Inrad Optics, Inc. [INRD] Filings

10-Q 1 inrd-20220930x10q.htm 10-Q

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 September 30, 2022


	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from ___________ to ___________

Commission File Number 0-11668

INRAD OPTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

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

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

(201) 767-1910

Registrant’s Telephone Number, Including Area Code

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

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


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

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

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

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

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

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

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

The number of shares of the registrant’s common stock outstanding, $0.01 par value, as of November 14, 2022, was 14,073,320.

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INRAD OPTICS, INC AND SUBSIDIARIES

INDEX


Part I.	CONDENSED FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:

	Condensed consolidated balance sheets as of September 30, 2022 (unaudited) and December 31, 2021	1

	Condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)	2

	Condensed consolidated statements of shareholders equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	3

	Condensed consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021 (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	17

Item 4.	Controls and Procedures	17

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

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INRAD OPTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30,		December 31,
	2022		2021
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	1,729,208	$	1,801,188
Accounts receivable, net		1,098,986		1,287,653
Inventories, net		3,016,599		2,524,871
Other current assets		188,051		260,116
Total current assets		6,032,844		5,873,828

Plant and equipment:
Plant and equipment, at cost		15,817,798		15,393,241
Less: Accumulated depreciation and amortization		(14,655,974)		(14,709,744)
Total plant and equipment		1,161,824		683,497
Precious metals		561,909		561,909
Lease right-of-use, net		809,020		125,724
Other assets		26,993		26,993
Total Assets	$	8,592,590	$	7,271,951

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of other long term notes	$	66,584	$	16,403
Accounts payable and accrued liabilities		672,072		554,604
Contract liabilities		613,378		576,474
Current portion of lease obligation		297,316		141,536
Total current liabilities		1,649,350		1,289,017

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

Other long term notes, net of current portion		333,993		157,578
Lease obligation, net of current portion		518,413		2,692
Total liabilities		5,001,756		3,949,287

Shareholders’ equity:
Common stock: $.01 par value; 60,000,000 authorized shares; 14,077,920 shares issued at September 30, 2022, and 13,967,257 shares issued at December 31, 2021		140,781		139,674
Capital in excess of par value		19,889,039		19,733,996
Accumulated deficit		(16,424,036)		(16,536,056)
		3,605,784		3,337,614
Less - Common stock in treasury, at cost (4,600 shares)		(14,950)		(14,950)
Total shareholders’ equity		3,590,834		3,322,664
Total Liabilities and shareholders’ equity	$	8,592,590	$	7,271,951

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

Total revenue	$	2,610,330	$	2,822,767	$	7,787,481	$	8,484,066

Cost and expenses:
Cost of goods sold		1,834,401		1,956,881		5,392,369		5,747,689
Selling, general and administrative expenses		722,293		683,347		2,156,665		1,930,796
		2,556,694		2,640,228		7,549,034		7,678,485

Income from operations		53,636		182,539		238,447		805,581
Other income (expense):
Gain on forgiveness of PPP loan		—		—		—		973,166
Interest expense-net		(41,962)		(42,719)		(126,427)		(123,877)
		(41,962)		(42,719)		(126,427)		849,289

Income before income taxes		11,673		139,820		112,020		1,654,870

Income tax (provision) benefit		—		—		—		—

Net income	$	11,673	$	139,820	$	112,020	$	1,654,870

Net income per common share - basic	$	0.00	$	0.01	$	0.01	$	0.12

Net income per common share - diluted	$	0.00	$	0.01	$	0.01	$	0.12

Weighted average shares outstanding - basic		14,058,320		13,962,657		14,006,447		13,851,957

Weighted average shares outstanding - diluted		14,829,573		14,297,879		14,711,621		14,135,274

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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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, 2021	13,824,928	$	138,251	$	19,516,363	$	(18,284,953)	$	(14,950)	$	1,354,711
Stock-based compensation expense	—		—		29,303		—		—		29,303
Net income	—		—		—		1,140,334		—		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		—		—		103,349
Stock-based compensation expense	—		—		39,631		—		—		39,631
Net income	—		—		—		374,716		—		374,716
Balance, June 30, 2021	13,967,257	$	139,674	$	19,687,223	$	(16,769,903)	$	(14,950)	$	3,042,044

