UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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
(State or other jurisdiction
of incorporation or organization)
86-0708398
(I.R.S. Employer
Identification No)
http://www.lightpath.com
2603 Challenger Tech Court, Suite 100
Orlando, Florida 32826
(Address of principal executive
offices, including 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
Class A Common Stock, par value $0.01
Trading Symbol(s)
LPTH
Name of each exchange on which registered
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
Series D Participating Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ No ☒
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 and Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
☐
☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 in the Exchange Act). YES ☐ NO ☒.
The aggregate market value of the registrant’s voting stock held by non-affiliates (based on the closing sale price of the registrant’s Class A Common Stock
on The NASDAQ Capital Market) was approximately $31,945,187 as of December 31, 2022.
As of September 12, 2023, the number of shares of the registrant’s Class A Common Stock outstanding was 37,455,438.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Fiscal 2023 Annual Meeting of Stockholders are incorporated by reference in Part II and Part III.
LightPath Technologies, Inc.
Form 10-K
Table of Contents
PART I
Item 1.
Item 1A.
Item 2.
Item 3.
PART II
Item 5.
Item 7.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Business
Risk Factors
Properties
Legal Proceedings
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Index to Consolidated Financial Statements
Signatures
Table of Contents
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4
4
14
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24
24
24
38
38
38
39
40
40
40
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40
40
41
41
44
F-1
S-1
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Annual Report on Form 10-K 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. These forward-looking statements include, without limitation, statements concerning plans,
objectives, goals, projections, strategies, future events, or performance, related to the actual and potential effects on our business from the coronavirus
(“COVID-19”) pandemic, and underlying assumptions and other statements, which are not statements of historical facts. 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 on our current expectations and beliefs
concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and
when made, there can be no assurance that future developments affecting us will be those that we anticipate. Forward-looking statements involve known
and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any
future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue
reliance on these forward-looking statements. Forward-looking statements represent management’s beliefs and assumptions only as of the date of this
Annual Report on Form 10-K. You should read this Annual Report on Form 10-K completely and with the understanding that our actual future results may
be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements, or to update
the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in
the future.
3
Table of Contents
Item 1. Business.
General
Our Company
PART I
LightPath Technologies, Inc. (“LightPath”, the “Company”, “we”, “our”, or “us”) was incorporated under Delaware law 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 corporate headquarters is located in Orlando, Florida.
Subsidiaries
In November 2005, we formed LightPath Optical Instrumentation (Shanghai) Co., Ltd (“LPOI”), a wholly-owned subsidiary, located in Jiading, People’s
Republic of China, which is primarily engaged in sales and support functions.
In December 2013, we formed LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”), a wholly-owned subsidiary located in the New City
district, of the Jiangsu province, of the People’s Republic of China. LPOIZ’s 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 Optics Corporation, a New York corporation (“ISP”), and its wholly-owned subsidiary, ISP Optics Latvia, SIA, a
limited liability company founded in 1998 under the Laws of the Republic of Latvia (“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 corporate headquarters facility in Orlando, Florida (the “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 manufacturing facility is
located in Riga, Latvia (the “Riga Facility”).
In July 2023, we acquired Liebert Consulting, LLC, dba Visimid Technologies (“Visimid”), 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. Visimid’s facility is located in Plano, Texas.
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Industry
4
We and our customers support a wide range of industries, including automotive, telecommunications, defense, medical, bio-technology, industrial,
consumer goods and more. A commonality among these industries is the use of photonics as an enabling technology in their products.
Over the last ten years we have witnessed a pivotal shift in the adoption of photonics in new applications. In the early days of the photonics industry the
technology was a specialty, which was both expensive and required highly specialized technical knowledge, leading to low adoption of the technology into
industries other than defense and high-end medical applications. Starting with the commercialization of fiber optic communication, and further driven by
significant cost reduction in key technologies such as sensors and lasers, the adoption of the technology into more industries and applications began rapidly
growing.
The accelerated rate of adoption and highly diversified industries and applications utilizing an expanding array of photonics technologies brought a change
in both the needs of the customers and the supply chain, to support those needs. In the past, we and other component suppliers mostly served customers that
specialized in photonics. The large OEMs focused on component companies as a significant supply source for optical parts and minor fabrication and
assemblies. OEMs typically produced their own designs and relied on their suppliers to fulfill their needs without any strategic product planning,
investment or collaboration. This supply chain was fragmented and consisted of a large number of small companies, many of which had particular
specialties in the fabrication process. Often times these types of activities are referred to as build-to-print, as the OEM customer would design the lens
down to the final manufacturing prints and the vendor would focus on producing according to those prints.
As the industry has evolved and sensory, visualization and imaging capabilities have become differentiators among suppliers and a necessity for delivery of
an expanding array of products in a myriad of industries where the specialized requirements of customers are no longer being adequately addressed. As
photonics technology continues to develop, leading to broader adaptation and application across more industries, and with customers now possessing
expertise in different technologies, customers’ supply chain needs have evolved. In our case, the change has created opportunities to now serve OEM
customers for which photonics is only one of several technologies they embed into their products. While in the past our typical customer viewed optics as
their specialty and hence they designed all aspects of their systems and outsourced only the component fabrication, this is not the case with our newer
customers. Many of our current and potential customers do not wish or do not have the capability to design and build the optical portion of their products
in-house. As such, the fragmented supply chain that existed in our industry in order to serve customers on the component level, is not relevant for
customers that view optics as only a part of their system, and not a core capability or function. For these customers, LightPath is well positioned to become
their solutions partner for their optics needs. By tapping into the domain knowledge and design, assembly and testing capabilities of solutions providers
like LightPath, the customer can avoid making the large investment needed for them to develop those capabilities in-house. We refer to this ecosystem as
“optical engineered solutions,” and believe we are positioned to serve as a single source, global provider of optical solutions with leading engineering and
manufacturing capabilities. This has led to our development of a new strategy and organizational alignment which is further discussed below.
Growth Strategy
Historically, we operated with a focus on optical component manufacturing, and specifically on our leadership position as a precision molded lens
manufacturer for visual light applications. While still positioned as a component provider, we expanded our addressable market with the acquisition of ISP,
a manufacturer of infrared optical components, in December 2016. Collectively, our operations lacked synergies, maintained a high cost structure, and
lacked a defined path for capitalizing on the industry’s evolution and growth opportunities.
In March 2020, our Board of Directors (our “Board”) recruited Mr. Sam Rubin, an industry veteran with a proven track record for delivering high growth
through organic and inorganic means, to assume the role of Chief Executive Officer and to develop and implement a new strategy going forward. In the fall
of 2020, Mr. Rubin led our Board and the leadership team in collaborative discussions with the purpose of defining a new comprehensive strategy for our
business. The collaborative strategic planning process included leaders from across the organization, detailed dialogs with customers, vendors and partners,
and an in-depth analysis of the environment we are in, changes and trends in and around the use of photonics, and an analysis of our capabilities, strengths
and weaknesses. Throughout the process, we focused on developing a strategy that creates a unique and long-lasting value to our customers, and utilizes
our unique capabilities and differentiators, both existing capabilities and differentiators, as well as new capabilities we acquire and develop organically.
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5
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.
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.
Organizational Alignment
Along with the development of a new strategic direction, we are focused on the execution of a complementary strategic plan. First, we have taken steps to
align the organization at all levels with the strategic plan. Starting with a new leadership team that was recruited and put in place following Mr. Rubin’s
appointment as president and Chief Executive Officer (“CEO”), continuing with operational activities, such as refocusing our investments and expansion
from a China focus to prioritizing the growth and development of our U.S. and Latvia operations. In furtherance of our strategic plan, we recently acquired
Visimid in Texas resulting in immediate growth of our development and engineering team and capabilities through the addition of the Visimid team.
To execute our new strategic plan, we also need, among other things, a strong manufacturing and technical organization that provides the domain expertise
in photonics from the design of an optical engineered solution tailored for the customer’s needs through the manufacturing, assembly and testing of such a
sub-system. Given the fast pace of advancements in photonics technologies, achieving a sustainable advantage will also depend on having unique
capabilities and technologies that allow our team to design and deliver the tailored solutions demanded by customers. To support those goals, we are
pursuing several organization-wide efforts, including standardizing and optimizing our processes and systems, taking steps to realigning our organizational
structure, such as breaking down our single combined engineering group into the separate engineering functions that are a part of and better support
operations, and creating a new product development group that focuses on developing capabilities and technologies that allow us to design and deliver
better solutions. By having a small, focused new product development group, we are able to develop unique technologies that allow us to design solutions
that we believe are better than what is currently offered by other suppliers. Such unique technologies include developing tailored and optimized optical
coatings, and advanced fabrication techniques such as freeform optical components, custom materials not available elsewhere, and cutting edge optical
design capabilities.
In the longer term, we have identified capabilities and technologies that could be important differentiators, including, for example, optical detectors and
active optical components such as lasers, motion systems, and more. The aggregation of such unique technologies will allow us to differentiate our optical
solutions, and provide customers with products that are tailored exactly to their needs.
In addition to the organizational alignment initiatives we are implementing, we have also executed a leadership transition and operational enhancements at
our Chinese subsidiaries as discussed in more detail in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Technologies
We believe that to be the preferred partner to fulfill the photonics needs of our customers, domain expertise in photonics is the key element. Optics and
photonics require multidisciplinary skills, including physics, mechanical engineering, material sciences, electrical engineering, and chemistry, among
others. This is part of what makes using photonics so complicated, and at the same time part of what we see as the opportunity. Knowing what can and
cannot be produced, designing the architecture and detailed design of the optical system, including electrical and mechanical interfaces, choosing and
executing advanced manufacturing technologies, and delivering both the engineering prototypes that are needed, as well as producing a high volume of
goods for the long-term, are all part of the domain expertise required. Additionally, to design the best solution for a customer, we not only need to know
what can be produced and how to design it, we also must have unique capabilities that differentiate our solutions and allow us to design and produce a
better solution that is more profitable than what may otherwise be available.
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Table of Contents
Along those lines, we continue to focus on developing new, innovative capabilities and technologies in all of our engineering and manufacturing groups,
including systems design and testing, optical fabrication of components, material production, optical coatings, and electro mechanical design and
production including the following:
·
·
·
·
·
·
Materials. Materials play an important role in providing design flexibility and allow tradeoffs between optical performance, weight, and
performance in varying conditions. Traditionally, infrared applications have only a small number of materials, all of which are crystal based,
with Germanium being the most commonly used material. Over the last few years Lightpath has been investing in developing and
commercializing our BlackDiamond glass as an alternative to using Germanium. BD2, our first glass, has been in production for nearly 15
years. BD6, our second glass, and our flagship material, is produced in volume and fielded in multiple products, both commercial and defense
related. Additionally, in December 2021 we received an exclusive license from the U.S. government for the Chalcogenide materials that have
been developed in the U.S. Naval Research Laboratories (“NRL”). In addition to providing alternative to the use of Germanium, the new
materials from NRL, which we are now in the process of commercializing, have unique advantages such as enabling multispectral imaging
(imaging in two or more wavebands with one camera), and thermal and mechanical characteristics that enable customers to build better, lighter
and smaller systems. As the world looks to transition away from Germanium, in light of the supply chain liability coming from export
restrictions and availability of Germanium, our exclusive family of BlackDiamond glass provides customers not only an alternative, but in fact
significant advantages over using Germanium. We believe that this creates a distinctive competitive advantage, which we are leveraging to
both enter markets in a more aggressive way (such as defense), and as a stepping stone for our transition from components to solutions. The
importance of these materials and the role they play in providing an alternative to Germanium is also evident in the direct funding and support
we are receiving from different government organizations. As announced on several separate occasions, LightPath has received fundings from
the U.S. Department of Defense, Defense Logistics Agency, European Space Agency, and from the U.S. Army, to name a few. Those fundings
are all aimed at accelerating the qualification of the materials for use in their respective applications. Lastly, the importance of the materials
and how they align within our strategy can also be seen in our own products, with our first camera product, Mantis, being based on, and
enabled by one of those exclusive and unique materials.
High precision molded lenses. Historically, precision molding of lenses is the key technology we have built upon. Precision molding of optics
is a unique technology that is well suited for both high volume production of optical components, as well as production of optics with unique
shapes, which otherwise would require a very lengthy and complex process to individually polish each lens to shape. Precision molded optics
(“PMOs”) is a technology in which we continuously invest to pursue advancements in what materials can be molded and the shapes and sizes
of the optics we can mold. Although there are several other competitors that can mold optical elements, we have an established leadership
position in this area as the original developer of the technology, and we believe we are the preferred vendor for the most complex, high-end
projects of many of our customers. Some recent advancements we have made in precision molded optics include molding of non-symmetric
shapes such as freeform optical components, and qualifying new materials for availability as moldable materials.
Traditional polishing and diamond turned optics. Our capabilities include a wide range of traditional fabrication processes. These include
CNC (computer numerical control) grinding and polishing of optical elements, traditional grinding and polishing of lenses, and diamond
turning of infrared materials.
Optical coatings. Thin film coatings are designed to reduce losses and protect the optical material, which are a key part of any optical system.
Through our recent investments, we have the ability to coat lenses in all of our facilities, providing efficient, high quality antireflective
coatings, as well as reflective and protective coatings. Our coating facilities employ both physical vapor deposition techniques as well as
chemical vapor deposition techniques. In addition to our library of dozens of standard coatings, our coating engineers often design coatings
specific for an application, optimizing the performance of the system for a specific customer use. One of our most known advanced coatings is
Diamond Like Carbon, which provides materials such as chalcogenide glass significant environmental protection. This coating is currently
available only at a small number of vendors, and is an example of a capability that we believe gives us a competitive advantage by allowing us
to design better optical solutions.
Optical assembly and testing. In recent years, we have invested significantly in capabilities for sub-system level lens assemblies and testing in
two of our facilities. Even more recently, we have added capabilities of active alignment, and extended testing including environmental testing,
to support our growing business of optical assemblies and engineered solutions. We expect to continue to invest in this area as activity grows,
particularly in volume manufacturing and testing of assemblies.
Infrared Camera Cores: While the lens assemblies that are customized for specific use cases or customers are mounted in front of the optical
detector, the electronics, hardware and software behind the detector often needs to be customized. Then all three (electronics, detector and
optics) must be assembled and calibrated together to work properly. Through the acquisition of Visimid in July 2023, LightPath has added to
its technology portfolio the capabilities to customize entire imaging cores for cameras. This includes designing the electronic hardware and
software to specific form fit and function for the customer, assembling with LightPath lenses, and calibrating the entire camera core so it can
ship ready for the customer to use.
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New Product Development
7
Consistent with our strategic plan, we have focused our development efforts in fiscal years 2022 and 2023 on products, technologies and capabilities that
allow us to provide better solutions using the most fit technology for each customer and with alignment to customer product lifecycle. This includes
developing unique materials, processing techniques, optical coating offerings and most recently, camera cores with unique capabilities. An example of such
a development is our Mantis, a broadband multispectral camera, and uncooled infrared camera that can image a large range of wavelengths, covering both
mid wave and long wave, two wavebands that today require two separate cameras. The advantage of a camera such as Mantis to the customer is the ability
to do, in a cost-effective manner, imaging that today requires an expensive, cryogenically cooled camera. Mantis’s technology presents opportunities for
customers in areas such as industrial process monitoring, flame and fire detection and more. The adoption rate of existing technology for many of those
applications is more limited today because of its high cost. A new, more cost effective technology such as Mantis is a prime example of enabling a new
market as opposed to competing with existing installed bases of competing technology. This innovation and leveraging our technologies is a pillar of our
growth strategy and differentiation.
We generally rely on trade secret protection for technology we develop, but do pursue patents for certain of such technology. In many cases the benefits of
patent protection is offset by the requirement to disclose in detail the processes, and so we intend to apply for a patent only the case when we believe the
patent is enforceable and does not compromise our trade secrets and intellectual properties developed over three decades.
We incurred expenditures for new product development of approximately $2.1 million during both fiscal years 2023 and 2022.
In some cases our product and technology development is supported through billing of engineering services, such as non-recurring engineering (“NRE”)
fees. In other cases we receive external funding, such as our previously announced funding from Space Florida’s Space Foundation and Israel’s Ministry of
Science, and the U.S. DoD (via the Defense Logistics Agency). Our efforts are self-funded in all other cases.
As part of our product development and research and development efforts, we have over 60 employees with engineering and related advanced degrees
located in our facilities in the U.S., China and Latvia. Our facilities in Orlando, Florida, Dallas, Texas, and Zhenjiang, China are located in or near
industrial technology campuses with substantial access to optical industry constituencies, including a major university. This enables us and our staff to
remain on the cutting edge of industry design trends and to enter into collaborative engagements.
Product Groups and Markets
Overview
Our revenues are categorized into three product groups: PMOs, infrared products and specialty products. These product groups are supported by our major
product capabilities: molded optics, thermal imaging optics, and custom designed optics, and the related assemblies.
Our PMO product group consists of visible precision molded optics with varying applications. Our infrared product group is comprised of infrared optics,
both molded and diamond-turned, and thermal imaging assemblies. This product group also includes both conventional and CNC ground and polished
lenses. Between these two product groups, we have the capability to manufacture lenses from very small (with diameters of sub-millimeter) to over 300
millimeters, and with focal lengths from approximately 0.4 millimeters to over 2000 millimeters. In addition, both product groups offer catalog and custom
designed optics.
Our specialty product group is comprised of other value-added products, such as mounted lenses, optical assemblies, collimators, and NRE products, which
consist of those products we develop 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.
We are re-evaluating our product groups going into fiscal year 2024, with the addition of Visimid in July 2023. Visimid’s revenue is generally derived from
engineering services and infrared camera cores and assemblies.
PMO Product Group. Aspheric lenses are known for their optimal performance. Aspheric lenses simplify and shrink optical systems by replacing several
conventional lenses. However, aspheric lenses can be difficult and costly to machine. Our glass molding technology enables the production of both low and
high volumes of aspheric optics, while still maintaining the highest quality at an affordable price. Molding is the most consistent and economical way to
produce aspheres and we have perfected this method to offer the most precise molded aspheric lenses available.
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Infrared Product Group. Our infrared product group is comprised of both molded and turned infrared lenses and assemblies using a variety of infrared
glass materials. Advances in chalcogenide materials have enabled compression molding for mid-wave (“MWIR”) and long-wave (“LWIR”) optics in a
process similar to precision molded lenses. Our molded infrared optics technology enables high performance, cost-effective infrared aspheric lenses that do
not rely on traditional diamond turning or lengthy polishing methods. Utilizing precision molded aspheric optics significantly reduces the number of lenses
required for typical thermal imaging systems and the cost to manufacture these lenses. Molding is an excellent alternative to traditional lens processing
methods particularly where volume and repeatability is required.
Through ISP, our wholly-owned subsidiary, we also offer germanium, silicon or zinc selenide aspheres and spherical lenses, which are manufactured by
diamond turning. This manufacturing technique allows us to offer larger lens sizes and the ability to use other optical materials that cannot be effectively
molded. ISP’s capabilities increase our ability to meet complex optical challenges that demand more exotic optical substrate materials that are non-
moldable, as well as larger size optics.
We also have the ability to manufacture chalcogenide glass from which we produce infrared lenses. We developed this glass and melt it internally to
produce our Black Diamond glass, which has been trademarked, and is marketed as BD6. Historically, the majority of our thermal imaging products have
been germanium-based, which is subject to market pricing and availability. BD6 offers a lower-cost alternative to germanium, which we expect will benefit
the cost structure of some of our current infrared products and allow us to expand our product offerings in response to the markets’ increasing requirement
for low-cost infrared optics applications.
Overall, we anticipate continued growth for our infrared optics, particularly as BD6 continues to be adopted into new applications and new designs.
Infrared systems, which include thermal imaging cameras, temperature sensing, gas sensing devices, spectrometers, night vision systems, automotive driver
awareness systems, such as blind spot detection, thermal weapon sights, and infrared counter measure systems, is an area that is growing rapidly and we are
selling products that are utilized in a number of these applications. As infrared imaging systems become widely available, market demand will increase as
the cost of components decreases. Our aspheric molding process is an enabling technology for the cost reduction and commercialization of infrared
imaging systems utilizing smaller lenses because the aspheric shape of our lenses enables system designers to reduce the lens element in a system and
provide similar performance at a lower cost. In addition, there is a trend toward utilizing smaller size sensors in these devices which require smaller size
lenses and that fits well with our molding technology.
Specialty Product Group. We offer a group of custom specialty optics products and assemblies that take advantage of our unique technologies and
capabilities. These products include custom optical designs, mounted lenses, optical assemblies, and collimator assemblies. Collimator assemblies are
utilized in applications involving light detection and ranging (“LIDAR”) technology for advanced driver assistance systems and autonomous vehicles, such
as forklifts and other automated warehouse equipment. This continues to be an emerging market with long-term growth potential for us. We also expect
growth from medical programs and commercial optical sub-assemblies.
We design, build, and sell optical assemblies in markets for test and measurement, medical devices, military, industrial, and communications based on our
proprietary technologies. Many of our optical assemblies consist of several products that we manufacture.
In connection with our new strategic direction and the expanding portfolio of products and services, we are evaluating the ways in which we may optimize
the financial reporting of our product groups.
Sales and Marketing
Marketing. Extensive product diversity and varying levels of product maturity characterize the optics industry. Product verticals range from consumer (e.g.,
AR/VR headset, cameras, cell phones, gaming devices, 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 (e.g., fiber, 5G and satellite laser based). As a result, we market our
products across a wide variety of customer groups, including laser systems manufacturers, laser OEM’s, infrared-imaging systems vendors, automotive
OEMs, industrial laser tool manufacturers, telecommunications equipment manufacturers, medical instrumentation manufacturers and industrial
measurement equipment manufacturers, government defense agencies, and research institutions worldwide. Our marketing efforts include a global
unification of our messaging with the use of digital advertising, branding activities that utilize social media, our website and direct marketing activities. As
our focus shifts from the sale of components and standard products to being a value-add supply partner for customized solutions, our marketing activities
also shift from a focus on technical aspects of standard components to a focus on best practice use cases, the overall outcome from our solutions and end
user benefit. Our market messaging will look to inspire interest and promote engagement.
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9
Sales Model & Structure. To align the organization to better serve our new solution strategy and for accountability of our key corporate objectives, we
have made organizational changes designed to ensure customer satisfaction and operational efficiency. Our organizational structure includes a product
management function that enables the close coordination of supply with demand to help us leverage our core offerings and coordinate our engineering
development efforts that will leverage and expand our portfolio of capabilities. We have also transitioned from a business unit focus to a unified global
direct sales team that promotes the overall company portfolio and is standardized on a problem solving, needs analysis process. The team recently went
through Sandler Training to help with this shift and to empower action with improved communication techniques. We have added technical program
managers and product life cycle management (“PLCM”) to better support the new customized customer programs and the transition from prototype
engineering to full scale manufacturing.
Sales Team & Channel. We have aligned our sales engineering efforts to be account based and application focused. We have taken a more proactive
approach to our direct selling efforts to increase our customer engagement, especially within Europe, where we recently transitioned away from working
exclusively through a distributor. We have expanded our standard product offerings with the top two catalog companies for optics and photonics in the
world which increases our exposure to new revenue opportunities. In addition, we continue to enhance our website (www.lightpath.com), which is our main
communication vehicle for broader promotion of our company, our value-add capabilities, our growing chalcogenide material portfolio, and similarly have
optimized our social media assets. We make use of digital and print media plus participate in many key industry associations and global trade shows.
Trade Shows. We display our standard products, promote new innovative offerings and meet with industry influencers at a number of trade shows each
year throughout North America, Europe and Asia. So far in 2023, we have participated in the SHOT Show in Las Vegas, the largest professional event for
the sport shooting, hunting and outdoor industry in North America; SPIE Photonics West in San Francisco; SPIE DCS, AUVSI Xponential which promotes
emerging technologies supporting autonomous vehicles, drones and robotics; and Laser World of Photonics in both Munich, Germany and Shanghai,
China. These trade shows provide us an opportunity to further expand our brand, network to enhance business relationships and gain valuable insight into
technology trends in our target markets.
Competition
The markets in which we compete in are generally highly competitive and highly fragmented. We compete with manufacturers of conventional spherical
lenses and optical components, providers of aspheric lenses and optical components, and producers of optical quality glass. While the global market for
component supply is fragmented and highly competitive, we maintain advantages through our unique technologies that often build on our leadership in
precision molded optics, as well as our vertical integration in infrared optics, from raw materials through assemblies and engineered solutions.
