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<p style="margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"><font style="text-underline-style: none;">NOTE 1 <font style="font-family: symbol;">-</font>SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Basis of Presentation</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> 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, 2011.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued.</p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Management Estimates</b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Inventories</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Inventories are stated at the lower of cost (first-in-first-out basis) or market. 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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Inventories are comprised of the following and are shown net of inventory reserves:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 100%; border-collapse: collapse; font: 10pt times new roman, times, serif;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; padding-left: 0px;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">June 30, <br />2012</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">December 31,<br />2011</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-indent: 0px; padding-left: 0px;" nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="text-align: center;" colspan="6" nowrap="nowrap">(in thousands)</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; padding-left: 0px; width: 76%;" nowrap="nowrap">Raw materials</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 9%;">1,123</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 9%;">1,072</td>
<td style="text-align: left; width: 1%;"> </td>
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<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left; text-indent: 0px; padding-left: 0px;" nowrap="nowrap">Work in process, including manufactured parts and components</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">1,239</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">984</td>
<td style="text-align: left;"> </td>
</tr>
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<td style="text-align: left; padding-bottom: 1pt; text-indent: 0px; padding-left: 0px;" nowrap="nowrap">Finished goods</td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">961</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">854</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; text-indent: 0px; padding-left: 0px;" nowrap="nowrap"></td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">3,323</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">2,910</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> Income Taxes</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">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 years in which the differences are expected to reverse.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the three and six months ended June 30, 2012 and 2011, the Company did not record a current provision for either state or federal income tax due to the losses incurred for both income tax and financial reporting purposes or the availability of net operating loss carry-forwards to offset against federal and state income tax.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of June 30, 2012, the Company has recognized a net deferred tax asset balance in the amount of $408,000, which is the portion of the total net deferred tax balance of $2,958,000 offset by a valuation allowance of $2,550,000, that the Company’s management is reasonably assured will be fully utilized in future periods. 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. The net deferred tax asset as of June 30, 2012 will be maintained until management concludes that it is more likely than not that the remaining deferred tax assets will, or will not be realized. When sufficient positive evidence exists, the Company’s income tax expense will be reduced by the 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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Net (Loss) Income per Common Share</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per common share is computed by dividing net (loss) income 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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the three and six months ended June 30, 2012, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 31,111 and 51,034 common stock equivalents related to outstanding options and grants, in each respective period. In addition, there were 2,500,000 common shares and 1,875,000 warrants issuable upon conversion of outstanding related party convertible notes in each period which were anti-dilutive.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the three and six months ended June 30, 2011, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 132,205 and 103,864 common stock equivalents related to outstanding options and grants, in each respective period and 2,500,000 common stock options and 1,875,000 warrants issuable upon conversion of outstanding related party convertible notes in each period.</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Stock-Based Compensation</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">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.</font> <font style="font: 10pt times new roman, times, serif;">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.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Recently Adopted Accounting Standards</b> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08, Intangibles-Goodwill and Other – Testing Goodwill for Impairment (“ASU No. 2011-08”). ASU No. 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before automatically applying the two-step goodwill impairment test, which has been the required test since 2002. If an entity determines that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test to determine the amount, if any, of impaired goodwill. Otherwise, the two-step goodwill impairment test is not required. This new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of this guidance did not materially impact our Consolidated Financial Statements.</p>
<p style="margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"><font style="text-underline-style: none;">NOTE 2- EQUITY COMPENSATION PROGRAM AND STOCK BASED COMPENSATION</font></p>
<p style="text-align: left; text-indent: -0.25in; margin: 0pt 0px 0pt 0.25in; font: bold 10pt times new roman, times, serif;"> </p>
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<td style="width: 0px;"></td>
<td style="width: 0.25in;">a)</td>
<td style="text-align: left;">Stock Option Expense</td>
