35         Other Long Term Notes (Details)                     HTML     23K 
49: R36         Other Long Term Notes - Additional information      HTML     20K 
                (Details)                                                        
50: R37         Payroll Protection Program (Details)                HTML     21K 
51: R38         Leases (Details)                                    HTML     29K 
52: R39         Leases - Additional information (Details)           HTML     33K 
53: R40         Impact of Covid-19 (Details)                        HTML     18K 
55: XML         IDEA XML File -- Filing Summary                      XML     92K 
54: EXCEL       IDEA Workbook of Financial Reports                  XLSX     58K 
 8: EX-101.INS  XBRL Instance -- inrd-20200630                       XML   1.44M 
10: EX-101.CAL  XBRL Calculations -- inrd-20200630_cal               XML    101K 
11: EX-101.DEF  XBRL Definitions -- inrd-20200630_def                XML    170K 
12: EX-101.LAB  XBRL Labels -- inrd-20200630_lab                     XML    603K 
13: EX-101.PRE  XBRL Presentations -- inrd-20200630_pre              XML    462K 
 9: EX-101.SCH  XBRL Schema -- inrd-20200630                         XSD     91K 
56: ZIP         XBRL Zipped Folder -- 0001104659-20-095657-xbrl      Zip     89K 


‘10-Q’   —   Quarterly Report
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Condensed consolidated balance sheets as of June 30, 2020 (unaudited) and December 31, 2019
"Condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (unaudited)
"Condensed consolidated statements of shareholders equity for the three and six months ended June 30, 2020 and 2019 (unaudited)
"Condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 (unaudited)
"Notes to condensed consolidated financial statements (unaudited)
"Item 2
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3
"Quantitative and Qualitative Disclosures about Market Risk
"Item 4
"Controls and Procedures
"Part II
"Other Information
"Item 1
"Legal Proceedings
"Item 1A
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults upon Senior Securities
"Mine Safety Disclosures
"Item 5
"Item 6
"Exhibits
"Signatures

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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, 2020

 

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      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

 

The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of August 13, 2020, was 13,820,328.

 

 

 

 C: 

 

 

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, 2020 (unaudited) and December 31, 2019   1 
         
   Condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 (unaudited)   2 
         
   Condensed consolidated statements of shareholders equity for the three and six months ended June 30, 2020 and 2019 (unaudited)   3 
         
   Condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 (unaudited)   4 
         
   Notes to condensed consolidated financial statements (unaudited)   5 
         
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations   13 
         
Item 3.  Quantitative and Qualitative Disclosures about Market Risk   18 
         
Item 4.  Controls and Procedures   18 
         
Part II.  OTHER INFORMATION   18 
         
Item 1.  Legal Proceedings   18 
         
Item 1A.  Risk Factors   18 
         
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds   18 
         
Item 3.  Defaults upon Senior Securities   18 
         
Item 4.  Mine Safety Disclosures   18 
         
Item 5.  Other Information   18 
         
Item 6.  Exhibits   19 
         
Signatures      20 

 

 C: 

 

 

INRAD OPTICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   June 30,   December 31, 
   2020   2019 
Assets  (Unaudited)     
Current assets:          
Cash and cash equivalents  $2,021,383   $950,705 
Accounts receivable, net   1,054,699    1,233,081 
Inventories, net   3,217,696    2,834,107 
Other current assets   90,207    141,339 
Total current assets   6,383,985    5,159,232 
           
Plant and equipment:          
Plant and equipment,  at cost   15,088,567    14,990,773 
Less: Accumulated depreciation and amortization   (14,448,279)   (14,309,992)
Total plant and equipment   640,288    680,781 
Precious metals   561,910    561,910 
Lease right-of-use, net   554,038    688,746 
Other assets   48,420    44,577 
Total Assets  $8,188,641   $7,135,246 
           
Liabilities and Shareholders' Equity          
Current liabilities:          
Current portion of other long term notes  $16,311   $16,044 
Accounts payable and accrued liabilities   1,018,208    978,184 
Contract liabilities   1,026,856    768,243 
Current portion of lease obligation   296,285    273,369 
Total current liabilities   2,357,660    2,035,840 
           
