10-Q 1 lpth_10q.htm FORM 10-Q lpth_10q.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2023

 

OR

 

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

 

For the transition period from ___________ to ____________

 

Commission file number 000-27548

 

LIGHTPATH TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

 86-0708398

 (State or other jurisdiction of

incorporation or organization)

 

 (I.R.S. Employer

Identification No.)

 

2603 Challenger Tech Ct. Suite 100

Orlando, Florida 32826

(Address of principal executive offices)

(ZIP Code)

 

(407) 382-4003

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Class A CommonStock, par value $0.01

 

LPTH

 

The Nasdaq Stock Market, LLC

 

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 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, a 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 Exchange Act). YES NO ☒

  

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

38,022,003 shares of Class A common stock, $0.01 par value, outstanding as of February 5, 2024.

 

 

 

 

LIGHTPATH TECHNOLOGIES, INC.

Form 10-Q

 

Index

 

Item

 

 

Page

 

 

 

 

 

 

Cautionary Note Concerning Forward-Looking Statements

3

 

 

 

 

Part I

Financial Information

 

 

 

 

 

 

 

 

Item 1

Financial Statements

 

4

 

 

Unaudited Condensed Consolidated Balance Sheets

 

4

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

 

5

 

 

Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity

 

6

 

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

Results of Operations

 

25

 

 

Liquidity and Capital Resources

 

28

 

 

Contractual Obligations and Commitments

 

29

 

 

Off-Balance Sheet Arrangements

 

29

 

 

Critical Accounting Policies and Estimates

 

30

 

 

Non-GAAP Financial Measures

 

33

 

Item 4

Controls and Procedures

 

34

 

 

 

 

 

 

Part II

Other Information

 

 

 

 

 

 

 

 

Item 1

Legal Proceedings

 

35

 

Item 1A

Risk Factors

 

35

 

Item 2

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

 

35

 

Item 3

Defaults Upon Senior Securities

 

35

 

Item 4

Mine Safety Disclosures

 

35

 

Item 5

Other Information

 

36

 

Item 6

Exhibits

 

37

 

 

 

 

 

 

Signatures

 

 

38

 

  

 
2

Table of Contents

 

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 (the “Quarterly Report”) may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures, growth, product development, sales, business strategy, statements related to the actual and potential effects on our business from rising inflation and interest rates, and other similar matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or other comparable terminology. These forward-looking statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. These statements are subject to many risks, uncertainties, and other important factors that could cause actual future results to differ materially from those expressed in the forward-looking statements including, but not limited to, our ability to obtain needed raw materials and components from our suppliers; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; geopolitical tensions, the Russian-Ukraine conflict, and the Hamas/Israel war; the effects of steps that we could take to reduce operating costs; rising inflation and increased interest rates, which diminish capital market cash flow and borrowing power; our inability to sustain profitable sales growth, convert inventory to cash, or reduce our costs to maintain competitive prices for our products; circumstances or developments that may make us unable to implement or realize the anticipated benefits, or that may increase the costs, of our current and planned business initiatives; and those factors detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended June 30, 2023. In light of these risks and uncertainties, all of the forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized. We undertake no obligation to update or revise any of the forward-looking statements contained herein.

 

 
3

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

  

LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Balance Sheets

(unaudited)

 

 

December 31,

 

 

June 30,

 

Assets

 

2023

 

 

2023

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$3,536,558

 

 

$4,687,004

 

Restricted cash

 

 

2,345,644

 

 

 

2,457,486

 

Trade accounts receivable, net of allowance of $23,853 and $18,502

 

 

4,708,156

 

 

 

6,634,574

 

Inventories, net

 

 

7,520,444

 

 

 

7,410,734

 

Prepaid expenses and deposits

 

 

478,686

 

 

 

570,293

 

Other current assets

 

 

191,381

 

 

 

 

Total current assets

 

 

18,780,869

 

 

 

21,760,091

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

16,361,049

 

 

 

12,810,930

 

Operating lease right-of-use assets

 

 

7,432,993

 

 

 

9,571,604

 

Intangible assets, net

 

 

4,519,544

 

 

 

3,332,715

 

Goodwill

 

 

6,764,127

 

 

 

5,854,905

 

Deferred tax assets, net

 

 

140,000

 

 

 

140,000

 

Other assets

 

 

66,007

 

 

 

65,939

 

Total assets

 

$54,064,589

 

 

$53,536,184

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$2,899,032

 

 

$2,574,135

 

Accrued liabilities

 

 

1,990,114

 

 

 

662,242

 

Accrued payroll and benefits

 

 

1,456,777

 

 

 

1,499,896

 

Operating lease liabilities, current

 

 

1,123,276

 

 

 

969,890

 

Loans payable, current portion

 

 

2,138,775

 

 

 

1,023,814

 

Finance lease obligation, current portion

 

 

118,070

 

 

 

103,646

 

Total current liabilities

 

 

9,726,044

 

 

 

6,833,623

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities, net

 

 

474,395

 

 

 

465,000

 

Accrued liabilities, noncurrent

 

 

919,623

 

 

 

 

Finance lease obligation, less current portion

 

 

334,654

 

 

 

341,201

 

Operating lease liabilities, noncurrent

 

 

8,583,630

 

 

 

8,393,248

 

Loans payable, less current portion

 

 

326,507

 

 

 

1,550,587

 

Total liabilities

 

 

20,364,853

 

 

 

17,583,659

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock: Series D, $0.01 par value, voting;

 

 

 

 

 

 

 

 

500,000 shares authorized; none issued and outstanding

 

 

 

 

 

 

Common stock: Class A, $0.01 par value, voting;

 

 

 

 

 

 

 

 

44,500,000 shares authorized as of December 31, 2023 and June 30, 2023; 

 

 

 

 

 

 

 

 

37,549,378 and 34,344,739 shares issued and outstanding

 

 

375,494

 

 

 

373,447

 

Additional paid-in capital

 

 

243,475,209

 

 

 

242,808,771

 

Accumulated other comprehensive income

 

 

741,301

 

 

 

606,536

 

Accumulated deficit

 

 

(210,892,268)

 

 

(207,836,229)

Total stockholders’ equity

 

 

33,699,736

 

 

 

35,952,525

 

Total liabilities and stockholders’ equity

 

$54,064,589

 

 

$53,536,184

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4

Table of Contents

 

LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue, net

 

$7,315,637

 

 

$8,472,679

 

 

$15,392,885

 

 

$15,839,580

 

Cost of sales

 

 

5,147,316

 

 

 

5,248,334

 

 

 

10,892,858

 

 

 

10,381,323

 

Gross margin

 

 

2,168,321

 

 

 

3,224,345

 

 

 

4,500,027

 

 

 

5,458,257

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

2,858,457

 

 

 

3,030,653

 

 

 

5,519,625

 

 

 

5,668,826

 

New product development

 

 

607,747

 

 

 

466,163

 

 

 

1,247,636

 

 

 

1,016,044

 

Amortization of intangibles

 

 

485,446

 

 

 

281,271

 

 

 

766,717

 

 

 

562,542

 

Loss on disposal of property and equipment

 

 

 

 

 

2,742

 

 

 

 

 

 

2,742

 

Total operating expenses

 

 

3,951,650

 

 

 

3,780,829

 

 

 

7,533,978

 

 

 

7,250,154

 

Operating loss

 

 

(1,783,329)

 

 

(556,484)

 

 

(3,033,951)

 

 

(1,791,897)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(53,788)

 

 

(81,241)

 

 

(111,399)

 

 

(151,611)

Other income (expense), net

 

 

199,512

 

 

 

(1,336)

 

 

204,915

 

 

 

25,881

 

Total other income (expense), net

 

 

145,724

 

 

 

(82,577)

 

 

93,516

 

 

 

(125,730)

Loss before income taxes

 

 

(1,637,605)

 

 

(639,061)

 

 

(2,940,435)

 

 

(1,917,627)

Income tax provision

 

 

76,058

 

 

 

55,000

 

 

 

115,604

 

 

 

157,134

 

Net loss

 

$(1,713,663)

 

$(694,061)

 

$(3,056,039)

 

$(2,074,761)

Foreign currency translation adjustment

 

 

259,973

 

 

 

671,125

 

 

 

134,765

 

 

 

(246,704)

Comprehensive loss

 

$(1,453,690)

 

$(22,936)

 

$(2,921,274)

 

$(2,321,465)

Loss per common share (basic)

 

$(0.05)

 

$(0.03)

 

$(0.08)

 

$(0.08)

Number of shares used in per share calculation (basic)

 

 

37,501,683

 

 

 

27,172,226

 

 

 

37,466,714

 

 

 

27,121,583

 

Loss per common share (diluted)

 

$(0.05)

 

$(0.03)

 

$(0.08)

 

$(0.08)

Number of shares used in per share calculation (diluted)

 

 

37,501,683

 

 

 

27,172,226

 

 

 

37,466,714

 

 

 

27,121,583

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
5

Table of Contents

 

LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Statements of Changes in Stockholders' Equity

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Class A

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

 

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at June 30, 2023

 

 

37,344,739

 

 

$373,447

 

 

$242,808,771

 

 

$606,536

 

 

$(207,836,229)

 

$35,952,525

 

Issuance of common stock for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Stock Purchase Plan

 

 

14,607

 

 

 

146

 

 

 

19,573

 

 

 

 

 

 

 

 

 

19,719

 

Exercise of Stock Options, RSUs & RSAs, net

 

 

14,482

 

 

 

145

 

 

 

(145)

 

 

 

 

 

 

 

 

 

Issuance of common stock for acquisition of Visimid

 

 

81,610

 

 

 

816

 

 

 

149,184

 

 

 

 

 

 

 

 

 

150,000

 

Stock-based compensation on stock options, RSUs & RSAs

 

 

 

 

 

 

 

 

240,075

 

 

 

 

 

 

 

 

 

240,075

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(125,208)

 

 

 

 

 

(125,208)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,342,376)

 

 

(1,342,376)

Balances at September 30, 2023

 

 

37,455,438

 

 

$374,554

 

 

$243,217,458

 

 

$481,328

 

 

$(209,178,605)

 

$34,894,735

 

Issuance of common stock for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of Stock Options, RSUs & RSAs, net

 

 

93,940

 

 

 

940

 

 

 

(940)

 

 

 

 

 

 

 

 

 

Stock-based compensation on stock options, RSUs & RSAs

 

 

 

 

 

 

 

 

258,691

 

 

 

 

 

 

 

 

 

258,691

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

259,973

 

 

 

 

 

 

259,973

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,713,663)

 

 

(1,713,663)

Balances at December 31, 2023

 

 

37,549,378

 

 

$375,494

 

 

$243,475,209

 

 

$741,301

 

 

$(210,892,268)

 

$33,699,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at June 30, 2022

 

 

27,046,790

 

 

$270,468

 

 

$232,315,003

 

 

$935,125

 

 

$(203,789,358)

 

$29,731,238

 

Issuance of common stock for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Stock Purchase Plan

 

 

16,287

 

 

 

163

 

 

 

19,707

 

 

 

 

 

 

 

 

 

19,870

 

Exercise of Stock Options & RSUs, net

 

 

8,852

 

 

 

88

 

 

 

(88)

 

 

 

 

 

 

 

 

 

Stock-based compensation on stock options & RSUs

 

 

 

 

 

 

 

 

284,598

 

 

 

 

 

 

 

 

 

284,598

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

(917,829)

 

 

 

 

 

(917,829)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,380,700)

 

 

(1,380,700)

Balances at September 30, 2022

 

 

27,071,929

 

 

$270,719

 

 

$232,619,220

 

 

$17,296

 

 

$(205,170,058)

 

$27,737,177

 

Issuance of common stock for:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of Stock Options, RSUs & RSAs, net

 

 

203,586

 

 

 

2,036

 

 

 

(2,036)

 

 

 

 

 

 

 

 

 

Stock-based compensation on stock options, RSUs & RSAs

 

 

 

 

 

 

 

 

487,547

 

 

 

 

 

 

 

 

 

487,547

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

671,125

 

 

 

 

 

 

671,125

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(694,061)

 

 

(694,061)

Balances at December 31, 2022

 