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<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company's results of operations for the three months ended June 30, 2012 and 2011 include stock-based compensation expense for stock option grants totaling $45,749 and $41,112, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations within cost of goods sold in the amount of $24,821 ($17,287 for 2011), and selling, general and administrative expenses in the amount of $20,928 ($23,825 for 2011).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company's results of operations for the six months ended June 30, 2012 and 2011 include stock-based compensation expense for stock option grants totaling $104,222 and $69,735, respectively. Such amounts have been included in the accompanying Condensed Consolidated Statements of Operations within cost of goods sold in the amount of $50,697 ($27,829 for 2011), and selling, general and administrative expenses in the amount of $53,525 ($41,906 for 2011).</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of June 30, 2012 and 2011, there were $278,006 and $308,133 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 2.2 years and 2.5 years, respectively.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">There were no stock options granted during the six months ended June 30, 2012. 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, 2011: </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 75%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 1in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;"> </td>
<td style="font-weight: bold;"> </td>
<td style="text-align: center; font-weight: bold;" colspan="6">Six Months Ended</td>
<td style="font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="6">June 30,</td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 64%;">Expected Dividend yield</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">—</td>
<td style="text-align: left; width: 1%;">%</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">0.00</td>
<td style="text-align: left; width: 1%;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left;">Expected Volatility</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;">%</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">100</td>
<td style="text-align: left;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left;">Risk-free interest rate</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;">%</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">3.4</td>
<td style="text-align: left;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left;">Expected term</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">8 -10 years</td>
<td style="text-align: left;"> </td>
</tr>
</table>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="margin-top: 0pt; width: 100%; font: bold 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: top;">
<td style="width: 0px;"></td>
<td style="width: 0.25in;">b)</td>
<td style="text-align: left;">Stock Option Activity</td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table represents stock options granted, exercised and forfeited during the six month period ended June 30, 2012:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left:
0.25in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td nowrap="nowrap"><b>Stock Options</b></td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Number of<br />Options</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted<br />Average <br />Exercise <br />Price per Option</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted<br />Average <br />Remaining <br />Contractual<br />Term (years)</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Aggregate<br />Intrinsic Value</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in; width: 48%;">Outstanding at January 1, 2012</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 10%;">1,079,676</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 10%;">1.02</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 10%;">6.7</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 10%;">63,105</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Granted</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Exercised</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(10,700</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">0.50</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 1pt; text-indent: 0in;">Expired/Forfeited</td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">(136,153</td>
<td style="text-align: left; padding-bottom: 1pt;">)</td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">1.06</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 1pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 1pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 1pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 1pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; text-indent: 0in;">Outstanding at June 30, 2012</td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">932,823</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">1.02</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">7.5</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">—</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; text-indent: 0in;">Exercisable at June 30, 2012</td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">533,423</td>
<td style="text-align: left;
padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">1.05</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">6.1</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">—</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px 0pt 0.25in; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px 0pt 0.25in; font: 10pt times new roman, times, serif;">The following table represents non-vested stock options granted, vested and forfeited for the six months ended June 30, 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.25in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Options</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted-Average Grant-Date <br />Fair Value</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in; width: 64%;">Non-vested  - January 1, 2012</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">501,590</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">0.92</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Granted</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Vested</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(101,523</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">1.10</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Forfeited</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(667</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.89</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Non-vested – June 30, 2012</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">399,400</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.88</td>