Related party convertible notes payable   2,500,000    2,500,000 
           
Other long term notes, net of current portion   1,133,095    166,763 
Lease obligation, net of current portion   298,820    415,377 
Total liabilities   6,289,575    5,117,980 
           
Shareholders' equity:          
Common stock: $.01 par value; 60,000,000 authorized shares; 13,824,928 shares          
issued at June 30, 2020, and 13,735,177 shares issued at December 31, 2019   138,251    137,353 
Capital in excess of par value   19,460,849    19,281,255 
Accumulated deficit   (17,685,084)   (17,386,392)
    1,914,016    2,032,216 
Less - Common stock in treasury, at cost (4,600 shares)   (14,950)   (14,950)
Total shareholders' equity   1,899,066    2,017,266 
Total Liabilities and shareholders' equity  $8,188,641   $7,135,246 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 C: 

 C: 1

 

 

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   Three Months Ended June 30,       Six Months Ended June 30,   
   2020   2019   2020   2019 
                 
Total revenue  $2,523,990   $2,619,623   $4,574,485   $5,220,683 
                     
Cost and expenses:                    
Cost of goods sold   1,784,192    2,172,649    3,419,232    4,128,930 
Selling, general and administrative expenses   676,046    749,064    1,377,725    1,391,318 
    2,460,238    2,921,713    4,796,957    5,520,248 
                     
Income (loss) from operations   63,752    (302,090)   (222,472)   (299,565)
Other expense:                    
Interest expense-net   (37,957)   (38,682)   (76,220)   (77,343)
    Loss on exchange of precious metals   -    (438)   -    (438)
    (37,957)   (39,120)   (76,220)   (77,781)
                     
Income (loss) before income taxes   25,795    (341,210)   (298,692)   (377,346)
                     
Income tax (provision) benefit   -    -    -    - 
                     
Net income (loss)  $25,795   $(341,210)  $(298,692)  $(377,346)
                     
Net income (loss) per common share - basic  $0.00   $(0.02)  $(0.02)  $(0.03)
                     
Net income (loss) per common share - diluted  $0.00   $(0.02)  $(0.02)  $(0.03)
                     
Weighted average shares outstanding - basic   13,745,536    13,653,353    13,734,851    13,641,664 
                     
Weighted average shares outstanding - diluted   14,145,909    13,653,353    13,734,851    13,641,664 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 C: 

2

 

 

 C: 

INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

 

           Capital in           Total 
   Common Stock   excess of   Accumulated   Treasury   Shareholders' 
   Shares   Amount   par value   Deficit   Stock   Equity 
                         
Balance, January 1, 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 

 

           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   -    -    -    -    -    - 
Stock-based compensation expense   -    -    27,980    -    -    27,980 
Net income (loss) March 31, 2020   -    -    -    (324,487)   -    (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    -    -    124,355 
Stock-based compensation expense   -    -    28,157    -    -    28,157 
Net income (loss) June 30, 2020   -    -    -    25,795    -    25,795 
Balance, June 30, 2020   13,824,928   $138,251   $19,460,849   $(17,685,084)  $(14,950)  $1,899,066 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 C: 

3

 

 

INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   Six Months Ended June 30,    
   2020   2019 
         
Cash flows from operating activities:          
Net income (loss)  $(298,692)  $(377,346)
           
Adjustments to reconcile net (loss) to net cash          
(used in) provided by operating activities          
Depreciation and amortization   138,287    131,237 
(Gain) loss on exchange of precious metals   -    438 
401K common stock contribution - non cash item   124,355    93,587 
Stock based compensation   56,137    62,719 
Changes in operating assets and liabilities:          
Accounts receivable   178,382    (184,685)
Inventories, net   (383,589)   170,887 
Other current assets   51,132    21,804 
Other assets   (3,844)   - 
Accounts payable and accrued liabilities   83,379    105,153 
Contract liabilities   258,613    (181,748)
Total adjustments and changes   502,852    219,392 
Net cash provided by (used in) operating activities   204,160    (157,954)
           
Cash flows from investing activities:          
Capital expenditures   (100,081)   (190,692)
Net cash (used in) investing activities   (100,081)   (190,692)
           