 

27,275,515

 

 

$272,755

 

 

$233,104,731

 

 

$688,421

 

 

$(205,864,119)

 

$28,201,788

 

   

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
6

Table of Contents

 

LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Six Months Ended December 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(3,056,039)

 

$(2,074,761)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,943,000

 

 

 

1,580,882

 

Interest from amortization of debt costs

 

 

 

 

 

37,120

 

Loss on disposal of property and equipment

 

 

 

 

 

2,742

 

Stock-based compensation on stock options, RSUs & RSAs, net

 

 

551,853

 

 

 

772,145

 

Provision for doubtful accounts receivable

 

 

(2,236)

 

 

(11,421)

Change in operating lease assets and liabilities

 

 

80,355

 

 

 

(70,153)

Inventory write-offs to allowance

 

 

73,569

 

 

 

2,233

 

Deferred taxes

 

 

9,395

 

 

 

(19,669)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

1,717,283

 

 

 

364,987

 

Other current assets

 

 

(191,381)

 

 

(149,775)

Inventories

 

 

54,461

 

 

 

68,918

 

Prepaid expenses and deposits

 

 

94,619

 

 

 

987

 

Accounts payable and accrued liabilities

 

 

(424,310)

 

 

(1,255,961)

Net cash provided by (used in) operating activities

 

 

850,569

 

 

 

(751,726)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,484,401)

 

 

(411,551)

Acquisition of Visimid Technologies, net of cash acquired

 

 

(722,141)

 

 

 

Proceeds from sale-leaseback of equipment

 

 

364,710

 

 

 

 

Net cash used in investing activities

 

 

(1,841,832)

 

 

(411,551)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of common stock from Employee Stock Purchase Plan

 

 

19,719

 

 

 

19,870

 

Borrowings on loans payable

 

 

142,853

 

 

 

 

Payments on loans payable

 

 

(407,510)

 

 

(405,498)

Repayment of finance lease obligations

 

 

(58,785)

 

 

(57,140)

Net cash used in financing activities

 

 

(303,723)

 

 

(442,768)

Effect of exchange rate on cash and cash equivalents

 

 

32,698

 

 

 

(107,994)

Change in cash, cash equivalents and restricted cash

 

 

(1,262,288)

 

 

(1,714,039)

Cash, cash equivalents and restricted cash, beginning of period

 

 

7,144,490

 

 

 

5,507,891

 

Cash, cash equivalents and restricted cash, end of period

 

$5,882,202

 

 

$3,793,852

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid in cash

 

$110,774

 

 

$106,394

 

Income taxes paid

 

$114,953

 

 

$218,367

 

Supplemental disclosure of non-cash investing & financing activities:

 

 

 

 

 

 

 

 

Purchase of equipment through finance lease arrangements

 

$61,654

 

 

$83,921

 

  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
7

Table of Contents

 

LIGHTPATH TECHNOLOGIES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. Basis of Presentation

 

References in this document to “the Company,” “LightPath,” “we,” “us,” or “our” are intended to mean LightPath Technologies, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.

 

These unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the requirements of Article 8 of Regulation S-X promulgated under the Exchange Act and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and related notes, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the SEC. Unless otherwise stated, references to particular years or quarters refer to our fiscal years ended June 30 and the associated quarters of those fiscal years.

 

These Condensed Consolidated Financial Statements are unaudited, but include all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. The Consolidated Balance Sheet as of June 30, 2023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year as a whole. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

2. Significant Accounting Policies

 

Our significant accounting policies are provided in Note 2, Summary of Significant Accounting Policies, in the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. There have been no material changes to our significant accounting policies during the six months ended December 31, 2023, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

 

Use of Estimates

 

Management makes estimates and assumptions during the preparation of our unaudited Condensed Consolidated Financial Statements that affect amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes available, which, in turn, could impact the amounts reported and disclosed herein.

 

3. Acquisition of Visimid Technologies

 

In July 2023, the Company acquired Liebert Consulting LLC, dba Visimid Technologies (“Visimid”), pursuant to a Membership Interest Purchase Agreement dated as of July 25, 2023 (the “Acquisition Date”).

 

Part of the Company’s growth strategy is to identify appropriate opportunities that would enhance our profitable growth through acquisition. Visimid is an engineering and design firm specializing in thermal imaging, night vision and internet of things (“IOT”) applications. Visimid provides design and consulting services for Department of Defense (“DoD”) contractors, commercial and industrial customers, and original equipment manufacturers (“OEMs”) for original new products. Visimid’s core competency is developing and producing custom thermal and night vision cores. We believe that Visimid’s capabilities are aligned with our strategy to focus on engineered solutions.

 

The Company’s unaudited condensed consolidated financial statements reflect the financial results of Visimid beginning on the Acquisition Date. The purchase price included $1 million in cash, $1,550,000 of restricted stock, $150,000 of assumed bank debt, and an earnout which is contingent upon the award and completion of a specific customer contract. Of the restricted stock payable as part of the purchase price, $150,000 (81,610 shares) was issued at closing, with the balance to be issued in four equal installments of $350,000 each, on January 1, 2024, July 1, 2024, January 1, 2025 and July 1, 2025. The number of shares is based on the average closing price of the Company’s Class A common stock, as reported by Bloomberg, for the five trading days prior to each stock issuance.

 

 
8

Table of Contents

 

The total purchase price, net of cash acquired and including the estimated potential earnout, is approximately $2.7 million, based on present values as of the Acquisition Date. Of this amount, $600,000 was paid at closing, $150,000 cash was paid in October 2023 per the terms of the purchase agreement, and the remaining cash and stock payments, including the estimated potential earnout, have been accrued and are included in Accrued liabilities and Accrued liabilities, noncurrent in the accompanying unaudited Condensed Consolidated Balance Sheet as of December 31, 2023.

 

The estimated fair values of the assets acquired and liabilities assumed were recorded as of the Acquisition Date. The Company is in the process of finalizing third-party valuations of certain intangible assets; thus, the provisional measurements of intangible assets and goodwill are subject to change. As part of the preliminary valuation analysis, the Company identified intangible assets, including customer relationships, customer backlog, trade secrets and trademarks. The customer backlog, customer relationships, trade secrets and trademarks were determined to have estimated values of approximately $464,000, $122,000, $925,000 and $442,000, respectively, and estimated useful lives of 1 year for customer backlog, and 10 years for customer relationships, trade secrets and trademarks. The estimated fair value of identifiable intangible assets is determined primarily using the “income approach”, which requires a forecast of all future cash flows.

 

The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Visimid. The goodwill is expected to be deductible for income tax purposes. As of December 31, 2023, an adjustment of $2.2 million was made to decrease the initially recognized amount of goodwill to reflect changes in the estimated fair value of the identifiable intangible assets purchased in the acquisition.

 

For the three and six months ended December 31, 2023, the Company incurred approximately $13,000 and $97,000, respectively, in acquisition costs which are included in the unaudited Condensed Consolidated Statements of Comprehensive Income in the line item entitled “Selling, general and administrative.” This is in addition to the previously disclosed $140,000 in acquisition costs which were recorded during the three months ended June 30, 2023.

 

Prior to the Acquisition, the Company had a preexisting relationship with Visimid. The Company contracted Visimid for engineering services and purchased infrared camera cores from Visimid on an arms’ length basis. The Company had also partnered with Visimid for the development of the Mantis camera.

 

4. Revenue

 

Product Revenue

 

We are a manufacturer of optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared optical components, and other optical materials used to produce products that manipulate light. We design, develop, manufacture, and distribute optical components and assemblies utilizing advanced optical manufacturing processes. We also provide engineering services and perform research and development for optical solutions for a wide range of optics markets. Revenue is derived primarily from the sale of optical components and assemblies.

 

Revenue Recognition

 

Revenue is generally recognized upon transfer of control, including the risks and rewards of ownership, of products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We generally bear all costs, risk of loss, or damage and retain title to the goods up to the point of transfer of control of products to customers. Shipping and handling costs are included in the cost of goods sold. We present revenue net of sales taxes and any similar assessments.

 

Customary payment terms are granted to customers, based on credit evaluations. We currently do not have any contracts where revenue is recognized, but the customer payment is contingent on a future event. We record deferred revenue when cash payments are received or due in advance of revenue recognition. Deferred revenue was $759,000 and $314,000 as of December 31, 2023 and June 30, 2023, respectively, and is included in accrued liabilities in the accompanying condensed consolidated balance sheets.

 

 
9

Table of Contents

 

Nature of Products

 

Revenue from the sale of optical components and assemblies is recognized upon transfer of control, including the risks and rewards of ownership, to the customer. The performance obligations for the sale of optical components and assemblies are satisfied at a point in time. Product development agreements for engineering services are generally short-term in nature, with revenue recognized upon satisfaction of the performance obligation, and transfer of control of the agreed-upon deliverable. Visimid has one longer-term order with a customer which includes both product development and hardware deliverables where similar revenue recognition criteria will be applied.

 

We previously organized our products in three groups: precision molded optics (“PMO”), infrared, and specialty products. Revenues from product development agreements for engineering services were included in specialty products. With our strategic transition into more value-added solutions, and the addition of Visimid in July 2023, we reorganized our products into four product groups: infrared components, visible components, assemblies and modules, and engineering services. Assemblies and modules were previously included in PMO, infrared or specialty products, depending on the lens type.

 

Revenue by product group for the three and six months ended December 31, 2023 and 2022 was as follows, with 2022 amounts reclassified from those previously reported to conform to current classification:

 

 

 

Three Months Ended

December 31,

 

 

Six Months Ended

December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Infrared components

 

$3,572,853

 

 

$3,290,328

 

 

$7,407,455

 

 

$6,479,879

 

Visible components

 

 

2,678,904

 

 

 

3,876,627

 

 

 

5,367,239

 

 

 

7,144,285

 

Assemblies and modules

 

 

986,683

 

 

 

1,227,873

 

 

 

2,248,722

 

 

 

2,098,605

 

Engineering services

 

 

77,197

 

 

 

77,851

 

 

 

369,469

 

 

 

116,811

 

Total revenue

 

$7,315,637

 

 

$8,472,679

 

 

$15,392,885

 

 

$15,839,580

 

 

5. Inventories

 

The components of inventories include the following:

 

 

 

December 31,

2023

 

 

June 30,

2023

 

Raw materials

 

$3,214,087

 

 

$2,999,879

 

Work in process

 

 

2,954,299

 

 

 

2,909,439

 

Finished goods

 

 

2,495,167

 

 

 

2,626,106

 

Allowance for obsolescence

 

 

(1,143,109)

 

 

(1,124,690)

 

 

$7,520,444

 

 

$7,410,734

 

 

The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $1.4 million and $1.5 million as of December 31, 2023 and June 30, 2023, respectively.

 

6. Property and Equipment

 

Property and equipment are summarized as follows:

 

 

 

Estimated Lives (Years)

 

 

December 31, 2023

 

 

June 30, 2023

 

Manufacturing equipment

 

5 - 10

 

 

$22,721,329

 

 

$22,296,320

 

Computer equipment and software

 

3 - 5

 

 

 

1,009,206

 

 

 

973,549

 

Furniture and fixtures

 

5

 

 

 

363,284

 

 

 

350,289

 

Leasehold improvements

 

5 - 7

 

 

 

8,818,074

 

 

 

2,742,344

 

Construction in progress

 

 

 

 

 

 

1,399,078

 

 

 

3,067,896

 

Total property and equipment

 

 

 

 

 

 

34,310,971

 

 

 

29,430,398

 

Less accumulated depreciation and amortization

 

 

 

 

 

 

(17,949,922)

 

 

(16,619,468)

Total property and equipment, net

 

 

 

 

 

$16,361,049

 

 

$12,810,930

 

   

 
10

Table of Contents

 

7. Goodwill and Intangible Assets

 

The change in the net carrying amount of goodwill during the six months ended December 31, 2023 was as follows:

 

Goodwill at June 30, 2023

 

$5,854,905

 

Acquisition of Visimid

 

 

909,222

 

Goodwill at December 31, 2023

 

$6,764,127

 

 

The increase in goodwill during the six months ended December 31, 2023 was due to the acquisition of Visimid. The Company is in the process of finalizing third-party valuations of certain intangible assets; thus, the provisional measurement of goodwill and intangible assets are subject to change. See Note 3, Acquisition of Visimid Technologies, to these unaudited condensed consolidated financial statements, for more information.