Engineered Solutions
The market for non-captive optical engineered solutions is emerging and competition will increase as companies such as LightPath begin transitioning their
offerings from components to engineered solutions:
·
·
·
Engineered solutions companies. While there are not many, companies such as Excelitas Technologies Corp. and Jenoptik AG offer optical
engineered solutions to the market, with a specific focus on solutions in visible and ultraviolet light bands, and with a vertical industry focus,
such as life sciences and semiconductor systems.
Engineering firms. Though less popular, in some cases customers prefer to work with engineering firms that provide design services, which
then the customer produces or sub-contracts to third-party component manufacturers. An example of such companies providing engineering
services are Lighthouse Imaging, LLC, Optikos Corporation, and Photon Engineering, LLC.
In-house or captive design. The most common approach today is for customers to design the optical system internally by the OEM. This
requires customers to have expertise in optical system and component design capabilities, along with knowledge of the most advanced
available technologies, however limited the scope of their capabilities or the profitability of their solutions may be.
We believe that one of our key differentiators is our unique technologies that allow us to design better solutions.
Optical Components
PMO Product Group. Our PMO products compete with conventional lenses and optical components manufactured from companies such as Asia Optical
Co., Inc., Anteryon BV, Rochester Precision Optics, and Sunny Optical Technology (Group) Company Limited. Aspheric lens system manufacturers
include Panasonic Corporation, Alps Electric Co., Ltd., Hoya Corporation, as well as other competitors from China and Taiwan, such as E-Pin Optical
Industry Co., Ltd., and Kinik Company.
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Our aspheric lenses compete with lens systems comprised of multiple conventional lenses. Machined aspheric lenses compete with our molded glass
aspheric lenses. The use of aspheric surfaces provides the optical designer with a powerful tool in correcting spherical aberrations and enhancing
performance in state-of-the-art optical products. However, we believe that our optical design expertise and our flexibility in providing custom high-
performance optical components at a low price are key competitive advantages for us over competitors. An additional competitive advantage is our ability
to switch production between different facilities on different continents. We do not depend on one facility and are able to move production in and out of
China, which we believe creates a significant advantage by giving us supply chain continuity and an ability to adjust to customers’ geographical
preferences.
Plastic molded aspheres and hybrid plastic/glass aspheric optics allow for high volume production, but primarily are limited to low-cost consumer products
that do not place a high demand on performance (such as plastic lenses in disposable or mobile phone cameras). Molded plastic aspheres appear in products
that stress cost or weight as their measure of success over performance and durability. Our low-cost structure allows us to compete with these lenses based
on higher performance and durability from our glass lenses at only a small premium in price. We do not compete in the market for plastic lenses unless a
glass substitution presents a viable alternative.
Infrared Product Group. Our infrared optical components compete with optical products produced by Janos Technology LLC, Ophir Optronics Solutions
Ltd. (a subsidiary of MKS Instruments, Inc.), Clear Align, II-VI, Inc. and a variety of Eastern European and Asian manufacturers. Infrared optical
components can be produced using several techniques. Historically, infrared optical components were produced only using traditional fabrication
technologies, which later changed when diamond turning was introduced (a form of advanced CNC for optical materials), and most recently, with the
adoption of synthetic chalcogenide glass, we began to precision mold infrared optical components, by leveraging our years of leadership and expertise in
precision molding. Being synthetically produced, chalcogenide glass, such as our proprietary BD6 material, has an inherently lower cost than crystalline
materials such as germanium. Additionally, glass such as our BD6 material provides further advantages, including a-thermal behavior, lower weight, and an
ability to produce high-volumes through precision molding, something traditional infrared materials cannot achieve due to their crystal structure. In
addition to molding lenses directly into finished form, we also developed and patented a process to mold large optical elements into near net shape, which
offers a significant cost savings for components that cannot be produced directly from molding. All of this is related in part to our choice to vertically
integrate, and produce our own chalcogenide glass, positioning us to create more technical advantages for our customers, by leveraging and optimizing our
glass manufacturing to produce unique materials and better overall system performance.
We believe that the market shift towards the use of synthetic materials in infrared products represents a significant opportunity for us, and we continue to
invest in further pushing the limits of both molding of infrared components, as well as the glass manufacturing technology and products. We believe this
process will create significant differentiators and value in this industry segment, and will further change the dynamics of this industry segment.
Our molded infrared optics competes with products manufactured by Umicore N.V., Rochester Precision Optics, and a number of Asian and European
manufacturers. We believe that leadership in glass molding technologies, our vertical integration by producing our own glass, and our continued investment
in technology development in this area, coupled with our diverse manufacturing flexibility, and our manufacturing facilities located in Asia, Europe and
North America are key advantages over the products manufactured by competitors.
Manufacturing
Facilities. Our manufacturing is largely performed in our combined 58,500 square feet of production facilities in Orlando, Florida, in LPOIZ’s combined
55,000 square feet of production facilities in Zhenjiang, China, and in ISP Latvia’s 29,000 square feet of production facilities in Riga, Latvia.
Our Orlando Facility and LPOIZ’s Zhenjiang Facility feature areas for each step of the manufacturing process, including coating work areas, diamond
turning, manufacturing and a clean room for precision glass molding and integrated assembly. The Orlando and Zhenjiang Facilities include new product
development laboratories and space that includes development and metrology equipment. The Orlando and Zhenjiang Facilities have anti-reflective and
infrared coating equipment to coat our lenses in-house. ISP Latvia’s Riga Facility includes fully vertically integrated manufacturing processes to produce
high precision infrared lenses and infrared lens assemblies, CNC grinding, conventional polishing, diamond turning, assemblies and state of the art
metrology. During fiscal year 2021, we began adding infrared coating capabilities in the Riga Facility as well.
We are routinely adding additional production equipment at our Orlando, Zhenjiang and Riga Facilities. In fiscal year 2021, we added additional space in
our Riga Facility, and also executed a lease agreement for additional space at our Orlando Facility. We completed the build out of our additional Orlando
Facility space in August 2023. In addition to adding equipment or space at our manufacturing facilities, we add work shifts, as needed, to increase capacity
and meet forecasted demand. We intend to monitor the capacity at our facilities, and will increase such space as needed. We believe our facilities and
planned expansions are adequate to accommodate our needs over the next year.
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Production and Equipment. Our Orlando Facility contains glass melting capability for BD6 chalcogenide glass, a manufacturing area for our molded glass
aspheres, multiple anti-reflective and wear resistant coating chambers, diamond turning machines and accompanying metrology equipment offering full
scale diamond turning lens capability, a tooling and machine shop to support new product development, commercial production requirements for our
machined parts, the fabrication of proprietary precision glass molding machines and mold equipment, and a clean room for our molding and assembly
workstations and related metrology equipment.
LPOIZ’s Zhenjiang Facility features a precision glass molding manufacturing area, clean room, machine shop, dicing area, and thin film coating chambers
for anti-reflective coatings on both visible and infrared optics and related metrology equipment.
ISP Latvia’s Riga Facility consists of crystal growth, grinding, polishing, diamond turning, quality control departments and a mechanical shop to provide
the departments with the necessary tooling. The crystal growth department is equipped with multiple furnaces to grow water soluble crystals. The grind and
polish department has modern CNC equipment, lens centering and conventional equipment to perform spindle, double sided and continuous polishing
operations. The diamond turning department has numerous diamond-turning machines accompanied with the latest metrology tools. During fiscal year
2021, we began adding infrared coating capabilities at the Riga Facility, which was completed the second half of fiscal year 2022. The quality control
department contains numerous inspection stations with various equipment to perform optical testing of finished optics.
The Orlando, Zhenjiang, and Riga Facilities are ISO 9001:2015 certified. The Zhenjiang Facility is also ISO/TS 1649:2009 automotive certified for
manufacturing of optical lenses and accessories. The Orlando Facility is International Traffic in Arms Regulations (“ITAR”) compliant and registered with
the U.S. Department of State. The Riga Facility has a DSP-5 ITAR license and Technical Assistance Agreement in place that allows this facility to
manufacture items with ITAR requirements.
For more information regarding our facilities, please see Item 2. Properties in this Annual Report on Form 10-K.
Subcontractors and Strategic Alliances. We believe that low-cost manufacturing is crucial to our long-term success. In that regard, we generally use
subcontractors in our production process to accomplish certain processing steps requiring specialized capabilities. For example, we presently use a number
of qualified subcontractors for fabricating, polishing, and coating certain lenses, as necessary. We have taken steps to protect our proprietary methods of
high-quality manufacturing by patent disclosures and internal trade secret controls.
Suppliers. We utilize a number of glass compositions in manufacturing our molded glass aspheres and lens array products. These glasses or equivalents are
available from a large number of suppliers, including CDGM Glass Company Ltd., Ohara Corporation, and Sumita Optical Glass, Inc. Base optical
materials, used in both infrared glass and collimator products, are manufactured and supplied by a number of optical and glass manufacturers. ISP utilizes
major infrared material suppliers located around the globe for a broad spectrum of infrared crystal and glass. The development of our manufacturing
capability for BD6 glass provides a low-cost internal source for infrared glass. We believe that a satisfactory supply of such production materials will
continue to be available, at reasonable or, in some cases, increased prices, although there can be no assurance in this regard.
We also rely on local and regional vendors for component materials and services such as housings, fixtures, chemicals and inert gases, specialty ceramics,
UV and AR coatings, and other specialty coatings. In addition, certain products require external processing, such as anodizing and metallization. To date,
we are not dependent on any of these manufacturers and have found a suitable number of qualified vendors and suppliers for these materials and services.
We currently purchase a few key materials from single or limited sources. We believe that a satisfactory supply of production materials will continue to be
available at competitive prices, although we are experiencing inflationary pricing pressure in the short term, however there can be no assurances in this
regard.
Intellectual Property
Our policy is to protect our technology by, among other things, trade secret protection, patents, trademarks, and copyrights. We primarily rely upon trade
secrets and unpatented proprietary know-how to protect certain process inventions, lens designs, and innovations. We have taken reasonable security
measures to protect our trade secrets and proprietary know-how.
We are aggressively pursuing patents for new products that provide new features, capabilities or other advantages to our customers. Over the past year we
have filed 5 new patent applications. The first filing uses a midwave thermal imaging camera with relay optics and a risley prism scanner for inspection of
boilers and furnaces. The risley prism scanner gives the system the ability to steer the image area within the furnace. The second filing uses an uncooled
broadband camera for flame detection coupled with detection of humans or other low temperature signals within the overall imaging area. The third filing
is for an optical element formed from a moldable material, with a transparent layer of a different material applied to the optical surface for use in resistive
heating of the element. This can be used to provide heating on an optic for de-icing or de-fogging. The fourth filing combines LWIR Imaging with an
extended short wavelength infrared (“eSWIR”) light source to allow for IR imaging and illumination in the same image using a single detector. The fifth
filing is for a single camera that can detect a signaling laser such as a beacon in one wavelength, while imaging the heat emitted from objects in another
waveband.
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Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology or products that are similar
to ours or that compete with ours. Patent, trademark, and trade secret laws afford only limited protection for our technology and products. The laws of
many countries do not protect our proprietary rights to as great an extent as do the laws of the United States (“U.S.”). Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to obtain and use information that we regard as proprietary. Third parties may also design around our
proprietary rights, which may render our protected technology and products less valuable, if the design around is favorably received in the marketplace. In
addition, if any of our products or technology is covered by third-party patents or other intellectual property rights, we could be subject to various legal
actions. We cannot assure you that our technology platform and products do not infringe patents held by others or that they will not in the future. Litigation
may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement, invalidity, misappropriation, or other claims.
We own several registered and unregistered service marks and trademarks (collectively, “marks”) that are used in the marketing and sale of our products.
The following table sets forth our registered and unregistered marks, and denotes whether each mark is registered, the country in which the mark is filed,
and the renewal date for such mark.
Mark
Type
Registered
Country
Renewal
LightPath®
GRADIUM™
Circulight
BLACK DIAMOND
GelTech
Oasis
LightPath®
ISP Optics®
Service mark
Trademark
Trademark
Trademark
Trademark
Trademark
Service mark
Trademark
Yes
Yes
No
No
No
No
Yes
Yes
United States
United States
-
-
-
-
Date
Pending
April 29, 2027
-
-
-
-
People’s Republic of
China
September 13, 2025
United States
August 12, 2024
Environmental and Governmental Regulation
Currently, emissions and waste from our manufacturing processes are at such low levels that no special environmental permits or licenses are required. In
the future, we may need to obtain special permits for disposal of increased waste by-products. The glass materials we utilize contain some toxic elements in
a stabilized molecular form. However, the high temperature diffusion process results in low-level emissions of such elements in gaseous form. If production
reaches a certain level, we believe that we will be able to efficiently recycle certain of our raw material waste, thereby reducing disposal levels. We believe
that we are presently in compliance with all material federal, state, and local laws and regulations governing our operations and have obtained all material
licenses and permits necessary for the operation of our business.
We also utilize certain chemicals, solvents, and adhesives in our manufacturing process. We believe we maintain all necessary permits and are in full
compliance with all applicable regulations.
To our knowledge, there are currently no U.S. federal, state, or local regulations that restrict the manufacturing and distribution of our products. Certain
end-user applications require government approval of the complete optical system, such as U.S. Food and Drug Administration approval for use in
endoscopy. In these cases, we will generally be involved on a secondary level and our OEM customer will be responsible for the license and approval
process.
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use of “conflict minerals” mined from
the Democratic Republic of Congo and adjoining countries in products, whether or not these products are manufactured by third parties. The conflict
minerals include tin, tantalum, tungsten, and gold, and their derivatives. Pursuant to these requirements, we are required to report on Form SD the
procedures we employ to determine the sourcing of such minerals and metals produced from those minerals. There are costs associated with complying
with these disclosure requirements, including for diligence in regards to the sources of any conflict minerals used in our products, in addition to the cost of
remediation and other changes to products, processes, or sources of supply as a consequence of such verification activities. In addition, the implementation
of these rules could adversely affect the sourcing, supply, and pricing of materials used in our products. We strive to only use suppliers that source from
conflict-free smelters and refiners; however, in the future, we may face difficulties in gathering information regarding our suppliers and the source of any
such conflict minerals.
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Concentration of Customer Risk
13
In fiscal year 2023, we had sales to three customers that comprised an aggregate of approximately 24% of our annual revenue with one customer at 11% of
our sales, another customer at 7% of our sales, and the third customer at 6% of our sales. In fiscal year 2022, we had sales to three customers that
comprised an aggregate of approximately 35% of our annual revenue with one customer at 19% of our sales, another customer at 9% of our sales, and the
third customer at 7% of our sales. The loss of any of these customers, or a significant reduction in sales to any such customer, would adversely affect our
revenues and profits. We continue to diversify our business in order to minimize our sales concentration risk.
In fiscal year 2023, 50% of our net revenue was derived from sales outside of the U.S., with 93% of our foreign sales derived from customers in Europe
and Asia. In fiscal year 2022, 61% of our net revenue was derived from sales outside of the U.S., with 95% of our foreign sales derived from customers in
Europe and Asia.
Employees
As of June 30, 2023, we had 327 employees, of which 320 were full-time equivalent employees, with 111 in the U.S., including 106 located in Orlando,
Florida and 5 working remotely from various locations, 99 located in Riga, Latvia, and 117 located in Zhenjiang, China. Of our 320 full-time equivalent
employees, we have 32 employees engaged in management, administrative, and clerical functions, 23 employees in new product development, 11
employees in sales and marketing, and 254 employees in production and quality control functions. Any employee additions or terminations over the next
twelve months will be dependent upon the actual sales levels realized during fiscal year 2024. We have used and will continue utilizing part-time help,
including interns, temporary employment agencies, and outside consultants, where appropriate, to qualify prospective employees and to ramp up
production as required from time to time.
Item 1A. Risk Factors.
The following is a discussion of the primary factors that may affect the operations and/or financial performance of our business. Refer to the section
entitled Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K for an
additional discussion of these and other related factors that affect our operations and/or financial performance.
Risks Related to Our Business and Financial Results
We have a history of losses.We reported net losses of $4.0 million, $3.5 million and $3.2 million for fiscal years 2023, 2022 and 2021, respectively, and
although we reported net income of $0.9 million for fiscal year 2020, we incurred a net loss of $2.7 million for fiscal year 2019. As of June 30, 2023, we
had an accumulated deficit of approximately $207.8 million. We may incur losses in the future if we do not achieve sufficient revenue to maintain
profitability, or if we continue to incur unusual costs. We expect revenue to grow by generating additional sales through promotion of our infrared products,
with a focus on engineered solutions, and continued cost reduction efforts across all product groups, but we cannot guarantee such improvement or growth.
Factors which could adversely affect our future profitability, include, but are not limited to, a decline in revenue either due to lower sales unit volumes or
decreasing selling prices, or both, our ability to order supplies from vendors, which, in turn, affects our ability to manufacture our products, and slow
payments from our customers on accounts receivable.
Any failure to maintain profitability would have a materially adverse effect on our ability to implement our business plan, our results and operations, and
our financial condition, and could cause the value of our Class A common stock to decline.
We are dependent on a few key customers, and the loss of any key customer could cause a significant decline in our revenues. In fiscal year 2023, we
had sales to three customers that comprised an aggregate of approximately 24% of our annual revenue, with one customer at 11% of our sales, another
customer at 7% of our sales, and the third customer at 6% of our sales. In fiscal year 2022, we had sales to three customers that comprised an aggregate of
approximately 35% of our annual revenue, with one customer at 19% of our sales, another customer at 9% of our sales, and the third customer at 7% of our
sales. Our current strategy of providing the 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, without needing to develop subject matter expertise in optics. By
providing the bridge into the optical solution world, we partner with our customers on a long term basis, create value to our customers, and capture that
value through the long-term supply relationships we develop. However, the loss of any of these customers, or a significant reduction in sales to any such
customer, would adversely affect our revenues.
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We may be affected by political and other risks as a result of our sales to international customers and/or our sourcing of materials from international
suppliers. In fiscal year 2023, 50% of our net revenue was derived from sales outside of the U.S., with 93% of our foreign sales derived from customers in
Europe and Asia. In fiscal year 2022, 61% of our net revenue was derived from sales outside of the U.S., with 95% of our foreign sales derived from
customers in Europe and Asia. Our international sales will be limited, and may even decline, if we cannot establish relationships with new international
distributors, maintain relationships with our existing international distributions, maintain and expand our foreign operations, expand international sales, and
develop relationships with international service providers. Additionally, our international sales may be adversely affected if international economies
weaken. We are subject to the following risks, among others:
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
greater difficulty in accounts receivable collection and longer collection periods;
potentially different pricing environments and longer sales cycles;
the impact of recessions in economies outside the U.S.;
the impact of high, sustained inflation;
unexpected changes in foreign regulatory requirements;
the burdens of complying with a wide variety of foreign laws and different legal standards;
certification requirements;
reduced protection for intellectual property rights in some countries;
difficulties in managing the staffing of international operations, including labor unrest and current and changing regulatory environments;
potentially adverse tax consequences, including the complexities of foreign value-added tax systems, restrictions on the repatriation of
earnings, and changes in tax rates;
price controls and exchange controls;
government embargoes or foreign trade restrictions;
imposition of duties and tariffs and other trade barriers;
import and export controls;
transportation delays and interruptions;
terrorist attacks and security concerns in general; and
political, social, economic instability and disruptions.
We depend on single or limited source suppliers for some of the key materials or process steps in our products, making us susceptible to supply
shortages, poor performance, or price fluctuations. We currently purchase several key materials, or have outside vendors perform process steps, such as
lens coatings, used in or during the manufacture of our products from single or limited source suppliers. We may fail to obtain required materials or
services in a timely manner in the future, or we could experience delays as a result of evaluating and testing the products or services of potential alternative
suppliers. The decline in demand in the telecommunications equipment industry may have adversely impacted the financial condition of certain of our
suppliers, some of whom have limited financial resources. We have in the past, and may in the future, be required to provide advance payments in order to
secure key materials from financially limited suppliers. Financial or other difficulties faced by these suppliers could limit the availability of key
components or materials. For example, increasing labor costs in China has increased the risk of bankruptcy for suppliers with operations in China, and has
led to higher manufacturing costs for us and the need to identify alternate suppliers. Additionally, financial difficulties could impair our ability to recover
advances made to these suppliers. Any interruption or delay in the supply of any of these materials or services, or the inability to obtain these materials or
services from alternate sources at acceptable prices and within a reasonable amount of time, would impair our ability to meet scheduled product deliveries
to our customers and could cause customers to cancel orders, thereby negatively affecting our business, financial condition, and results of operation.
Russia’s ongoing conflict with Ukraine has disrupted the global economy. Our business, financial condition, and results of operations could be adversely
affected by continued disruption and global consequences stemming from the conflict. Although we have no direct operations in Russia or Ukraine, the
broader consequences of this conflict have negatively affected, and are expected to continue to negatively affect, the global economy, including the
imposition of sanctions, cyber incidents or information technology failures, supply disruptions, increases in inflation rates, increase in energy costs,
changes to foreign currency exchange rates, constraints, volatility, or disruption in financial markets, the availability of raw materials, supplies, freight, and
labor, and uncertainty about economic and global stability. Historically, we have sourced germanium from suppliers located in Russia and China. At the
start of the Russia\Ukraine conflict we had ceased all purchases of Germanium from vendors in Russia and instead have been purchasing Germanium from
vendors in China. On July 4, 2023 China announced its intentions to impose some export restrictions on Germanium, requiring all international customers
to provide an end user statement for approval before receiving an export license. As of the time of preparing this Annual Report, our vendors have applied
for export licenses for shipments of Germanium to us, and have not yet received them. We cannot provide any assurances that we will be able to obtain
adequate supplies in the future or, if adequate supplies are available, that the timing or costs of obtaining such raw materials will be acceptable to us.
Further, some of our major customers in Europe may be directly impacted by the Russian-Ukraine conflict, which could impact the amount and frequency
of orders they place with us, as well as impact the timing and ability to pay for products ordered from us. Any material impacts to our customers could have
a material adverse effect on our business and operating results.
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As a U.S. corporation with international operations, we are subject to the U.S. Foreign Corrupt Practices Act and other similar foreign anti-corruption
laws, as well as other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other
remedial measures, and legal expenses, which could adversely affect our business, financial condition, and results of operations. Our operations are
subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (“FCPA”), and other foreign anti-corruption laws that apply in countries
where we do business. The FCPA and these other laws generally prohibit us and our employees and intermediaries from offering, promising, authorizing or
making payments to government officials or other persons to obtain or retain business or gain some other business advantage. In addition, we cannot
predict the nature, scope, or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing
laws might be administered or interpreted. Operations outside of the U.S. may be affected by changes in trade production laws, policies, and measures, and
other regulatory requirements affecting trade and investment.
We are also subject to other laws and regulations governing our international operations, including regulations administered by the U.S. Department of
Commerce’s Bureau of Industry and Security, the U.S. Department of Treasury’s Office of Foreign Asset Control, and various non-U.S. government
entities, including applicable export control regulations, economic sanctions on countries and persons, customs, requirements, currency exchange
regulations, and transfer pricing regulations (collectively, the “Trade Control Laws”).
Despite our compliance programs, there can be no assurance that we will be completely effective in ensuring our compliance with all applicable anti-
corruption laws, including the FCPA or other legal requirements, or Trade Control Laws. If we are not in compliance with the FCPA and other foreign anti-
corruption laws or Trade Control Laws, we may be subject to criminal and civil penalties, disgorgement, and other sanctions and remedial measures, and
legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of
any potential violations of the FCPA, other anti-corruption laws, or Trade Control Laws by the U.S. or foreign authorities could also have an adverse
impact on our reputation, business, financial condition, and results of operations.
If the custodians or authorized users of our controlling non-tangible assets, including corporate chops and seals of our Chinese subsidiaries, fail to
fulfill their responsibilities or misappropriate or misuse those assets, our business and operations could be materially and adversely affected. In China, a
company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Under law of the
People’s Republic of China, legal documents for corporate transactions, including contracts and leases that our business relies upon, are executed using
“corporate chops,” which are instruments that contain either the official seal of the signing entity or the signature of a legal representative whose
designation is registered and filed with the State Administration for Industry and Commerce, or SAIC.
