SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
NOTE 1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Inrad Optics, Inc., and its subsidiaries (collectively, the “Company”). All significant intercompany balances and transactions have been eliminated. The condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In preparing these unaudited condensed consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the unaudited condensed consolidated financial statements were issued. Management Estimates These unaudited condensed consolidated financial statements and related disclosures have been prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses reported in those financial statements. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment and makes adjustments when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates and assumptions. Significant changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the consolidated financial statements in future periods. Accounts Receivable Beginning in 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The Company extends credit to its customers that satisfy pre-defined credit criteria. Accounts receivable are recorded net of an allowance for credit losses. The Company estimates the allowance for credit losses based on an analysis of the aging of accounts receivable, assessment of collectability, including any known or anticipated bankruptcies, customer-specific circumstances, and an evaluation of current economic conditions. Actual write-off of receivables may differ from estimates due to changes in customer and economic circumstances. For the period ended June 30, 2023, there were no changes to the estimate for credit losses. For the period ended June 30, 2022, the estimate for credit losses was $46,000. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. Cost of manufactured goods includes material, labor, and overhead. The Company records a reserve for slow-moving inventory as a charge against earnings for all products identified as surplus, slow-moving, or discontinued. Excess work-in-process costs are charged against earnings whenever estimated costs of completion exceed unbilled revenues. Inventories are comprised of the following and are shown net of inventory reserves of $2,590,000 and $2,398,000 at June 30, 2023 and December 31, 2022, respectively: | | | | | | | | | June 30, | | December 31, | | | 2023 | | 2022 | | | (Unaudited) | | | | | | (in thousands) | Raw materials | | $ | 877 | | $ | 1,065 | Work in process, including manufactured parts and components | | | 1,384 | | | 1,282 | Finished goods | | | 516 | | | 479 | | | $ | 2,777 | | $ | 2,826 |
Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse. In evaluating the Company’s ability to recover deferred tax assets in future periods, management considers the available positive and negative factors, including the Company’s recent operating results, the existence of cumulative losses and near-term forecasts of future taxable income consistent with the plans and estimates that management uses to manage the underlying business. A significant piece of objective negative evidence evaluated was the cumulative loss incurred by the Company over the three years ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation as of June 30, 2023, the Company’s management concluded that it is more likely than not that the Company will not be able to realize any portion of the benefit on the deferred tax asset balance of $2,416,000, and therefore the Company continues to maintain a valuation allowance for the full amount of the net deferred tax asset balance. When sufficient positive evidence exists, the Company’s income tax expense will be charged with the increase or decrease in its valuation allowance. An increase or reversal of the Company’s valuation allowance could have a significant negative or positive impact on the Company’s future earnings. For the three and six months ended June 30, 2023 and 2022, the Company did not record a current provision for income taxes due to the availability of net operating loss carryforwards to offset taxable income for both income tax and financial reporting purposes. Net Income (Loss) per Common Share Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options, stock grants and warrants using the average market prices during the period, including potential common shares issuable upon conversion of outstanding convertible notes, except if the effect on the per share amounts is anti-dilutive. For the three and six months ended June 30, 2023, 2,500,000 common shares issuable upon conversion of outstanding related party convertible notes were included in the computation of basic and diluted net income per common share because their effect is dilutive. For the three and six months ended June 30, 2023, 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 35,000 common stock options were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. For the three and six months ended June 30, 2022, 2,500,000 common shares and 1,875,000 common shares from warrants issuable upon conversion of outstanding related party convertible notes were excluded from the computation of basic and diluted net income per common share because their effect is anti-dilutive. In addition, 15,000 common stock options were excluded from basic and diluted net income per common share because their effect is anti-dilutive. A reconciliation of the shares used in the calculation of basic and diluted earnings (loss) per common share is as follows: | | | | | | | | | | | | | | | | | | | Three Months Ended | | Three Months Ended | | | June 30, 2023 | | June 30, 2022 | | | Income(Loss) | | Shares | | Per Share | | Income(Loss) | | Shares | | Per Share | | | (Numerator) | | (Denominator) | | Amount | | (Numerator) | | (Denominator) | | Amount | Basic income per share | | | | | | | | | | | | | | | | | Net income | | $ | 699,619 | | 14,191,454 | | $ | 0.05 | | $ | 58,915 | | 14,025,820 | | $ | 0.00 | Effect of dilutive securities: | | | | | | | | | | | | | | | | | Convertible notes | | | 37,500 | | 2,500,000 | | | — | | | — | | — | | | — | Accrued interest on convertible notes | | | — | | — | | | — | | | — | | — | | | — | Warrants | | | — | | — | | | — | | | — | | — | | | — | Stock options | | | — | | 582,412 | | | — | | | — | | 765,927 | | | — | Diluted income per share | | $ | 737,119 | | 17,283,387 | | $ | 0.04 | | $ | 58,915 | | 14,791,747 | | $ | 0.00 |
| | | | | | | | | | | | | | | | | | | Six Months Ended | | Six Months Ended | | | June 30, 2023 | | June 30, 2022 | | | Income(Loss) | | Shares | | Per Share | | Income(Loss) | | Shares | | Per Share | | | (Numerator) | | (Denominator) | | Amount | | (Numerator) | | (Denominator) | | Amount | Basic income per share | | | | | | | | | | | | | | | | | Net income | | $ | 791,146 | | 14,191,454 | | $ | 0.06 | | $ | 100,347 | | 13,992,068 | | $ | 0.01 | Effect of dilutive securities: | | | | | | | | | | | | | | | | | Convertible notes | | | 37,500 | | 2,500,000 | | | — | | | — | | — | | | — | Accrued interest on convertible notes | | | — | | — | | | — | | | — | | — | | | — | Warrants | | | — | | — | | | — | | | — | | — | | | — | Stock options | | | — | | 630,445 | | | — | | | — | | 683,316 | | | — | Diluted income per share | | $ | 828,696 | | 17,321,899 | | $ | 0.05 | | $ | 100,347 | | 14,675,384 | | $ | 0.01 |
Stock-Based Compensation Stock-based compensation expense is estimated at the grant date based on the fair value of the award. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The fair value of restricted stock units granted is based on the closing market price of the Company’s common stock on the date of the grant. The fair value of these awards, adjusted for estimated forfeitures, is amortized over the requisite service period of the award, which is generally the vesting period. Recent Accounting Standards In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU update is intended to simplify the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. This guidance is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance will have a material impact on the Company’s consolidated financial statements.
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