 

Identifiable intangible assets were comprised of:

 

 

 

Useful Lives (Years)

 

 

December 31, 2023

 

 

June 30, 2023

 

Customer relationships

 

10 - 15

 

 

$3,712,300

 

 

$3,590,000

 

Trade secrets

 

8 - 10

 

 

 

4,197,304

 

 

 

3,272,000

 

Trademarks

 

8 - 10

 

 

 

4,256,418

 

 

 

3,814,000

 

Backlog

 

1

 

 

 

463,525

 

 

 

 

Total intangible assets

 

 

 

 

 

 

12,629,547

 

 

 

10,676,000

 

Less accumulated amortization

 

 

 

 

 

 

(8,110,003)

 

 

(7,343,285)

Total intangible assets, net

 

 

 

 

 

$4,519,544

 

 

$3,332,715

 

   

Future amortization of identifiable intangibles is as follows:

 

Fiscal year ending:

 

 

 

June 30, 2024 (remaining six months)

 

$868,805

 

June 30, 2025

 

 

884,654

 

June 30, 2026

 

 

388,336

 

June 30, 2027

 

 

388,336

 

After June 30, 2027

 

 

1,989,413

 

 

 

$4,519,544

 

 

8. Income Taxes

 

A summary of our total income tax expense and effective income tax rate for the three and six months ended December 31, 2023 and 2022 is as follows:

 

 

 

Three Months Ended

December 31,

 

 

Six Months Ended

December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Loss before income taxes

 

$(1,637,605)

 

$(639,061)

 

$(2,940,435)

 

$(1,917,627)

Income tax provision

 

$76,058

 

 

$55,000

 

 

$115,604

 

 

$157,134

 

Effective income tax rate

 

 

-5%

 

 

-9%

 

 

-4%

 

 

-8%

  

The difference between our effective tax rates in the periods presented above and the federal statutory rate is due to the mix of taxable income and losses generated in our various tax jurisdictions, which include the United States (the “U.S.”), the People’s Republic of China, and the Republic of Latvia. For the three and six months ended December 31, 2023 and 2022, income tax expense was primarily related to income taxes from our operations in China, including accruals for withholding taxes on intercompany dividends declared by LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”), and paid or payable to LightPath, its parent company.

 

 
11

Table of Contents

 

We record net deferred tax assets to the extent we believe it is more likely than not that some portion or all of these assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2023 and June 30, 2023, our net deferred tax assets are related to the U.S. jurisdiction and we have provided for a valuation allowance to reduce the net deferred tax assets to the amount we estimate is more-likely-than-not to be realized. Our net deferred tax assets as of December 31, 2023 and June 30, 2023 consist primarily of federal and state tax credits with indefinite carryover periods.

 

U.S. Federal and State Income Taxes

 

Our U.S. federal and state statutory income tax rate is estimated to be 25.5%. Based on our current assessment of the valuation allowance position on our net deferred tax assets, no additional tax expense or benefit is expected to be recorded on pre-tax income or losses generated in the U.S.

 

Income Tax Law of the People’s Republic of China

 

Our Chinese subsidiaries, LightPath Optical Instrumentation (Shanghai) Co., Ltd. (“LPOI”) and LPOIZ, are governed by the Income Tax Law of the People’s Republic of China. As of December 31, 2023, LPOI and LPOIZ were subject to statutory income tax rates of 25% and 15%, respectively. The net deferred tax liabilities included in these unaudited Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2023 are related to LPOIZ, and primarily consist of timing differences related to depreciation.

 

The Company routinely declares intercompany dividends to remit a portion of the earnings of its foreign subsidiaries to the U.S. parent company. The Company also intends to reinvest a portion of the earnings generated by its foreign subsidiaries. The Company accrues withholding taxes on the portion of LPOIZ’s earnings that it intends to repatriate. Accrued and unpaid withholding taxes were approximately $40,000 as of both December 31, 2023 and June 30, 2023. Other than these withholding taxes, these intercompany dividends have no impact on the unaudited condensed consolidated financial statements.

 

Law of Corporate Income Tax of Latvia

 

Our Latvian subsidiary, ISP Optics Latvia, SIA (“ISP Latvia”), is governed by the Law of Corporate Income Tax of Latvia. Effective January 1, 2018, the Republic of Latvia enacted tax reform with the following key provisions: (i) corporations are no longer subject to income tax, but are instead subject to a distribution tax on distributed profits (or deemed distributions, as defined) and (ii) the rate of tax was changed to 20%; however, distribution amounts are first divided by 0.8 to arrive at the profit before tax amount, resulting in an effective tax rate of 25%. As a transitional measure, distributions of earnings prior to January 1, 2018 are not subject to tax if declared prior to December 31, 2019. ISP Latvia has declared an intercompany dividend to be paid to ISP Optics Corporation (“ISP”), its U.S. parent company, for the full amount of earnings accumulated prior to January 1, 2018. Distributions of this dividend will be from earnings prior to January 1, 2018 and, therefore, will not be subject to tax. We currently do not intend to distribute any earnings generated after January 1, 2018. If, in the future, we change such intention, we will accrue distribution taxes, if any, as profits are generated.

 

9. Stock-Based Compensation

 

Our directors, officers, and key employees are granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as amended (the “Omnibus Plan”), through October 2018 and after that date, through our 2018 Stock and Incentive Compensation Plan (the “SICP”). Such stock-based compensation may include, among other things, incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). The SICP is administered by the Compensation Committee of the Board of Directors. At our 2018 Annual Stockholders Meeting, our stockholders approved the SICP under which an aggregate of 1,650,870 shares of our Class A common stock were authorized for issuance pursuant to awards granted thereunder. At our 2022 Annual Stockholders Meeting, our stockholders authorized an additional 2,100,000 shares of our Class A common stock for issuance pursuant to awards granted thereunder. As of December 31, 2023, 1,488,881 shares of Class A common stock were authorized and available for issuance pursuant to awards granted under the SICP. The Company’s executive officers are eligible to earn incentive compensation consisting of equity-based awards, as well as cash bonuses, based on the achievement of certain individual and/or Company performance goals set by the Compensation Committee.

 

 
12

Table of Contents

 

Stock-based compensation expense is based primarily on the fair value of the award as of the grant date, and is recognized as an expense over the requisite service period.

 

The following table shows total stock-based compensation expense for the three and six months ended December 31, 2023 and 2022, the majority of which is included in selling, general and administrative (“SG&A”) expenses in these unaudited Condensed Consolidated Statements of Comprehensive Income (Loss):

 

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

$30,037

 

 

$59,284

 

 

$61,515

 

 

$118,049

 

RSAs

 

 

108,922

 

 

 

66,850

 

 

 

131,309

 

 

 

66,850

 

RSUs

 

 

172,820

 

 

 

361,413

 

 

 

359,030

 

 

 

587,246

 

Total

 

$311,779

 

 

$487,547

 

 

$551,854

 

 

$772,145

 

   

We also adopted the LightPath Technologies, Inc. Employee Stock Purchase Plan (the “2014 ESPP”). The 2014 ESPP permits employees to purchase Class A common stock through payroll deductions, subject to certain limitations. A discount of approximately $2,000 for each of the six months ended December 31, 2023 and 2022, respectively, is included in SG&A expenses in these unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), which represents the value of the 10% discount given to the employees purchasing stock under the 2014 ESPP.

 

Grant Date Fair Values and Underlying Assumptions; Contractual Terms

 

We estimate the fair value of each stock option as of the date of grant, using the Black-Scholes-Merton pricing model. The fair value of 2014 ESPP shares is the amount of the discount the employee obtains at the date of the purchase transaction.

 

Most stock options granted vest ratably over two to four years and are generally exercisable for ten years. The assumed forfeiture rates used in calculating the fair value of RSA and RSU grants was 0%, and the assumed forfeiture rates used in calculating the fair value of options for performance and service conditions were 20% for each of the six months December 31, 2023 and 2022. The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures. The interest rate used is the U.S. Treasury interest rate for constant maturities.

 

No stock options were granted during either of the six-month periods ended December 31, 2023 or December 31, 2022.

 

Restricted Stock Awards

 

RSAs are granted primarily to our executive officers, employees and consultants, and typically vest over a one to three year period from the date of grant, although some may vest immediately upon grant. The stock underlying RSAs is issued upon vesting.

 

Restricted Stock Units

 

RSUs are granted primarily to our directors, although RSU awards may also be made to executive officers, employees and consultants. RSUs typically vest over a one to four year period from the date of grant, although some may vest immediately upon grant.

 

 
13

Table of Contents

 

Information Regarding Current Share-Based Compensation Awards

 

A summary of the activity for share-based compensation awards in the six months ended December 31, 2023 is presented below:

 

 

 

 Stock Options

 

 

 Restricted Stock Units (RSUs)

 

 

 Restricted Stock Awards (RSAs)

 

 

 

 

 

 

Weighted-

 

 

Weighted-

 

 

 

 

 

Weighted-

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

Average

 

 

 

 

 

Average

 

 

 

 

 

 

Exercise

 

 

Remaining

 

 

 

 

 

Remaining

 

 

 

 

 

Remaining

 

 

 

 Shares

 

 

 Price

 

 

 Contract

 

 

 Shares

 

 

 Contract

 

 

 Shares

 

 

 Contract

 

June 30, 2023

 

 

534,462

 

 

$2.03

 

 

 

6.1

 

 

 

1,596,222

 

 

 

1.1

 

 

 

101,733

 

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

15,448

 

 

 

 

 

 

 

134,674

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

(15,448)

 

 

 

 

 

 

(111,666)

 

 

 

 

Cancelled/Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,465)

 

 

 

 

December 31, 2023

 

 

534,462

 

 

$2.03

 

 

 

5.6

 

 

 

1,596,222

 

 

 

1.1

 

 

 

119,276

 

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards exercisable/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

vested as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

401,316

 

 

$1.97

 

 

 

5.3

 

 

 

1,309,249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Awards unexercisable/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

unvested as of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

133,146

 

 

$2.19

 

 

 

6.6

 

 

 

286,973

 

 

 

1.1

 

 

 

119,276

 

 

 

0.4

 

 

 

 

534,462

 

 

 

 

 

 

 

 

 

 

 

1,596,222

 

 

 

 

 

 

 

119,276

 

 

 

 

 

  

As of December 31, 2023, there was approximately $483,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including stock options, RSAs and RSUs) granted. We expect to recognize the compensation cost as follows:

 

Fiscal Year Ending:

 

Stock Options

 

 

RSAs

 

 

RSUs

 

 

Total

 

June 30, 2024 (remaining six months)

 

$

31,923

 

 

$

43,392

 

 

$

121,663

 

 

$

196,978

 

June 30, 2025

 

 

33,885

 

 

 

66,219

 

 

 

130,589

 

 

 

230,693

 

June 30, 2026

 

 

 

 

 

27,777

 

 

 

19,829

 

 

 

47,606

 

June 30, 2027

 

 

 

 

 

7,500

 

 

 

 

 

 

7,500

 

 

 

$65,808

 

 

$144,888

 

 

$272,081

 

 

$482,777

 

  

 
14

Table of Contents

 

10. Earnings (Loss) Per Share

 

Basic earnings (loss) per share is computed by dividing net income or loss by the weighted-average number of shares of Class A common stock outstanding, during each period presented. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share, except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue shares of Class A common stock were exercised or converted into shares of Class A common stock. The computations for basic and diluted earnings (loss) per share of Class A common stock are described in the following table:

 

 

 

Three Months Ended

December 31,

 

 

Six Months Ended

December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$(1,713,663)

 

$(694,061)

 

$(3,056,039)

 

$(2,074,761)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic number of shares

 

 

37,501,683

 

 

 

27,172,226

 

 

 

37,466,714

 

 

 

27,121,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options to purchase common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

RSUs and RSAs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Diluted number of shares

 

 

37,501,683

 

 

 

27,172,226

 

 

 

37,466,714

 

 

 

27,121,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$(0.05)

 

$(0.03)

 

$(0.08)

 

$(0.08)

Diluted

 

$(0.05)

 

$(0.03)

 

$(0.08)

 

$(0.08)

  

The following potential dilutive shares were not included in the computation of diluted earnings (loss) per share of Class A common stock, as their effects would be anti-dilutive:

 

 

 

Three Months Ended

December 31,

 

 

Six Months Ended

December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Options to purchase common stock

 

 

534,462

 

 

 

534,462

 

 

 

534,462

 

 

 

534,462

 

RSUs and RSAs

 

 

1,704,638

 

 

 

2,248,789

 

 

 

1,695,723

 

 

 

2,154,939

 

 

 

 

2,239,100

 

 

 

2,783,251

 

 

 

2,230,185

 

 

 

2,689,401

 

   

11. Leases

 

Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida; Riga, Latvia; Shanghai, China; and Zhenjiang, China, and finance leases related to certain equipment located in Orlando, Florida and Riga, Latvia. The operating leases for facilities are non-cancelable operating leases, with terms at various times through 2034. We typically include options to renew (or terminate) in our lease term, and as part of our right-of-use (“ROU”) assets and lease liabilities, when it is reasonably certain that we will exercise such options. We currently have obligations under nine finance lease agreements, entered into during fiscal years 2019, 2023 and 2024, with terms ranging from three to five years. The leases are for computer and manufacturing equipment.