Our Chinese subsidiaries, LPOI and LPOIZ, generally execute legal documents with corporate chops. One or more of our corporate chops may be used to,
among other things, execute commercial sales or purchase contracts, procurement contracts and office leases, open bank accounts, issue checks and to issue
invoices. We have controls in place over access to and use of the chops. However, we cannot assure you that unauthorized access to or use of those chops
can be prevented. Our designated employees who hold the corporate chops could abuse their authority by, for example, binding us to contracts against our
interests or intentions, which could result in economic harm, disruption or our operations or other damages to them as a result of any contractual
obligations, or resulting disputes, that might arise. If the party contracting with us asserted that we did not act in good faith under such circumstances, then
we could incur costs to nullify such contracts. Such corporate or legal action could involve significant time and resources, while distracting management
from our operations. In addition, we may not be able to recover corporate assets that are sold or transferred out of our control in the event of such a
misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith.
If a designated employee uses a chop in an effort to obtain control over one or more of our Chinese subsidiaries, we would need to take legal action to seek
the return of the applicable chop(s), apply for a new chop(s) with the relevant authorities, or otherwise seek legal redress for the violation of their duties.
During any period where we lose effective control of the corporate activities of one or more of our Chinese subsidiaries as a result of such misuse or
misappropriation, the business activities of the affected entity could be disrupted and we could lose the economic benefits of that aspect of our business. To
the extent those chops are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be
severely and adversely compromised and the operations of those entities could be significantly and adversely impacted.
International tariffs, including tariffs applied to goods traded between the U.S. and China, could materially and adversely affect our business and
results of operations. In recent years, the U.S. government took certain actions that led to, and may lead to, further changes to U.S. and international trade
policies, including the imposition of tariffs affecting certain products exported by a number of U.S. trading partners, including China. The institution of
trade tariffs both globally and between the U.S. and China specifically carries the risk of negatively impacting China’s overall economic condition, which
could have negative repercussions for us. Furthermore, imposition of tariffs could cause a decrease in the sales of our products to customers located in
China or other customers selling to Chinese end users, which would directly impact our business.
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It remains unclear how tax or trade policies, tariffs, or trade relations may change or evolve with changes in the U.S. Presidential Administration. Perceived
or actual changes in U.S. trade policy could trigger retaliatory actions by affected countries, which could impose restrictions on our ability to do business in
or with affected countries or prohibit, reduce, or discourage purchases of our products by foreign customers, leading to increased costs of products that
contain our components, increased costs of manufacturing our products, and higher prices of our products in foreign markets. Changes in, and responses to,
U.S. trade policy could reduce the competitiveness of our products and cause our sales and revenues to drop, which could materially and adversely impact
our business and results of operations.
We utilize a number of strategies to mitigate the current and, hopefully, future impact of tariffs. However, given the uncertainty regarding the current tariffs,
as well as the potential for additional trade actions by the U.S. or other countries in the future, any future impact on our operations and financial results is
uncertain and these impacts could be more significant than those we have experienced in the past. Further, we can provide no assurance that the strategies
we implemented to mitigate the impact of such tariffs or other trade actions will continue to be successful. To the extent that our supply chain, costs, sales,
or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition, and results of operations may be materially
adversely affected.
Our future growth is partially dependent on our market penetration efforts. Our future growth is partially dependent on our market penetration efforts,
which include diversifying our sales and offering to provide complete optical solutions such as assemblies to existing and other markets. While we believe
we are able to provide such engineered solutions, we anticipate the need to gain the customer’s trust in providing more than the optical component, a
process that can sometimes take months, if not years. Expansion of our product lines and sales into new markets will require significant investment in
equipment, facilities, and materials. There can be no assurance that any proposed products will be successfully developed, demonstrate desirable optical
performance, be capable of being produced in commercial quantities at reasonable costs, or be successfully marketed.
We rely, in large part, on key business and sales relationships for the successful commercialization of our products, which, if not developed or
maintained, will have an adverse impact on achieving market awareness and acceptance and will result in a loss of business opportunities. To achieve
wide market awareness and acceptance of our products and technologies, as part of our business strategy, we will attempt to enter into a variety of business
relationships with other companies that will incorporate our technologies into their products and/or market products based on our technologies. The
successful commercialization of our products and technologies will depend in part on our ability to meet obligations under contracts with respect to the
products and related development requirements. The failure of these business relationships will limit the commercialization of our products and
technologies, which will have an adverse impact on our business development and our ability to generate revenues.
If we do not expand our sales and marketing organization, our revenues may not increase. The sale of our products requires prolonged sales and
marketing efforts targeted at several key departments within our prospective customers’ organizations and often involves our executives, personnel, and
specialized systems and applications engineers working together. Currently, our direct sales and marketing organization is somewhat limited. We believe
we will need to continue to strengthen our sales and marketing organization in order to increase market awareness and sales of our products. There is
significant competition for qualified personnel, and we might not be able to hire the kind and number of sales and marketing personnel and applications
engineers we need. If we are unable to continue to expand our sales operations globally, we may not be able to continue to increase market awareness or
sales of our products, which would adversely affect our revenues, results of operations, and financial condition.
If we are unable to develop and successfully introduce new and enhanced products that meet the needs of our customers, our business may not be
successful. Our future success depends, in part, on our ability to anticipate our customers’ needs and develop products that address those needs.
Introduction of new products and product enhancements will require that we effectively transfer production processes from research and development to
manufacturing, and coordinate our efforts with the efforts of our suppliers to rapidly achieve efficient volume production. If we fail to effectively transfer
production processes, develop product enhancements, or introduce new products that meet the needs of our customers as scheduled, our net revenues may
decline, which would adversely affect our results of operations and financial condition.
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If we are unable to effectively compete, our business and operating results could be negatively affected. We face substantial competition in the optical
markets in which we operate. Many of our competitors are large public and private companies that have longer operating histories and significantly greater
financial, technical, marketing, and other resources than we have. As a result, these competitors are able to devote greater resources than we can to the
development, promotion, sale, and support of their products. In addition, the market capitalization and cash reserves of several of our competitors are much
larger than ours, and, as a result, these competitors are better positioned than we are to exploit markets, develop new technologies, and acquire other
companies in order to gain new technologies or products. We also compete with manufacturers of conventional spherical lens products and aspherical lens
products, producers of optical quality glass, and other developers of gradient lens technology, as well as telecommunications product manufacturers. In
both the optical lens and communications markets, we are competing against, among others, established international companies, especially in Asia. Many
of these companies also are primary customers for optical and communication components, and, therefore, have significant control over certain markets for
our products. There can be no assurance that existing or new competitors will not develop technologies that are superior to or more commercially
acceptable than our existing and planned technologies and products or that competition in our industry will not lead to reduced prices for our products. If
we are unable to successfully compete with existing companies and new entrants to the markets we compete in, our business, results of operations, and
financial condition could be adversely affected.
We anticipate further reductions in the average selling prices of some of our products over time, and, therefore, must increase our sales volumes,
reduce our costs, and/or introduce higher margin products to reach and maintain consistent profitable results. We have experienced decreases in the
average selling prices of some of our products over the last ten years, including most of our passive component products. We anticipate that as certain
products in the optical component and module market become more commodity-like, the average selling prices of our products will decrease in response to
competitive pricing pressures, new product introductions by us or our competitors, or other factors. We attempt to offset anticipated decreases in our
average selling prices by increasing our sales volumes and/or changing our product mix. If we are unable to offset anticipated future decreases in our
average selling prices by increasing our sales volumes or changing our product mix, our net revenues and gross margins will decline, increasing the
projected cash needed to fund operations. To address these pricing pressures, we must develop and introduce new products and product enhancements that
will generate higher margins, continue to reduce costs, and/or change our product mix in order to generate higher margins. If we cannot maintain or
improve our gross margins, our financial position, and results of operations may be harmed.
Because of our limited product offerings, our ability to generate additional revenues may be limited without additional growth. We organized our
business based on three product groups: PMOs, infrared products, and specialty products. In fiscal year 2023, sales of PMO products represented
approximately 41% of our net revenues, sales of infrared products represented approximately 51% of our net revenues, and sales of specialty products
represented 8% of our revenues. In the future, we expect growth primarily from our infrared product groups, including engineered solutions and
assemblies. Continued and expanding market acceptance of these products, particularly our BD6-based infrared products, is critical to our future success.
There can be no assurance that our current or new products will achieve market acceptance at the rate at which we expect, or at all, which could adversely
affect our results of operations and financial condition.
We may need additional capital to sustain our operations in the future, and may need to seek further financing, which we may not be able to obtain on
acceptable terms or at all, which could affect our ability to implement our business strategies. We have limited capital resources. Our operations have
historically been largely funded from the proceeds of equity financings with some level of debt financing as well as cash flow from operations. In recent
years we have generated sufficient capital to fund our operations and necessary investments. Accordingly, in future years, we anticipate only requiring
additional capital to support acquisitions that would further expand our business and product lines. We may not be able to obtain additional financing when
we need it on terms acceptable to us, or at all.
Our future capital needs will depend on numerous factors including: (i) profitability; (ii) the release of competitive products by our competition; (iii) the
level of our investment in research and development; and (iv) the amount of our capital expenditures, including equipment and acquisitions. We cannot
assure you that we will be able to obtain capital in the future to meet our needs. If we are unable to raise capital when needed, our business, financial
condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.
Litigation may adversely affect our business, financial condition, and results of operations. From time to time in the normal course of business
operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our
operating results if changes to our business operations are required. The cost to defend such litigation may be significant and is subject to inherent
uncertainties. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. There also may be
adverse publicity with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether
we are ultimately found liable. An adverse result in any such matter could adversely impact our operating results or financial condition. Additionally, any
litigation to which we are subject could also require significant involvement of our senior management and may divert management’s attention from our
business and operations.
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows. We execute all foreign
sales from our U.S.-based facilities and inter-company transactions in U.S. dollars in order to partially mitigate the impact of foreign currency fluctuations.
However, a portion of our international revenues and expenses are denominated in foreign currencies. Accordingly, we experience the risks of fluctuating
currencies and corresponding exchange rates. In fiscal years 2023 and 2022, we recognized net losses of approximately $37,000 and $3,000 on foreign
currency transactions, respectively. Any such fluctuations that result in a less favorable exchange rate could adversely affect a portion of our revenues and
expenses, which could negatively impact our results of operations and financial condition.
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We also source certain raw materials from outside the U.S. Some of those materials, priced in non-dollar currencies, fluctuate in price due to the value of
the U.S. dollar against non-dollar-pegged currencies, especially the Euro and Renminbi. As the dollar strengthens, this increases our margins and helps with
our ability to reach positive cash flow and profitability. If the strength of the U.S. dollar decreases, the cost of foreign sourced materials could increase,
which would adversely affect our financial condition and results of operations. If the Euro or Renminbi currencies were to trend unfavorably against the
U.S. dollar on a long-term basis, then we would seek to rebalance our strategic materials sourcing.
A significant portion of our cash is generated and held outside of the U.S. The risks of maintaining significant cash abroad could adversely affect our
cash flows and financial results. During fiscal year 2023, greater than 25% of our cash was held abroad. Historically, we generally considered unremitted
earnings of our subsidiaries operating outside of the U.S. to be indefinitely reinvested. During fiscal year 2020, we began declaring intercompany dividends
to remit a portion of the earnings of our foreign subsidiaries to us. Remaining cash held outside of the U.S. is primarily used for the ongoing operations of
the business in the locations in which the cash is held. Certain countries, such as China, have monetary laws that limit our ability to utilize cash resources in
China for operations in other countries. Before any funds can be repatriated, the retained earnings of the legal entity must equal at least 50% of its
registered capital. As of June 30, 2023, LPOIZ had approximately $2.9 million in retained earnings available for repatriation, and LPOI did not have any
earnings available for repatriation, based on earnings accumulated through December 31, 2022, the end of the most recent statutory tax year, that remained
undistributed as of June 30, 2023. This limitation may affect our ability to fully utilize our cash resources for needs in the U.S. or other countries and may
adversely affect our liquidity. Further, since repatriation of such cash is subject to limitations and may be subject to significant taxation, we cannot be
certain that we will be able to repatriate such cash on favorable terms or in a timely manner. If we incur operating losses and/or require cash that is held in
international accounts for use in our operations based in the U.S., a failure to repatriate such cash in a timely and cost-effective manner could adversely
affect our business and financial results.
Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax consequences of these policies, or
the uncertainty surrounding their potential effects, could adversely affect our results of operations and the price of our Class A common stock. The
U.S. Tax Cuts and Jobs Act of 2017 (the “TCJA”) was approved by the U.S. Congress on December 20, 2017 and signed into law on December 22, 2017.
This legislation made significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “IRC”). Such changes include a reduction in the
corporate tax rate from 35% to 21%, limitation on the deductibility of interest expense and performance-based incentive compensation, and implementation
of a modified territorial tax system, including a provision that requires companies to include their global intangible low-taxed income and its effect on our
U.S. taxable income (effectively, non-U.S. income in excess of a deemed return on tangible assets of non-U.S. corporations), among other changes.
In addition, the TCJA requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments to be made
in interpretation of the provisions of the TCJA and significant estimates in calculations, and the preparation and analysis of information not previously
relevant or regularly produced. Implementation of the TCJA required us to calculate a one-time transition tax on certain foreign earnings and profits
(“foreign E&P”) that had not been previously repatriated. During fiscal year 2018, we provisionally determined our foreign E&P inclusion, and anticipated
that we would not owe any one-time transition tax due to the utilization of U.S. net operating loss (“NOL”) carryforward benefits against these earnings.
During fiscal year 2019, we completed our analysis of the TCJA, and although we did not owe any one-time transition tax, the deferred tax asset related to
our NOL carryforwards decreased by approximately $202,000. This amount was offset by our valuation allowance for a net impact of zero to our income
tax provision.
The TCJA may also impact our repatriation strategies in the future. Foreign governments may enact tax laws in response to the TCJA that could result in
further changes to global taxation and materially affect our financial position and results of operations. The uncertainty surrounding the effect of the
reforms on our financial results and business could also weaken confidence among investors in our financial condition. This could, in turn, have a
materially adverse effect on the price of our Class A common stock.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, which, among other things, is
intended to provide emergency assistance to qualifying businesses and individuals. The CARES Act also suspends the limitation on the deduction of NOLs
arising in taxable years beginning before January 1, 2021, permits a five-year carryback of NOLs arising in taxable years beginning after December 31,
2017 and before January 1, 2021, and generally modifies the limitation on the deduction for net interest expense to 50% of adjusted taxable income for
taxable years beginning in 2019 and 2020. During fiscal year 2020, as a result of the CARES Act, the Company was able to accelerate the recovery of an
income tax receivable related to previously paid alternative minimum tax. The receivable amount of approximately $107,000 as of June 30, 2020 was
collected in July 2020. In addition, the Company elected to utilize the payroll tax deferral under the CARES Act, resulting in cash savings in fiscal 2021 of
approximately $325,000, accrued as of June 30, 2021. Half of this amount was remitted on December 31, 2021, with the remainder deferred until
December 31, 2022. As of June 30, 2023, all deferred payroll taxes have been remitted.
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Further, our worldwide operations subject us to the jurisdiction of a number of taxing authorities. The income earned in these various jurisdictions is taxed
on differing basis, including net income actually earned, net income deemed earned, and revenue-based tax withholding. The final determination of our
income tax liabilities involves the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction, as well as the use of estimates and
assumptions regarding the scope of future operations and results achieved and the timing and nature of income earned and expenditures incurred. Changes
in or interpretations of tax law and currency/repatriation control could impact the determination of our income tax liabilities for a tax year, which, in turn,
could have a materially adverse effect on our financial condition and results of operations. For example, President Biden has proposed various changes to
existing U.S. tax laws, including increasing the corporate income tax rate and increasing the income tax rate on certain earnings of foreign subsidiaries,
which if enacted could have a material impact on our business, results of operations, financial condition, and cash flows.
Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel. Our future success largely
depends upon the continued services of our key executive officers, management team, and other engineering, sales, marketing, manufacturing, and support
personnel. If one or more of our key employees are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if
at all. Additionally, we may incur additional expenses to recruit and retain new key employees. If any of our key employees joins a competitor or forms a
competing company, we may lose some or a significant portion of our customers. Because of these factors, the loss of the services of any of these key
employees could adversely affect our business, financial condition, and results of operations.
Our continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need to hire and retain additional
personnel to support our business strategy. We expect to continue to hire selectively in the manufacturing, engineering, sales and marketing, and
administrative functions to the extent consistent with our business levels and to further our business strategy. We face significant competition for skilled
personnel in our industry. This competition may make it more difficult and expensive to attract, hire, and retain qualified managers and employees. Because
of these factors, we may not be able to effectively manage or grow our business, which could adversely affect our financial condition or business.
We face product liability risks, which could adversely affect our business. The sale of our optical products involves the inherent risk of product liability
claims by others. We do not currently maintain product liability insurance coverage. Product liability insurance is expensive, subject to various coverage
exclusions, and may not be obtainable on terms acceptable to us if we decide to procure such insurance in the future. Moreover, the amount and scope of
any coverage may be inadequate to protect us in the event that a product liability claim is successfully asserted. If a claim is asserted and successfully
litigated by an adverse party, our financial position and results of operations could be adversely affected.
Business interruptions could adversely affect our business. We manufacture our products at manufacturing facilities located in Orlando, Florida; Riga,
Latvia; and Zhenjiang, China. Our revenues are dependent upon the continued operation of these facilities. The Orlando Facility is subject to a lease that
expires March 31, 2034. The Riga Facility is subject to two leases which expire in December 2030, and the Zhenjiang Facility is subject to one lease that
expires in December 2024. Our operations are vulnerable to interruption by fire, hurricane winds and rain, earthquakes, electric power loss,
telecommunications failure, and other events beyond our control. We do not have detailed disaster recovery plans for our facilities and we do not have a
backup facility, other than our other facilities, or contractual arrangements with any other manufacturers in the event of a casualty to or destruction of any
facility or if any facility ceases to be available to us for any other reason. If we are required to rebuild or relocate either of our manufacturing facilities, a
substantial investment in improvements and equipment would be necessary. We carry only a limited amount of business interruption insurance, which may
not sufficiently compensate us for losses that may occur.
Our facilities may be subject to electrical blackouts as a consequence of a shortage of available electrical power. We currently do not have backup
generators or alternate sources of power in the event of a blackout. If blackouts interrupt our power supply, we would be temporarily unable to continue
operations at such facility.
Any losses or damages incurred by us as a result of blackouts, rebuilding, relocation, or other business interruptions, could result in a significant delay or
reduction in manufacturing and production capabilities, impair our reputation, harm our ability to retain existing customers and to obtain new customers,
and could result in reduced sales, lost revenue, increased costs and/or loss of market share, any of which could substantially harm our business and our
results of operations.
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Our business, results of operations, financial condition, cash flows, and the stock price of our Class A common stock can be adversely affected by
pandemics, epidemics, or other public health emergencies, such as the 2020 outbreak of COVID-19. Our business, results of operations financial
condition, cash flows, and the stock price of our Class A common stock can be adversely affected by pandemics, epidemics, or other public health
emergencies, such as the global outbreak of COVID-19. In March 2020, the World Health Organization (the “WHO”) declared COVID-19 as a pandemic.
The COVID-19 pandemic resulted in governments around the world implementing measures to help control the spread of the virus, including “stay at
home” orders, travel restrictions, business curtailments, school closures, and other measures. These restrictions significantly impacted economic conditions
in the U.S. in 2020 and continued into 2021. Beginning in the spring of 2021, we saw restrictions begin to lift as vaccines have become more available, and
as if June 30, 2023 there are no remaining restrictions impacting our operations.
We are considered an “essential business,” as a critical supplier to both the medical and defense industries. Throughout the COVID-19 pandemic, we
continued to operate our manufacturing facilities consistent with government guidelines and state and local orders; however, future pandemics or other
public health emergencies and any preventive or protective actions taken by governmental authorities may have a material adverse effect on our operations,
supply chain, customers, and transportation networks, including business shutdown or disruptions. The extent to which future pandemics or other public
health emergencies may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depends upon the
severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effect. Any resulting financial impact cannot
be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition, and cash flows. Now that
the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or
depression. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets, which has
and may continue to adversely impact our stock price and our ability to access capital markets. To the extent the COVID-19 pandemic may adversely affect
our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K.
Our failure to accurately forecast material requirements could cause us to incur additional costs, have excess inventories, or have insufficient materials
to manufacture our products. Our material requirements forecasts are based on actual or anticipated product orders. It is very important that we accurately
predict both the demand for our products and the lead times required to obtain the necessary materials. Lead times for materials that we order vary
significantly and depend on factors, such as specific supplier requirements, the size of the order, contract terms, and the market demand for the materials at
any given time. If we overestimate our material requirements, we may have excess inventory, which would increase our costs. If we underestimate our
material requirements, we may have inadequate inventory, which could interrupt our manufacturing and delay delivery of our products to our customers.
Any of these occurrences would negatively impact our results of operations. Additionally, in order to avoid excess material inventories, we may incur
cancellation charges associated with modifying existing purchase orders with our vendors, which, depending on the magnitude of such cancellation
charges, may adversely affect our results of operations.
If we do not achieve acceptable manufacturing yields our operating results could suffer. The manufacture of our products involves complex and precise
processes. Our manufacturing costs for several products are relatively fixed, and, thus, manufacturing yields are critical to the success of our business and
our results of operations. Changes in our manufacturing processes or those of our suppliers could significantly reduce our manufacturing yields. In
addition, we may experience manufacturing delays and reduced manufacturing yields upon introducing new products to our manufacturing lines. The
occurrence of unacceptable manufacturing yields or product yields could adversely affect our financial condition and results of operations.
If our customers do not qualify our manufacturing lines for volume shipments, our operating results could suffer. Our manufacturing lines have passed
our qualification standards, as well as our technical standards. However, our customers may also require that our manufacturing lines pass their specific
qualification standards, and that we be registered under international quality standards, beyond our ISO 9001:2015 certification. This customer
qualification process determines whether our manufacturing lines meet the customers’ quality, performance, and reliability standards. Generally, customers
do not purchase our products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for volume production. We
may be unable to obtain customer qualification of our manufacturing lines or we may experience delays in obtaining customer qualification of our
manufacturing lines. If there are delays in the qualification of our products or manufacturing lines, our customers may drop the product from a long-term
supply program, which would result in significant lost revenue opportunity over the term of each such customer’s supply program, or our customers may
purchase from other manufacturers. The inability to obtain customer qualification of our manufacturing lines, or the delay in obtaining such qualification,
could adversely affect our financial condition and results of operations.
Risks Related To Our Intellectual Property
If we are unable to protect and enforce our intellectual property rights, we may be unable to compete effectively. We believe that our intellectual property
rights are important to our success and our competitive position, and we rely on a combination of patent, copyright, trademark, and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. Although we have devoted substantial resources to the establishment and protection of
our intellectual property rights, the actions taken by us may be inadequate to prevent imitation or improper use of our products by others or to prevent
others from claiming violations of their intellectual property rights by us.
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In addition, we cannot assure that, in the future, our patent applications will be approved, that any patents that may be issued will protect our intellectual
property, or that third parties will not challenge any issued patents. Other parties may independently develop similar or competing technology or design
around any patents that may be issued to us. We also rely on confidentiality procedures and contractual provisions with our employees, consultants, and
corporate partners to protect our proprietary rights, but we cannot assure the compliance by such parties with their confidentiality obligations, which could
be very time consuming, expensive, and difficult to enforce.
It may be necessary to litigate to enforce our patents, copyrights, and other intellectual property rights, to protect our trade secrets, to determine the validity
of and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation can be time consuming, distracting
to management, expensive, and difficult to predict. Our failure to protect or enforce our intellectual property could have an adverse effect on our business,
financial condition, prospects, and results of operation.
We do not have patent protection for our formulas and processes, and a loss of ownership of any of our formulas and processes would negatively
impact our business. We believe that we own our formulas and processes. However, we have not sought, and do not intend to seek, patent protection for all
of our formulas and processes. Instead, we rely on the complexity of our formulas and processes, trade secrecy laws, and employee confidentiality
agreements. However, we cannot assure you that other companies will not acquire our confidential information or trade secrets or will not independently
develop equivalent or superior products or technology and obtain patent or similar rights. Although we believe that our formulas and processes have been
independently developed and do not infringe the patents or rights of others, a variety of components of our processes could infringe existing or future
patents, in which event we may be required to modify our processes or obtain a license. We cannot assure you that we will be able to do so in a timely
manner or upon acceptable terms and conditions and the failure to do either of the foregoing would negatively affect our business, results of operations,
financial condition, and cash flows.