Cash flows from financing activities:          
Proceeds from PPP loan   973,166    - 
Principal payments on notes payable-other   (6,567)   (6,444)
Net cash provided by (used in)  financing activities   966,599    (6,444)
           
Net increase (decrease) in cash and cash equivalents   1,070,678    (355,090)
           
Cash and cash equivalents at beginning of period   950,705    1,185,553 
           
Cash and cash equivalents at end of period  $2,021,383   $830,463 
           
Supplemental disclosure of cash flow information:          
Interest paid  $3,043   $80,088 
Lease right-of-use asset  $-   $819,612 

 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

 C: 

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, 2019.

 

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 $45,000 at June 30, 2020, and $15,000 at December 31, 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.

 

 C: 

5

 

 

Inventories are comprised of the following and are shown net of inventory reserves of $2,485,000 and $2,489,000 at June 30, 2020 and December 31, 2019, respectively:

 

   2020   2019 
   (Unaudited)     
Raw materials  $1,251   $1,248 
Work in process, including manufactured parts and components   1,416    1,090 
Finished goods   551    496 
   $3,218   $2,834 

 

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, 2019. 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, 2020, 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 $3,416,000 and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings.

 

For the three months ended June 30, 2020, 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. For the six months ended June 30, 2020, 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, 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.

 

Net Income (Loss) per Common Share

 

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

 

For the three months and six months ended June 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 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.

 

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For the three months 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.

 

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, 2020   June 30, 2019 
   Income(Loss)   Shares   Per Share   Income(Loss)   Shares   Per Share 
   (Numerator)   (Denominator)   Amount   (Numerator)   (Denominator)   Amount 
Basic Income (Loss) Per Share:                        
Net Income (Loss)  $25,795    13,745,536   $0.00   $(341,210)   13,653,353   $(0.02)
Effect of dilutive securities:   -    -    -    -    -    - 
Convertible Notes   -    -    -    -    -    - 
Accrued Interest on Convertible Notes   -    -    -    -    -    - 
Warrants   -    -    -    -    -    - 
Stock Options   -    400,373    -    -    -    - 
Diluted Income (Loss) Per Share:  $25,795    14,145,909   $0.00   $(341,210)   13,653,353   $(0.02)

 

   Six Months Ended   Six Months Ended 
   June 30, 2020   June 30, 2019 
   Income(Loss)   Shares   Per Share   Income(Loss)   Shares   Per Share 
   (Numerator)   (Denominator)   Amount   (Numerator)   (Denominator)   Amount 
Basic Income (Loss) Per Share:                        
Net Income (Loss)  $(298,692)   13,734,851   $(0.02)  $(377,346)   13,641,664   $(0.03)
Effect of dilutive securities:   -    -    -    -    -    - 
Convertible Notes   -    -    -    -    -    - 
Accrued Interest on Convertible Notes   -    -    -    -    -    - 
Warrants   -    -    -    -    -    - 
Stock Options   -    -    -    -    -    - 
Diluted Income (Loss) Per Share:  $(298,692)   13,734,851   $(0.02)  $(377,346)   13,641,664   $(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 Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments" (“ASU 2016-13”) which amended guidance on the accounting for credit losses on financial instruments within its scope. The guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss model. The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries). The new guidance is effective for interim and annual periods beginning in 2023. 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.

 

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In February 2016, the FASB issued ASU 2016-02, “Leases” (ASC 842), and subsequently issued updates as part of ASU 2018-11, “Leases, Targeted Improvements.” The new guidance requires organizations that lease assets with lease terms of more than 12 months to recognize assets and liabilities for the rights and obligations created by those leases on their balance sheets. The Company adopted ASC 842, effective January 1, 2019. The Company entered into an amendment and extension of its building lease on July 8, 2019, retroactive to June 1, 2019, and accordingly recorded an initial right-of-use asset of $0.8 million. See Note 8. Lease Commitments. The adoption of ASU 842 and ASU 2018-11 did not have a material impact on the Company’s statements of operations or cash flows.