 

Our operating lease ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. Two of our operating leases include renewal options, which were not included in the measurement of the operating lease ROU assets and related lease liabilities. We previously had two leases on the premises comprising our primary facility in Orlando, Florida (the “Orlando Facility”). The first lease on the premises comprising our Orlando Facility was amended in April 2021, and again in September 2021, to expand the space from approximately 26,000 square feet to approximately 58,500 square feet. The lease term was extended from April 30, 2022, to that certain date that is one hundred twenty-seven (127) months after the date the landlord completes certain work to be done at the leased premises. The landlord’s work was completed in August 2023, and accordingly the lease expires on March 31, 2034. In April 2023, we entered into a sublease for 11,156 square feet of this space, as we do not have a current need for the full 58,500 square feet of space. The sublease is for an initial term of five years, ending in April 2029. The second lease on the premises comprising our Orlando Facility was assigned to a third-party and it was agreed that we would vacate the premises, subject to the assigned lease, on November 30, 2022. In December 2022, we entered into an agreement with the assignee of such lease that extended our right to occupy the subject premises until February 28, 2023, in consideration of payments of rent through February 28, 2023, and other amounts to the assignee. In February 2023, the space was vacated and we have no further obligations related to this lease. Effective in January 2022, the terms of our leases in Zhenjiang, China and Riga, Latvia were extended to December 31, 2024 and 2030, respectively.

 

 
15

Table of Contents

 

As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Currently, none of our leases include variable lease payments that are dependent on an index or rate. We are responsible for payment of certain real estate taxes, insurance and other expenses on certain of our leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU assets and the related lease liabilities. We generally account for non-lease components, such as maintenance, separately from lease components. Our lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

 

We received tenant improvement allowances for each of our two leases with respect to our Orlando Facility. These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities. The balances are being amortized over the corresponding lease terms. In August 2023, we completed the construction of additional tenant improvements within the premises subject to our continuing lease for our Orlando Facility, of which the landlord provided $2.4 million in tenant improvement allowances. We are funding the balance of the tenant improvement costs, which we estimate will be approximately $3.7 million, pending final construction invoices.

 

The components of lease expense were as follows:

 

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating lease cost

 

$238,652

 

 

$184,424

 

 

$443,675

 

 

$415,925

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation of lease assets

 

 

13,982

 

 

 

34,111

 

 

 

33,897

 

 

 

68,222

 

Interest on lease liabilities

 

 

7,856

 

 

 

1,187

 

 

 

15,392

 

 

 

3,870

 

Total finance lease cost

 

 

21,838

 

 

 

35,298

 

 

 

49,289

 

 

 

72,092

 

Total lease cost

 

$260,490

 

 

$219,722

 

 

$492,964

 

 

$488,017

 

 

Supplemental balance sheet information related to the leases was as follows:

 

 

 

Classification

 

December 31, 2023

 

 

June 30, 2023

 

Assets:

 

 

 

 

 

 

 

 

Operating lease assets

 

Operating lease assets

 

$7,432,993

 

 

$9,571,604

 

Finance lease assets

 

Property and equipment, net(1)

 

 

671,679

 

 

 

542,105

 

Total lease assets

 

 

 

$8,104,672

 

 

$10,113,709

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

Current:

 

 

 

 

 

 

 

 

 

 

Operating leases

 

Operating lease liabilities, current

 

$1,123,276

 

 

$969,890

 

Finance leases

 

Finance lease liabilities, current

 

 

118,070

 

 

 

103,646

 

 

 

 

 

 

 

 

 

 

 

 

Noncurrent:

 

 

 

 

 

 

 

 

 

 

Operating leases

 

Operating lease liabilities, less current portion

 

 

8,583,630

 

 

 

8,393,248

 

Finance leases

 

Finance lease liabilities, less current portion

 

 

334,654

 

 

 

341,201

 

Total lease liabilities

 

 

 

$10,159,630

 

 

$9,807,985

 

  

 

(1)

Finance lease assets were recorded net of accumulated depreciation of approximately $106,000 and $72,000 as of December 31, 2023 and June 30, 2023, respectively.

 

 
16

Table of Contents

 

Lease term and discount rate information related to leases was as follows:

 

Lease Term and Discount Rate

 

December 31, 2023

 

Weighted Average Remaining Lease Term (in years)

 

Operating leases

 

 

9.8

 

Finance leases

 

 

3.9

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

Operating leases

 

 

2.9%

Finance leases

 

 

6.7%

  

Supplemental cash flow information:

  

 

 

 Six Months Ended December 31,

 

 

 

2023

 

 

2022

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash used for operating leases

 

$363,320

 

 

$523,157

 

Operating cash used for finance leases

 

$15,393

 

 

$2,286

 

Financing cash used for finance leases

 

$58,785

 

 

$57,140

 

   

Future maturities of lease liabilities were as follows as of December 31, 2023:

 

Fiscal year ending:

 

Finance Leases

 

 

Operating Leases

 

June 30, 2024 (remaining six months)

 

$75,499

 

 

$599,048

 

June 30, 2025

 

 

139,856

 

 

 

1,164,329

 

June 30, 2026

 

 

117,541

 

 

 

1,135,793

 

June 30, 2027

 

 

95,212

 

 

 

1,143,026

 

June 30, 2028

 

 

86,016

 

 

 

1,161,442

 

Thereafter

 

 

 

 

 

6,768,359

 

Total future minimum payments

 

 

514,124

 

 

 

11,971,997

 

Less imputed interest

 

 

(61,400)

 

 

(2,265,091)

Present value of lease liabilities

 

$452,724

 

 

$9,706,906

 

 

12. Loans Payable

 

As of December 31, 2023 and June 30, 2023, loans payable primarily consisted of the BankUnited Term Loan (as defined below) payable to BankUnited N.A. (“BankUnited”). On February 26, 2019, we entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to a maximum amount of $2,000,000 (the “ Revolving Line”), (ii) a term loan in the amount of up to $5,813,500 (“BankUnited Term Loan”), and (iii) a non-revolving guidance line of credit up to a maximum amount of $10,000,000 (the “Guidance Line” and, together with the Revolving Line and BankUnited Term Loan, the “BankUnited Loans”), which the Revolving Line and Guidance Line have since been terminated. Each of the BankUnited Loans is evidenced by a promissory note in favor of BankUnited (the “BankUnited Notes”).

 

On May 6, 2019, we entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the “First Amendment”). The First Amendment amended the definition of the fixed charge coverage ratio to more accurately reflect the parties’ understandings at the time the Loan Agreement was executed. On September 9, 2021, we entered into a letter agreement with BankUnited (the “Letter Agreement”). In accordance with the Letter Agreement, the parties agreed to the following terms, among others: (i) we were granted a waiver of default for our failure to comply with the fixed charge coverage ratio measured on June 30, 2021; (ii) certain financial covenant requirements were modified; and (iii) the Guidance Line was terminated.

 

 
17

Table of Contents

 

On November 5, 2021, we entered into a letter agreement with BankUnited (the “Second Letter Agreement”). In accordance with the Second Letter Agreement, the parties agreed to initiate discussions regarding a possible modification, forbearance, or other resolution of the Amended Loan Agreement (as defined below), which resolution would occur on or before December 31, 2021. On December 20, 2021, we entered into the Second Amendment to the Loan Agreement dated February 26, 2019 (the “Second Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Second Amendment, the parties agreed to the following terms, among others: (i) a maturity date of April 15, 2023 with respect to the Term Loan (as defined in the Amended Loan Agreement); (ii) an increased monthly payment amount of $100,000 commencing on November 1, 2022; (iii) beginning on December 20, 2021, each facility would bear interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time; (iv) the Term Loan would bear a higher interest rate commencing on August 1, 2022; (v) an exit fee equal to 4% of the outstanding principal balance of the Term Loan on April 15, 2023 (to the extent the Term Loan would still be outstanding on such date); and (vi) a fee of $50,000 payable upon execution of the Second Amendment. The Second Amendment also granted us a waiver of compliance for the Financial Covenants (as set forth in the Amended Loan Agreement) for the periods ended December 31, 2021, March 31, 2022 and June 30, 2022. Based on the waiver, we were no longer in default of the Amended Loan Agreement.

 

On May 11, 2022, we entered into the Third Amendment to the Loan Agreement dated February 26, 2019 (the “Third Amendment”; and, together with the First Amendment, the Letter Agreement and the Second Letter Agreement, the “Amended Loan Agreement”), which further amended the Loan Agreement with BankUnited. In accordance with the Third Amendment, the parties agreed to the following terms, among others: (i) an amended maturity date of April 15, 2024 with respect to the Term Loan (as defined in the Amended Loan Agreement); and (ii) an amended exit fee equal to (a) 2% of the outstanding principal balance of the Term Loan on September 30, 2022, (b) 1% of the outstanding principal balance on December 31, 2022, (c) 1% of the outstanding principal balance on March 31, 2023, and (d) 4% of the outstanding principal balance on April 15, 2024 (to the extent the Term Loan is still outstanding on the respective dates).

 

On February 7, 2023, we entered into the Fourth Amendment to the Loan Agreement dated February 26, 2019 (the “Fourth Amendment” and, together with the First Amendment, the Letter Agreement and the Second Letter Agreement, the Second Amendment, and the Third Amendment, the “Amended Loan Agreement”), which further amended the Loan Agreement with BankUnited. In accordance with the Fourth Amendment, the parties agreed to the following terms, among others: (i) an amended maturity date of December 31, 2024 with respect to the Term Loan (as defined in the Amended Loan Agreement); (ii) an amended exit fee equal to (a) 1% of the outstanding principal balance on December 31, 2023 and (b) 4% of the outstanding principal balance on December 31, 2024 (to the extent the Term Loan is still outstanding on the respective dates); (iii) a principal reduction payment of $1,000,000 on or before February 28, 2023; (iv) commencing on March 1, 2023 and continuing on the first day of each month thereafter until December 31, 2023, monthly payments of $75,000, and commencing on January 1, 2024 and continuing on the first day of each month thereafter until the maturity date, monthly payments of $100,000, with each such payment applied first to interest, costs and expenses and then to principal; (v) commencing on March 1, 2023, each facility will bear interest at BankUnited’s then prime rate of interest, and (vi) BankUnited waived compliance with certain financial covenants until December 31, 2023.

 

On May 9, 2023, we entered into the Fifth Amendment to the Loan Agreement dated February 26, 2019 (the “Fifth Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Fifth Amendment, the parties agreed to the following terms, among others: (i) BankUnited agreed to release its security interest in the collateral securing the BankUnited Loans other than a cash collateral account maintained at BankUnited, initially in the amount of approximately $2,457,000, with a portion of such cash collateral to be released on a quarterly basis equal to 110% of the principal reductions effected during that quarter, and (ii) certain other requirements and restrictions of the Loan Agreement were removed, including, among others, financial covenants, restrictions on acquisitions, and limitations on other financing sources. The cash collateral is reflected as Restricted Cash in the accompanying unaudited condensed consolidated balance sheets as of December 31, 2023 and June 30, 2023.