We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting, and defending patents or establishing other
intellectual property rights in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries
outside the U.S. can be less extensive than those in the U.S. or non-existent. Further, many companies have encountered significant problems in protecting
and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries do not favor the enforcement of patents and other
intellectual property protection, which could make it difficult for us to stop the infringement of our patents or misappropriation of our intellectual property
rights generally. Proceedings to enforce our patent and other intellectual property rights in foreign jurisdictions could result in substantial costs and divert
our efforts and attention from other aspects of our business, could put our patents or intellectual property rights at risk of being invalidated or interpreted
narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits
that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. We believe that we have adequate protections in
place with respect to our intellectual property; however, we cannot provide any assurances that such protections will be sufficient in the future. Any
infringement or misappropriations of our patents and intellectual property rights would adversely affect our business, results of operations, financial
condition, and cash flows.
We may become involved in intellectual property disputes and litigation, which could adversely affect our business. We anticipate, based on the size and
sophistication of our competitors and the history of rapid technological advances in our industry that several competitors may have patent applications in
progress in the U.S. or in foreign countries that, if issued, could relate to products similar to ours. If such patents were to be issued, the patent holders or
licensees may assert infringement claims against us or claim that we have violated other intellectual property rights. These claims and any resulting
lawsuits, if successful, could subject us to significant liability for damages and invalidate our proprietary rights. The lawsuits, regardless of their merits,
could be time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation could
also force us to do one or more of the following, any of which could harm our business and adversely affect our financial condition and results of
operations:
·
·
·
stop selling, incorporating or using our products that use the disputed intellectual property;
obtain from third parties a license to sell or use the disputed technology, which license may not be available on reasonable terms, or at all; or
redesign our products that use the disputed intellectual property.
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Item 2. Properties.
22
Our properties consist primarily of leased office and manufacturing facilities. Our corporate headquarters are located in Orlando, Florida and our
manufacturing facilities are primarily located in Zhenjiang, China and Riga, Latvia. The following schedule presents the approximate square footage of our
offices and facilities as of June 30, 2023:
Location
Orlando, Florida
Riga, Latvia
Zhenjiang, China
Square Feet
Commitment and Use
58,500
29,000
55,000
Leased; 2 suites used for corporate headquarters offices, manufacturing, and research and
development
Leased; 3 suites used for administrative offices, manufacturing and crystal growing
Leased; 1 building used for manufacturing, and 1 floor of 1 building used for manufacturing
Our territorial sales personnel maintain an office from their homes to serve their geographical territories.
For additional information regarding our facilities, please see Item 1. Business in this Annual Report on Form 10-K. For additional information regarding
leases, see Note 12, Leases, to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.
Item 3. Legal Proceedings.
From time to time, we are involved in various legal actions arising in the normal course of business. We currently have no material legal proceeding to
which we are a party to or to which our property is subject to and, to the best of our knowledge, no material adverse legal activity is anticipated or
threatened.
Item 4. Mine Safety Disclosures.
Not Applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our Class A common stock is traded on the Nasdaq Capital Market under the symbol “LPTH”.
Holders
As of September 7, 2023, we estimate there were approximately 212 holders of record and approximately 10,192 street name holders of our Class A
common stock.
Dividends
We have never declared or paid any cash dividends on our Class A common stock and do not intend to pay any cash dividends in the foreseeable future. We
currently intend to retain all future earnings in order to finance the operation and expansion of our business. In addition, the payment of dividends, if any, in
the future, will depend on our earnings, capital requirements, financial conditions, and other relevant factors.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our
consolidated financial statements and the accompanying notes.
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 Annual Report on Form 10-K regarding forward-looking statements.
The following discussions also include use of the non-GAAP term “gross margin,” as well as other non-GAAP measures discussed in more detail under the
heading “Non-GAAP Financial Measures.” Gross margin is determined by deducting the cost of sales from operating revenue. Cost of sales includes
manufacturing direct and indirect labor, materials, services, fixed costs for rent, utilities and depreciation, and variable overhead. Gross margin should not
be considered an alternative to operating income or net income, both of which are determined in accordance with GAAP. We believe that gross margin,
although a non-GAAP financial measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with
information that demonstrates our cost structure and indicates the amount of funds available to cover our total costs and expenses. We use gross margin in
measuring the performance of our business and have historically analyzed and reported gross margin information publicly. Other companies may calculate
gross margin in a different manner.
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Potential Impact of COVID-19
24
In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 has spread
throughout world, including the U.S., and continues to spread as additional variants emerge. As a result of the COVID-19 pandemic, our employees at our
facilities in China, Latvia, and the U.S. were subject to stay-at-home orders during a portion of fiscal year 2021, which restrictions have since been lifted as
of the date of this Annual Report on Form 10-K. In addition to stay-at-home orders, many jurisdictions also implemented social distancing and other
restrictions and measures to slow the spread of COVID-19. These restrictions significantly impacted economic conditions in the U.S. in 2020 and
continued into 2021, 2022 and 2023. Beginning in the spring of 2021, restrictions began to lift as vaccines became more available. Despite these stay-at-
home orders and other measures and restrictions implemented in the areas in which we operate, as a critical supplier to both the medical and defense
industries, we were deemed to be an essential business; thus, regardless of the stay-at-home orders, our workforce was permitted to work from our facilities
and our business operations have generally continued to operate as normal.
To date, we have not experienced any significant direct financial impact of COVID-19 to our business. However, the COVID-19 pandemic continues to
impact economic conditions, particularly in China, which has impacted the short-term and long-term demand from customers and, therefore, has negatively
impacted our results of operations, cash flows, and financial position in that region. Additionally, some areas have had travel restrictions in place, including
China until recently. Even though China’s travel restrictions are no longer in place, we are required to re-apply for travel visas and approvals which will
continue to affect our ability to travel in China. As a result, some aspects of our operations that depend on travel, such as recruitment of senior positions,
and travel of service providers to maintain our production equipment have been, and will continue to be, adversely impacted. Management is actively
monitoring this situation and taking steps to mitigate the impact on our financial condition, liquidity, and results of operations globally. However, we are
not able to precisely estimate the effects of the continuing COVID-19 pandemic on our future results of operations, financial, or liquidity in fiscal 2024 and
beyond.
Effect of Certain Events Occurring at Our Chinese Subsidiaries
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 have incurred various expenses associated with our investigation into these matters prior and subsequent to the termination of the employees and the
associated legal proceedings. These expenses, which included legal, consulting and other transitional management fees, totaled $718,000 during the year
ended June 30, 2021. During the year ended June 30, 2022, approximately $400,000 of related expenses were incurred. During the year ended June 30,
2023, expenses incurred related to the legal proceedings were immaterial. Such expenses were recorded as “Selling, general and administrative” expenses
in the accompanying Consolidated Statements of Comprehensive Income (Loss).
We also identified a further liability in the amount of $210,000, which could have been incurred in the future due to the actions of these employees. This
amount was accrued as of June 30, 2021, pending further investigation, and was included in “Other Expense, net” in the Consolidated Statement of
Comprehensive Income (Loss) for the year ended June 30, 2021. During the third quarter of fiscal year 2022, it was determined that our Chinese subsidiary
would not be responsible for this amount. As such, this accrual was reversed and is included in the accompanying Consolidated Statements of
Comprehensive Income (Loss) in the line item entitled “Other income (expense), net” for the year ended June 30, 2022.
Knowing that employee transitions in international subsidiaries can lead to lengthy and expensive legal proceedings that can be disruptive to operations,
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. After the execution of the
severance agreements, we discovered additional wrongdoing by the terminated employees. As a result, LPOIZ and LPOI have not yet paid the severance
payments and have disputed the employees’ rights to such payments. Currently, there are ongoing civil actions in China in connection with LPOIZ’s and
LPOI’s refusal to pay these severance amounts due to the employees’ non-compliance. However, based on the likelihood that the courts in China will
determine that our subsidiaries will ultimately be obligated to pay these amounts, we have accrued for these payments as of June 30, 2021, and such
expenses were recorded as “Selling, general and administrative” expenses in the accompanying Consolidated Statement of Comprehensive Income (Loss)
in fiscal year 2021. As of June 30, 2022, approximately $430,000 was accrued. The Chinese Labor Court ruled in favor of the former employees, as
expected, and these severance payments were paid out during the first half of fiscal year 2023. We continue to have litigation pending in the Chinese court
system related to these matters, but there has been little activity during fiscal year 2023.
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We have transitioned the management of LPOI and LPOIZ to a new management team without any significant detrimental effects on their ability to
operate. We have not experienced any material adverse impact to the business operations of LPOI or LPOIZ as a result of the transition.
We expect to incur additional legal fees and consulting expenses in future periods as we continue to pursue our legal options and remedies; however, such
future fees are expected to be at lower levels than have been incurred to date.
Although we have taken steps to minimize the business impacts from the termination of the local 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, which continued through fiscal year 2022. We have not experienced, nor do we anticipate, any material adverse
impact on LPOIZ’s or LPOI’s production and supply of products to LightPath for LightPath’s customers.
Results of Operations
Operating Results for Fiscal Year Ended June 30, 2023 compared to the Fiscal Year Ended June 30, 2022:
Revenue.
Revenue for fiscal year 2023 was approximately $32.9 million, a decrease of 7%, as compared to $35.6 million in fiscal year 2022. Revenue generated by
infrared products was approximately $16.7 million in fiscal year 2023, a decrease of 11%, as compared to the prior fiscal year. The decrease in revenue is
primarily driven by sales of BD6-based molded infrared products, particularly to customers in the China commercial and industrial markets. The decrease
in sales to customers in the China commercial and industrial markets were partially offset by increased revenue from sales of BD6-based products to
customers in the defense industry. Sales of diamond-turned infrared products were nearly flat for fiscal years 2023 and 2022, however there were shifts in
the customer mix, with growth from some newer key customers.
Revenue generated by PMO products was approximately $13.4 million for fiscal year 2023, a decrease of 11%, as compared to the prior fiscal year. The
decrease in revenue is due to a decrease in sales to customers in the telecommunications industry and a decrease in sales of commercial products, partially
offset by increases in sales to defense and industrial customers. PMO product sales to customers in China continue to be soft across all of the industries we
serve due to unfavorable economic conditions in that region.
Revenue generated by specialty products was approximately $2.8 million in fiscal year 2023, an increase of approximately 54% as compared to fiscal year
2022. The increase is primarily due to increase demand for collimator assemblies, and increased sales of a custom visible lens assembly to a medical
customer, for which we have and end of life order with backlog going into fiscal 2025. The first quarter of fiscal 2023 also included a charge for in-process
materials billed to a customer upon order cancellation, during the first quarter of fiscal 2023.
Cost of Sales and Gross Margin.
Gross margin for fiscal year 2023 was approximately $11.1 million, a decrease of 6%, as compared to approximately $11.8 million in fiscal year 2022.
Total cost of sales was approximately $21.9 million for fiscal year 2023, compared to $23.7 million for fiscal year 2022, a decrease of 8%. Gross margin as
a percentage of revenue was 34% for fiscal year 2023 as compared to 33% for fiscal year 2022. The mix of revenue by product group for fiscal 2023 was
similar to that of the prior fiscal year, however the overall revenue was 7% lower. The lower revenue level for fiscal 2023, as compared to the prior fiscal
year, resulted in less contribution toward fixed manufacturing costs. Improving gross margin to 34% at the lower revenue level reflects the benefit of a
number of the operational and cost structure improvements that we implemented in fiscal years 2022 and 2023. The benefits of those improvements were
partially offset by increased costs in the second half of fiscal 2023, as we temporarily outsourced certain production processes during the consolidation and
construction of our Orlando manufacturing facility.
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26
Selling, General and Administrative.
For fiscal year 2023, Selling, General and Administrative (“SG&A”) costs were approximately $11.4 million, an increase of approximately $215,000, or
2%, as compared to the prior fiscal year. The increase in SG&A for fiscal year 2023 is primarily due to an increase in stock compensation, partially due to
director retirements that occurred during the second quarter of fiscal year 2023, as well as increases in other personnel-related costs. We also incurred costs
of approximately $140,000 associated with the acquisition of Visimid, which closed in July 2023. In addition, we incurred approximately $129,000 during
fiscal year 2023 related to the exit of our secondary facility in Orlando, the lease for which terminated in February 2023. SG&A costs for fiscal year 2023
also include fees of $53,000 paid to BankUnited under our Amended Loan Agreement as a result of not prepaying the BankUnited Term Loan by certain
specified dates. Please refer to Note 13, Loans Payable, in the Consolidated Financial Statements in this Annual Report on Form 10-K for additional
information. These increases were partially offset by the following decreases: (i) decrease of $248,000 in value-added tax (“VAT”) and related taxes from
prior years that were accrued by one of our Chinese subsidiaries in the second quarter of fiscal 2022; and (ii) decrease of approximately $400,000 of
expenses associated with the previously disclosed events that occurred at our Chinese subsidiaries, including legal and consulting fees incurred during
fiscal year 2022. Please refer to Note 14, Contingencies, in the Consolidated Financial Statements in this Annual Report on Form 10-K for additional
information.
New Product Development.
New product development costs were approximately $2.1 million in fiscal year 2023, an increase of approximately 3% as compared to the prior fiscal year.
This increase was primarily due to greater spending on internally-funded development projects in fiscal year 2023, such as the MANTIS reference design
camera, whereas in fiscal year 2022, new product development consisted of more customer- and government-funded NRE projects.
Other Expense.
Interest expense was approximately $283,000 for fiscal year 2023, compared to approximately $229,000 in the prior fiscal year. The increase in interest
expense is due to rising interest rates, partially offset by a 30% reduction in our total debt, including finance lease obligations, and excluding operating
lease liabilities, as of June 30, 2023, as compared to the end of the prior fiscal year.
Other income, net, was approximately $25,000 for fiscal year 2023, compared to $177,000 for fiscal year 2022. Other income, net, for fiscal year 2022
includes a benefit of $210,000, which represents the reversal of a potential liability related to the actions of the terminated employees of our subsidiaries in
China, as previously discussed. This potential liability was accrued as of June 30, 2021, pending further investigation, and it was determined in the third
quarter of fiscal year 2022 that our Chinese subsidiary would not be responsible for this amount. Other income, net also includes net foreign currency
transaction gains and losses. 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.
During fiscal year 2023, we incurred net foreign currency transaction losses of approximately $37,000, compared to $3,000 for fiscal year 2022.
Income Taxes.
During fiscal year 2023, we recorded income tax expense of approximately $234,000, compared to approximately $863,000 in fiscal year 2022, primarily
related to our operations in China. Income taxes for fiscal years 2023 and 2022 also included Chinese withholding tax expenses of $235,000 and $230,000,
respectively, the majority of which are associated with intercompany dividends declared by LPOIZ, payable to us as the parent company. While this
repatriation transaction resulted in some additional Chinese withholding taxes, LPOIZ currently qualifies for a reduced Chinese income tax rate; therefore,
the total tax on those earnings was still below the normal income tax rate. The income tax provision for fiscal year 2022 also includes a true-up of deferred
tax liabilities for LPOIZ. Please refer to Note 8, Income Taxes, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K
for additional information related to each of our tax jurisdictions.
Net Income (Loss).
Net loss for fiscal year 2023 was approximately $4.0 million, or $0.13 basic and diluted loss per share, compared to approximately $3.5 million, or $0.13
basic and diluted loss per share, for fiscal year 2022. The increase in net loss for fiscal year 2023, as compared to fiscal year 2022, is attributable to the
approximately $927,000 increase in operating loss resulting from lower revenue and gross margin and increased operating expenses. Other income also
decreased approximately $152,000, primarily due to the aforementioned $210,000 accrual reversal in fiscal year 2022, after a potential liability associated
with the actions of our terminated employees of our Chinese subsidiaries was favorably resolved. The increased operating loss and decrease in other
income were partially offset by a favorable difference of approximately $629,000 in the provision for income taxes for fiscal year 2023 as compared to
fiscal year 2022.
Weighted-average common stock shares outstanding were 31,637,445 for both basic and diluted in fiscal year 2023, compared to 27,019,534 for both basic
and diluted in fiscal year 2022. 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 dilutive common stock equivalents were excluded from the calculation of diluted shares for fiscal
years 2023 and 2022, as their effects would have been anti-dilutive due to the net loss in those periods.
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Liquidity and Capital Resources
27
At June 30, 2023, we had working capital of approximately $14.9 million and total cash and cash equivalents and restricted cash of approximately $7.1
million. Greater than 25% of our total cash, cash equivalents and restricted cash was held by our foreign subsidiaries in China and Latvia. Cash, cash
equivalents and restricted cash held by our foreign subsidiaries in China and Latvia were generated in-country as a result of foreign earnings. Historically,
we considered unremitted earnings held by our foreign subsidiaries to be permanently reinvested. However, during fiscal year 2020, we began declaring
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.
In China, before any funds can be repatriated, the retained earnings of the legal entity must equal at least 50% of the registered capital. During fiscal years
2023 and 2022, we repatriated approximately $1.9 million and $2.8 million, respectively, from LPOIZ. As of June 30, 2023, LPOIZ had approximately
$2.9 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated
through December 31, 2022, the end of the most recent statutory tax year, that remained undistributed as of June 30, 2023. Based on our previous intent, we
had not historically provided for future Chinese withholding taxes on the related earnings. However, during fiscal year 2020 we began to accrue for these
taxes on the portion of earnings that we intend to repatriate.
Loans payable as of June 30, 2023 consisted of the term loan in the original principal amount of approximately $5.8 million (the “BankUnited Term Loan”)
issued in favor of BankUnited, N.A. (“BankUnited”) and two third-party equipment loans. Details of the loans are as follows:
BankUnited Loans.
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 (“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 Term Loan, the “BankUnited Loans”) as
evidenced by certain promissory notes we executed in favor of BankUnited (the “BankUnited Notes”). Since then, we have entered into several
amendments to the Loan Agreement and pursuant to those amendments and the associated waivers of compliance with certain financial covenants, we have
maintained our compliance with all financial and non-financial covenants under the Loan Agreement. The Guidance Line was terminated on May 6, 2019.
The Revolving Line expired on February 26, 2022 and was not renewed. For additional information on the amendments and the terms of the Loan
Agreement, see Note 13, Loans Payable, to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.
Pursuant to that certain Fourth Amendment to Loan Agreement dated February 7, 2023, the Term Loan, the only remaining BankUnited Loan, matures and
is due and payable in full on December 31, 2024. The Term Loan bears interest at BankUnited’s then prime rate of interest, as adjusted from time to time
(8.25% as of June 30, 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 balance sheet as of June 30, 2023. An exit fee equal to 1% of
the outstanding principal balance will be due 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 and has not been refinanced with another lender). As of June 30, 2023, the outstanding principal
balance on the Term Loan was approximately $2.2 million.
We have commenced discussions with other lenders with the intent of refinancing our credit facility prior to maturity. There can be no assurance that we
will be successful in such refinancing or that we 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, we may need to raise additional equity financing, source financing through non-commercial
lenders or reduce operating expenses and capital expenditures in order to repay our credit facility and all charges related thereto upon its maturity on
December 31, 2024. For additional information on liquidity, see Note 13, Loans Payable, to the Notes to the Consolidated Financial Statements to this
Annual Report on Form 10-K.
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Equipment Loans.
28
In December 2020, ISP Latvia entered into an equipment loan with a third party (the “2020 Equipment Loan”), which is also a significant customer. The
2020 Equipment Loan is subordinate to the Term Loan and is 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. The 2020 Equipment Loan bears interest at a fixed rate of 3.3%. 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. As of June 30,
2023, the outstanding balance on the 2020 Equipment Loan was 237,000 EUR (or USD $259,000).
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. The initial advance under the 2023 Equipment Loan was 128,815 EUR (or USD $141,245), the proceeds of which were used to make a
prepayment 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% (6.75% as of June 30, 2023).
For additional information regarding the BankUnited Loans and the equipment loans, see Note 13, Loans Payable, to the Notes to the Consolidated
Financial Statements to this Annual Report on Form 10-K.
Equity Financing.
In February 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 our
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.
Based on the capital raise that was completed in January 2023, we do not expect to need additional equity capital for the foreseeable future and we believe
we have adequate financial resources to sustain our current and anticipated operations in the coming year. We have established milestones that will be
tracked to ensure that as funds are expended we are achieving results before additional funds are committed. However, there are a number of factors that
could result in the need to raise additional funds in the longer term, 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, greater than 25% of our cash, cash equivalents and restricted cash is held by our foreign subsidiaries
and, although we regularly repatriate cash, it may not be readily available to repay our liabilities in the U.S. should our cash assets in the U.S. not be
sufficient. We may also 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. Finally, we may need to raise capital through the issuance of our equity
securities if we are unable to refinance the Term Loan on acceptable terms prior to its maturity on December 31, 2024.
We intend to continue efforts to keep costs under control as we seek renewed sales growth. Our efforts are directed toward generating positive cash flow
and profitability. If these efforts are not successful, we may need to raise additional capital. Should capital not be available to us at reasonable terms, other
actions may become necessary in addition to cost control measures and continued efforts to increase sales. These actions may include the sale of certain
product lines, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, the creation of licensing arrangements
with respect to our technology, or other alternatives.
Cash Flows – Operating.
Cash flow used in operations was approximately $2.8 million for fiscal year 2023, compared to cash provided by operations of approximately $1.5 million
for fiscal year 2022. The decrease in cash flows from operations during fiscal year 2023 is primarily due to an increase in accounts receivable, due to higher
revenues in the fourth quarter of fiscal year 2023 as compared to fiscal 2022, and an increase in inventory during the second half of fiscal year 2023. The
cash outflow for accounts payable and accrued liabilities for fiscal years 2022 and 2023 was primarily due to the previously described events that occurred
at our Chinese subsidiaries, for which certain expenses were accrued as of June 30, 2021 and paid during fiscal years 2022 and 2023. Fiscal year 2022 also
reflects the payment of certain bonuses paid to our executive officers and other employees which were earned and accrued during fiscal year 2021 and paid
during fiscal year 2022. During fiscal years 2022 and 2023 we also made the installment payments for payroll taxes deferred in fiscal year 2020 under the
CARES Act.
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We anticipate continued improvement in our cash flows provided by operations in future years, as many of these non-recurring payables are behind us, and
as we continue to focus on managing our receivables, payables and inventory, while continuing to grow our sales and improve gross margins, with
moderate increases in general, administrative, sales and marketing and new product development costs.
Cash Flows – Investing.
During fiscal year 2023, we expended approximately $3.1 million for capital equipment, as compared to approximately $1.6 million during fiscal year
2022. During fiscal year 2023, our capital expenditures were primarily related to the expansion of our Orlando Facility. Our capital expenditures during
fiscal year 2022 were primarily related to the continued expansion of our Riga Facility to increase our infrared coating capacity as well as increasing our
lens diamond turning capacity to meet current and forecasted demand.
We anticipate a similar level of capital expenditures during fiscal year 2023; however, the total amount expended will depend on sales growth opportunities
and other circumstances.
Cash Flows – Financings.
Net cash provided by financing activities was approximately $7.5 million in fiscal year 2023, compared to cash used in financing activities of
approximately $636,000 in fiscal year 2022. Cash provided by financing activities for fiscal year 2023 reflects equity proceeds of $9.2 million from a
public offering of Class A common stock, which closed in January 2023, offset by approximately $1.9 million in principal payments on our loans and
finance leases, offset by proceeds of approximately $141,000 from the 2023 Equipment Loan and approximately $40,000 in proceeds from the sale of Class
A common stock under the 2014 ESPP. Cash used in financing activities for fiscal year 2022 reflects approximately $894,000 in principal payments on our
loans and finance leases and $61,000 in loan costs, offset by proceeds of approximately $267,000 from the 2020 Equipment Loan and approximately
$52,000 in proceeds from the sale of Class A common stock under the 2014 ESPP.
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 designs that we call
“engineered solutions.” 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 makes the best use of our
production capacity, as compared to the turns business, which is unpredictable and uneven. This annuity revenue stream can also generate low-cost, high-
volume type orders. 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 sampling capability, including a high-quality and responsive optical design engineering staff;
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 work seriously to reduce 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” business, we nevertheless believe we can be successful in procuring this business because of our
unique capabilities in optical design engineering that we make available on the merchant market, a market that we believe is underserved in this area of
service offering. 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 merchant production sources. For information regarding revenue recognition related to our
various revenue streams, refer to Critical Accounting Policies and Estimates in this Annual Report on Form 10-K.
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Our Key Performance Indicators
30
Usually on a weekly basis, management reviews several performance indicators. Some of these indicators are qualitative and others are quantitative.