 

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation: Improvements to Nonemployee Shared-Based Payment Accounting. The ASU update expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted ASU 2018-07 effective January 1, 2019. The adoption did not have a material impact on its financial statements and related disclosures.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. The Company is currently evaluating the impact of adoption of this guidance and does not expect the adoption of this guidance to have a material impact on the Company’s consolidated financial statements.

 

NOTE 2 – REVENUE

 

The Company’s revenues are comprised of the sales 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% of revenue for the three and six months ended June 20, 2020, and 4.0%, of revenue for the three months and six months ended June 30, 2019. 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.

 

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The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was approximately 100% and 96.0% of revenue for the six months ended June 30, 2020 and 2019, respectively. The Company recognizes revenue at the point in time in which the customer obtains control of the product or service, which is generally when product title passes to the customer upon shipment. In limited cases, title does not transfer and revenue is not recognized until the customer has received the products at its physical location.

 

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
Aerospace & Defense  $940,727   $979,004   $1,820,639   $2,019,561 
Process Control & Metrology   1,093,022    993,355    1,945,397    2,114,342 
Laser Systems   150,451    324,282    361,493    609,272 
Scientific / R&D   339,790    322,982    446,956    477,508 
Total  $2,523,990   $2,619,623   $4,574,485   $5,220,683 

 

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

 

   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
Transfer at point in time  $2,523,990   $2,506,028   $4,574,485   $5,013,534 
Transfer over time   -    113,595    -    207,149 
Total net sales  $2,523,990   $2,619,623   $4,574,485   $5,220,683 

 

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, 2020 or 2019. At June 30, 2020 and 2019, the remaining revenue to be recognized from the long-term government contracts was $0 and $105,000, respectively.

 

On June 30, 2020, the Company had approximately $6.4 million of performance obligations, which is also referred to as backlog. Approximately 4.0% of the June 30, 2020 backlog, is related to projects that will extend beyond June 30, 2021.

 

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, 2020 and 2019, include stock-based compensation expense for stock option grants totaling $28,157 and $33,591, respectively. For the six months ended June 30, 2020 and 2019, stock-based compensation expense for stock option grants totaled $56,137 and $62,719, 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 months ended June 30, 2020 and 2019:

 

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   Three Months Ended   Six Months Ended 
   June 30,   June 30, 
   2020   2019   2020   2019 
Cost of sales  $7,201   $9,493   $14,402   $17,719 
Selling, general and administrative   20,956    24,098    41,735    45,000 
Total stock-based compensation expense  $28,157   $33,591   $56,137   $62,719 

 

As of June 30, 2020 and 2019, there were $153,000 and $100,000 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over a weighted average period of approximately 1.16 years and 1.95 years, respectively.

 

There were 22,500 stock options granted during the six months ended June 30, 2020, and 200,000 stock options granted during the six months ended June 30, 2019. 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, 2020 and 2019:

 

   Six Months Ended 
   June 30, 
   2020   2019 
Expected Dividend yield   -%   -%
Expected Volatility   122%   125%
Risk-free interest rate   1.96%   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, 2020:

 

       Weighted   Weighted     
       Average   Average     
       Exercise   Remaining   Aggregate 
   Number of   Price per   Contractual   Intrinsic 
Stock Options  Options   Option   Term (years)   Value 
                 
Outstanding January 1, 2020   1,147,267   $0.63    6.29   $718,840 
Granted   22,500    1.48           
Exercised   -    -           
Expired/Forfeited   (9,200)   0.98           
Outstanding March 31, 2020   1,160,567   $0.65    6.47   $1,222,620 
                     
Exercisable at March 31, 2020   812,852   $0.56    4.84   $734,355 

  

The following table represents non-vested stock options granted, vested and forfeited for the three months ended June 30, 2020:

 

   Weighted-average 
   Grant-date Fair Value 
   Options   ($) 
Non-Vested - January 1, 2020   371,669    0.80 
Granted   22,500    1.41 
Vested   (46,454)   0.77 
Forfeited   -    - 
Non-Vested - June 30, 2020   347,715    0.84 

 

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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, 2019, in February 2020. A total of 89,751 common shares of Inrad Optics, Inc. were contributed to the Plan in June, 2020.