  

BankUnited Term Loan

 

Pursuant to the Amended Loan Agreement, BankUnited advanced the Company $5,813,500 to satisfy in full the amounts owed to Avidbank and to pay the fees and expenses incurred in connection with the closing of the BankUnited Loan. The Term Loan is for a 5-year term, but co-terminus with the Revolving Line should the Revolving Line not be renewed beyond February 26, 2022. Pursuant to the Fourth Amendment, the maturity date of the Term Loan is December 31, 2024.

 

 
18

Table of Contents

 

The Term Loan initially bore interest at a per annum rate equal to 2.75% above the 30-day LIBOR. Pursuant to the Second Amendment, beginning on December 20, 2021, each facility bore interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time. Pursuant to the Fourth Amendment, commencing on March 1, 2023, each facility bears interest at BankUnited’s then prime rate of interest, as adjusted from time to time (8.5% as of December 31, 2023).

 

Equal monthly principal payments of approximately $48,446, plus accrued interest, were due and payable, in arrears, on the first day of each month during the term. Pursuant to the Second Amendment, the monthly payment, including principal and interest, increased to $100,000, commencing November 1, 2022. Pursuant to the Fourth Amendment, commencing on March 1, 2023 and continuing on the first day of each month thereafter until December 31, 2023, monthly payments were reduced to $75,000, and commencing on January 1, 2024 and continuing on the first day of each month thereafter until the maturity date, monthly payments will increase to $100,000, with each such payment applied first to interest, costs and expenses and then to principal. Upon maturity, all principal and interest shall be immediately due and payable.

 

Security and Guarantees

 

Our obligations under the Amended Loan Agreement were previously collateralized by a first priority security interest (subject to permitted liens) in all of our assets and the assets of the Company’s U.S. subsidiaries, GelTech, Inc. (“GelTech”), and ISP, pursuant to a Security Agreement granted by GelTech, ISP, and the Company in favor of BankUnited. The Company’s equity interests in, and the assets of, its foreign subsidiaries were excluded from the security interest. Pursuant to the Fifth Amendment, the security interest in certain of the collateral then securing the BankUnited Loans terminated and was replaced by a security interest in a cash collateral account maintained at BankUnited, initially in the amount of approximately $2,457,000, with a portion of such cash collateral to be released on a quarterly basis equal to 110% of the principal reductions effected during that quarter. In addition, all of the Company’s subsidiaries have guaranteed the Company’s obligations under the Amended Loan Agreement and related documents, pursuant to Guaranty Agreements executed by the Company and its subsidiaries in favor of BankUnited.

 

General Terms

 

The Amended Loan Agreement initially contained customary covenants, including, but not limited to: (i) limitations on the disposition of property; (ii) limitations on changing the Company’s business or permitting a change in control; (iii) limitations on additional indebtedness or encumbrances; (iv) restrictions on distributions; and (v) limitations on certain investments. The Amended Loan Agreement also contains certain financial covenants, including obligations to maintain a fixed charge coverage ratio of 1.25 to 1.00 and a total leverage ratio of 4.00 to 1.00. The Letter Agreement granted us a waiver of default arising prior to the Letter Agreement from its failure to comply with the fixed charge coverage ratio measured on June 30, 2021. The Second Amendment to the Amended Loan Agreement granted us a waiver of compliance for the Financial Covenants (as set forth in the Amended Loan Agreement) through June 30, 2022. Based on the waivers, we were no longer in default of the Amended Loan Agreement. Pursuant to the Fifth Amendment, certain other requirements and restrictions of the Loan Agreement were removed, including, among others, financial covenants, restrictions on acquisitions, and limitations on other financing sources. As of December 31, 2023, we were in compliance with all required covenants.

 

We may prepay any or all of the BankUnited Loans in whole or in part at any time, without penalty or premium, other than the exit fees, as discussed above. Late payments are subject to a late fee equal to five percent (5%) of the unpaid amount. Amounts outstanding during an event of default accrue interest at a rate of five percent (5%) above BankUnited’s then prime rate of interest, as adjusted from time to time, applicable immediately prior to the occurrence of the event of default. The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and confidentiality.

 

Financing costs incurred related to the BankUnited Loans were recorded as a discount on debt and amortized over the term. Amortization of approximately $19,000 and $37,100 is included in interest expense for the three and six months ended December 31, 2022, respectively. There was no amortization for the three and six-month periods ended December 31, 2023, as all costs have been fully amortized in prior periods.

 

 
19

Table of Contents

 

In December 2020, ISP Latvia entered into an equipment loan with a third party (the “2020 Equipment Loan”), which party is also a significant customer, and which the 2020 Equipment Loan is subordinate to the BankUnited Loans, and collateralized by certain equipment. The initial advance under the 2020 Equipment Loan was 225,000 EUR (or USD $275,000), payable in equal installments over 60 months, the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date. An additional 225,000 EUR (or USD $267,000) was drawn in September 2021, which proceeds were paid to the vendor for the equipment, payable in equal installments over 52 months. The 2020 Equipment Loan bears interest at a fixed rate of 3.3%.

 

In May 2023, ISP Latvia entered into an equipment loan with a third party (the “2023 Equipment Loan”). The 2023 Equipment Loan is collateralized by certain equipment. Through December 31, 2023, ISP Latvia has received two advances under the 2023 Equipment Loan totaling 260,258 EUR (or USD $284,000), the proceeds of which were used to make installment payments to a vendor for equipment to be delivered at a future date. The 2023 Equipment Loan will be payable over 48 months, with monthly installments beginning January 1, 2024. The 2023 Equipment Loan bears interest at the six-month EURIBOR rate, plus 2.84% (6.98% as of December 31, 2023).

 

In July 2023, the acquisition of Visimid included a promissory note of $150,000 in favor of The American National Bank of Texas (the “ANBTX Note”). In conjunction with the acquisition, Visimid and LightPath agreed to collateralize the ANBTX Note with a certificate of deposit for the same amount. The cash collateral is reflected as Restricted Cash in the accompanying unaudited Condensed Consolidated Balance Sheet as of December 31, 2023. The ANBTX Note bears interest at a fixed rate of 6.15% and has a maturity date of April 14, 2024.

 

Future maturities of loans payable are as follows:

 

 

 

Bank United Term Loan

 

 

Equipment Loans

 

 

ANBTX Note

 

 

Total

 

Fiscal year ending:

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2024 (remaining six months)

 

$532,372

 

 

$98,346

 

 

$150,000

 

 

$780,718

 

June 30, 2025

 

 

1,278,875

 

 

 

178,654

 

 

 

 

 

 

1,457,529

 

June 30, 2026

 

 

 

 

 

115,523

 

 

 

 

 

 

115,523

 

June 30, 2027

 

 

 

 

 

70,429

 

 

 

 

 

 

70,429

 

After June 30, 2027

 

 

 

 

 

41,083

 

 

 

 

 

 

41,083

 

Total payments

 

$1,811,247

 

 

$504,035

 

 

$150,000

 

 

 

2,465,282

 

Less current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,138,775)

Non-current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

$326,507

 

  

13. Foreign Operations

 

Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the balance sheet date, and revenues and expenses are translated at average rates of exchange for the period. Gains or losses on the translation of the financial statements of a non-U.S. operation, where the functional currency is other than the U.S. dollar, are reflected as a separate component of equity, which was a cumulative gain of approximately $741,000 and $607,000 as of December 31, 2023 and June 30, 2023, respectively. We also recognized net foreign currency transaction gains of $4,000 and losses of $29,000 during the three months ended December 31, 2023 and 2022, respectively. During the six months ended December 31, 2023 and 2022, we recognized net foreign currency transaction gains of $29,000 and losses of $7,000, respectively, included in the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net.”

 

Our cash, cash equivalents and restricted cash totaled approximately $5.9 million at December 31, 2023. Of this amount, greater than 25% was held by our foreign subsidiaries in China and Latvia. These foreign funds were generated in China and Latvia as a result of foreign earnings. With respect to the funds generated by our foreign subsidiaries in China, the retained earnings of the respective subsidiary must equal at least 50% of its registered capital before any funds can be repatriated through dividends. As of December 31, 2023, LPOIZ had approximately $2.0 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2023, the end of the most recent statutory tax year, that remained undistributed as of December 31, 2023.

 

 
20

Table of Contents

 

Revenues from and long-lived assets located in foreign countries are as follows:

 

 

 

Six Months Ended December 31,

 

 

 

2023

 

 

2022

 

Revenues:

 

 

 

 

 

 

United States

 

$8,640,498

 

 

$7,527,088

 

Latvia

 

 

 

 

 

1,081,640

 

China

 

 

1,217,955

 

 

 

1,502,252

 

Other European countries

 

 

4,521,846

 

 

 

4,360,090

 

Other Asian countries

 

 

614,037

 

 

 

829,717

 

Rest of world

 

 

398,549

 

 

 

538,793

 

 

 

$15,392,885

 

 

$15,839,580

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

June 30, 2023

 

Long-lived assets:

 

 

 

 

 

 

 

 

United States

 

$27,009,505

 

 

$23,336,063

 

Latvia

 

 

5,257,960

 

 

 

5,282,596

 

China

 

 

3,016,255

 

 

 

3,157,434

 

 

 

$35,283,720

 

 

$31,776,093

 

   

14. Contingencies

 

Legal

 

The Company, from time to time, is involved in various legal actions arising in the normal course of business. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company’s financial position or results of operations.

 

In April 2021, we terminated several employees of our China subsidiaries, LPOIZ and LPOI, including the General Manager, the Sales Manager, and the Engineering Manager, after determining that they had engaged in malfeasance and conduct adverse to our interests, including efforts to misappropriate certain of our proprietary technology, diverting sales to entities owned or controlled by these former employees and other suspected acts of fraud, theft and embezzlement. In connection with such terminations, our China subsidiaries have engaged in certain legal proceedings with the terminated employees.

 

We incurred various expenses associated with the investigation into these matters prior and subsequent to the termination of the employees and the associated legal proceedings. These expenses, which include legal, consulting and other transitional management fees, totaled $718,000 and $400,000 during the years ended June 30, 2021 and 2022, respectively. During the three and six months ended December 31, 2023 and 2022, respectively, expenses incurred related to the legal proceedings were immaterial. In December 2023, we recovered approximately $190,000 in funds that had been recovered by the Chinese authorities, which is included in Other income in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended December 31, 2023. We expect to incur minimal additional legal fees and consulting expenses in future periods as we have exhausted nearly all of our legal options and remedies.

 

Knowing that employee transitions in international subsidiaries can lead to lengthy legal proceedings that can interrupt the subsidiary’s ability to operate, compounded by the fact that our officers could not travel to China to oversee the transitions because of the travel restrictions imposed by COVID-19, we chose to enter into severance agreements with certain of the employees at the time of termination. Pursuant to the severance agreements, LPOIZ and LPOI agreed to pay such employees severance of approximately $485,000 in the aggregate, to be paid over a six-month period following the terminations in April 2021. After the execution of the severance agreements, we discovered additional wrongdoing by the terminated employees. As a result, LPOIZ and LPOI have disputed the employees’ rights to such payments and did not immediately begin making the severance payments. However, based on the likelihood that the courts in China will determine that our subsidiaries would ultimately be obligated to pay these amounts, we accrued for these payments as of June 30, 2021 and they remained accrued as of June 30, 2022. Such expenses were recorded as SG&A expenses in the Consolidated Statement of Comprehensive Income (Loss) for the year ended June 30, 2021. In October 2022, the severance amounts were paid to the court in accordance with a court order.

 

 
21

Table of Contents

 

We have transitioned the management of LPOI and LPOIZ to a new management team without any significant detrimental effects on the ability of those subsidiaries to operate. We have not experienced any material adverse impact to the business operations of LPOI or LPOIZ as a result of the transition. Although we took steps to minimize the business impacts from the termination of the management employees and transition to new management personnel, we experienced some short-term adverse impacts on LPOIZ’s and LPOI’s domestic sales in China and results of operations in the three-month period ended June 30, 2021 and the fiscal year ended June 30, 2022. The Company has not experienced, nor does management anticipate, any material adverse impact on LPOIZ’s or LPOI’s production and supply of products to its other subsidiaries for their customers.