These indicators change from time to time as the opportunities and challenges in the business change. They are mostly non-financial indicators, such as
units of shippable output by product line, production yield rates by major product line, and the output and yield data from significant intermediary
manufacturing processes that support the production of the finished shippable product. These indicators can be used to calculate such other related
indicators as fully yielded unit production per-shift, which varies by the product and our state of automation in production of that product at any given
time. Higher unit production per shift means lower unit cost, and, therefore, improved margins or improved ability to compete, where desirable, for price
sensitive customer applications. The data from these reports is 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 usually reviewed at the same time include the major elements of the micro-level business cycle:
·
·
·
·
·
sales backlog;
revenue dollars and units by product group;
inventory levels;
accounts receivable levels and quality; and
other key indicators.
These indicators are similarly used to determine tactical operating actions and changes and are discussed in more detail below. Management will evaluate
these key indicators as we transition to our new strategic plan to determine whether any changes or updates to our key indicators are warranted.
Sales Backlog.
We believe 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. Historically, we evaluated our backlog on a 12-month
basis, which examined orders required by a customer for delivery within a one-year period. To better align with our strategic focus on longer-term customer
orders and relationships, beginning in fiscal year 2021, management began evaluating 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.
Quarterly backlog levels for fiscal years 2023 and 2022 are as follows:
Quarter
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Total Backlog
($ 000)
Change From
Prior Year
End
Change From
Prior Quarter
End
$
$
$
$
$
$
$
$
19,265
21,929
19,678
17,767
22,973
29,427
26,620
21,652
-10%
3%
-8%
-17%
29%
66%
50%
22%
-10%
14%
-10%
-10%
29%
28%
-10%
-19%
The increase in backlog during fiscal year 2023 was due to several large customer orders. One such order is a $4 million supply agreement with a long time
European customer of precision motion control systems and OEM assemblies. The new supply agreement went into effect in the fourth quarter of our fiscal
year 2023 and is expected to run for approximately 12 to18 months. During the second quarter of fiscal year 2023 we also received the renewal of a large
annual contract for infrared products, for an amount 20% greater than the previous renewal. We began to ship against the new contract in the third quarter
of fiscal year 2023, after shipments against the previous contract were completed. Also, during the second quarter of fiscal year 2023, we were qualified to
provide advanced infrared optics for a critical international military program, and received an initial order valued at $2.5 million from the related customer.
This order represents a significant increase in this customer's business with us. In addition, we received orders from existing customers in the U.S. and
Europe related to several other significant long-term projects.
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31
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, recent global events are generating renewed interest in germanium alternatives such as our proprietary BD6
material, and other materials we are currently developing under an exclusive license with the Naval Research Lab. As we have outlined in our Strategic
direction, we do not expect to see significant growth in our visible PMO product group in the near future. Competition in that product line 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. However, order bookings for
both PMO and infrared products continue to be slow in China. We believe the terminations of certain of our management employees in our China
subsidiaries, LPOIZ and LPOI, and transition to new management personnel in fiscal year 2021, adversely impacted the domestic sales in China of these
subsidiaries during fiscal year 2022 and fiscal year 2023. Although our new sales and management personnel have now established relationships with
customers, domestic sales in China have also been adversely impacted by the economic downturn in China, which negatively impacted fiscal year 2023
revenue and bookings in that region.
Revenue Dollars and Units by Product Group.
The following table sets forth revenue dollars and units by our three product groups for the three and twelve months ended June 30, 2023 and 2022:
Three Months Ended
June 30,
(unaudited)
Quarter
Year Ended June 30,
Year-to-
date
Revenue
PMO
Infrared Products
Specialty Products
Total revenue
Units
PMO
Infrared Products
Specialty Products
Total units
2023
2022
%
2023
2022
%
Change
Change
$ 3,170,928 $ 3,411,877
5,465,084 5,046,555
1,048,709
448,799
$ 9,684,721 $ 8,907,231
-7% $ 13,425,643 $ 15,020,542
8% 16,735,869 18,735,325
134% 2,772,437 1,803,293
9% $ 32,933,949 $ 35,559,160
314,906
42,877
16,208
373,991
398,064
100,715
4,079
502,858
-21% 1,462,800 1,999,200
-57%
438,508
167,095
18,948
297%
58,197
-26% 1,688,092 2,456,656
-11%
-11%
54%
-7%
-27%
-62%
207%
-31%
Three months ended June 30, 2023 compared to three months ended June 30, 2022.
Our revenue increased by 9% in the fourth quarter of fiscal year 2023, as compared to the same quarter of the prior fiscal year, driven by increases in
infrared and specialty products.
Revenue from the PMO product group for the fourth quarter of fiscal year 2023 was $3.2 million, a decrease of 7%, as compared to the same quarter of the
prior fiscal year. The decrease in revenue is due to a decrease in sales to customers in the telecommunications industry and a decrease in sales of
commercial products, partially offset by increases in sales to defense and industrial customers. PMO product sales to customers in China continue to be soft
across all of the industries we serve due to unfavorable economic conditions in that region.
Revenue generated by the infrared product group for the fourth quarter of fiscal year 2023 was $5.5 million, an increase of 8%, as compared to the same
quarter of the prior fiscal year. The increase in revenue is primarily driven by sales of diamond-turned infrared products and is primarily attributable to
customers in the defense and industrial markets. Sales of BD6-based molded infrared products decreased, particularly to customers in the China industrial
and commercial markets. These decreases were partially offset by increased revenue from BD6-based products driven by customers in the defense industry.
Molded infrared products are higher in volume and lower in average selling prices than diamond-turned infrared products.
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32
Our specialty products revenue increased by 134% for the fourth quarter of fiscal year 2023, as compared to the same period of the prior fiscal year. The
increase is due to increased sales of a custom visible lens assembly to a medical customer, for which we have an end of life order in backlog going into
fiscal 2025.
Year ended June 30, 2023 compared to year ended June 30, 2022.
Our revenue decreased by approximately 7%, for fiscal year 2023, as compared to fiscal year 2022, with decreases in both infrared and PMO product sales.
Revenue from the PMO product group for fiscal year 2023 was $13.4 million, a decrease of 11%, as compared to fiscal year 2022. The decrease in revenue
is due to a decrease in sales to customers in the telecommunications industry and a decrease in sales of commercial products, partially offset by increases in
sales to defense and industrial customers. PMO product sales to customers in China continue to be soft across all of the industries we serve due to
unfavorable economic conditions in that region. Sales of PMO units decreased by 27%, as compared to the same period of the prior fiscal year, and average
selling prices increased by 22%. The volume decrease was largely driven by a lower mix of telecommunications products, which typically have lower
average selling prices.
Revenue generated by the infrared product group for fiscal year 2023 was $16.7 million, a decrease of approximately 11%, as compared to the prior fiscal
year. The decrease in revenue is primarily driven by sales of BD6-based molded infrared products, particularly to customers in the China commercial and
industrial markets. These decreases were partially offset by increased revenue from BD6-based products driven by customers in the defense industry. Sales
of diamond-turned infrared products were nearly flat for fiscal years 2023 and 2022, however, there were shifts in revenue from key customers. The timing
of shipments against a large annual contract, which has renewed each November for several years, was such that revenues from this contract were lower in
fiscal year 2023 than in fiscal year 2022. The most recent contract renewal in November 2022 represented an increase of 20% over the previous contract.
As such, the decrease from fiscal year 2023 as compared to fiscal year 2022 is not expected to re-occur. The decrease in revenues from this contract in
fiscal year 2023 was offset by increases in revenues from two other key customers, in the defense and industrial markets.
In fiscal year 2023, our specialty products revenue increased by $969,000, or 54%, as compared to prior fiscal year. The increase is primarily due to
increase demand for collimator assemblies, and increased sales of a custom visible lens assembly to a medical customer, for which we have and end of life
order with backlog going into fiscal 2025. The first quarter of fiscal 2023 also included a charge for in-process materials billed to a customer upon order
cancellation, during the first quarter of fiscal 2023.
Inventory Levels.
We manage inventory levels to minimize investment in working capital but still have the flexibility to meet customer demand to a reasonable degree. We
review our inventory for obsolete items quarterly. While the mix of inventory is an important factor, including adequate safety stocks of long lead-time
materials, an important aggregate measure of inventory in all phases of production is the quarter’s ending inventory expressed as a number of days’ worth
of the quarter’s cost of sales, also known as “days cost of sales in inventory,” or “DCSI.” It is calculated by dividing the quarter’s ending inventory by the
quarter’s cost of goods sold, multiplied by 365 and divided by 4. Generally, a lower DCSI measure equates to a lesser investment in inventory, and,
therefore, more efficient use of capital. The table below shows our DCSI for the immediately preceding eight fiscal quarters:
Fiscal Quarter
Q4-2023
Q3-2023
Q2-2023
Q1-2023
Ended
6/30/2023
3/31/2023
12/31/2022
9/30/2022
DCSI (days)
102
154
120
125
Fiscal Year 2023 Average
Q4-2022
Q3-2022
Q2-2022
Q1-2022
Fiscal Year 2022 Average
6/30/2022
3/31/2022
12/31/2021
9/30/2021
125
104
132
104
134
118
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33
Our average DCSI for fiscal year 2023 was 126, compared to 118 for fiscal year 2022. The increase in average DCSI is driven by the increase in inventory
levels, particularly in the second half of fiscal year 2023 where shipments were disrupted by the Orlando Facility construction and other factors. Our DCSI
did improve during the most recent quarter, and we expect DCSI to maintain an average of between 110 to 120.
Accounts Receivable Levels and Quality.
Similarly, we manage our accounts receivable to minimize investment in working capital. We measure the quality of receivables by the proportions of the
total that are at various increments past due from our normally extended terms, which are generally 30 days. The most important aggregate measure of
accounts receivable is the quarter’s ending balance of net accounts receivable expressed as a number of days’ worth of the quarter’s net revenues, also
known as “days sales outstanding,” or “DSO.” It is calculated by dividing the quarter’s ending net accounts receivable by the quarter’s net revenues,
multiplied by 365 and divided by 4. Generally, a lower DSO measure equates to a lesser investment in accounts receivable and, therefore, more efficient
use of capital. The table below shows our DSO for the preceding eight fiscal quarters:
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34
Fiscal Quarter
Q4-2023
Q3-2023
Q2-2023
Q1-2023
Fiscal Year 2023 Average
Q4-2022
Q3-2022
Q2-2022
Q1-2022
Fiscal Year 2022 Average
Ended
6/30/2023
3/31/2023
12/31/2022
9/30/2022
6/30/2022
3/31/2022
12/31/2021
9/30/2021
DSO (days)
63
59
52
57
58
54
55
49
59
54
Our average DSO for fiscal year 2023 was 58, compared to 54 for fiscal year 2022. The increase in average DSO for fiscal year 2023 is driven by some key
accounts with longer payment cycles that have increased in revenue. We strive to maintain a DSO of less than 60.
Other Key Indicators.
Other key indicators include various operating metrics, some of which are qualitative and others are quantitative. These indicators change from time to time
as the opportunities and challenges in the business change. They are mostly non-financial indicators, such as on time delivery trends, units of shippable
output by major product line, production yield rates by major product line, and the output and yield data from significant intermediary manufacturing
processes that support the production of the finished shippable product. These indicators can be used to calculate such other related indicators as fully-
yielded unit production per-shift, which varies by the particular product and our state of automation in production of that product at any given time. Higher
unit production per shift means lower unit cost, and, therefore, improved margins or improved ability to compete where desirable for price sensitive
customer applications. The data from these reports is used to determine tactical operating actions and changes. Management also assesses business
performance and makes business decisions regarding our operations using certain non-GAAP measures. These non-GAAP measures are described in more
detail below under the heading “Non-GAAP Financial Measures”.
Non-GAAP Financial Measures
We report our historical results in accordance with GAAP; however, our management also assesses business performance and makes business decisions
regarding our operations using certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information to
management and investors that is supplementary to our financial condition and results of operations computed in accordance with GAAP; however, we
acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results
determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.
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35
EBITDA.
EBITDA is a non-GAAP financial measures used by management, lenders, and certain investors as a supplemental measure in the evaluation of some
aspects of a corporation’s financial position and core operating performance. Investors sometimes use EBITDA as it allows for some level of comparability
of profitability trends between those businesses differing as to capital structure and capital intensity by removing the impacts of depreciation and
amortization. EBITDA also does not include changes in major working capital items, such as receivables, inventory, and payables, which can also indicate
a significant need for, or source of, cash. Since decisions regarding capital investment and financing and changes in working capital components can have a
significant impact on cash flow, EBITDA is not a good indicator of a business’s cash flows. We use EBITDA for evaluating the relative underlying
performance of our core operations and for planning purposes. We calculate EBITDA by adjusting net income to exclude net interest expense, income tax
expense or benefit, depreciation, and amortization, thus the term “Earnings Before Interest, Taxes, Depreciation and Amortization” and the acronym
“EBITDA.”
The following table adjusts net income to EBITDA for the three and twelve months ended June 30, 2023 and 2022:
(unaudited)
Net loss
Depreciation and amortization
Income tax provision
Interest expense
EBITDA
% of revenue
$
$
Quarter Ended June 30,
2022
2023
(1,359,790) $
(808,840) $
854,123
815,019
534,579
11,618
78,411
54,561
107,323
72,358
$
1%
$
1%
Year Ended June 30,
2022
2023
(3,542,181)
(4,046,871) $
3,617,743
3,174,569
862,907
234,034
229,475
283,266
(355,002) $
1,167,944
-1%
3%
Our EBITDA for the quarter ended June 30, 2023 was approximately $72,000, compared to $107,000 for the same period of the prior fiscal year. The
decrease in EBITDA in the fourth quarter of fiscal year 2023 was primarily attributable to the increase in operating expenses, including SG&A and new
product development, which were partially offset by higher revenue and gross margin.
Our EBITDA for fiscal year 2023 was a loss of approximately $355,000, compared to income of $1.2 million for fiscal year 2022. The decrease in
EBITDA for fiscal year 2023 is primarily attributable to lower revenue and gross margin, coupled with increased SG&A expenses and a decrease in Other
income.
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest entities or off balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of income and expense during the reporting periods presented. Our critical estimates include the allowance
for trade receivables, which is made up of allowances for bad debts, allowances for obsolete inventory, valuation of compensation expense on stock-based
awards and accounting for income taxes. Although we believe that these estimates are reasonable, actual results could differ from those estimates given a
change in conditions or assumptions that have been consistently applied. We also have other policies that we consider key accounting policies, such as our
policy for revenue recognition, however, the application of these policies does not require us to make significant estimates or judgments that are difficult or
subjective.
Management has discussed the selection of critical accounting policies and estimates with our Board, and the Board has reviewed our disclosure relating to
critical accounting policies and estimates in this Annual Report on Form 10-K. The critical accounting policies used by management and the methodology
for its estimates and assumptions are as follows:
Allowance for accounts receivable is calculated by taking 100% of the total of invoices that are over 90 days past due from the due date and 10% of the
total of invoices that are over 60 days past due from the due date for U.S.- and Latvia-based accounts and 100% on invoices that are over 120 days past due
for China-based accounts without an agreed upon payment plan. Accounts receivable are customer obligations due under normal trade terms. We perform
continuing credit evaluations of our customers’ financial condition. Recovery of bad debt amounts which were previously written off is recorded as a
reduction of bad debt expense in the period the payment is collected. If our actual collection experience changes, revisions to our allowance may be
required. After attempts to collect a receivable have failed, the receivable is written off against the allowance. To date, our actual results have been
materially consistent with our estimates, and we expect such estimates to continue to be materially consistent in the future.
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36
Inventory obsolescence allowance is calculated by reserving 100% for items that have not been sold in two years or that have not been purchased in two
years. These items, as identified, are allowed for at 100%, as well as allowing 50% for other items deemed to be slow moving within the last twelve months
and allowing 25% for items deemed to have low material usage within the last six months. Items of which we have greater than a two-year supply are also
reserved at 25% to 100%, depending on usage rates. The parts identified are adjusted for recent order and quote activity to determine the final inventory
allowance. To date, our actual results have been materially consistent with our estimates, and we expect such estimates to continue to be materially
consistent in the future.
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. The performance obligations for the sale of optical
components and assemblies are satisfied at a point in time. 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. Revenues from product development
agreements are recognized as performance obligations are met in accordance with the terms of the agreements and upon transfer of control of products,
reports or designs to the customer. Product development agreements are generally short term in nature, with revenue recognized upon satisfaction of the
performance obligation, and transfer of control of the agreed-upon deliverable. Invoiced amounts for VAT related to sales are posted to the balance sheet
and are not included in revenue.
Stock-based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite
service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes-Merton pricing model. Our directors,
officers, and key employees were granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as amended (the
“Omnibus Plan”), through October 2018 and after that date, the 2018 Stock and Incentive Compensation Plan (the “SICP”). Most options granted under the
Omnibus Plan and the SICP vest ratably over two to four years and generally have ten-year contract lives. The volatility rate is based on four-year historical
trends in common stock closing prices and the expected term was determined based primarily on historical experience of previously outstanding options.
The interest rate used is the U.S. Treasury interest rate for constant maturities. The likelihood of meeting targets for option grants that are performance
based are evaluated each quarter. If it is determined that meeting the targets is probable, then the compensation expense will be amortized over the
remaining vesting period.
Goodwill and intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods appropriate for
the type of intangible asset and reported separately from goodwill. Purchased intangible assets other than goodwill are amortized over their useful lives
unless these lives are determined to be indefinite. Purchased intangible assets are carried at cost, less accumulated amortization. Amortization is computed
over the estimated useful lives of the respective assets, generally two to fifteen years. We periodically reassess the useful lives of intangible assets when
events or circumstances indicate that useful lives have significantly changed from the previous estimate. Definite-lived intangible assets consist primarily
of customer relationships, know-how/trade secrets and trademarks. They are generally valued as the present value of estimated cash flows expected to be
generated from the asset using a risk-adjusted discount rate. When determining the fair value of our intangible assets, estimates and assumptions about
future expected revenue and remaining useful lives are used. Goodwill and intangible assets are tested for impairment on an annual basis and during the
period between annual tests if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
We assess the qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount as a
basis for determining whether it is necessary to perform the goodwill impairment analysis. If we determine that it is more likely than not that its fair value
is less than its carrying amount, then the goodwill impairment test is performed. The fair value of the reporting unit is compared to its carrying amount, and
if the carrying amount exceeds its fair value, then an impairment charge would be recognized for the amount by which the carrying amount exceeds the
reporting unit’s fair value, up to the total amount of goodwill allocated to that reporting unit.
Accounting for income taxes requires estimates and judgments in determining income tax expense for financial statement purposes. These estimates and
judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from
differences in the timing of the recognition of revenue and expense for tax and financial statement purposes. We assessed the likelihood of the realization of
deferred tax assets and concluded that a valuation allowance is needed to reserve the amount of the deferred tax assets that may not be realized due to the
uncertainty of the timing and amount of taxable income in certain jurisdictions. In reaching our conclusion, we evaluated certain relevant criteria, including
the amount of pre-tax income generated during the current and prior two years, as adjusted for non-recurring items, the existence of deferred tax liabilities
that can be used to realize deferred tax assets, the taxable income in prior carryback years in the impacted jurisdictions that can be used to absorb net
operating losses and taxable income in future years. Our judgments regarding future profitability may change due to future market conditions, changes in
U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets, resulting in a reduction
in net income or an increase in net loss in the period when such determinations are made, which, in turn, may result in an increase or decrease to our tax
provision in a subsequent period.
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37
In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these
uncertainties arise as a consequence of cost reimbursement and royalty arrangements among related entities, which could impact our income or loss in each
jurisdiction in which we operate. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters
will not be different than that which is reflected in our historical income tax provisions and accruals. In the event our assumptions are incorrect, the
differences could have a material impact on our income tax provision and operating results in the period in which such determination is made. In addition
to the factors described above, our current and expected effective tax rate is based on then-current tax law. Significant changes during the year in enacted
tax law could affect these estimates.
Impact of recently issued accounting pronouncements that have recently been issued but have not yet been implemented by us are described in Note 2,
Summary of Significant Accounting Policies, to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K, which describes
the potential impact that these pronouncements are expected to have on our financial condition, results of operations and cash flows.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is incorporated herein by reference to the consolidated financial statements and supplementary data set forth in Item
15. Exhibits, Financial Statement Schedules of Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As of the end of the fiscal year ended June 30, 2023, we carried out an evaluation, under the supervision and with the participation of members of our
management, including our CEO and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(b) of the Exchange Act. Our CEO and our CFO have concluded, based on their evaluation, that as of June 30, 2023,
our disclosure controls and procedures were effective at the end of the fiscal year to provide reasonable assurance that information required to be disclosed
by us in the reports that we file or submit with the SEC under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms and is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Internal control over financial reporting is a process, including policies and procedures, designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted
accounting principles. Our management assessed our internal control over financial reporting based on the Internal Control—Integrated Framework (2013
Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on the results of this assessment, our
management concluded that our internal control over financial reporting was effective as of June 30, 2023 based on such criteria.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met under all potential conditions, regardless of how remote, and may not prevent or detect all errors and all fraud. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within
LightPath have been prevented or detected. Our internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles.
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Auditor’s Report on Internal Control over Financial Reporting
38
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and
Exchange Commission (the “SEC”) that permit us to provide only management’s report in this Annual Report.
Changes in Internal Controls over Financial Reporting
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes-
Oxley Act, we continue to review, test, and improve the effectiveness of our internal controls. In connection with the events that occurred at our Chinese
subsidiaries, we have adopted additional policies and procedures designed to improve our internal controls, including, without limitation, revising the
reporting structure for our foreign-based finance directors, adopting Codes of Conduct applicable to our subsidiaries’ foreign-based employees, adopting an
internal authority approval matrix, and hiring additional staff for our accounting departments at LPOI and LPOIZ to improve segregation of duties, among
other items. Other than these modifications, there have not been any significant changes in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter and since the year ended June 30, 2023 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Table of Contents
39
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
The information required under this item is incorporated herein by reference to our Proxy Statement for our fiscal year 2024 Annual Stockholders’ Meeting
to be filed with the SEC not later than 120 days after the end of fiscal year 2023.
Item 11. Executive Compensation.
The information required under this item is incorporated herein by reference to our Proxy Statement for our fiscal year 2024 Annual Stockholders’ Meeting
to be filed with the SEC not later than 120 days after the end of fiscal year 2023.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required under this item is incorporated herein by reference to our Proxy Statement for our fiscal year 2024 Annual Stockholders’ Meeting
to be filed with the SEC not later than 120 days after the end of fiscal year 2023, with the exception of those items listed below.
Securities Authorized for Issuance Under Equity Compensation Plans.
The following table sets forth information with respect to compensation plans under which our equity securities are authorized for issuance as of the end of
fiscal year 2023:
Plan category
Number of
securities to
be issued
upon exercise
of outstanding
Weighted
average
exercise and
grant price of
outstanding
Number of
securities
remaining
available for
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Item 13. Certain Relationships and Related Transactions, and Director Independence.
options,
warrants and
rights
options,
warrants and
rights
2,232,417 $
—
1.66
—
1,633,538
—
future
issuance
The information required under this item is incorporated herein by reference to our Proxy Statement for our fiscal year 2024 Annual Stockholders’ Meeting
to be filed with the SEC not later than 120 days after the end of fiscal year 2023.
Item 14. Principal Accountant Fees and Services.
The information required under this item is incorporated herein by reference to our Proxy Statement for our fiscal year 2024 Annual Stockholders’ Meeting
to be filed with the SEC not later than 120 days after the end of fiscal year 2023.
Table of Contents
40
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements – See Index on page F-1 of this report
(2) Financial Statement Schedules – None
(b) The following exhibits are filed herewith as a part of this report
Exhibit
Number
3.1.1
3.1.2
3.1.3
3.1.4
3.1.5
3.1.6
3.1.7
3.1.8
3.1.9
3.1.10
Description
Certificate of Incorporation of LightPath Technologies, Inc., filed June 15, 1992 with the Secretary of State of Delaware, which was filed as
Exhibit 3.1.1 to our Annual Report on Form 10-K (File No. 000-25748) filed with the Securities and Exchange Commission on September
10, 2020, and is incorporated herein by reference thereto.
Certificate of Amendment to Certificate of Incorporation of LightPath Technologies, Inc., filed October 2, 1995 with the Secretary of State of
Delaware, which was filed as exhibit 3.1.2 to our Annual Report on Form 10-K (File No. 000-25748) filed with the Securities and Exchange
Commission on September 10, 2020, and is incorporated herein by reference thereto.