 

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 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, 2027. As of June 30, 2020, the Company had accrued interest in the amount of $187,500 associated with these notes.

 

NOTE 6 – OTHER LONG TERM NOTES

 

Other Long Term Notes consist of the following:

 

   June 30,   December 31, 
   2020   2019 
   (Unaudited)     
   (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.  $175   $183 
Less current portion   (16)   (16)
Long-term debt, excluding current portion  $160   $167 

 

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 is in the form of a promissory note, dated May 4, 2020, issued by the Company, matures on May 4, 2022, and bears interest at a rate of 1.0% per annum, payable monthly commencing on December 4, 2020.

 

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 will qualify for forgiveness. The Company intends to use the entire loan amount for qualifying expenses. Any forgiveness of the PPP Loan will be subject to approval by the Small Business Association, and no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part. At June 30, 2020, the PPP Loan is included in other long term notes on the accompanying balance sheet.

 

NOTE 8 – LEASES

 

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.

 

a)Equipment Financing Lease

 

The Company entered into an equipment lease on January 17, 2020, commencing in March for certain computer equipment, with a bargain purchase option of $1.00 at the end of the lease for a term of 36 months. The lease is classified as a financing lease under the guidance of Topic 842. The present value of the lease payments, discounted at 3.99%, is $45,000, which initial value is recorded in Plant and Equipment on the Company’s Condensed Consolidated Balance Sheet (unaudited).

 

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The undiscounted cash flow principal payments for the remaining term of the lease will be as follows:

 

Maturity of Lease Liability  (in thousands) 
2020 (Remaining)  $8 
2021   16 
2022 and beyond   18 
Total undiscounted operating lease payments   42 
      
Less: imputed interest   (1)
Present value of financing lease liability  $41 

 

b)Facility Lease Amendment

 

The Company entered into an amendment and extension of its building lease on July 8, 2019, retroactive to June 1, 2019. The Company determined that this lease is an operating lease and presented as a right-of-use lease asset, short term lease liability and long term lease liability on the consolidated balance sheet.  These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rate.

 

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

 

An initial right-of-use asset of $0.8 million was recognized as a non-cash asset addition with the signing of the July 8, 2019, office lease. Cash paid for amounts included in the present value of operating lease liability was $0.1 million during the three months ended June 30, 2020, and is included in operating cash flows.

 

Operating lease costs were $0.1 million and $0.2 million during the three months and six months ended June 30, 2020.

 

NOTE 9 – IMPACT OF COVID-19

 

On March 11, 2020, the World Health Organization declared the global novel coronavirus disease (“COVID-19”) a pandemic. The Company’s operations are considered essential business under the Executive Orders of New Jersey’s Governor and the Company’s operations have been identified as critical infrastructure, as defined by the U.S. Department of Homeland Security. Companies aligned with the essential critical infrastructure workforce definition have a special responsibility to maintain normal work schedules. We are conducting our 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 these mandates may have on our customers and suppliers, operating results, or financial condition. However 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, and partners. The Company has taken additional steps to protect our employees in the event of infection in our offices and production facility and continues to enhance its business continuity plans.

 

The COVID-19 pandemic has caused uncertainty and disruption in the global economy and businesses worldwide. Despite these circumstances, orders booked in the six months ended June 30, 2020, were up 63% over the same period in 2019, reflecting stronger orders in the defense and aerospace market. The Company’s other segments have suffered some contraction and certain customers have pushed orders to the latter part of 2020 and early 2021. We cannot predict whether there will be further push outs and/or softening in the non-defense markets we serve and what impact this may have on our results of operations, financial position, and liquidity.

 

The Company has taken steps to preserve cash and has deferred interest payments on its related party notes through June 30, 2020, but has elected to discontinue deferment for the remainder of 2020. However, as the outbreak continues, there is uncertainty around sales, cash collections, and costs related to our mediation efforts. These uncertainties include the duration and severity of the pandemic, and how compliance with containment measures will impact our day-to-day operations as well as that of our key customers, suppliers and other partners.

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Caution Regarding Forward Looking Statements

 

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The Company wishes to 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 and 7 of the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission on March 30, 2020. 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, 2019. 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, 2019.