<td style="text-align: left;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The total fair value of options vested during the six months ended June 30, 2012 and 2011 was $111,662 and $110,035, respectively.</p>
<p style="text-align: left; text-indent: -0.25in; margin: 0pt 0px 0pt 0.25in; font: bold 10pt times new roman, times, serif;"> </p>
<table style="margin-top: 0pt; width: 100%; font: bold 10pt times new roman, times, serif; margin-bottom: 0pt;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: top;">
<td style="width: 0px;"></td>
<td style="width: 0.25in;">c)</td>
<td style="text-align: left;">Restricted Stock Unit Awards</td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">There were no grants of restricted stock units granted under the 2010 Equity Compensation Program during the six months ended June 30, 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">During the six months ended June 30, 2011 there were 15,000 restricted stock units granted under the 2010 Equity Compensation Program. These grants vest over a three year period at the rate of one-third per year, contingent on continued employment or service during the vesting period.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company's results of operations for the three months ended June 30, 2012 and 2011 include stock-based compensation expense for restricted stock unit grants totaling $1,212 and $2,488, respectively, and such amounts have been included in the accompanying Consolidated Statements of Operations within selling, general and administrative expenses.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The Company's results of operations for the six months ended June 30, 2012 and 2011 include stock-based compensation expense for restricted stock unit grants totaling $2,424 and $3,763, respectively, and such amounts have been included in the accompanying Consolidated Statements of Operations within selling, general and administrative
expenses.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">A summary of the Company’s non-vested restricted stock units at June 30, 2012 is presented below:</p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.25in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Restricted Stock Units</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted-Average Grant-Date<br />Fair Value</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in; width: 64%;">Non-vested - January 1, 2012</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">15,000</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">0.97</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Granted</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Vested</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(5,000</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.97</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Forfeited</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Non-vested – June 30, 2012</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">10,000</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.97</td>
<td style="text-align: left;"> </td>
</tr>
</table>
<p style="margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"><font style="text-underline-style: none;">NOTE 3- STOCKHOLDERS’ EQUITY</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the six months ended June 30, 2012, the Company issued 152,460 common shares to the Inrad Optics 401k plan as a match to employee contributions for 2011.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In addition, 10,700 common shares were issued for proceeds of $5,349 in connection with the exercise of stock options during the six month period and an additional 5,000 common shares were issued on vesting of restricted stock awards.</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Basis of Presentation</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> 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 Rule 10-01 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, 2011.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued.</p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"><b>Management Estimates</b></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">These unaudited condensed 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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Inventories</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Inventories are stated at the lower of cost (first-in-first-out basis) or market. 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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Inventories are comprised of the following and are shown net of inventory reserves: </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.5in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">June 30,<br />2012</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">December 31,<br />2011</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="text-align: center;" colspan="6" nowrap="nowrap">(in thousands)</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 64%;">Raw materials</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">1,123</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">1,072</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left;">Work in process, including manufactured parts and components</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">1,239</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">984</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt;">Finished goods</td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">961</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">854</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">3,323</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">2,910</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Income Taxes</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">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 years in which the differences are expected to reverse.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the three and six months ended June 30, 2012 and 2011, the Company did not record a current provision for either state or federal income tax due to the losses incurred for both income tax and financial reporting purposes or the availability of net operating loss carry-forwards to offset against federal and state income tax.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">As of June 30, 2012, the Company has recognized a net deferred tax asset balance in the amount of $408,000, which is the portion of the total net deferred tax balance of $2,958,000 offset by a valuation allowance of $2,550,000, that the Company’s management is reasonably assured will be fully utilized in future periods. 