Certificate of Designations of Class A common stock and Class E-1 common stock, Class E-2 common stock, and Class E-3 common stock
of LightPath Technologies, Inc., filed November 9, 1995 with the Secretary of State of Delaware, which was filed as Exhibit 3.1.3 to our
Annual Report on Form 10-K (File No. 000-25748) filed with the Securities and Exchange Commission on September 10, 2020, and is
incorporated herein by reference thereto.
Certificate of Designation of Series A Preferred Stock of LightPath Technologies, Inc., filed July 9, 1997 with the Secretary of State of
Delaware, which was filed as Exhibit 3.4 to our Annual Report on Form 10-KSB40 filed with the Securities and Exchange Commission on
September 11, 1997, and is incorporated herein by reference thereto.
Certificate of Designation of Series B Stock of LightPath Technologies, Inc., filed October 2, 1997 with the Secretary of State of Delaware,
which was filed as Exhibit 3.2 to our Quarterly Report on Form 10-QSB (File No. 000-27548) filed with the Securities and Exchange
Commission on November 14, 1997, and is incorporated herein by reference thereto.
Certificate of Amendment of Certificate of Incorporation of LightPath Technologies, Inc., filed November 12, 1997 with the Secretary of
State of Delaware, which was filed as Exhibit 3.1 to our Quarterly Report on Form 10-QSB (File No. 000-27548) filed with the Securities
and Exchange Commission on November 14, 1997, and is incorporated herein by reference thereto.
Certificate of Designation of Series C Preferred Stock of LightPath Technologies, Inc., filed February 6, 1998 with the Secretary of State of
Delaware, which was filed as Exhibit 3.2 to our Registration Statement on Form S-3 (File No. 333-47905) filed with the Securities and
Exchange Commission on March 13, 1998, and is incorporated herein by reference thereto.
Certificate of Designation, Preferences and Rights of Series D Participating Preferred Stock of LightPath Technologies, Inc. filed April 29,
1998 with the Secretary of State of Delaware, which was filed as Exhibit 1 to our Registration Statement on Form 8-A (File No. 000-27548)
filed with the Securities and Exchange Commission on April 28, 1998, and is incorporated herein by reference thereto.
Certificate of Designation of Series F Preferred Stock of LightPath Technologies, Inc., filed November 2, 1999 with the Secretary of State of
Delaware, which was filed as Exhibit 3.2 to our Registration Statement on Form S-3 (File No: 333-94303) filed with the Securities and
Exchange Commission on January 10, 2000, and is incorporated herein by reference thereto.
Certificate of Amendment of Certificate of Incorporation of LightPath Technologies, Inc., filed February 28, 2003 with the Secretary of State
of Delaware, which was filed as Appendix A to our Proxy Statement (File No. 000-27548) filed with the Securities and Exchange
Commission on January 24, 2003, and is incorporated herein by reference thereto.
Table of Contents
41
3.1.11
3.1.12
3.1.13
3.1.14
3.2.1
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
Certificate of Amendment of Certificate of Incorporation of LightPath Technologies, Inc., filed March 1, 2016 with the Secretary of State of
Delaware, which was filed as Exhibit 3.1.11 to our Quarterly Report on Form 10-Q (File No: 000-27548) filed with the Securities and
Exchange Commission on November 14, 2016, and is incorporated herein by reference thereto.
Certificate of Amendment of Certificate of Incorporation of LightPath Technologies, Inc., filed October 30, 2017 with the Secretary of State
of Delaware, which was filed as Exhibit 3.1 to our Current Report on Form 8-K (File No: 000-27548) filed with the Securities and Exchange
Commission on October 31, 2017, and is incorporated herein by reference thereto.
Certificate of Amendment of Certificate of Designations of Class A Common Stock and Class E-1 Common Stock, Class E-2 Common
Stock, and Class E-3 Common Stock of LightPath Technologies, Inc., filed October 30, 2017 with the Secretary of State of Delaware, which
was filed as Exhibit 3.2 to our Current Report on Form 8-K (File No: 000-27548) filed with the Securities and Exchange Commission on
October 31, 2017, and is incorporated herein by reference thereto.
Certificate of Amendment of Certificate of Designation, Preferences and Rights of Series D Participating Preferred Stock of LightPath
Technologies, Inc., filed January 30, 2018 with the Secretary of State of Delaware, which was filed as Exhibit 3.1 to our Current Report on
Form 8-K (File No: 000-27548) filed with the Securities and Exchange Commission on February 1, 2018, and is incorporated herein by
references thereto.
Second Amended and Restated Bylaws of LightPath Technologies, Inc., which was filed as Exhibit 3.1 to our Current Report on Form 8-K
(File No: 000-27548) filed with the Securities and Exchange Commission on February 2, 2021, and is incorporated herein by reference
thereto.
Description of Securities Registered under Section 12 of the Securities Exchange Act of 1934, as amended.*
Amended and Restated Omnibus Incentive Plan dated October 15, 2002, as amended, which was filed as Exhibit 10.1 to our Current Report
on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on October 31, 2017, and is incorporated herein by
reference thereto.
LightPath Technologies, Inc. Employee Stock Purchase Plan effective January 30, 2015, which was filed as Appendix A to our Definitive
Proxy Statement on Schedule 14A (File No.: 000-27548) filed with the Securities and Exchange Commission on December 19, 2014, and is
incorporated herein by reference thereto.
Sixth Amendment to Lease dated as of July 2, 2014 between LightPath Technologies, Inc. and Challenger Discovery LLC, which was filed as
Exhibit 10.1 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on July 8, 2014,
and is incorporated herein by reference thereto.
Amendment No. 8 to the Amended and Restated LightPath Technologies, Inc. Omnibus Incentive Plan dated February 8, 2018, which was
filed as Exhibit 10.7 to our Quarterly Report on Form 10-Q (File No.: 000-27548) filed with the Securities and Exchange Commission on
February 13, 2018, and is incorporated herein by reference thereto.
Lease dated April 20, 2018, by and between LightPath Technologies, Inc. and CIO University Tech, LLC, which was filed as Exhibit 10.1 to
our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on April 26, 2018, and is
incorporated herein by reference thereto.
First Amendment to Lease, dated January 9, 2019, by and between LightPath Technologies, Inc. and CIO University Tech, LLC, which was
filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q (File No.: 000-27548) filed with the Securities and Exchange Commission on
February 7, 2019, and is incorporated herein by reference thereto.
Loan Agreement dated February 26, 2019 by and between LightPath Technologies, Inc. and BankUnited, N.A., which was filed as Exhibit
10.1 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on March 1, 2019, and is
incorporated herein by reference thereto.
Table of Contents
42
10.8
10.9
10.10
10.11
Term Loan Note dated February 26, 2019 by LightPath Technologies, Inc. in favor of BankUnited, N.A., which was filed as Exhibit 10.2 to
our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on March 1, 2019, and is
incorporated herein by reference thereto.
Revolving Credit Note dated February 26, 2019 by LightPath Technologies, Inc. in favor of BankUnited, N.A., which was filed as Exhibit
10.3 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on March 1, 2019, and is
incorporated herein by reference thereto.
Guidance Line Note dated February 26, 2019 by LightPath Technologies, Inc. in favor of BankUnited, N.A., which was filed as Exhibit 10.4
to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on March 21, 2019, and is
incorporated herein by reference thereto.
Security Agreement dated February 26, 2019 by LightPath Technologies, Inc. in favor of BankUnited, N.A., and joined by GelTech, Inc. and
ISP Optics Corporation, which was filed as Exhibit 10.5 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
and Exchange Commission on March 1, 2019, and is incorporated herein by reference thereto.
Guaranty Agreement (Term Loan) dated February 26, 2019 by GelTech Inc., ISP Optics Corporation, LightPath Optical Instrumentation
(Shanghai) Co., Ltd., LightPath Optical Instrumentation (Zhenjiang) Co., Ltd., and ISP Optics Latvia, SIA in favor of BankUnited, N.A.,
which was filed as Exhibit 10.6 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange
Commission on March 1, 2019, and is incorporated herein by reference thereto.
Guaranty Agreement (Revolving Credit) dated February 26, 2019 by GelTech Inc., ISP Optics Corporation, LightPath Optical
Instrumentation (Shanghai) Co., Ltd., LightPath Optical Instrumentation (Zhenjiang) Co., Ltd., and ISP Optics Latvia, SIA in favor of
BankUnited, N.A., which was filed as Exhibit 10.7 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and
Exchange Commission on March 1, 2019, and is incorporated herein by reference thereto.
Guaranty Agreement (Guidance Line) dated February 26, 2019 by GelTech Inc., ISP Optics Corporation, LightPath Optical Instrumentation
(Shanghai) Co., Ltd., LightPath Optical Instrumentation (Zhenjiang) Co., Ltd., and ISP Optics Latvia, SIA in favor of BankUnited, N.A.,
which was filed as Exhibit 10.8 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange
Commission on March 1, 2019, and is incorporated herein by reference thereto.
First Amendment to Loan Agreement dated May 6, 2019, and effective February 26, 2019, by and between LightPath Technologies, Inc. and
BankUnited, N.A., which was filed as Exhibit 10.10 to our Quarterly Report on Form 10-Q (File No.: 000-27548) filed with the Securities
and Exchange Commission on May 9, 2019, and is incorporated herein by reference thereto.
LightPath Technologies, Inc. 2018 Stock and Incentive Compensation Plan, which was filed as Exhibit 10.1 to our Current Report on Form 8-
K (File No.: 000-27548) filed with the Securities and Exchange Commission on November 8, 2018, and is incorporated herein by reference
thereto.
Employment Agreement between LightPath Technologies, Inc. and Mr. Sam Rubin, which was filed as Exhibit 10.1 to our Current Report on
Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on February 26, 2020, and is incorporated herein by
reference thereto.
Letter Agreement, dated November 13, 2020, by and between the Company and J. James Gaynor which was filed as Exhibit 10.1 to our
Quarterly Report on Form 10-Q (File No.: 000-27548) filed with the Securities and Exchange Commission on February 3, 2021, and is
incorporated herein by reference thereto.
Employment Agreement between LightPath Technologies, Inc. and Mr. Albert Miranda, which was filed as Exhibit 10.1 to our Current
Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on April 22, 2021, and is incorporated herein
by reference thereto.
Table of Contents
43
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
Eighth Amendment to Lease Agreement between LightPath Technologies, Inc. and Challenger-Discovery, LLC which was filed as Exhibit
10.1 to our Current Report on Form 8-K (File No.: 000-27548) filed with the Securities and Exchange Commission on May 17, 2021, and is
incorporated herein by reference thereto.
Ninth Amendment to Lease dated as of September 21, 2021, between LightPath Technologies, Inc. and Challenger Discovery LLC, which
was filed as Exhibit 10.1 to our Current Report on Form 8-K (File No: 000-27548) filed with the Securities and Exchange Commission on
September 27, 2021, and is incorporated herein by reference thereto.
Notice of Default and Waiver dated November 8, 2021 between LightPath Technologies, Inc. and BankUnited, N.A., which was filed as
Exhibit 10.3 to our Quarterly Report on Form 10-Q (File No: 000-27548) filed with the Securities and Exchange Commission on November
9, 2021, and is incorporated herein by reference thereto.
Second Amendment to Loan Agreement dated as of December 20, 2021, between LightPath Technologies, Inc. and BankUnited N.A., which
was filed as Exhibit 10.1 to our Current Report on Form 8-K (File No: 000-27548) filed with the Securities and Exchange Commission on
December 23, 2021, and is incorporated herein by reference thereto.
Sales Agreement, dated February 15, 2022, by and between LightPath Technologies, Inc. and A.G.P./Alliance Global Partners, which was
filed as Exhibit 10.1 to our Current Report on Form 8-K (File No: 000-27548) filed with the Securities and Exchange Commission on
February 16, 222, and is incorporated herein by reference thereto.
Investor Relations Consulting Agreement, dated April 11, 2022, by and between LightPath Technologies, Inc. and MZHCI, LLC, which was
filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q (File No: 000-27548) filed with the Securities and Exchange Commission on May
12, 2022, and is incorporated herein by reference thereto.
Third Amendment to Loan Agreement, dated May 11, 2022, by and between LightPath Technologies, Inc. and BankUnited, N.A., which was
filed as Exhibit 10.3 to our Quarterly Report on Form 10-Q (File No: 000-27548) filed with the Securities and Exchange Commission on May
12, 2022, and is incorporated herein by reference thereto.
Form of Securities Purchase Agreement, dated as of January 12, 2023, between the Company and each purchaser named in the signature
pages thereto, which was filed as Exhibit 10.1 to our Current Report on Form 8-K (File No: 000-27548) filed with the Securities and
Exchange Commission on January 12, 2023, and is incorporated herein by reference thereto.
Fourth Amendment to Loan Agreement, dated February 7, 2023, by and between LightPath Technologies, Inc. and BankUnited, N.A., filed as
Exhibit 10.2 to our Quarterly Report on Form 10-Q, (File No: 000-27548) filed with the Securities and Exchange Commission on February 9,
2023, and is incorporated herein by reference thereto.
10.29
Fifth Amendment to Loan Agreement, dated May 9, 2023, by and between LightPath Technologies, Inc. and BankUnited, N.A., filed as
Exhibit 10.2 to our Quarterly Report on Form 10-Q, (File No: 000-27548) filed with the Securities and Exchange Commission on May 11,
2023, and is incorporated herein by reference thereto.
14.1
14.2
21.1
23.1
24
31.1
31.2
32.1
32.2
Code of Business Conduct and Ethics, which was filed as Exhibit 14.1 to our Current Report on Form 8-K (File No.: 000-27548) filed with
the Securities and Exchange Commission on May 3, 2016, and is incorporated herein by reference thereto.
Code of Business Conduct and Ethics for Senior Financial Officers, which was filed as Exhibit 14.2 to our Current Report on Form 8-K (File
No.: 000-27548) filed with the Securities and Exchange Commission on May 3, 2016, and is incorporated herein by reference thereto.
Subsidiaries of the Registrant.*
Consent of MSL, P.A.*
Power of Attorney.*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code.*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code.*
XBRL Instance Document*
101.INS
101.SCH XBRL Taxonomy Extension Schema Document*
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB XBRL Taxonomy Extension Label Linkbase Document*
101.PRE XBRL Taxonomy Presentation Linkbase Document*
104
The cover page from the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, formatted in iXBRL.
*filed herewith
Item 16. Form 10-K Summary.
None.
Table of Contents
44
LightPath Technologies, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – MSL, P.A. (MSL PCAOB #569)
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2023 and 2022
Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2023 and 2022
Consolidated Statements of Changes in Stockholders’ Equity for the years ended June 30, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended June 30, 2023 and 2022
Notes to Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
Table of Contents
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of LightPath Technologies, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of LightPath Technologies, Inc. (the “Company”) as of June 30, 2023 and 2022, and the
related consolidated statements of comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years ended June 30, 2023
and 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash
flows for each of the years ended June 30, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. Federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain
an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Inventory Allowance
As disclosed in Notes 2 and 4 of the notes to the consolidated financial statements, the Company records an estimated inventory allowance to state the
Company’s inventories at the lower of cost or net realizable value. The Company relies on, among other things, past usage, sales experience, recent order
and quote activity, future sales forecasts, and its strategic business plan to develop the estimate. As a result of management’s assessment, the Company
recorded an inventory allowance of approximately $1,125,000 as of June 30, 2023.
Auditing management’s estimate of the inventory allowance involved subjective evaluation and high degree of auditor judgement due to significant
assumptions involved in estimating future inventory turnover and sales.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. We obtained an understanding and evaluated the design of internal controls that address the risks of material misstatement relating to
recording inventory at the lower of cost or net realizable value. We tested the accuracy and completeness of the underlying data used in calculating the
inventory allowance, including testing of a sample of inventory usage transactions, and recomputed the allowance calculation. We also evaluated the
Company’s ability to accurately estimate the assumptions used to develop the estimate by comparing historical allowance amounts to the history of actual
inventory write-offs. Furthermore, we reviewed management’s business plan and forecasts of future sales.
We have served as the Company’s auditor since 2017.
/s/ MSL, P.A.
Orlando, Florida
September 14, 2023
Table of Contents
F-2
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Restricted cash
Trade accounts receivable, net of allowance of $18,502 and $36,313
Inventories, net
Prepaid expenses and other assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Intangible assets, net
Goodwill
Deferred tax assets, net
Other assets
Total assets
June 30,
2023
June 30,
2022
$
$
4,687,004 $
2,457,486
6,634,574
7,410,734
570,293
21,760,091
12,810,930
9,571,604
3,332,715
5,854,905
140,000
65,939
53,536,184 $
5,507,891
—
5,211,292
6,985,427
464,804
18,169,414
11,640,463
10,420,604
4,457,798
5,854,905
143,000
27,737
50,713,921
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Accrued payroll and benefits
Operating lease liabilities, current
Loans payable, current portion
Finance lease obligation, current portion
Total current liabilities
Deferred tax liabilities, net
Finance lease obligation, less current portion
Operating lease liabilities, noncurrent
Loans payable, less current portion
Total liabilities
Commitments and Contingencies
Stockholders’ equity:
Preferred stock: Series D, $.01 par value, voting; 500,000 shares authorized; none issued and outstanding
Common stock: Class A, $.01 par value, voting; 44,500,000 shares authorized; 37,344,739 and 27,046,790 shares
issued and outstanding
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
2,574,135 $
662,242
1,499,896
969,890
1,023,814
103,646
6,833,623
3,073,933
558,750
2,081,212
965,622
998,692
55,348
7,733,557
465,000
341,201
8,393,248
1,550,587
17,583,659
541,015
11,454
9,478,077
3,218,580
20,982,683
—
—
373,447
606,536
270,468
242,808,771 232,315,003
935,125
(207,836,229) (203,789,358)
29,731,238
50,713,921
35,952,525
53,536,184 $
$
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-3
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Statements of Comprehensive Income (Loss)
Revenue, net
Cost of sales
Gross margin
Operating expenses:
Selling, general and administrative
New product development
Amortization of intangibles
(Gain) loss on disposal of property and equipment
Total operating expenses
Operating loss
Other income (expense):
Interest expense, net
Other income (expense), net
Total other income (expense), net
Loss before income taxes
Income tax provision
Net loss
Foreign currency translation adjustment
Comprehensive loss
Loss per common share (basic)
Number of shares used in per share calculation (basic)
Loss per common share (diluted)
Number of shares used in per share calculation (diluted)
Year Ended
June 30,
$
2023
32,933,949 $
21,859,126
11,074,823
2022
35,559,160
23,744,524
11,814,636
11,437,241
2,145,413
1,125,083
(78,373)
14,629,364
(3,554,541)
(283,266)
24,970
(258,296)
(3,812,837)
234,034
(4,046,871) $
(328,589)
(4,375,460) $
(0.13) $
31,637,445
(0.13) $
31,637,445
11,221,866
2,085,686
1,125,083
9,235
14,441,870
(2,627,234)
(229,475)
177,435
(52,040)
(2,679,274)
862,907
(3,542,181)
(1,181,027)
(4,723,208)
(0.13)
27,019,534
(0.13)
27,019,534
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-4
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Statements of Changes in Stockholders' Equity
Additional
Accumulated
Other
Total
Class A
Common
Stock
Shares
Amount
Paid-in
Capital
Comphrehensive
Income
Accumulated
Deficit
Stockholders’
Equity
26,985,913 $ 269,859 $ 231,438,651 $
2,116,152 $ (200,247,177) $ 33,577,485
21,012
39,865
—
—
—
51,501
(399)
825,250
—
—
27,046,790 270,468 232,315,003
210
399
—
—
—
—
—
—
(1,181,027)
—
—
—
—
—
(3,542,181)
935,125 (203,789,358)
51,711
—
825,250
(1,181,027)
(3,542,181)
29,731,238
Balances at June 30, 2021
Issuance of common stock for:
Employee Stock Purchase Plan
Exercise of Stock Options & RSUs, net
Stock-based compensation on stock options & RSUs
Foreign currency translation adjustment
Net loss
Balances at June 30, 2022
Issuance of common stock for:
Employee Stock Purchase Plan
Exercise of Stock Options, RSUs & RSAs, net
Issuance of common stock under public equity
placement
Stock-based compensation on stock options, RSAs
& RSUs
Foreign currency translation adjustment
Net loss
Balances at June 30, 2023
33,523
1,173,516
335
11,735
40,045
34,165
9,090,910
90,909
9,108,601
—
—
—
—
—
40,380
45,900
—
9,199,510
—
—
—
—
—
—
—
—
37,344,739 $ 373,447 $ 242,808,771 $
1,310,957
—
(328,589)
—
1,310,957
—
(328,589)
—
(4,046,871)
(4,046,871)
606,536 $ (207,836,229) $ 35,952,525
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
F-5
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization
Interest from amortization of debt costs
(Gain) loss on disposal of property and equipment
Stock-based compensation on stock options, RSUs & RSAs, net
Provision for doubtful accounts receivable
Change in operating lease assets and liabilities
Inventory write-offs to allowance
Deferred taxes
Changes in operating assets and liabilities:
Trade accounts receivable
Other receivables
Inventories
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Proceeds from sale of equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from sale of common stock from Employee Stock Purchase Plan
Proceeds from issuance of common stock under public equity placement
Loan costs
Borrowings on loans payable
Payments on loans payable
Repayment of finance lease obligations
Net cash provided by (used in) financing activities
Effect of exchange rate on cash and cash equivalents
Change in cash, cash equivalents and restricted cash
Cash and cash equivalents, beginning of period
Cash, cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information:
Year Ended June 30,
2022
2023
$
(4,046,871) $
(3,542,181)
3,174,569
58,774
(78,373)
1,310,957
8,158
(231,561)
316,297
(73,015)
(1,431,440)
—
(741,604)
(97,792)
(977,622)
(2,809,523)
3,617,743
51,974
9,235
825,250
7,713
(222,047)
456,538
545,015
(562,651)
137,103
1,217,622
10,560
(1,087,746)
1,464,128
(3,077,154)
209,169
(2,867,985)
(1,626,614)
—
(1,626,614)
40,380
9,199,510
—
141,245
(1,852,256)
(73,003)
7,455,876
(141,769)
1,636,599
5,507,891
7,144,490 $
51,711
—
(61,223)
266,850
(681,301)
(212,211)
(636,174)
(468,143)
(1,266,803)
6,774,694
5,507,891
$
Interest paid in cash
Income taxes paid
Supplemental disclosure of non-cash investing & financing activities:
Purchase of equipment through finance lease arrangements
Equipment deposit paid in restricted stock
$
$
$
$
221,773 $
428,914 $
157,407
267,585
451,048 $
45,900 $
—
—
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
1. Organization and History
F-6
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements
LightPath Technologies, Inc. (“LightPath”, the “Company”, “we”, “us” or “our”) was incorporated in Delaware in 1992. It was the successor to LightPath
Technologies Limited Partnership formed in 1989, and its predecessor, Integrated Solar Technologies Corporation formed in 1985. The Company
completed its initial public offering during fiscal year 1996. On April 14, 2000, the Company acquired Horizon Photonics, Inc. (“Horizon”). On September
20, 2000, the Company acquired Geltech, Inc. (“Geltech”). In November 2005, we formed LightPath Optical Instrumentation (Shanghai) Co., Ltd
(“LPOI”), a wholly-owned subsidiary located in Jiading, People’s Republic of China. In December 2013, we formed LightPath Optical Instrumentation
(Zhenjiang) Co., Ltd (“LPOIZ”), a wholly-owned subsidiary located in Zhenjiang, Jiangsu Province, People’s Republic of China. In December 2016, we
acquired ISP Optics Corporation, a New York corporation (“ISP”), and its wholly-owned subsidiary, ISP Optics Latvia, SIA, a limited liability company
founded in 1998 under the Laws of the Republic of Latvia (“ISP Latvia”).
LightPath is a manufacturer of optical components and higher-level assemblies, including precision molded glass aspheric optics, infrared optics, both
molded and diamond-turned, thermal imaging assemblies, and other optical components used in products that manipulate light. LightPath designs,
develops, manufactures, and distributes optical components and sub-system level lens assemblies utilizing advanced optical manufacturing processes.
LightPath products are incorporated into a variety of applications by customers in many industries, including defense products, medical devices, laser aided
industrial tools, automotive safety applications, barcode scanners, optical data storage, hybrid fiber coax datacom, telecommunications, machine vision and
sensors, among others. Many of our optical assemblies consist of several products that we manufacture.
As used herein, the terms “LightPath,” the “Company,” “we,” “us” or “our,” refer to LightPath individually or, as the context requires, collectively with its
subsidiaries on a consolidated basis.