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


				Capital in						Total
	Common Stock			excess of		Accumulated		Treasury		Shareholders’
	Shares	Amount		par value		Deficit		Stock		Equity
Balance, January 1, 2022	13,967,257	$	139,674	$	19,733,996	$	(16,536,056)	$	(14,950)	$	3,322,664
401K contribution	59,663		597		50,158		—		—		50,755
Stock-based compensation expense	—		—		21,558		—		—		21,558
Net income	—		—		—		41,432		—		41,432
Balance, March 31, 2022	14,026,920	$	140,271	$	19,805,712	$	(16,494,624)	$	(14,950)	$	3,436,409

Common stock options exercised	21,000		210		4,860		—		—		5,070
Stock-based compensation expense	—		—		32,604		—		—		32,604
Net income	—		—		—		58,915		—		58,915
Balance, June 30, 2022	14,047,920	$	140,481	$	19,843,176	$	(16,435,709)	$	(14,950)	$	3,532,998

Common stock options exercised	30,000		300		14,700		—		—		15,000
Stock-based compensation expense	—		—		31,163		—		—		31,163
Net income September 30, 2022	—		—		—		11,673		—		11,673
Balance, September 30, 2022	14,077,920	$	140,781	$	19,889,039	$	(16,424,036)	$	(14,950)	$	3,590,834

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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INRAD OPTICS, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities:
Net income	$	112,020	$	1,654,870

Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization		181,370		104,160
401K common stock contribution - non cash item		50,755		103,349
Stock based compensation		85,325		90,944
Gain on forgiveness of PPP loan		—		(973,166)
Capitalized interest on promissory note		—		5,538
Changes in operating assets and liabilities:
Accounts receivable		188,667		(468,629)
Inventories, net		(491,728)		317,497
Other current and noncurrent assets		72,065		131,173
Accounts payable and accrued liabilities		117,470		—
Contract liabilities		36,904		(73,075)
Other current and noncurrent liabilities		(11,796)		(161,967)
Total adjustments and changes		229,032		(924,176)
Net cash provided by operating activities		341,052		730,694

Cash flows from investing activities:
Capital expenditures		(389,377)		(40,660)
Net cash (used in) investing activities		(389,377)		(40,660)

Cash flows from financing activities:
Proceeds from issuance of common stock		20,070		—
Principal payments on notes payable-other		(43,725)		—
Net cash (used in) financing activities		(23,655)		—

Net (decrease) increase in cash and cash equivalents		(71,980)		690,034

Cash and cash equivalents at beginning of period		1,801,188		1,129,703
Cash and cash equivalents at end of period	$	1,729,208	$	1,819,737

Supplemental disclosure of cash flow information:
Interest paid	$	128,586	$	126,584
Income taxes paid	$	—	$	—
Significant non-cash activities:
Lease right-of-use asset	$	879,300	$	—
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of equipment by issuing a note payable	$	270,320	$	—

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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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, 2021.

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 creditworthiness, 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 $46,000 at September 30, 2022, and $90,000 at December 31, 2021.

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.

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Inventories are comprised of the following and are shown net of inventory reserves of $2,339,000 and $2,480,000 at September 30, 2022 and December 31, 2021, respectively:


	September 30,		December 31,
	2022		2021
	(Unaudited)
		(in thousands)
Raw materials	$	1,181	$	1,160
Work in process, including manufactured parts and components		1,427		1,020
Finished goods		409		345
	$	3,017	$	2,525

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 September 30, 2022, 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 $3,406,000 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 nine months ended September 30, 2022 and 2021, the Company did not record a current provision for income taxes due to the permanent difference related to loan forgiveness and the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes.

Net Income (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 nine months ended September 30, 2022, 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 15,000 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 nine months ended 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 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.

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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
	September 30, 2022					September 30, 2021
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income Per Share:
Net Income	$	11,673	14,058,320	$	0.00	$	139,820	13,962,657	$	0.01
Effect of dilutive securities:
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	771,253		—		—	335,222		—
Diluted Income Per Share:	$	11,673	14,829,573	$	0.00	$	139,820	14,297,879	$	0.01


	Nine Months Ended					Nine Months Ended
	September 30, 2022					September 30, 2021
	Income(Loss)		Shares	Per Share		Income(Loss)		Shares	Per Share
	(Numerator)		(Denominator)	Amount		(Numerator)		(Denominator)	Amount
Basic Income Per Share:
Net Income	$	112,020	14,006,447	$	0.01	$	1,654,870	13,851,957	$	0.12
Effect of dilutive securities:
Convertible Notes		—	—		—		—	—		—
Accrued Interest on Convertible Notes		—	—		—		—	—		—
Warrants		—	—		—		—	—		—
Stock Options		—	705,174		—		—	283,317		—
Diluted Income Per Share:	$	112,020	14,711,621	$	0.01	$	1,654,870	14,135,274	$	0.12

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

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.