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. The net deferred tax asset as of June 30, 2012 will be maintained until management concludes that it is more likely than not that the remaining deferred tax assets will, or will not be realized. When sufficient positive evidence exists, the Company’s income tax expense will be reduced by the 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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Net (Loss) Income per Common Share</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Basic net (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted net (loss) income per common share is computed by dividing net (loss) income 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.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the three and six months ended June 30, 2012, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 31,111 and 51,034 common stock equivalents related to outstanding options and grants, in each respective period. In addition, there were 2,500,000 common shares and 1,875,000 warrants issuable upon conversion of outstanding related party convertible notes in each period which were anti-dilutive.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">For the three and six months ended June 30, 2011, all common stock equivalents were excluded from the computation of diluted net loss per share because their effect is anti-dilutive. This included 132,205 and 103,864 common stock equivalents related to outstanding options and grants, in each respective period and 2,500,000 common stock options and 1,875,000 warrants issuable upon conversion of outstanding related party convertible notes in each period.</p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Stock-Based Compensation</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"><font style="font: 10pt times new roman, times, serif;">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.</font> <font style="font: 10pt times new roman, times, serif;">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.</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: bold 10pt times new roman, times, serif;">Recently Adopted Accounting Standards</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08, Intangibles-Goodwill and Other – Testing Goodwill for Impairment (“ASU No. 2011-08”). ASU No. 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before automatically applying the two-step goodwill impairment test, which has been the required test since 2002. If an entity determines that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test to determine the amount, if any, of impaired goodwill. Otherwise, the two-step goodwill impairment test is not required. This new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of this guidance did not materially impact our Consolidated Financial Statements.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">Inventories are comprised of the following and are shown net of inventory reserves: </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.5in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">June 30,<br />2012</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">December 31,<br />2011</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td nowrap="nowrap"> </td>
<td nowrap="nowrap"> </td>
<td style="text-align: center;" colspan="6" nowrap="nowrap">(in thousands)</td>
<td nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 64%;">Raw materials</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">1,123</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">1,072</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left;">Work in process, including manufactured parts and components</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">1,239</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">984</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; padding-bottom: 1pt;">Finished goods</td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">961</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">854</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">3,323</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">2,910</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">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, 2011:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 75%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 1in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;"> </td>
<td style="font-weight: bold;"> </td>
<td style="text-align: center; font-weight: bold;" colspan="6">Six Months Ended</td>
<td style="font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="6">June 30,</td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
</tr>
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2">2012</td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2">2011</td>
<td style="padding-bottom: 1pt; font-weight: bold;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left; width: 64%;">Expected Dividend yield</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">—</td>
<td style="text-align: left; width: 1%;">%</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">0.00</td>
<td style="text-align: left; width: 1%;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left;">Expected Volatility</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;">%</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">100</td>
<td style="text-align: left;">%</td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-align: left;">Risk-free interest rate</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;">%</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">3.4</td>
<td style="text-align: left;">%</td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-align: left;">Expected term</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">8 -10 years</td>
<td style="text-align: left;"> </td>
</tr>
</table>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">The following table represents stock options granted, exercised and forfeited during the six month period ended June 30, 2012:</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.25in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td nowrap="nowrap"><b>Stock Options</b></td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Number of<br />Options</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted<br />Average <br />Exercise <br />Price per Option</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted<br />Average <br />Remaining <br />Contractual<br />Term (years)</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
<td style="text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Aggregate<br />Intrinsic Value</td>
<td style="font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in; width: 48%;">Outstanding at January 1, 2012</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 10%;">1,079,676</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 10%;">1.02</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 10%;">6.7</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 10%;">63,105</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Granted</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Exercised</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(10,700</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">0.50</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="padding-bottom: 1pt; text-indent: 0in;">Expired/Forfeited</td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">(136,153</td>