2. Significant Accounting Policies
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.
Management estimates.Management makes estimates and assumptions during the preparation of the Company’s Consolidated Financial Statements that
affect amounts reported in the 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.
Cash and cash equivalents consist of cash in the bank and cash equivalents with maturities of 90 days or less when purchased. The Company maintains its
cash accounts in various institutions, generally with high credit ratings. The Company’s domestic cash accounts are maintained in one financial institution,
and balances may exceed Federal insured limits at times. The Company’s foreign cash accounts are not insured.
Restricted cash consists of amounts held in a restricted account as collateral for a loan agreement. See Note 13, Loans Payable, to these Consolidated
Financial Statements for additional information. Our restricted cash is invested in a money market account. Cash and cash equivalents and restricted cash
presented in the Consolidated Balance Sheet as of June 30, 2023 are combined in the Consolidated Statement of Cash Flows for the year ended June 30,
2023. The Company did not have any restricted cash as of June 30, 2022.
Allowance for accounts receivable is calculated by taking 100% of the total of invoices that are over 90 days past due from the due date and 10% of the
total of invoices that are over 60 days past due from the due date for U.S.- and Latvia-based accounts and 100% of invoices that are over 120 days past due
for Chinese-based accounts. Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit
evaluations of its customers’ financial condition. If the Company’s actual collection experience changes, revisions to its allowance may be required. After
all attempts to collect a receivable have failed, the receivable is written off against the allowance.
Table of Contents
F-7
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Inventories, which consist principally of raw materials, tooling, work-in-process and finished lenses, collimators and assemblies are stated at the lower of
cost or net realizable value, on a first-in, first-out basis. Inventory costs include materials, labor and manufacturing overhead. Acquisition of goods from
our vendors has a purchase burden added to cover customs, shipping and handling costs. Fixed costs related to excess manufacturing capacity are expensed
when incurred. The Company looks at the following criteria for parts to consider for the inventory allowance: (i) items that have not been sold in two years
and (ii) items that have not been purchased in two years. These items, as identified, are allowed for at 100%, as well as allowing 50% for other items
deemed to be slow moving within the last twelve months and allowing 25% for items deemed to have low material usage within the last six months. Items
of which we have greater than a two-year supply are also reserved at 25% to 100%, depending on usage rates. The parts identified are adjusted for recent
order and quote activity to determine the final inventory allowance.
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets ranging from
one to ten years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the related assets using the
straight-line method. Construction in process represents the accumulated costs of assets not yet placed in service. As of June 30, 2023, the balance of
construction in progress was primarily related to the expansion of our facility in Orlando, Florida.
Long-lived assets, such as property, plant, and equipment and purchased intangibles subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset
exceeds the fair value of the asset. The Company did not record any impairment of long-lived assets during the fiscal years ended June 30, 2023 and 2022.
Assets to be disposed of would be separately presented in the Consolidated Balance Sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately
in the appropriate asset and liability sections of the Consolidated Balance Sheet.
Goodwill and Intangible Assets acquired in a business combination are recognized at fair value using generally accepted valuation methods appropriate for
the type of intangible asset and reported separately from goodwill. Purchased intangible assets other than goodwill are amortized over their useful lives
unless these lives are determined to be indefinite. Purchased intangible assets are carried at cost, less accumulated amortization. Amortization is computed
over the estimated useful lives of the respective assets, generally two to fifteen years. The Company periodically reassesses the useful lives of its intangible
assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate. Definite-lived intangible assets consist
primarily of customer relationships, know-how/trade secrets and trademarks. They are generally valued as the present value of estimated cash flows
expected to be generated from the asset using a risk-adjusted discount rate. When determining the fair value of our intangible assets, estimates and
assumptions about future expected revenue and remaining useful lives are used. Goodwill and intangible assets are tested for impairment on an annual basis
and during the period between annual tests if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.
The Company will assess the qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its
carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment analysis. If the Company determines that it is more
likely than not that its fair value is less than its carrying amount, then the goodwill impairment test is performed. The first step, identifying a potential
impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step would need
to be performed; otherwise, no further steps are required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill
with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the implied fair value is recognized as an impairment loss, and
the carrying value of goodwill is written down to fair value. The Company did not record any impairment of goodwill or definite-lived intangible
assets during the fiscal years ended June 30, 2023 or 2022.
Leases. The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets,
other current liabilities and operating lease liabilities on the Company's consolidated balance sheet. Finance leases are included in property, plant and
equipment, current portion of long-term debt and long-term debt, net of current portion on the consolidated balance sheets.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease
term at commencement date. As most of our leases do not provide an implicit rate, the Company uses an estimate of its incremental borrowing rate based
on observed market data and other information available at the lease commencement date. The operating lease ROU assets also include any lease payments
made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will
exercise such options. The Company does not record leases on the consolidated balance sheet with a term of one year or less. The Company does not
separate lease and non-lease components but rather accounts for each separate component as a single lease component for all underlying classes of assets.
Variable lease payments are expensed as incurred and are not included within the operating lease ROU asset and lease liability calculation. Variable lease
payments primarily include reimbursements of costs incurred by lessors for common area maintenance and utilities. Lease expense for minimum operating
lease payments is recognized on a straight-line basis over the lease term.
Table of Contents
F-8
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are computed on the basis of differences
between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based upon enacted tax
laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances have been established to
reduce deferred tax assets to the amount expected to be realized.
The Company has not recognized a liability for uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits
or penalties has not been provided since there has been no unrecognized benefit or penalty. If there were an unrecognized tax benefit or penalty, the
Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company files United States (“U.S.”) Federal income tax returns, as well as tax returns in various states and foreign jurisdictions. Open tax years
subject to examination by the Internal Revenue Service (“IRS”) generally remain open for three years from the filing date. Tax years subject to examination
by the state jurisdictions generally remain open for up to four years from the filing date. In Latvia, tax years subject to examination remain open for up to
five years from the filing date and, in China, tax years subject to examination remain open for up to ten years from the filing date.
Our cash, cash equivalents and restricted cash totaled approximately $7.1 million at June 30, 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. Historically, we
considered unremitted earnings held by our foreign subsidiaries to be permanently reinvested. However, during fiscal 2020, we began declaring
intercompany dividends to remit a portion of the earnings of our foreign subsidiaries to 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.
With respect to the funds generated by our foreign subsidiaries in China, the retained earnings of the legal entity must equal at least 50% of the registered
capital before any funds can be repatriated. During fiscal years 2023 and 2022, we repatriated approximately $1.9 million and $2.8 million, respectively,
from LPOIZ. As of June 30, 2023, LPOIZ had approximately $2.9 million in retained earnings available for repatriation, and LPOI did not have any
earnings available for repatriation, based on earnings accumulated through December 31, 2022, the end of the most recent statutory tax year, that remained
undistributed as of June 30, 2023. During fiscal year 2020 we began to accrue for the applicable Chinese withholding taxes on the portion of earnings that
we intend to repatriate.
Beginning in fiscal year 2019, earnings from the Company’s non-U.S. subsidiaries were subject to the global intangible low-taxed income (“GILTI”)
inclusion pursuant to U.S. income tax rules. See Note 8, Income Taxes, to these Consolidated Financial Statements for additional information.
Revenue recognition – See Note 3, Revenue, to these Consolidated Financial Statements for additional information.
VAT is computed on the gross sales price on all sales of the Company’s products sold in the People’s Republic of China and Latvia. The VAT rates range
up to 21%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in
the cost of producing or acquiring its finished products. The Company recorded VAT receivables and payables on a net basis in the accompanying
Consolidated Financial Statements. These amounts were not significant as of June 30, 2023 and 2022.
New product development costs are expensed as incurred.
Stock-based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite
service period. We estimate the fair value of each restricted stock unit or stock option as of the date of grant using the Black-Scholes-Merton pricing
model. Our directors, officers, and key employees were granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as
amended (the “Omnibus Plan”), through October 2018 and after that date, the 2018 Stock and Incentive Compensation Plan (the “SICP”). Most options
granted under the Omnibus Plan and the SICP vest ratably over two to four years and generally have four to ten-year contract lives. The volatility rate is
based on historical trends in common stock closing prices and the expected term was determined based primarily on historical experience of previously
outstanding awards. The interest rate used is the U.S. Treasury interest rate for constant maturities. The likelihood of meeting targets for option grants that
are performance based are evaluated each quarter. If it is determined that meeting the targets is probable, then the compensation expense will be amortized
over the remaining vesting period.
Table of Contents
F-9
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Fair value of financial instruments. The Company accounts for financial instruments in accordance with the Financial Accounting Standards Board’s
(“FASB”) Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which provides a framework for
measuring fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820 defines fair value as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in
an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of
inputs that may be used to measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.
Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the
assumptions that market participants would use in pricing.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management.
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include accounts
receivable, accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments since they are
short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s
finance lease obligations and loans payable approximate their carrying values, based upon current rates available to us. See Note 13, Loans Payable, to
these Consolidated Financial Statements for additional information. Management considers these fair value estimates to be level 2 fair value measurements.
The Company does not have any other financial or non-financial assets or liabilities that would be characterized as Level 1, Level 2 or Level 3 instruments.
Debt issuance costs are recorded as a reduction to the carrying value of the related notes payable, by the same amount, and are amortized ratably over the
term of the related note.
Comprehensive income is defined as the change in equity (net assets) of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a period, except those resulting from investments by owners and
distributions to owners. Comprehensive income has two components, net income, and other comprehensive income, and is included on the Consolidated
Statements of Comprehensive Income. Our other comprehensive income consists of foreign currency translation adjustments made for financial reporting
purposes.
Business segments. As the Company only operates in principally one business segment, no additional reporting is required.
Recent accounting pronouncements. There are no new accounting pronouncements issued by the FASB that are not yet effective for the Company for the
year ended June 30, 2023 that are expected to have a material impact on the Consolidated Financial Statements.
3. Revenue
Product Revenue
The Company manufactures optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-
turned infrared aspheric lenses, and other optical components used to produce products that manipulate light. The Company designs, develops,
manufactures, and distributes optical components and assemblies utilizing advanced optical manufacturing processes. The Company also performs 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 the Company expects to receive in exchange for those products or services. The Company generally bears all costs, risk of
loss, or damage and retains 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. Revenue is presented net of sales taxes and any similar assessments.
Table of Contents
F-10
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Customary payment terms are granted to customers, based on credit evaluations. The Company does not have any contracts where revenue is recognized,
but the customer payment is contingent on a future event. Deferred revenue is recorded when cash payments are received or due in advance of the
Company’s performance. Deferred revenue was not significant as of June 30, 2023 and 2022.
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
are generally short term in nature, with revenue recognized upon satisfaction of the performance obligation, and transfer of control of the agreed-upon
deliverable. The Company has organized its products in three groups: precision molded optics (“PMO”), infrared, and specialty products. Revenues from
product development agreements are included in specialty products. The Company’s revenue by product group for the years ended June 30, 2023 and 2022
was as follows:
PMO
Infrared Products
Specialty Products
Total revenue
4. Inventories, net
The components of inventories include the following:
Raw materials
Work in process
Finished goods
Allowance for obsolescence
Year Ended June 30,
2022
2023
$ 13,425,643 $ 15,020,542
16,735,869 18,735,325
1,803,293
$ 32,933,949 $ 35,559,160
2,772,437
June 30,
2023
June 30,
2022
$ 2,999,879 $ 3,019,156
2,243,907
3,052,001
(1,329,637)
$ 7,410,734 $ 6,985,427
2,909,439
2,626,106
(1,124,690)
During fiscal years 2023 and 2022, the Company evaluated all allowed items and disposed of approximately $316,000 and $457,000, respectively, of
inventory parts and wrote them off against the allowance for obsolescence.
The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $1.5 million and $1.6 million at June 30, 2023 and
2022, respectively.
5. Property and Equipment, net
Property and equipment consist of the following:
Manufacturing equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Construction in progress
Estimated
Lives
(Years)
5 - 10
3 - 5
5
5 - 7
$
June 30,
2023
22,296,320 $
973,549
350,289
2,742,344
3,067,896
June 30,
2022
22,058,636
978,348
352,060
3,043,867
943,793
Total property and equipment
Less accumulated depreciation and amortization
Total property and equipment, net
29,430,398
(16,619,468)
12,810,930 $
27,376,704
(15,736,241)
11,640,463
$
Table of Contents
6. Goodwill and Intangible Assets
F-11
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
In connection with the December 2016 acquisition of ISP, the Company identified intangible assets, which were recorded at fair value and are being
amortized on a straight-line basis over their useful lives. The excess purchase price over the fair values of all identified assets and liabilities was recorded
as goodwill, attributable primarily to expected synergies and the assembled workforce of ISP.
There were no changes in the net carrying value of goodwill during the years ended June 30, 2023 and 2022, and there have been no events or changes in
circumstances that indicate the carrying value of goodwill or definite-lived intangible assets may not be recoverable.
Identifiable intangible assets were comprised of:
Useful
Lives
(Years)
15
8
8
Customer relationships
Trade secrets
Trademarks
Total intangible assets
Less accumulated amortization
Total intangible assets, net
Future amortization of identifiable intangibles is as follows:
Fiscal year ending:
June 30, 2024
June 30, 2025
June 30, 2026
June 30, 2027
After June 30, 2027
7. Stockholders’ Equity
June 30,
2023
June 30,
2022
3,272,000
3,814,000
$ 3,590,000 $ 3,590,000
3,272,000
3,814,000
10,676,000 10,676,000
(6,218,202)
$ 3,332,715 $ 4,457,798
(7,343,285)
$ 1,125,083
658,398
239,334
239,334
1,070,566
$ 3,332,715
The Company’s authorized capital stock consists of 55,000,000 shares, comprised of 50,000,000 shares of common stock, par value $0.01 per share, and
5,000,000 shares of preferred stock, par value $0.01 per share.
Of the 5,000,000 shares of preferred stock authorized, the board of directors has previously designated:
·
·
·
·
·
250 shares of preferred stock as Series A Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be reissued;
300 shares of preferred stock as Series B Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be reissued;
500 shares of preferred stock as Series C Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be reissued;
500,000 shares of preferred stock as Series D Preferred Stock, none of which have been issued; and
500 shares of our preferred stock as Series F Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be reissued.
Of the 50,000,000 shares of common stock authorized, the board of directors has previously designated 44,500,000 shares authorized as Class A common
stock. The stockholders of Class A common stock are entitled to one vote for each share held. The remaining 5,500,000 shares of authorized common stock
were designated as Class E-1 common stock, Class E-2 common stock, or Class E-3 common stock, all previously outstanding shares of which have been
previously redeemed or converted into shares of Class A common stock.
Table of Contents
F-12
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the following components:
Pretax income (loss):
United States
Foreign
Loss before income taxes
The components of the provision for income taxes are as follows:
Current:
Federal tax
State
Foreign
Total current
Deferred:
Federal tax
State
Foreign
Total deferred
Year Ended June 30,
2022
2023
$
$
(5,697,853) $
1,885,016
(3,812,837) $
(5,129,955)
2,450,681
(2,679,274)
$
Year Ended June 30,
2022
2023
- $
3,799
303,235
307,034
3,000
-
(76,000)
(73,000)
-
3,829
314,063
317,892
4,000
-
541,015
545,015
Total income tax provision
$
234,034 $
862,907
The reconciliation of income tax computed at the U.S. federal statutory rates to the total income tax provision is as follows:
U.S. federal statutory tax rate
Income tax provision reconciliation:
Tax at statutory rate:
Net foreign income subject to lower tax rate
State income taxes, net of federal benefit
Valuation allowance
NOL expiration and adjustments
GILTI
Federal research and development and other credits
Stock-based compensation
Other permanent differences
Other, net
Year Ended June 30,
2022
2023
21.0%
21.0%
$
$
(800,696) $
(396,742)
(303,366)
(3,331,277)
4,015,752
192,452
491,112
(34,976)
(57,762)
459,537
234,034
$
(562,648)
(297,049)
(159,950)
(1,255,273)
2,550,645
138,611
(121,990)
20,472
11,387
538,702
862,907
Table of Contents
F-13
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, which, among other things, is
intended to provide emergency assistance to qualifying businesses and individuals. The Company elected to utilize the payroll tax deferral under the
CARES Act, resulting in cash savings of approximately $325,000, accrued as of June 30, 2021. Half of this amount was remitted on December 31, 2021,
with the remainder remitted on December 31, 2022.
Income Tax Law of the People’s Republic of China
The Company’s Chinese subsidiaries, LPOI and LPOIZ, are governed by the Income Tax Law of the People’s Republic of China concerning the privately
run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements
after appropriate tax adjustments. For both the years ended June 30, 2023 and 2022, the tax rate for LPOIZ was 15%, in accordance with an incentive
program for technology companies. Prior to fiscal year 2022, no deferred tax provision was recorded for LPOIZ. However, during the year ended June 30,
2022, as a result of audits performed by the Chinese taxing authorities, and the Chinese subsidiaries’ statutory audits, it was determined that a net deferred
tax liability was required. Accordingly, a net deferred tax liability of approximately $541,000, related to LPOIZ, was recorded in the Company’s
Consolidated Financial Statements as of and for the year ended June 30, 2022. As of June 30, 2023, the net deferred tax liability for LPOIZ is
approximately $465,000.
Historically, the Company considered unremitted earnings held by its foreign subsidiaries to be permanently reinvested. However, during fiscal year 2020,
the Company began declaring intercompany dividends to remit a portion of the historical earnings of its foreign subsidiaries to the U.S. parent company. It
is still the Company’s intent to reinvest a significant portion of the more recent earnings generated by its foreign subsidiaries, however the Company also
plans to repatriate a portion of the historical earnings of its subsidiaries. Based on its previous intent, the Company had not historically provided for future
Chinese withholding taxes on the related earnings. However, during fiscal year 2020 the Company began to accrue for these taxes on the portion of
historical earnings that it intends to repatriate.
During the years ended June 30, 2023 and 2022, the Company declared and paid intercompany dividends of $1.9 million and $2.8 million, respectively,
from LPOIZ, payable to the Company as its parent company. Accordingly, the Company paid Chinese withholding taxes of $210,000 and $280,000
associated with these dividends during fiscal years 2023 and 2022, respectively. Income tax expense associated with these dividends was $210,000 and
$208,000 for fiscal years 2023 and 2022, respectively. Accrued and unpaid withholding taxes were approximately $40,000 as of both June 30, 2023 and
2022. Other than these withholding taxes, these intercompany dividends have no impact on the Consolidated Financial Statements.
Law of Corporate Income Tax of Latvia
The Company’s Latvian subsidiary, ISP Latvia, is governed by the Law of Corporate Income Tax of Latvia. Until December 31, 2017, ISP Latvia was
subject to a statutory income tax rate of 15%. 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 tax rate was changed to 20%; however, distribution amounts are first divided by 0.8 to arrive at the taxable amount of profit, resulting in an effective
tax rate of 25%. As a transitional measure, distributions made from earnings prior to January 1, 2018, distributed prior to December 31, 2019, are not
subject to tax if declared prior to December 31, 2019. ISP Latvia has declared an intercompany dividend to be paid to 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. The Company currently does not intend to distribute any current earnings generated after January 1, 2018. If, in the future, the
Company changes such intention, distribution taxes, if any, will be accrued as profits are generated.
Table of Contents
F-14
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows at June 30:
Deferred tax assets:
Net operating loss carryforwards
Stock-based compensation
R&D and other credits
Capitalized R&D expenses
Inventories
Accrued expenses and other
Gross deferred tax assets
Valuation allowance for deferred tax assets
Total deferred tax assets
Deferred tax liabilities:
Depreciation and other
Intangible assets
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Year Ended June 30,
2022
2023
$
9,243,000 $
340,000
1,787,000
763,000
200,000
15,000
12,348,000
(11,057,000)
1,291,000
12,197,277
536,000
2,279,000
371,000
263,973
267,000
15,914,250
(14,388,277)
1,525,973
(740,000)
(876,000)
(1,616,000)
(325,000) $
(763,988)
(1,160,000)
(1,923,988)
(398,015)
$
In assessing the potential future recognition of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not 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. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate
future taxable income of approximately $37 million prior to the expiration of federal NOL carry-forwards from 2023 through 2037. Based on the level of
historical taxable income, management has provided for a valuation adjustment against the deferred tax assets of approximately $11.1 million at June 30,
2023, a decrease of approximately $3.3 million as compared to June 30, 2022. The decrease in the valuation allowance for deferred tax assets as compared
to the prior year is primarily the result of the various movements in the current year deferred items. The U.S. net deferred tax asset of $140,000 results from
federal and state tax credits with indefinite carryover periods. State income tax expense disclosed on the effective tax rate reconciliation above includes
state deferred taxes that are offset by a full valuation allowance.
At June 30, 2023, in addition to net operating loss carry forwards, the Company also has research and development and other credit carry forwards of
approximately $1.5 million, which will expire from 2024 through 2043. A portion of the NOL carry forwards may be subject to certain limitations of the
Internal Revenue Code Sections 382 and 383, which would restrict the annual utilization in future periods due principally to changes in ownership in prior
periods.
9. Compensatory Equity Incentive Plan and Other Equity Incentives
Share-based payment arrangements — The Company’s directors, officers, and key employees were granted stock-based compensation through the
Omnibus Plan, through October 2018 and after that date, the SICP. The awards include incentive stock options, non-qualified stock options and restricted
stock unit (“RSU”) awards.
The LightPath Technologies, Inc. Employee Stock Purchase Plan (“2014 ESPP”) was adopted by the Company’s board of directors on October 30, 2014
and approved by the Company’s stockholders on January 29, 2015. The 2014 ESPP permits employees to purchase Class A common stock through payroll
deductions, which may not exceed 15% of an employee’s compensation, at a price not less than 85% of the market value of the Class A common stock on
specified dates (June 30 and December 31). In no event can any participant purchase more than $25,000 worth of shares of Class A common stock in any
calendar year and an employee cannot purchase more than 8,000 shares on any purchase date within an offering period of 12 months and 4,000 shares on
any purchase date within an offering period of six months. This discount of approximately $4,000 and $5,000 for fiscal years 2023 and 2022, respectively,
is included in the selling, general and administrative expense in the accompanying Consolidated Statements Comprehensive Income (Loss), which
represents the value of the 10% discount given to the employees purchasing stock under the 2014 ESPP.
Table of Contents
These plans are summarized below:
F-15
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Equity Compensation Arrangement
SICP (or Omnibus Plan)
2014 ESPP
Award
Shares
Authorized
7,215,625
400,000
7,615,625
Outstanding
at
June 30,
2023
2,232,417
—
2,232,417
Available for
Issuance at
June 30,
2023
1,633,538
243,920
1,877,458
Grant Date Fair Values and Underlying Assumptions; Contractual Terms —The Company estimates the fair value of each equity option as of the date
of grant. The Company uses the Black-Scholes-Merton pricing model. The 2014 ESPP fair value 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 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 years ended June 30, 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 the year ended June 30, 2023.
For stock options granted in the year ended June 30, 2022, the Company estimated the fair value of each stock award as of the date of grant using the
following assumptions:
Weighted-average expected volatility
Dividend yields
Weighted-average risk-free interest rate
Weighted-average expected term, in years
Restricted Stock Awards
Year Ended
June 30,
2022
80.8%
0%
2.09%
3.75
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.
Table of Contents
F-16
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Information Regarding Current Share-Based Payment Awards —A summary of the activity for share-based payment awards in the years ended June
30, 2023 and 2022 is presented below:
June 30, 2021
Shares
432,927 $
Price
2.01
Contract
Shares
8.8 1,761,885
Stock Options
Weighted- Weighted-
Average Average
Exercise Remaining
Restricted Stock Units
(RSUs)
Restricted Stock
Awards (RSAs)
Weighted-
Average
Remaining
Contract
Weighted-
Average
Remaining
Contract
Shares
0.9
—
Granted
Exercised
Cancelled/Forfeited
June 30, 2022
Granted
Exercised
Cancelled/Forfeited
June 30, 2023
Awards exercisable/
vested as of
June 30, 2023
Awards unexercisable/
unvested as of
June 30, 2023
125,000 $
- $
(23,465) $
534,462 $
- $
- $
- $
534,462 $
2.02
-
1.67
2.03
-
-
-
368,461
(45,143)
(5,534)
1.2
7.0 2,079,669
0.9
—
—
—
—
611,386
(1,068,291)
(26,542)
246,942
(145,209)
—
1.1 101,733
0.7
2.03
6.1 1,596,222
396,202 $
1.96
5.8
938,817
—
—
138,260 $
534,462
2.21
7.1
657,405
1.1 101,733
0.7
1,596,222
101,733
The intrinsic and fair values for share-based payment awards exercised and vested in the years ended June 30, 2023 and 2022 are presented below:
Intrinsic Value - Exercised
RSUs
RSAs
Fair Value - Vested
Stock Options
RSUs
RSAs
Year Ended June 30,
2022
2023
$ 1,648,874 $
190,720
77,284
-
6,500
793,880
189,473
24,000
395,223
-
No stock options were exercised during the years ended June 30, 2023 and 2022.