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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% of revenue for the three and nine months ended September 30, 2022. Revenue from products or services transferred to customers under these performance obligations accounted for approximately 0% and 0.5% of revenue for the three and nine months ended September 30, 2021, respectively. This revenue is generally recognized using an input measure based upon the proportion of actual costs incurred to estimated total project costs, which is a method used to best depict the Company’s performance to date under the terms of the contract.

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

The majority of the Company’s revenue is from products and services transferred to customers at a point in time and was approximately 100% of revenue for the nine months ended September 30, 2022 and 2021, 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				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Aerospace & Defense	$	640,847	$	636,621	$	2,262,767	$	2,833,925
Process Control & Metrology		1,835,117		1,825,609		4,942,711		4,074,841
Laser Systems		47,874		135,801		151,165		561,992
Scientific / R&D		86,492		224,736		430,838		1,013,308
Total	$	2,610,330	$	2,822,767	$	7,787,481	$	8,484,066

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Transfer at point in time	$	2,610,330	$	2,822,767	$	7,787,481	$	8,443,847
Transfer over time		—		—		—		40,219
Total net sales	$	2,610,330	$	2,822,767	$	7,787,481	$	8,484,066

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 September 30, 2022 or 2021. The Company had no remaining revenue to be recognized from long-term government contracts at September 30, 2022 or 2021.

On September 30, 2022, the Company had approximately $21.5 million of performance obligations, which is also referred to as backlog. Approximately 12.9% of the September 30, 2022 backlog, is related to projects that will extend beyond September 30, 2023.

NOTE 3- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION

a) Stock Option Expense

The Company’s results of operations for the three months ended September 30, 2022 and 2021, include stock-based compensation expense for stock option grants totaling $31,163 and $22,010, respectively. For the nine months ended September 30, 2022 and 2021, stock-based compensation expense for stock option grants totaled $85,325 and $90,944, 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 nine months ended September 30, 2022 and 2021:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Cost of sales	$	3,369	$	4,101	$	9,990	$	17,285
Selling, general and administrative		27,794		17,909		75,335		73,659
Total stock-based compensation expense	$	31,163	$	22,010	$	85,325	$	90,944

As of September 30, 2022 and 2021, there were $253,000 and $145,000 of unrecognized compensation cost, net of estimated forfeitures, related to non-vested stock options, which are expected to be recognized over a weighted average period of approximately 1.54 and 1.57 years, respectively.

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There were 200,000 stock options granted during the nine months ended September 30, 2022, and 200,000 stock options granted during the nine months ended September 30, 2021. The following range of weighted-average assumptions were used to determine the fair value of stock option grants during the nine months ended September 30, 2022 and 2021:


	Nine Months Ended
	September 30,
	2022		2021
Expected Dividend yield	—	%	—	%
Expected Volatility	105	%	106	%
Risk-free interest rate	1.54	%	0.86	%
Expected term	10	years	10	years

b) Stock Option Activity

The following table represents stock options granted, exercised and forfeited during the nine months ended September 30, 2022:


		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Number of	Price per		Contractual	Intrinsic
Stock Options	Options	Option		Term (years)	Value
Outstanding January 1, 2022	1,152,667	$	0.60	7.40	$	107,573
Granted	200,000		1.20
Exercised	(51,000)		0.39
Expired/Forfeited	—		—			—
Outstanding September 30, 2022	1,301,667	$	0.70	7.52	$	1,431,642

Exercisable at September 30, 2022	960,832	$	0.70	6.13	$	1,151,907

The following table represents non-vested stock options granted, vested and forfeited for the nine months ended September 30, 2022:


	Weighted-average
	Grant-date Fair Value
	Options	($)
Non-Vested - January 1, 2022	276,670	0.89
Granted	200,000	1.09
Vested	(135,835)	0.70
Forfeited	—	—
Non-Vested - September 30, 2022	340,835	0.89

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, 2021, in February 2022. The Company contributed 59,663 common shares of Inrad Optics, Inc. and cash of $76,133 to the Plan in March 2022.

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, 2024 to April 1, 2027. As of September 30, 2022, 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:


	September 30,		December 31,
	2022		2021
	(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	$	162	$	174
Long-term equipment financing in equal installments of $5,236 and bearing an interest rate of 6.1% and expiring in January 2027⁽¹⁾		239
Less current portion		(67)		(16)
Long-term debt, excluding current portion	$	334	$	158

(1)	The Company purchased certain equipment in the nine months ended September 30, 2022, financing approximately $270