 

Impact of COVID-19

 

On March 11, 2020, the World Health Organization declared the global novel coronavirus disease (“COVID-19”) a pandemic. The Company’s operations are considered essential business under the Executive Orders of New Jersey’s Governor and the Company’s operations have been identified as critical infrastructure, as defined by the U.S. Department of Homeland Security. Companies aligned with the essential critical infrastructure workforce definition have a special responsibility to maintain normal work schedules. We are conducting our 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 these mandates may have on our customers and suppliers, operating results, or financial condition. However 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, and partners. The Company has taken additional steps to protect our employees in the event of infection in our offices and production facility and continues to enhance its business continuity plans.

 

The COVID-19 pandemic has caused uncertainty and disruption in the global economy and businesses worldwide. Despite these circumstances, orders booked in the six months ended June 30, 2020, were up 63% over the same period in 2019, reflecting stronger orders in the defense and aerospace market. The Company’s other segments have suffered some contraction and certain customers have pushed orders to the latter part of 2020 and early 2021. We cannot predict whether there will be further push outs and/or softening in the non-defense markets we serve and what impact this may have on our results of operations, financial position, and liquidity.

 

The Company has taken steps to preserve cash and has deferred interest payments on its related party notes through June 30, 2020, but has elected to discontinue deferment for the remainder of 2020. However, as the outbreak continues, there is uncertainty around sales, cash collections, and costs related to our mediation efforts. These uncertainties include the duration and severity of the pandemic, and how compliance with containment measures will impact our day-to-day operations as well as that of our key customers, suppliers and other partners.

 

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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 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.

 

Revenue

 

Sales for the three months ended June 30, 2020, were $2.5 million, a decrease of 3.7%, or $0.1 million, compared to $2.6 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, sales were $4.6 million, a decrease of 12.4%, or $0.6 million, compared to sales of $5.2 million for the six months ended June 30, 2019.

 

For the three months ended June 30, 2020 and 2019, sales to the defense/aerospace market were $0.9 million in each period. For the six months ending June 30, 2020, sales to the defense/aerospace market decreased $0.2 million, or 9.8%, to $1.8 million compared to sales of $2.0 million in the six month period ending June 30, 2019. The decrease is due to timing of product shipments.

 

Process control and metrology (“PC&M”) sales were $1.1 million for the three months ended June 30, 2020, an increase of $0.1 million, or 10.0%, from $1.0 million for the three months ended June 30, 2019, due to stronger sales in the semi-conductor industry. For the six months ended June 30, 2020, sales decreased 8.0% or $0.2 million to $1.9 million from $2.1 million for the six months ended June 30, 2019. Timing of sales in the first quarter of 2020 from the semi-conductor industry negatively impacted year to date sales from process control and metrology.

 

For the three months ended June 30, 2020 and 2019, sales to customers in the laser systems market were $0.1 million and $0.3 million, respectively. This decrease of $0.2 million or 53.6% reflects reduced demand for laser-based products during the quarter. Sales for the six months ended June 30, 2020 and 2019, were $0.4 million and $0.6 million, respectively, a decrease of $0.2 million, or 40.7%. This decrease is reflective of the reduced demand in the laser products market.

 

Sales to customers in the Scientific/R&D market were $0.3 million for the three months ended June 30, 2020 and 2019. For the six month period ending June 30, 2020, sales decreased $0.1 million to $0.4 million, compared to $0.5 million for six months ended June 30, 2019. The decrease in sales in the Scientific/R&D market is attributable to the completion of a federal government R&D contract in the latter part of 2019.

 

For the three months ended June 30, 2020, three customers represented 10% or more of revenues. For the three months ended June 30, 2019, two customers represented 10.0% or more of total sales. For the six months ended June 30, 2020, only one customer represented 10.0% or more of total sales, compared to two customers representing 10.0% of sales for the six months ended June 30, 2019.

 

The Company’s top five customers represented 50.9% of sales in the three month period ended June 30, 2020, compared to 45.1% in the same period in 2019. For the six month period ended June 30, 2020 and 2019, the Company’s top five customers represented 44.4% and 48.3%, respectively.