<td style="text-align: left; padding-bottom: 1pt;">)</td>
<td style="padding-bottom: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right;">1.06</td>
<td style="text-align: left; padding-bottom: 1pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 1pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 1pt;"> </td>
<td style="padding-bottom: 1pt; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: left; font-size: 1pt;"> </td>
<td style="border-bottom: black 1pt solid; text-align: right; font-size: 1pt;"> </td>
<td style="text-align: left; padding-bottom: 1pt; font-size: 1pt;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; text-indent: 0in;">Outstanding at June 30, 2012</td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">932,823</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">1.02</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">7.5</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">—</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;"> </td>
<td
style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="padding-bottom: 2.5pt; text-indent: 0in;">Exercisable at June 30, 2012</td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">533,423</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">1.05</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: right;">6.1</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
<td style="padding-bottom: 2.5pt;"> </td>
<td style="border-bottom: black 2.5pt double; text-align: left;">$</td>
<td style="border-bottom: black 2.5pt double; text-align: right;">—</td>
<td style="text-align: left; padding-bottom: 2.5pt;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px 0pt 0.25in; font: 10pt times new roman, times, serif;">The following table represents non-vested stock options granted, vested and forfeited for the six months ended June 30, 2012.</p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.25in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Options</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted-Average Grant-Date <br />Fair Value</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in; width: 64%;">Non-vested  - January 1, 2012</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">501,590</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">0.92</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Granted</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Vested</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(101,523</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">1.10</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Forfeited</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(667</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.89</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Non-vested – June 30, 2012</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">399,400</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.88</td>
<td style="text-align: left;"> </td>
</tr>
</table>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">A summary of the Company’s non-vested restricted stock units at June 30, 2012 is presented below:</p>
<p style="margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<table style="width: 90%; border-collapse: collapse; font: 10pt times new roman, times, serif; margin-left: 0.25in;" cellspacing="0" cellpadding="0">
<tr style="vertical-align: bottom;">
<td style="text-align: center; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Restricted Stock Units</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
<td style="border-bottom: black 1pt solid; text-align: center; font-weight: bold;" colspan="2" nowrap="nowrap">Weighted-Average Grant-Date<br />Fair Value</td>
<td style="padding-bottom: 1pt; font-weight: bold;" nowrap="nowrap"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in; width: 64%;">Non-vested - January 1, 2012</td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;"> </td>
<td style="text-align: right; width: 15%;">15,000</td>
<td style="text-align: left; width: 1%;"> </td>
<td style="width: 1%;"> </td>
<td style="text-align: left; width: 1%;">$</td>
<td style="text-align: right; width: 15%;">0.97</td>
<td style="text-align: left; width: 1%;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Granted</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Vested</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">(5,000</td>
<td style="text-align: left;">)</td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.97</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: white; vertical-align: bottom;">
<td style="text-indent: 0in;">Forfeited</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">—</td>
<td style="text-align: left;"> </td>
</tr>
<tr style="background-color: #ccffcc; vertical-align: bottom;">
<td style="text-indent: 0in;">Non-vested – June 30, 2012</td>
<td> </td>
<td style="text-align: left;"> </td>
<td style="text-align: right;">10,000</td>
<td style="text-align: left;"> </td>
<td> </td>
<td style="text-align: left;">$</td>
<td style="text-align: right;">0.97</td>
<td style="text-align: left;"> </td>
</tr>
</table>
1072000
1123000
984000
1239000
854000
961000
2958000
2550000
2500000
1875000
132205
2500000
1875000
103864
2500000
1875000
31111
1875000
51034
2500000
0.00
0.00
1.00
0.00
0.034
0.00
P10Y
P8Y
P0Y
P0Y
1079676
932823
0
10700
-136153
533423
1.02
1.02
0
0.50
1.06
1.05
P6Y8M12D
P7Y5M
P6Y1M6D
63105
0
0
501590
399400
-101523000
-667
0.92
0.88
0
1.10
0.89
15000
10000
0
-5000
0
0.97
0.97
0
0.97
0
17287
23825
2488
41112
27829
41906
3763
69735
24821
20928
1212
45749
53525
2424
50697
104222
P2Y6M
P2Y2M12D
308133
278006
110035
111662
152460
<p style="margin: 0pt 0px; font: bold 10pt times new roman, times, serif;"><font style="text-underline-style: none;">NOTE 4- SUBSEQUENT EVENT</font></p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;"> </p>
<p style="text-align: justify; margin: 0pt 0px; font: 10pt times new roman, times, serif;">On July 27, 2012, the Company entered into a term loan agreement in the amount of $750,000 with Valley National Bank, Wayne, NJ. The loan is repayable in equal month installments over 5 years beginning in August 2012 and bears an interest rate of 4.35% annually. The loan is secured with a Note and a security interest in new equipment to be acquired by the Company.</p>
5000
0000719494us-gaap:SubsequentEventMember2012-01-012012-06-30
2012-07-27
Valley National Bank, Wayne, NJ
P5Y
monthly
2012-08-31
0000719494us-gaap:SubsequentEventMember2012-06-30
750000
0.0435