 

Potential Impact of Economic Conditions in China

 

Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline. Deteriorating economic conditions in China generally have led to lower demand for our products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall. A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a material adverse effect on our business and results of operations in future quarters.

 

Impact of Recent Wars

 

In February 2022, Russian military forces invaded Ukraine. This war has led to sanctions on Russia, which have had some impacts, though temporary, on our supply chain of raw materials. Separately, in October 2023 Israel has declared war on Hamas. Initially, this resulted in a temporary increase in our sales, as Israel works to replace electro-optical systems that in some cases use our materials. However, it is possible that at some point this war will also have a negative impact on our business as a result of the economic impact in Israel. In addition to the significant defense related market in Israel, we also serve many commercial related applications and work with commercial companies in Israel, and the business of those customers may be negatively impacted by the war over time. Given the dynamic nature of this situation, we cannot reasonably estimate the impact of either the Russian-Ukraine conflict or the Israel-Hamas war on our financial condition, results of operations or cash flows into the foreseeable future.

 

15. Liquidity

 

We generally rely on cash from operations and equity and debt offerings, to the extent available, to satisfy our liquidity needs and to maintain our ability to repay the BankUnited Term Loan. We have commenced discussions with prospective lenders regarding the refinancing of our debt obligations prior to the maturity date of the BankUnited Term Loan on December 31, 2024. There can be no assurance that we will be successful in such refinancing or that such refinancing will be available under reasonable commercial terms. If we are unable to refinance the credit facility with other commercial lenders prior to maturity, it may need to raise additional equity financing, source financing through non-commercial lenders or reduce operating expenses and capital expenditures in order to repay the credit facility and all charges related thereto upon its maturity on December 31, 2024.

 

On February 16, 2022, we filed a shelf registration statement to facilitate the issuance of our Class A common stock, warrants exercisable for shares of our Class A common stock, and/or units up to an aggregate offering price of $75.8 million from time to time. In connection with the filing of the shelf registration statement, we also included a prospectus supplement relating to an at-the-market equity program under which we may issue and sell shares of our Class A common stock up to an aggregate offering price of $25.2 million from time to time, decreasing the aggregate offering price available under the shelf registration statement to $50.6 million. The shelf registration statement was declared effective by the SEC on March 1, 2022. We have not issued any shares of our Class A common stock pursuant to the at-the-market equity program.

 

On January 12, 2023, the Company entered into a securities purchase agreement (“Purchase Agreement”), pursuant to which the Company agreed to issue and sell in a public offering under the shelf registration statement an aggregate of 9,090,910 shares of the Company’s Class A common stock, par value $0.01 per share for a purchase price of $1.10 per share and filed a prospectus supplement with the SEC related thereto. The sale of shares pursuant to the Purchase Agreement closed on January 17, 2023, and resulted in net proceeds of approximately $9.2 million after payment of placement agent fees, and certain other costs and expenses of the offering.

 

There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums, and increases in other costs. In addition, we may identify opportunities for acquisitions and other strategic transactions to expand and further enhance our business that may require that we raise additional capital should we elect to pursue any of such transactions.

 

 
22

Table of Contents

 

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

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited Condensed Consolidated Financial Statements and notes thereto and our Annual Report on Form 10-K for the year ended June 30, 2023, including the audited Consolidated Financial Statements and notes thereto. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.

 

Introduction

 

We were incorporated in Delaware in 1992 as the successor to LightPath Technologies Limited Partnership, a New Mexico limited partnership, formed in 1989, and its predecessor, Integrated Solar Technologies Corporation, a New Mexico corporation, formed in 1985. Today, LightPath is a global company with major facilities in the United States, the People’s Republic of China, and the Republic of Latvia.

 

Our capabilities include precision molded optics, thermal imaging optics, custom designed optics, and the design and manufacturing of optical assemblies and subsystems. These capabilities allow us to manufacture optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared aspheric lenses and other optical materials used to produce products that manipulate light. We design, develop, manufacture and integrate optical components and assemblies utilizing advanced optical manufacturing processes. Product verticals range from consumer (e.g., cameras, cell phones, gaming, and copiers) to industrial (e.g., lasers, data storage, and infrared imaging), from products where the lenses are the central feature (e.g., telescopes, microscopes, and lens systems) to products incorporating lens components (e.g., 3D printing, machine vision, LIDAR, robotics and semiconductor production equipment) and communications. As a result, we market our products across a wide variety of customer groups, including laser systems manufacturers, laser OEMs, infrared-imaging systems vendors, industrial laser tool manufacturers, telecommunications equipment manufacturers, medical instrumentation manufacturers and industrial measurement equipment manufacturers, government defense agencies, and research institutions worldwide.

 

Subsidiaries

 

In November 2005, we formed LPOI, a wholly-owned subsidiary, located in Jiading, People’s Republic of China. LPOI provides sales and support functions. In December 2013, we formed LPOIZ, a wholly-owned subsidiary located in the New City district, of the Jiangsu province, of the People’s Republic of China. LPOIZ’s 55,000 square foot manufacturing facility (the “Zhenjiang Facility”) serves as our primary manufacturing facility in China and provides a lower cost structure for production of larger volumes of optical components and assemblies.

 

In December 2016, we acquired ISP, and its wholly-owned subsidiary, ISP Latvia. ISP is a vertically integrated manufacturer offering a full range of infrared products from custom infrared optical elements to catalog and high-performance lens assemblies. Since June 2019, ISP’s manufacturing operation has been located at our Orlando Facility. ISP Latvia is a manufacturer of high precision optics and offers a full range of infrared products, including catalog and custom infrared optics. ISP Latvia’s facility in Riga, Latvia (the “Riga Facility”) functions as its manufacturing facility.

 

In July 2023, we acquired Liebert Consulting LLC, dba Visimid Technologies (“Visimid”). Visimid is an engineering and design firm specializing in thermal imaging, night vision and IOT applications. Visimid provides design and consulting services for DoD contractors, commercial and industrial customers, and OEMs for original new products. Visimid’s core competency is developing and producing custom thermal and night vision cores. We believe that Visimid’s capabilities are aligned with our strategy to focus on engineered solutions. Visimid’s facility is located in Plano, TX.

 

For additional information, please refer to our Annual Report on Form 10-K for the year ended June 30, 2023.

 

 
23

Table of Contents

 

Product Groups

 

We previously organized our products in three groups: PMO, infrared, and specialty products. Revenues from product development agreements for engineering services were included in specialty products. With our strategic transition into more value-added solutions, and the addition of Visimid in July 2023, we reorganized our products into four product groups: infrared components, visible components, assemblies and modules, and engineering services. Assemblies and modules were previously included in infrared or specialty products, depending on the lens type.

 

Our visible components product group consists of visible precision molded optics with varying applications. Our infrared product group is comprised of infrared optical components, including molded, diamond-turned, or polished lenses. Polished lenses include both conventional and CNC (computer numerical control) ground and polished lenses. Between these two product groups, we have the capability to manufacture lenses from very small (with diameters of a sub-millimeter) to over 300 millimeters, and with focal lengths from approximately 0.4 millimeters to over 2,000 millimeters. In addition, both product groups offer both catalog and custom designed optics.

 

Our assemblies and modules product group is comprised of value-added engineered solutions, such as infrared cameras, infrared imaging modules and cores, optical assemblies, thermal imaging assemblies, and collimators. Products in this category are typically designed for specific customer needs and requirements, and are sold into OEMs that further integrate them into their systems. We design, build, and sell cameras and optical assemblies in markets for defense use, industrial test and measurement, medical devices, sporting, and communications based on our proprietary technologies. Our solutions and assemblies can vary in complexity level from assemblies of lenses that get mounted on a customer’s camera, laser or detector, to complete imaging systems that generate a processed image electronically.

 

Our engineering services product group represents services we provide pursuant to product development agreements that we enter into with customers. Typically, customers approach us and request that we develop new products or applications utilizing our existing products to fit their particular needs or specifications. The timing and extent of any such product development requests are outside of our control, and the related revenue is recognized upon satisfaction of the performance obligation, and transfer of control of the agreed-upon deliverable. As we continue down the path of strategic shift into highly engineered solutions, we expect this product group to grow in a similar way as our assemblies and modules business. Furthermore, as the engineering effort precedes the product revenue, the revenue from this product group is often, but not always, a lead indicator to the revenue in assemblies and modules product group.

 

We believe these four product groups better align with our strategic direction and will allow us to better track the results of our focus on engineered solution and assemblies.

 

Growth Strategy

 

The industry is transforming from a fragmented industry with many component manufacturers into a solution-focused industry with the potential for partnerships for solution development and production. Based on the shifts in the marketplace and the changes that come when a technology, like photonics, moves from being a specialty product to being integrated into mainstream industries and applications, we redefined our strategic direction to leverage our strengths and specifically our subject matter expertise in optics, to provide our wide customer base with complete optical and electro-optical solutions, and to become their partner for the optical engine of their systems.

 

Since 2020, we have focused on developing a strategy and executing a plan that capitalizes on the changing market conditions, creates a unique and long-lasting value to our customers, and utilizes our unique capabilities and differentiators. We intend to use our differentiators to move up the value chain, thereby offering a more comprehensive value proposition to our customers.

 

Understanding the shifts that are happening in the marketplace and the changes that come when a technology, like photonics, moves from being a specialty to being integrated into mainstream industries and applications, we redefined our strategic direction to provide our wide customer base with domain expertise in optics, and became their partner for the optical engine of their systems. In our view, as the use of photonics evolves, so do customer needs. The industry is transforming from a fragmented industry with a component-oriented supply chain, into a solution-focused industry with the potential for partnerships for solution development and production. Over the last couple of years we have worked to align our organization to this strategy, and leverage our in-house domain expertise in photonics, knowledge and experience in advanced optical technologies, and the necessary manufacturing techniques and capabilities. We have been developing these partnerships by working closely with our customers throughout their design process, designing optical solutions that are tailored to their needs, often times using unique technologies that we own, and supplying the customer with a complete optical subsystem to be integrated into their product. Such an approach builds on our unique, value-added technologies that we currently own, such as infrared materials, optical molding, fabrication, system design, and proprietary manufacturing technologies, along with other technologies that we may acquire or develop in the future, to create tailored solutions for our customers.

 

 
24

Table of Contents

 

Our domain expertise and the extensive “know how” in optical design, fabrication, production and testing technologies will allow our customers to focus on their own development efforts, freeing them from the need to develop subject matter expertise in optics. By providing the bridge into the optical solution world, we are able to partner with our customers on a long-term basis, create value for our customers, and capture that value through the long-term supply relationships we seek to develop.

 

Further information about our strategic direction can be found in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023.

 

Results of Operations

 

Revenue

 

Three months ended December 31, 2023, compared to three months ended December 31, 2022

 

Revenue for the second quarter of fiscal 2024 was approximately $7.3 million, a decrease of approximately $1.2 million, or 14%, as compared to approximately $8.5 million in the same quarter of the prior fiscal year, primarily driven by a decrease in sales of visible components.

 

Revenue generated by infrared components was approximately $3.6 million in the second quarter of fiscal 2024, an increase of approximately $0.3 million, or 9%, as compared to approximately $3.3 million in the same quarter of the prior fiscal year. The increase in revenue is primarily due to an increase in shipments against an annual contract for an international military program. Revenue from the visible components product group for the second quarter of fiscal 2024 was $2.7 million, a decrease of approximately $1.2 million, or 31%, as compared to the same quarter of the prior fiscal year. The decrease in revenue is primarily due to a decrease in sales to customers in the defense industry, as well as a decrease in sales through catalog and distribution channels in the U.S. and in Europe. Sales to customers in the telecommunications industry in China also decreased. Revenue from assemblies and modules decreased by 20%, as compared to the same quarter of the prior fiscal year, primarily due to timing of shipments against a multi-year contract with a defense customer. This decrease was partially offset by the addition of Visimid revenue. Revenue from engineering services was flat for the second quarter of fiscal 2024, as compared to the same quarter of the prior fiscal year.