 

Orders booked during the first six months of 2020, totaled $5.9 million, compared to $3.6 million for the same period last year. Order backlog at June 30, 2020 and 2019, was $6.4 million and $5.7 million, respectively. The increase in orders booked reflects orders in the defense/aerospace and process control and metrology markets.

 

 C: 

14

  

Cost of Goods Sold

 

For the three months ended June 30, 2020 and 2019, cost of goods sold was $1.8 million, and $2.2 million, or 70.7% and 82.9% of total revenues, respectively. The $0.3 million decrease, or 18%, is due to the impact of lower material and outside services costs, manufacturing costs, and lower direct labor and related employee costs. Cost of goods sold for the six months ended June 30, 2020 and 2019, were $3.4 million and $4.1 million, respectively. Cost of goods sold decreased 17.2% or $0.7 million reflecting lower material, direct labor, outside services costs, and manufacturing expenses.

 

Gross profit for the three months ended June 30, 2020, was $0.7 million or 29.3% of sales, compared to $0.4 million or 17.1% of sales in the same quarter last year. Gross profit for the year to date period ending June 30, 2020, was $1.2 million or 25.3% of sales, an increase of $0.1 million from $1.1 million or 20.9% of sales for the six month period ending June 30, 2019.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (“SG&A” expenses) were $0.7 million in the three months ended June 30, 2020 and 2019, or 26.8% of sales and 28.6% of sales, respectively. SG&A expenses in the three months ended June 30, 2020, reflect a reduction in travel and entertainment costs and marketing related costs due to restrictions on travel related to COVID-19. Outside services and temporary employee costs are also down from the year ago quarter. SG&A expenses for the six month period ending June 30, 2020 and 2019, were $1.4 million in each period, or 30.1% of sales and 26.7 percent of sales, respectively. The SG&A expenses for the year to date period reflect the Company’s continued investment in sales, an increase in legal and accounting fees, and charges related to uncollectible accounts, offset by a decrease in outside services for temporary employees and a reduction in other general and administrative expenses.

 

Income (Loss) from Operations

 

The Company realized net income from operations of $0.1 million for the three months ended June 30, 2020, compared with a net operating loss of $0.3 million in the three months ended June 30, 2019. The increase in income primarily reflects the impact of the Company’s lower costs of goods sold and SG&A expenses in the three months ended June 30, 2020, compared to the same period last year. The Company incurred a net loss from operations for the six months ended June 30, 2020 and 2019, of $0.2 million and $0.3 million, respectively. The decrease in the net loss from operations is due to lower cost of goods sold and SG&A expenses.

 

Other Income and Expense

 

There was no significant change in net interest expense for the three months ended June 30, 2020, compared to the same period in 2019. Although the Company incurred additional debt of $1.0 million due to the loan (the “PPP Loan”) received under the Paycheck Protection Program (the “PPP”), interest has not accrued on this loan and there was no other significant change in the Company’s borrowings. For the six months ended June 30, 2020, other expense was slightly lower than the six months ended June 30, 2019, due to the reduction in interest expense.

 

Income Taxes

 

For the three months ended June 30, 2020, 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. For the six months ended June 30, 2020, 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, 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.

 

Net Income (Loss)

 

The Company had a net income of less than $0.1 million for the three months ended June 30, 2020, compared to a net loss of $0.3 million for the three months ended June 30, 2019. The change primarily reflects the decrease in cost of goods sold for the three months ended June 30, 2020, compared to the 2019 period. For the six months ended June 30, 2020 and 2019, the Company recorded a net loss of $0.3 million and $0.4 million, primarily reflecting lower cost of goods sold.

 

 C: 

15

 

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. The Company received PPP proceeds from the PPP Loan of approximately $1.0 million during the three months ended June 30, 2020.

 

As of June 30, 2020 and December 31, 2019, the Company had cash and cash equivalents of $2.0 million and $1.0 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 30, 2020, the Company had accrued interest in the amount of $187,500 associated with these notes.