 

Six months ended December 31, 2023, compared to six months ended December 31, 2022

 

Revenue for the first half of fiscal 2024 was approximately $15.4 million, a decrease of approximately $0.4 million, or 3%, as compared to approximately $15.8 million in the same period of the prior fiscal year, primarily driven by a decrease in sales of visible components.

 

Revenue generated by infrared components was approximately $7.4 million in the first half of fiscal 2024, an increase of approximately $0.9 million, or 14%, as compared to approximately $6.5 million in the same period of the prior fiscal year. The increase in revenue is primarily due to an increase in shipments against an annual contract for an international military program. Revenue from the visible components product group for the first half of fiscal 2024 was $5.4 million, a decrease of approximately $1.8 million, or 25%, as compared to the same period of the prior fiscal year. The decrease in revenue is primarily due to a decrease in sales to customers in the defense industry, as well as a decrease in sales through catalog and distribution channels in the U.S. and in Europe. Sales to customers in the telecommunications industry in China also decreased. Revenue from assemblies and modules increased by 7%, as compared to the same period of the prior fiscal year, primarily due to the addition of Visimid revenue, which increase was partially offset by a decrease in shipments against a multi-year contract with a defense customer due to timing. Revenue from engineering services increased by $253,000, as compared to the same period of the prior fiscal year, primarily due to the addition of Visimid revenue as well as revenue from one of our space-related funded research contracts.

 

Cost of Sales and Gross Margin

 

Three months ended December 31, 2023, compared to three months ended December 31, 2022

 

Gross margin in the second quarter of fiscal 2024 was approximately $2.2 million, a decrease of $1.1 million, or 33%, as compared to the same quarter of the prior fiscal year. Total cost of sales was approximately $5.1 million for the second quarter of fiscal 2024, compared to approximately $5.2 million for the same quarter of the prior fiscal year. Gross margin as a percentage of revenue was 30% for the second quarter of fiscal 2024, compared to 38% for the same quarter of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to the decrease in visible components sales, which typically have higher margins than our infrared components product group, which comprised a greater portion of our sales for the second quarter of fiscal 2024.

 

 
25

Table of Contents

 

Six months ended December 31, 2023, compared to six months ended December 31, 2022

 

Gross margin in the first half of fiscal 2024 was approximately $4.5 million, a decrease of $1.0 million, or 18%, as compared to the same period of the prior fiscal year. Total cost of sales was approximately $10.9 million for the first half of fiscal 2024, compared to approximately $10.4 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 29% for the first half of fiscal 2024, compared to 34% for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to the decrease in visible components sales, which typically have higher margins than our infrared components product group, which comprised a greater portion of our sales for the first half of fiscal 2024.

 

Selling, General and Administrative

 

Three months ended December 31, 2023, compared to three months ended December 31, 2022

 

SG&A costs were approximately $2.9 million for the second quarter of fiscal 2024, a decrease of approximately $172,000, or 6%, as compared to approximately $3.0 million in the same quarter of the prior fiscal year. The decrease in SG&A costs is primarily due to a decrease in stock-based compensation, partially offset by an increase in wages.

 

Six months ended December 31, 2023, compared to six months ended December 31, 2022

 

SG&A costs were approximately $5.5 million for the first half of fiscal 2024, a decrease of approximately $149,000, or 3%, as compared to approximately $5.7 million in the same period of the prior fiscal year. The decrease in SG&A costs is primarily due to a decrease in stock-based compensation, partially offset by an increase in wages. This decrease was also partially offset by costs of approximately $97,000 associated with the acquisition of Visimid, which closed in July 2023.

 

New Product Development

 

New product development costs were approximately $608,000 in the second quarter of fiscal 2024, an increase of approximately $142,000, or 30%, as compared to the same quarter of the prior fiscal year. For the first half of fiscal 2024, new product development costs were $1.2 million, an increase of $232,000 or 23%, as compared to the same period of the prior fiscal year. These increases are primarily due to the addition of engineering personnel as a result of the Visimid acquisition, as well as an increase in materials and outside services utilized for development projects.

 

Amortization of Intangibles

 

Amortization of intangibles increased by $204,000 for both the second quarter and first half of fiscal 2024, due to the amortization of identifiable intangible assets associated with the Visimid acquisition. See Note 3, Acquisition of Visimid, in the unaudited Condensed Consolidated Financial Statements, for further information.

 

Other Income (Expense)

 

Interest expense, net, was approximately $54,000 for the second quarter of fiscal 2024, as compared to $81,000 for the same quarter of the prior fiscal year. For the first half of fiscal 2024, interest expense was approximately $111,000, as compared to $152,000 for the same period of the prior fiscal year. The decrease in interest expense is primarily due to a decrease in amortization of loan costs, as all loan costs have been fully amortized in prior periods. Total debt has decreased 35% as of the quarter ended December 31, 2023, as compared to the quarter ended December 31, 2022, while the interest rate on our largest loan balance has increased from 5% to 8.5% for the same period.

 

Other income, net, was approximately $200,000 for the second quarter of fiscal 2024, as compared to other expense, net, of $1,000 for the same quarter of the prior fiscal year. For the first half of fiscal 2024, other income, net, was $205,000, as compared to $26,000 for the same period of the prior fiscal year. Other income for the second quarter and first half of fiscal 2024 includes a gain of $190,000 for the return of funds previously misappropriated by our former Chinese management team, as a result of the ongoing legal proceedings described in Note 14, Contingencies, in the unaudited Condensed Consolidated Financial Statements.

 

 
26

Table of Contents

 

Other income and expenses also include net gains and losses on foreign exchange transactions. We execute all foreign sales from our U.S. facilities and inter-company transactions in U.S. dollars, partially mitigating the impact of foreign currency fluctuations. Assets and liabilities denominated in non-United States currencies, primarily the Chinese Yuan and Euro, are translated at rates of exchange prevailing on the balance sheet date, and revenues and expenses are translated at average rates of exchange for the year.

 

Income Taxes

 

Income tax expense is primarily related to income taxes from our operations in China, including estimated Chinese withholding taxes associated with intercompany dividends declared by LPOIZ and payable to us as its parent company. Income tax expense was approximately $76,000 for the second quarter of fiscal 2024, as compared to $55,000 for the same period of the prior year. The increase is due to timing of intercompany dividends. During the first half of fiscal 2024, income tax expense was approximately $116,000, compared to $157,000 for the same period of the prior fiscal year. The decrease is due to lower taxable income in that jurisdiction.

 

Net Loss

 

Net loss for the second quarter of fiscal 2024 was approximately $1.7 million, or $0.05 basic and diluted loss per share, compared to $0.7 million, or $0.03 basic and diluted loss per share, for the same quarter of the prior fiscal year.The increase in net loss of approximately $1 million for the second quarter of fiscal 2024, as compared to the same quarter of the prior fiscal year, was primarily attributable to the decrease in revenue and gross margin, partially offset by the aforementioned other income in our Chinese subsidiary.

 

Net loss for the first half of fiscal 2024 was approximately $3.1 million, or $0.08 basic and diluted loss per share, compared to $2.1 million, or $0.08 basic and diluted loss per share, for the same period of the prior fiscal year. The increase in net loss of approximately $1 million for the first half of fiscal 2024, as compared to the same period of the prior fiscal year, was primarily attributable to the decrease in revenue and gross margin, partially offset by the aforementioned other income in our Chinese subsidiary.

 

Weighted-average common shares outstanding were 37,501,683, basic and diluted, in the second quarter of fiscal 2024, compared to 27,172,226, basic and diluted, in the same quarter of fiscal 2023. For the first half of fiscal 2024, weighted-average common shares outstanding were 37,446,714, basic and diluted, as compared to 27,121,583, basic and diluted, in the first half of fiscal 2023. The increase in the weighted-average basic common shares was due to the sale of an aggregate of 9,090,910 shares of Class A common stock pursuant to a public offering which closed January 17, 2023, as well as the issuance of shares of Class A common stock under the 2014 ESPP and underlying vested RSUs and RSAs.

 

Potential Impact of Economic Conditions and Policies in China

 

Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline. According to the National Bureau of Statistics of China, the annual economic growth rate in China was 6.9% in 2017, 6.8% in 2018, 6.1% in 2019, 2.3% in 2020, 8.1% in 2021, a3% in 2022, and 5.2% in 2023. The annual economic growth rate in 2024 is estimated to be 4.6%, although some analysts have indicated that China’s economic growth could be lower. Deteriorating economic conditions in China generally have led to lower demand for the Company’s products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall. A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a material adverse effect on our business and results of operations in future quarters.

 

 
27

Table of Contents

 

In addition, on July 4, 2023 China announced export limitations on Germanium and Gallium, two materials that are commonly used in infrared optical components. A certain portion of our infrared optics revenue has always been dependent on those materials. As a precaution to the disruption in the supply chain of Germanium, and in anticipation of customers ordering more optics produced from other materials, primarily our own BlackDiamond materials, we have, in agreement with one key customer, proactively canceled some of our sales orders for optics made of Germanium. This serves to both reduce our exposure to possible shortages in Germanium material supply, as well as to free up capacity for orders for optics made of materials other than Germanium. This also led to us intentionally not renew a large annual customer order for optics made of Germanium from the same customer. This annual order is typically renewed during our second fiscal quarter; the prior renewal was announced in December 2022 for over $5 million. The lack of this renewal impacts our backlog in the short term, as we would typically have received this order during the second fiscal quarter. The lack of this order booking does not mean, however, that we have lost the customer. Instead, we expect this order to renew in coming months, as the customer completes evaluating, and working toward transitioning to optics made of our BlackDiamond materials.

 

Liquidity and Capital Resources

 

As of December 31, 2023, we had working capital of approximately $9.1 million and total cash, cash equivalents and restricted cash of approximately $5.9 million, of which, greater than 25% of our cash and cash equivalents was held by our foreign subsidiaries.

 

Cash and cash equivalents held by our foreign subsidiaries in China and Latvia were generated in-country as a result of foreign earnings. We routinely declare intercompany dividends to remit a portion of the earnings of our foreign subsidiaries to us, as the U.S. parent company. It is still our intent to reinvest a significant portion of earnings generated by our foreign subsidiaries, however, we also plan to repatriate a portion of their earnings, and we accrue for these taxes on the portion of earnings that we intend to repatriate.

 

In China, before any funds can be repatriated, the retained earnings of the legal entity must equal at least 50% of the registered capital. As of December 31, 2023, LPOIZ had approximately $2.0 million available for repatriation and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2023, the end of the most recent statutory tax year, that remained undistributed as of December 31, 2023.

 

Loans payable consists of the BankUnited Term Loan, pursuant to the Amended Loan Agreement, two third-party equipment loans, and the ANBTX Note. As of December 31, 2023, the outstanding balance on the BankUnited Term Loan was approximately $1.8 million, the outstanding balance on the equipment loans was approximately $504,000, and the outstanding balance on the ANBTX Note was $150,000.

 

Pursuant to that certain Fourth Amendment to the Loan Agreement dated February 7, 2023, the BankUnited Term Loan, the only remaining BankUnited Loan, matures and is due and payable in full on December 31, 2024. The BankUnited Term Loan bears interest at BankUnited’s then prime rate of interest, as adjusted from time to time (8.5% as of December 31, 2023). Monthly payments of $75,000 are due and payable on the first day of each month, and commencing on January 1, 2024 and continuing on the first day of each month thereafter until the maturity date, monthly payments will increase to $100,000, with each such payment applied first to interest, costs and expenses and then to principal. Upon maturity, all principal and interest shall be immediately due and payable. Pursuant to that certain Fifth Amendment to the Loan Agreement dated May 9, 2023, the security interest in certain collateral securing the Term Loan as of such date terminated and was replaced by a security interest in a cash collateral account maintained at BankUnited, initially in the amount of approximately $2,457,000, with a portion of such cash collateral to be released on a quarterly basis equal to 110% of the principal reductions effected during that quarter. The cash collateral is reflected as Restricted Cash in the accompanying unaudited Condensed Consolidated Balance Sheets as of December 31, 2023 and June 30, 2023. An exit fee equal to 1% of the outstanding principal balance as of December 31, 2023 will be incurred and a further exit fee of 4% of the outstanding principal balance as of December 31, 2024 will be incurred (to the extent the Term Loan is still outstanding on the respective dates and has not been refinanced with another lender).