 

The following table summarizes net cash provided by (used in) operating, investing and financing activities for the six months ended June 30, 2020 and 2019:

 

   Six Months Ended 
   June 30, 
   2020   2019 
   (in thousands) 
Net cash provided by (used in) operating activities  $204   $(158)
Net cash (used in) investing activities   (100)   (191)
Net cash provided by (used in) financing activities   967    (6)
Net increase (decrease) in cash and cash equivalents  $1,071   $(355)

 

Net cash provided by operating activities was $204,000 for the six months ended June 30, 2020, compared to net cash used in operating activities of $158,000 for the same period last year. The net cash provided by operating activities in the six months ended June 30, 2020, resulted primarily from a reduction in accounts receivable and an increase in accounts payable and contract liabilities, offset by an increase in inventory. Net cash used in operating activities during the six months ended June 30, 2019, resulted from an increase in accounts receivable and a decrease in contract liabilities, offset by a decrease in inventories and an increase in accounts payable.

 

Net cash used in investing activities was $100,000 during the six months ended June 30, 2020, compared to $191,000 in the same period last year reflecting capital expenditures in both periods.

 

Net cash provided by financing activities reflects the PPP Loan proceeds received during the six months ended June 30, 2020.

 

Overall, cash and cash equivalents increased by $1,071,000 for the six months ended June 30, 2020, and decreased $355,000 in the six month period ending June 30, 2019.

 

 C: 

16

 

On May 6, 2020, the Company received loan proceeds of approximately $973,000, under the PPP. The PPP was established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) which was enacted March 27, 2020. The PPP Loan, which is in the form of a promissory note dated May 4, 2020, issued by the Company, matures on May 4, 2022, and bears interest at a rate of 1.0% per annum, payable monthly commencing on December 4, 2020. Subject to the other requirements and limitations on loan forgiveness, only loan proceeds spent on payroll and other eligible costs during the covered 24-week period will qualify for forgiveness. The Company intends to use the entire loan amount for qualifying expenses. Any forgiveness of the PPP Loan will be subject to approval by the Small Business Administration, and no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

 

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 2021.

 

 C: 

17

 

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, 2020 (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.

 

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

 

 C: 

18

 

ITEM 6.EXHIBITS

 

4.1Note dated July 22, 2020, held by Clarex, Ltd.*

 

4.2Note dated July 22, 2020 held by Welland, Ltd.*

 

10.5Note dated May 4, 2020, between Inrad Optics, Inc. and Valley National Bank. (Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 14, 2020)

 

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

 

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

 

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

 

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

 

101.INSXBRL Instance Document*

 

101.SCHXBRL Taxonomy Extension Schema*

 

101.CALXBRL Taxonomy Extension Calculation Linkbase*

 

101.DEFXBRL Taxonomy Extension Definition Linkbase*

 

101.LABXBRL Taxonomy Extension Label Linkbase*

 

101.PREXBRL Taxonomy Extension Presentation Linkbase*

 

*Filed herewith

 

**Furnished herewith

 

 C: 

19

 

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, 2020    

 

 C: 

20

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
4/1/27
4/1/24
5/4/22
4/1/22
6/30/2110-Q
4/1/21
12/31/2010-K,  SD
12/15/20
12/4/20
Filed on:8/14/20
8/13/20
7/22/20
For Period end:6/30/20
6/20/20
5/6/20
5/4/20
3/31/2010-Q
3/30/2010-K
3/27/20
3/11/20
1/17/20
1/1/20
12/31/1910-K,  SD
7/8/19
6/30/1910-Q
6/1/19
3/31/1910-Q
1/1/19
 List all Filings 


4 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/30/23  Inrad Optics, Inc.                10-K       12/31/22   75:6M                                     Toppan Merrill/FA2
 3/30/22  Inrad Optics, Inc.                10-K       12/31/21   76:5.5M                                   Toppan Merrill Bridge/FA
 3/31/21  Inrad Optics, Inc.                10-K       12/31/20   76:4.8M                                   Toppan Merrill/FA
11/13/20  Inrad Optics, Inc.                10-Q        9/30/20   54:4.2M                                   Toppan Merrill/FA


1 Previous Filing that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 5/14/20  Inrad Optics, Inc.                10-Q        3/31/20   52:4.9M                                   Toppan Merrill/FA
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