 

On February 16, 2022, we filed a shelf registration statement to facilitate the issuance of our Class A common stock, warrants exercisable for shares of our Class A common stock, and/or units up to an aggregate offering price of $75.8 million from time to time. In connection with the filing of the shelf registration statement, we also included a prospectus supplement relating to an at-the-market equity program under which we may issue and sell shares of our Class A common stock up to an aggregate offering price of $25.2 million from time to time, decreasing the aggregate offering price available under the shelf registration statement to $50.6 million. The shelf registration statement was declared effective by the SEC on March 1, 2022. We have not issued any shares of our Class A common stock pursuant to the at-the-market equity program.

 

 
28

Table of Contents

 

On January 12, 2023, the Company entered into a securities purchase agreement (“Purchase Agreement”), pursuant to which the Company agreed to issue and sell in a public offering under the shelf registration statement an aggregate of 9,090,910 shares of the Company’s Class A common stock, par value $0.01 per share for a purchase price of $1.10 per share and filed a prospectus supplement with the SEC related thereto. The sale of shares pursuant to the Purchase Agreement closed on January 17, 2023, and resulted in net proceeds of approximately $9.2 million after payment of placement agent fees, and certain other costs and expenses of the offering.

 

There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums, and increases in other costs. In addition, we may identify opportunities for acquisitions and other strategic transactions to expand and further enhance our business that may require that we raise additional capital should we elect to pursue any of such transactions.

 

Cash Flows – Operating:

 

Cash provided by operations was approximately $851,000 for the first half of fiscal 2024, compared to cash used in operations of approximately $751,000 for the same period of the prior fiscal year.Cash provided by operations for the first half of fiscal 2024 was largely driven by decrease in accounts receivable, as sales were higher in the fourth quarter of fiscal 2023 than in each of the first two quarters of fiscal 2024. Cash used in operations in the first half of fiscal 2023 reflects a decrease in accounts payable and accrued liabilities during such period resulting from the payment of certain expenses related to previously disclosed events that occurred at our Chinese subsidiaries, which were accrued in prior periods.

 

Cash Flows – Investing:

 

During the first half of fiscal 2024, we expended approximately $1.5 million in investments in capital equipment, compared to approximately $412,000 in the same period of the prior fiscal year. We also expended approximately $722,000, net of cash acquired, to acquire Visimid during the first half of fiscal 2024, as disclosed in Note 3, Acquisition of Visimid Technologies, in the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The first half of fiscal 2024 also reflects proceeds of approximately $365,000 from sale-leasebacks of equipment. The spending in the first half of fiscal 2024 is largely driven by the Orlando Facility expansion, whereas the majority of our capital expenditures during the first half of fiscal 2023 reflected only maintenance capital expenditures.As disclosed in Note 11, Leases, in the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, we constructed additional tenant improvements in our Orlando Facility subject to our continuing lease, of which the landlord agreed to provide $2.4 million in tenant improvement allowances. The balance of the tenant improvement costs is estimated to be $3.7 million, pending final construction invoices. During the first half of fiscal 2024, we expended $994,000 toward this project, with the remaining estimated $380,000 expected to be expended during the second half of fiscal 2024.

 

Cash Flows – Financings:

 

Net cash used in financing activities was approximately $304,000 for the first half of fiscal 2024, compared to approximately $443,000 in the same period of the prior fiscal year. Cash used in financing activities for the first half of fiscal 2024 reflects $466,000 in principal payments on our loans and finance leases, offset by approximately $143,000 in proceeds from the 2023 Equipment Loan, and $20,000 in proceeds from the sale of Class A common stock under the 2014 ESPP. Cash used in financing activities for the first half of fiscal 2023 reflects approximately $463,000 in principal payments on our loans and finance leases, offset by approximately $20,000 in proceeds from the sale of Class A common stock under the 2014 ESPP.

 

Contractual Obligations and Commitments

 

As of December 31, 2023, our principal commitments consisted of obligations under operating and finance leases, and debt agreements. No material changes occurred during the first half of fiscal 2024 in our contractual cash obligations to repay debt or to make payments under operating and finance leases, or in our contingent liabilities as disclosed in our Annual Report on Form 10-K for the year ended June 30, 2023.

 

Off Balance Sheet Arrangements

 

We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.

 

 
29

Table of Contents

 

Critical Accounting Policies and Estimates

 

There have been no material changes to our critical accounting policies and estimates during the six months ended December 31, 2023 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended June 30, 2023.

 

How We Operate

 

We have continuing sales of two basic types: sales via ad-hoc purchase orders of mostly standard product configurations (our “turns” business) and the more challenging and potentially more rewarding business of customer product development. In this latter type of business, we work with customers to help them determine optical specifications and even create certain optical designs for them, including complex, multi-component, integrated designs that we call “engineered solutions.” These engineered solutions are often based on existing reference designs we have demonstrated, that then get further customized to the customer’s specific needs. This is followed by “sampling” small numbers of the product for the customers’ test and evaluation. Thereafter, should a customer conclude that our specification or design is the best solution to their product need; we negotiate and “win” a contract (sometimes called a “design win”) – whether of a “blanket purchase order” type or a supply agreement. The strategy is to create an annuity revenue stream that leverages our engineering capabilities and makes the best use of our production capacity, as compared to the turns business, which is unpredictable and uneven. A key business objective is to convert as much of our business to the design win and annuity model as is possible. We face several challenges in doing so:

 

 

·

Maintaining an optical design and new product design and sampling capability, including a high-quality and responsive optical design engineering staff, and proactive design of reference designs or technology demonstrators;

 

 

 

 

·

The fact that as our customers take products of this nature into higher volume, commercial production (for example, in the case of molded optics, this may be volumes over one million pieces per year) they begin to focus on reducing costs – which often leads them to turn to larger or overseas producers, even if sacrificing quality; and

 

 

 

 

·

Our small business mass means that we can only offer a moderate amount of total productive capacity before we reach financial constraints imposed by the need to make additional capital expenditures – in other words, because of our limited cash resources and cash flow, we may not be able to service every opportunity that presents itself in our markets without arranging for such additional capital expenditures.

 

Despite these challenges to winning more “annuity” and “engineered solutions” business, we nevertheless believe we can be successful in procuring this business because of our unique capabilities in optical design engineering and manufacturing. Additionally, we believe that we offer value to some customers as a source of supply in the U.S. should they be unwilling to commit to purchase their supply of a critical component from foreign production sources. For information regarding revenue recognition related to our various revenue streams, refer to Critical Accounting Policies and Estimates in our Annual Report on Form 10-K dated June 30, 2023.

 

Our Key Performance Indicators:

 

Typically, on a weekly basis, management reviews a number of performance indicators, both qualitative and quantitative. These indicators change from time to time as the opportunities and challenges in the business change. These indicators are used to determine tactical operating actions and changes. We believe that our non-financial production indicators, such as those noted, are proprietary information.

 

Financial indicators that are considered key and reviewed regularly are as follows:

 

 

·

Sales backlog;

 

 

 

 

·

Revenue by product group; and

 

 

 

 

·

Other key indicators.

 

These indicators are also used to determine tactical operating actions and changes and are discussed in more detail below. Management continues to evaluate these key indicators as we transition to our new strategic plan, and is implementing certain changes and updates as further described below.

 

 
30

Table of Contents

 

Sales Backlog

 

We believe our sales growth has been and continues to be our best indicator of success. Our best view into the efficacy of our sales efforts is in our “order book.” Our order book equates to sales “backlog.” It has a quantitative and a qualitative aspect: quantitatively, our backlog’s prospective dollar value and qualitatively, what percent of the backlog is scheduled by the customer for date-certain delivery. We evaluate our total backlog, which includes all firm orders requested by a customer that are reasonably believed to remain in the backlog and be converted into revenues. This includes customer purchase orders and may include amounts under supply contracts if they meet the aforementioned criteria. Generally, a higher total backlog is better for us.

 

Our total backlog at December 31, 2023 was approximately $21.2 million, a decrease of 28%, as compared to $29.4 million as of December 31, 2022. Compared to the end of fiscal 2023, our total backlog decreased by 2% during the first half of fiscal 2024. Backlog change rates for the last five fiscal quarters are:

 

Quarter

 

Total Backlog ($ 000)

 

 

Change From Prior Year End

 

 

Change From Prior Quarter End

 

Q2 2023

 

$29,427

 

 

 

66%

 

 

28%

Q3 2023

 

$26,620

 

 

 

50%

 

 

-10%

Q4 2023

 

$21,652

 

 

 

22%

 

 

-19%

Q1 2024

 

$21,303

 

 

 

-2%

 

 

-2%

Q2 2024

 

$21,220

 

 

 

-2%

 

 

0%

   

The decrease in backlog during the first half of fiscal 2024 is primarily due shipments against several annual and multi-year contract renewals, which orders were added to the backlog in prior periods. Shipments during the first half of fiscal 2024 were partially offset by the following: (i) a significant contract renewal for advanced infrared optics for a critical international military program, which renewal represented a 40% increase in dollar value as compared to the previous order; and (ii) a significant contract awarded to Visimid by a defense customer in December 2023. In previous years we have typically received a significant contract renewal from our largest customer for infrared products made of Germanium during the second fiscal quarter. However, as previously disclosed we have decided to reduce the amount of optics we produce from Germanium, both to reduce our risk of supply chain disruption, and more importantly, to work with customers to convert their systems to use optics made of our own BlackDiamond materials. As such, in second quarter of fiscal 2024 we have not booked our typical annual renewal order for Germanium optics with this customer. Instead, we continue to work with this customer, as well as other customers to convert their systems to use BlackDiamond optics. The timing of multi-year contract renewals are not always consistent and, thus, backlog levels may increase substantially when annual and multi-year orders are received, and decrease as shipments are made against these orders.We anticipate that our existing annual and multi-year contracts will be renewed in future quarters.

 

Markets continue to experience growing demand for infrared products used in the industrial, defense and first responder sectors. Demand for infrared products continues to be fueled by interest in lenses made with our proprietary BD6 and our new BDNL4 materials. With the global supply of germanium currently concentrated in Russia and China, ongoing global events are generating renewed interest in germanium alternatives such as our proprietary BlackDiamond materials, and other materials we are currently developing under an exclusive license with the Naval Research Lab. While the process of converting those systems over is progressing, it is not an immediate transition and as a result we may experience a short term adverse impact on our revenues and backlog as we decrease the orders for optics made of Germanium, before we start receiving the new orders for optics made of BlackDiamond.

 

As we have outlined in our strategic direction, we do not expect to see significant growth in our visible components product group in the near future. Competition in that product group has grown substantially over the last few years, and some of our new molding capabilities and technologies such as free-form molded optics, might take longer than anticipated to reach full commercialization, depending on economic conditions and technology trends in the area of AR/VR.

 

 
31

Table of Contents

 

In addition, order bookings for both visible and infrared components and assemblies continue to be slow in China. Domestic sales in China have also been adversely impacted by the economic downturn in China, which continues to negatively impact revenue and bookings in that region.

 

Revenue by Product Group

 

We previously organized our products in three groups: precision molded optics (“PMO”), infrared, and specialty products. Revenues from product development agreements for engineering services were included in specialty products. With our strategic transition into more value-added solutions, and the addition of Visimid in July 2023, we reorganized our products into four product groups: infrared components, visible components, assemblies and modules, and engineering services. Assemblies and modules were previously included in PMO, infrared or specialty products, depending on the lens type. We also previously presented the number of units sold by product group, however this is no longer a measure that we focus on internally, as our focus moves toward engineered solutions.

 

The following table sets forth revenue for our four product groups for the three and six-month periods ended December 31, 2023 and 2022:

 

 

 

(unaudited)

 

 

 

Three Months Ended

December 31,

 

 

Quarter 

 

 

Six Months Ended

December 31,

 

 

Year-to-date