Table of Contents
F-17
The intrinsic values of share-based payment awards outstanding and exercisable as of June 30, 2023 and 2022 are presented below:
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Stock options
RSUs
As of June 30,
2023
2022
$
2,430 $
1,267,403
42,463
1,642,023
None of the outstanding RSAs were exercisable as of June 30, 2023, and there were no outstanding RSAs as of June 30, 2022.
As of June 30, 2023, there was approximately $776,000 of total unrecognized compensation cost related to non-vested share-based compensation
arrangements, including share options and RSUs, granted under the Omnibus Plan, through October 2018 and after that date, the SICP. The expected
compensation cost to be recognized is as follows:
Fiscal Year Ending:
June 30, 2024
June 30, 2025
June 30, 2026
Stock Options
RSAs
RSUs
Total
94,196
33,885
—
128,081 $
56,744
23,718
—
80,462 $
416,582
130,589
19,829
567,000 $
567,522
188,192
19,829
775,543
$
The table above does not include shares under the Company’s 2014 ESPP, which has purchase settlement dates in the second and fourth fiscal quarters.
The Company issues new shares of Class A common stock upon the exercise of stock options and upon vesting of RSUs and RSAs, unless the recipient has
elected to defer receipt of shares under the applicable IRS rules. The following table is a summary of the number and weighted-average grant date fair
values, estimated using the Black-Scholes-Merton pricing model, regarding the Company’s unexercisable/unvested awards as of June 30, 2023 and 2022
and changes during the two years then ended:
Unexercisable/Unvested Awards
Stock Options
Shares
RSU Shares
RSA Shares
Total Shares
Weighted-Average
Grant Date Fair Values
(per share)
June 30, 2021
321,984
598,587
-
920,571 $
1.59
Granted
Vested
Cancelled/Forfeited
June 30, 2022
Granted
Vested
Cancelled/Forfeited
June 30, 2023
125,000
(118,696)
(8,967)
319,321
-
(181,061)
-
138,260
368,461
(216,823)
(5,534)
744,691
611,386
(672,130)
(26,542)
657,405
-
-
-
-
246,942
(145,209)
-
101,733
493,461 $
(335,519) $
(14,501) $
1,064,012 $
858,328 $
(998,400) $
(26,542) $
897,398 $
1.74
1.42
1.97
1.71
1.24
1.52
-
1.40
Acceleration of Vesting —The Company does not generally accelerate the vesting of any stock options, RSUs or RSAs, however in the case of
retirements, the Board of Directors may accelerate vesting.
Financial Statement Effects and Presentation —The following table shows total stock-based compensation expense for the years ended June 30, 2023
and 2022, which is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Comprehensive Income
(Loss):
Stock options
RSAs
RSUs
Total
Year Ended June 30,
2022
2023
$
200,854 $
168,673
941,430
$ 1,310,957 $
144,682
—
680,568
825,250
Table of Contents
10. Earnings (Loss) Per Share
F-18
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Basic earnings (loss) per share is computed by dividing net income (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 are described in the following table:
Net loss
Weighted-average common shares outstanding:
Basic number of shares
Effect of dilutive securities:
Options to purchase common stock
RSUs and RSAs
Diluted number of shares
Loss per common share:
Basic
Diluted
Year Ended June 30,
2022
2023
$ (4,046,871) $ (3,542,181)
31,637,445 27,019,534
-
-
-
-
31,637,445 27,019,534
$
$
(0.13) $
(0.13) $
(0.13)
(0.13)
The following weighted-average potential dilutive shares were not included in the computation of diluted earnings per share, as their effects would be anti-
dilutive:
Options to purchase common stock
RSUs and RSAs
11. Defined Contribution Plan
Year Ended June 30,
2022
2023
534,462
445,397
1,944,737
2,013,276
2,390,134
2,547,738
The Company provides retirement benefits to its U.S.-based employees through a defined contribution retirement plan. Until February 24, 2023, these
benefits were offered under the Insperity 401(k) plan (the “Insperity Plan”). The Insperity Plan was a defined 401(k) contribution plan that all
U.S. employees, over the age of 21, are eligible to participate in after three months of employment. Under the Insperity Plan, the Company matched 100%
of the first 2% of employee contributions. Effective February 24, 2023, all plan assets were transferred to the LightPath Technologies Inc. 401(k) plan (the
“LightPath Plan”). The LightPath Plan is adefined 401(k) contribution plan, administered by a third party, that all U.S. employees, over the age of 21, are
eligible to participate in after three months of employment. Under the LightPath Plan, the Company matches 100% of the first 2% of employee
contributions. As of June 30, 2023, there were 57 employees enrolled in this plan. The Company made matching contributions of approximately $121,000
and $123,000 during the years ended June 30, 2023 and 2022, respectively.
Table of Contents
12. Leases
F-19
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
The Company has operating leases for its manufacturing and office space. As of June 30, 2022, the Company had two lease agreements for its corporate
headquarters and manufacturing facilities in Orlando, Florida. The first lease (the “Orlando Lease”) was amended effective April 30, 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. Minimum rental rates for the extension term were established
based on annual increases of approximately three percent (3%). Additionally, there is one five-year extension option exercisable by the Company. The
minimum rental rates for such additional extension option will be determined at the time an option is exercised and will be based on a “fair market rental
rate,” as determined in accordance with the Orlando Lease, as amended. The second lease was entered into in April 2018 for 12,378 square feet in Orlando,
Florida (the “Orlando Lease II”), which provided additional manufacturing and office space near the Company’s corporate headquarters. The
commencement date of the Orlando Lease II was December 1, 2018, and it had a four-year original term with one renewal option for an additional five-
year term. In October 2021, the Company assigned such lease to a third-party and agreed that the premises would be vacated, subject to the assigned lease,
on November 30, 2022. In December 2022, the Company entered into an agreement with the assignee of such lease that extended its 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 the Company has no further obligations related to this lease.
As of June 30, 2022, the Company, through its wholly-owned subsidiary, LPOI, had a lease agreement for an office facility in Shanghai, China (the
“Shanghai Lease”) for 1,900 square feet. The Shanghai Lease commenced in October 2015. During fiscal 2020, the Shanghai Lease was renewed for an
additional three-year term, which expired in October 2022 and was not renewed.
As of June 30, 2023, the Company, through its wholly-owned subsidiary, LPOIZ, has a lease agreement for a manufacturing and office facility in
Zhenjiang, China for an aggregate of 55,000 square feet (the “Zhenjiang Lease”), which expires December 31, 2024.
At June 30, 2023, the Company, through ISP’s wholly-owned subsidiary ISP Latvia, had two lease agreements for a manufacturing and office facility in
Riga, Latvia for an aggregate of 29,000 square feet, which leases expire December 31, 2030.
The Company’s facility leases are classified as operating leases, and the Company also has finance leases related to certain equipment located in Orlando,
Florida and Riga, Latvia. The operating leases for facilities are non-cancelable, expiring in 2024 to 2034. The Company includes options to renew (or
terminate) in the lease term, and as part of the ROU assets and lease liabilities, when it is reasonably certain that the Company will exercise that option. At
June 30, 2023, the Company also has obligations under five finance lease agreements, entered into during fiscal years 2019 and 2023, with terms ranging
from three to five years. The leases are for computer and manufacturing equipment. The finance leases for equipment on Riga, Latvia include financial
covenants specific to ISP Latvia.
The Company’s 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. As most of the Company’s leases do not provide an implicit rate, the Company used its collateralized incremental borrowing rate based on
the information available at the commencement date in determining the present value of future payments. Currently, none of the Company’s leases include
variable lease payments that are dependent on an index or rate. The Company is responsible for payment of certain real estate taxes, insurance and other
expenses on certain of its leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and
lease liability. The Company generally accounts for non-lease components, such as maintenance, separately from lease components. The Company’s 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 Consolidated Balance Sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
The Company received tenant improvement allowances for the Orlando Lease and for Orlando Lease II. These allowances were used to construct
improvements and are included in leasehold improvements and operating lease liabilities. The balances were amortized over the corresponding lease terms,
and were fully amortized as of June 30, 2023.
Table of Contents
The components of lease expense were as follows:
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
F-20
Operating lease cost
Finance lease cost:
Depreciation of lease assets
Interest on lease liabilities
Total finance lease cost
Total lease cost
Year Ended June 30,
2022
2023
668,054
875,454 $
71,326
7,590
78,916
954,370 $
162,057
19,571
181,628
849,682
$
$
Supplemental balance sheet information related to leases was as follows:
Assets:
Operating lease assets
Finance lease assets
Total lease assets
Liabilities:
Current:
Operating leases
Finance leases
Noncurrent:
Operating leases
Finance leases
Total lease liabilities
(1)
Classification
June 30, 2023 June 30, 2022
Operating lease assets
Property and equipment, net(1)
Operating lease liabilities, current
Finance lease liabilities, current
Operating lease liabilities, less current portion
Finance lease liabilities, less current portion
$
$
$
$
9,571,604 $
542,105
10,113,709 $
10,420,604
61,566
10,482,170
969,890 $
103,646
965,622
55,348
8,393,248
341,201
9,807,985 $
9,478,077
11,454
10,510,501
Finance lease assets are recorded net of accumulated depreciation of approximately $72,000 and $418,000 as of June 30, 2023 and 2022, respectively.
Lease term and discount rate information related to leases was as follows:
Weighted Average Remaining Lease Term (in years)
Lease Term and Discount Rate
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
Supplemental cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash used for operating leases
Operating cash used for finance leases
Financing cash used for finance leases
June 30,
2023
9.2
4.5
2.9%
6.4%
Year Ended June 30,
2022
2023
$ 1,020,992 $
$
7,590 $
73,003 $
$
638,943
16,070
172,344
Table of Contents
Future maturities of lease liabilities were as follows as of June 30, 2023:
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
F-21
Fiscal year ending:
June 30, 2024
June 30, 2025
June 30, 2026
June 30, 2027
June 30, 2028
Thereafter
Total future minimum payments
Less imputed interest
Present value of lease liabilities
13. Loans Payable
BankUnited Loans
Finance
Leases
128,828 $
117,016
94,701
85,144
85,144
—
510,833
(65,986)
444,847 $
Operating
Leases
1,025,294
1,167,096
1,140,297
1,169,757
1,200,291
5,583,700
11,286,435
(1,923,297)
9,363,138
$
$
On February 26, 2019, the Company entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to
maximum amount of $2,000,000 (the “Revolving Line”), (ii) a term loan in the amount of up to $5,813,500 (“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 Term Loan, the
“BankUnited Loans”), as evidenced by promissory notes the Company executed in favor of BankUnited (the “BankUnited Notes”).
On May 6, 2019, the Company entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the
“Amendment” and, together with the Loan Agreement, the “Amended Loan Agreement”). The 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, the Company
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) the Company was granted a waiver of default for its 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.
On November 5, 2021, the Company 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, the Company 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 had not been
refinanced with another lender); 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, the Company was no longer in default of the Amended Loan Agreement.
On May 11, 2022, the Company 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 and has not been refinanced with another lender).
Table of Contents
F-22
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
On February 7, 2023, the Company 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); and (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 and has not been refinanced
with another lender); (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 has waived compliance with certain financial covenants until December 31, 2023.
On May 9, 2023, the Company 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 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 balance sheet as of June 30, 2023.
BankUnited Revolving Line
Pursuant to the Amended Loan Agreement, BankUnited agreed to make loan advances to the Company under the Revolving Line up to a maximum
aggregate principal amount outstanding not to exceed $2,000,000, which proceeds could have been used for working capital and general corporate
purposes. The Revolving Line expired on February 26, 2022. No amounts were outstanding under the BankUnited Revolving Line upon its expiration.
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 closing of the BankUnited Loans. The Term Loan is for a 5-year term, but co-terminus with the BankUnited
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.
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 (8.25% as of June 30, 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.
Table of Contents
Security and Guarantees
F-23
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
The Company’s obligations under the Amended Loan Agreement were previously collateralized by a first priority security interest (subject to permitted
liens) in all of its assets and the assets of the Company’s U.S. subsidiaries, 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 the 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 the Company 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 the Company a waiver of compliance for the Financial Covenants (as set forth in the
Amended Loan Agreement) through June 30, 2022. Based on the waivers, the Company was 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 June 30, 2023, the Company was 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 the 30-day LIBOR 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 related to the BankUnited Loans were recorded as a discount on debt and are being amortized over the term. Amortization of
approximately $59,000 and $52,000 for each the years ended June 30, 2023 and 2022, respectively, is included in interest expense.
Equipment Loans
In December 2020, ISP Latvia entered into an equipment loan with a third party (the “2020 Equipment Loan”), which is also a significant customer. 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. The 2020 Equipment Loan bears interest at a fixed rate of 3.3%. 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.
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. The initial advance under the 2023 Equipment Loan was 128,815 EUR (or USD $141,245), the proceeds of which were used to make a
prepayment 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% (6.75% as of June 30, 2023).
Table of Contents
F-24
Future maturities of loans payable are as follows:
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
Fiscal year ending:
June 30, 2024
June 30, 2025
June 30, 2026
June 30, 2027
After June 30, 2027
Bank
United
Term Loan
Equipment
Loans
Total
$
901,078 $
1,273,533
-
-
-
122,736 $ 1,023,814
1,413,499
139,966
79,761
79,761
37,571
37,571
19,756
19,756
Total payments
Less current portion
Non-current portion
Liquidity
$ 2,174,611 $
399,790
2,574,401
(1,023,814)
$ 1,550,587
The Company generally relies on cash from operations and equity offerings, and commercial debt, to the extent available, to satisfy its liquidity needs and
to meet its payment obligations, including payments due under the Term Loan. The Company has commenced discussions with prospective lenders
regarding the refinancing of its debt obligations prior to the maturity date of the 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 the Company is 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. In February 2022, the Company filed a shelf registration statement to facilitate the issuance of its Class A common stock, warrants
exercisable for shares of its 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, the Company also included a prospectus supplement relating to an at-the-market equity program under which
the Company may issue and sell shares of its 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 its shelf registration statement to $50.6 million. The shelf registration statement was declared effective by the SEC
on March 1, 2022. The Company has not issued any shares of its 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.
Based on the capital raise that was completed in January 2023, the Company does not expect to need additional equity capital for the foreseeable future.
However, 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, greater than 25% of the Company’s cash, cash equivalents and restricted
cash is held by its foreign subsidiaries and, although the Company regularly repatriates cash, it may not be readily available to repay its liabilities in the
U.S. The Company will also continue efforts to keep costs under control as it seeks renewed sales growth. The Company’s efforts are directed toward
generating positive cash flow and profitability. If these efforts are not successful, the Company may need to raise additional capital. Should capital not be
available to the Company at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase
sales. These actions may include the sale of certain product lines, the creation of joint ventures or strategic alliances under which we will pursue business
opportunities, the creation of licensing arrangements with respect to our technology, or other alternatives.
Table of Contents
14. Contingencies
Legal
F-25
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
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, the Company terminated several employees of its 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, the Company’s China subsidiaries have engaged in certain legal proceedings with the
terminated employees.
The Company has incurred various expenses associated with its investigation into these matters prior and subsequent to the termination of the employees
and the associated legal proceedings. These expenses, which included legal, consulting and other transitional management fees, totaled $718,000 during the
year ended June 30, 2021. During the year ended June 30, 2022, approximately $400,000 of related expenses were incurred. Such expenses were recorded
as “Selling, general and administrative” expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss).
The Company also identified a further liability in the amount of $210,000, which may be incurred in the future due to the actions of these employees. This
amount has been accrued as of June 30, 2021, pending further investigation, and included in “Other Expense, net” in the accompanying Consolidated
Statement of Comprehensive Income (Loss). During fiscal year 2022 it was determined that LPOIZ would not be responsible for this amount, and the
accrual was reversed with the benefit included in “Other income (expense), net” in the accompanying Consolidated Statement of Comprehensive Income
(Loss) for the year ended June 30, 2022.
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, the
Company 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. After the execution of
the severance agreements, we discovered additional wrongdoing by the terminated employees. As a result, LPOIZ and LPOI have not yet paid the
severance payments and have disputed the employees’ rights to such payments. However, based on the likelihood that the courts in China will determine
that the Company’s subsidiaries will ultimately be obligated to pay these amounts, we have accrued for these payments as of June 30, 2021. Such expenses
were recorded as “Selling, general and administrative” expenses in the accompanying Consolidated Statement of Comprehensive Income (Loss) for the
year ended June 30, 2021. As of June 30, 2022, approximately $430,000 was accrued. The Chinese Labor Court ruled in favor of the former employees, as
expected, and these severance payments were paid out during the first half of fiscal year 2023. The Company continues to have litigation pending in the
Chinese court system related to these matters, but there has been little activity during fiscal year 2023.
The Company has 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. Management has not experienced any material adverse impact to the business operations of LPOI or LPOIZ as a result of the
transition.
The Company expects to incur additional legal fees and consulting expenses in future periods as all legal options and remedies are pursued; however, such
future fees are expected to be at lower levels than have been incurred to date.
Although the Company has taken steps to minimize the business impacts from the termination of the management employees and transition to new
management personnel, the Company 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, which continued throughout fiscal year 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.
Table of Contents
COVID-19
F-26
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
The Company’s business, results of operations financial condition, cash flows, and the stock price of its Class A common stock can be adversely affected
by pandemics, epidemics, or other public health emergencies, such as the COVID-19 pandemic.
To date, the Company has not experienced any significant direct financial impact of COVID-19 to its business. However, the COVID-19 pandemic
continues to impact economic conditions, particularly in China, which has impacted the short-term and long-term demand from customers and, therefore,
has negatively impacted our results of operations, cash flows, and financial position in that region. Additionally, some areas have had travel restrictions in
place, including China until recently. Even though China’s travel restrictions are no longer in place, those outside of China are required to re-apply for
travel visas and approvals which will continue to affect our ability to travel in China. As a result, some aspects of our operations that depend on travel, such
as recruitment of senior positions, and travel of service providers to maintain our production equipment have been, and will continue to be, adversely
impacted. Management is actively monitoring this situation and taking steps to mitigate the impact on our financial condition, liquidity, and results of
operations globally. However, we are not able to precisely estimate the effects of the continuing COVID-19 pandemic on our future results of operations,
financial, or liquidity for fiscal 2024 and beyond.
Impact of Russian-Ukraine Conflict
In February 2022, Russian military forces invaded Ukraine. This conflict has resulted in significant economic disruption and continues to adversely impact
the broader global economy, including certain of our customers and suppliers. Given the dynamic nature of this situation, the Company cannot reasonably
estimate the impact of the Russian-Ukraine conflict on its financial condition, results of operations or cash flows into the foreseeable future.
15. 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
$607,000 and $935,000 as of June 30, 2023 and 2022, respectively. During the years ended June 30, 2023 and 2022, we also recognized net foreign
currency transaction losses of approximately $37,000 and $3,000, respectively, included in the Consolidated Statements of Comprehensive Income (Loss)
in the line item entitled “Other income (expense), net.”
Revenues from and long-lived assets located in foreign countries are as follows:
Revenues:
United States
Latvia
China
Other European countries
Other Asian countries
Rest of world
Long-lived assets:
United States
Latvia
China
Year Ended June 30,
2022
2023
$
$
16,327,295 $
2,677,113
2,629,684
8,664,338
1,463,343
1,172,176
32,933,949 $
13,722,533
2,480,635
5,850,994
10,826,224
1,594,247
1,084,527
35,559,160
June 30,
2023
2022
$
$
23,336,063 $
5,282,596
3,157,434
31,776,093 $
23,228,612
5,226,811
4,089,084
32,544,507
Table of Contents
F-27
16. Supplier and Customer Concentrations
LIGHTPATH TECHNOLOGIES, INC.
Notes to Consolidated Financial Statements (continued)
The Company utilizes a number of glass compositions in manufacturing its molded glass aspheres and lens array products. These glasses or equivalents are
available from a large number of suppliers, including CDGM Glass Company Ltd., Ohara Corporation, and Sumita Optical Glass, Inc. Base optical
materials, used in certain of the Company’s specialty products, are manufactured and supplied by a number of optical and glass manufacturers. The
Company also utilizes major infrared material suppliers located around the globe for a broad spectrum of infrared crystal and glass. The Company believes
that a satisfactory supply of such production materials will continue to be available, however, at higher, inflationary prices largely due to the war in the
Ukraine, although there can be no assurance in this regard.
In fiscal year 2023, the Company had sales to three customers that comprised an aggregate of approximately 24% of its annual revenue, and 25% of its
June 30, 2023 accounts receivable. Sales to these customers as a percentage of our fiscal year 2023 revenue include one customer at 11%, another customer
at 7%, and the third customer at 6%. One of these customers comprised 12% of accounts receivable, a second customer comprised 9% of accounts
receivable and a third customer comprised 5% of the accounts receivable balance as of June 30, 2023. In fiscal year 2022, the Company had sales to three
customers that comprised an aggregate of approximately 35% of its annual revenue, and 13% of its June 30, 2022 accounts receivable. Sales to these
customers as a percentage of our fiscal year 2022 revenue include one customer at 19%, another customer at 9%, and the third customer at 7%. One of
these customers comprised 7% of accounts receivable, a second customer comprised 6% of accounts receivable and the other customer had no accounts
receivable balance as of June 30, 2022. The loss of any of these customers, or a significant reduction in sales to any such customer, would adversely affect
the Company’s revenues.
In fiscal year 2023, 50% of the Company’s net revenue was derived from sales outside of the U.S., with 93% of foreign sales derived from customers in
Europe and Asia. In fiscal year 2022, 61% of the Company’s net revenue was derived from sales outside of the U.S., with 95% of foreign sales derived
from customers in Europe and Asia.
16. Subsequent Event
In July 2023, the Company acquired Liebert Consulting LLC, dba Visimid Technologies (“Visimid”), pursuant to the 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 OEMs for original new products. Visimid’s
core competency is developing and producing custom thermal and night vision cores. The Company believes that Visimid’s capabilities are aligned with
our strategy to focus on engineered solutions.
The Company’s consolidated financial statements will reflect the financial results of Visimid beginning on the Acquisition Date. The purchase price
includes $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 on 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.
For the year ended June 30, 2023, the Company incurred approximately $140,000 in acquisition costs which are included in the consolidated statements of
comprehensive income in the line item entitled “Selling, general and administrative.”
Table of Contents
End of Consolidated Financial Statements
F-28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: September 14, 2023
By: /s/ Shmuel Rubin
Shmuel Rubin
President & Chief Executive Officer
LIGHTPATH TECHNOLOGIES, INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ SHMUEL RUBIN
September 14, 2023
/s/ ALBERT MIRANDA
Shmuel Rubin
President & Chief Executive Officer
Albert Miranda
Chief Financial Officer
September 14,
2023
(Principal Executive Officer)
(Principal Financial Officer)
/s/ M. SCOTT FARIS
September 14, 2023
/s/ JOSEPH MENAKER
M. Scott Faris
Director (Chairman of the Board)
Joseph Menaker
Director
/s/ LOUIS LEEBURG
September 14, 2023
/s/ DARCIE PECK
Louis Leeburg
Director
/s/ S. ERIC CREVISTON
S. Eric Creviston
Director
Darcie Peck
Director
September 14, 2023
S-1
September 14,
2023
September 14,
2023
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED
The following is a summary of all material characteristics of the capital stock of LightPath Technologies, Inc., a Delaware corporation (“LightPath,” the
“Company,” “we,” “us,” or “our”) as set forth in our Certificate of Incorporation, as amended (the “Certificate of Incorporation”) and our Amended and
Restated Bylaws, as further amended (the “Bylaws”), and as registered under Section 12 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The summary does not purport to be complete and is qualified in its entirety by reference to our Certificate of Incorporation and our
Bylaws, each of which are incorporated by reference as exhibits to the Annual Report on Form 10-K of which this Exhibit 4.1 is a part. and to the
provisions of the Delaware General Corporate Law (the “DGCL”). We encourage you to review complete copies of our Certificate of Incorporation and
our Bylaws, and the applicable provisions of the Delaware General Corporate Law (the “DGCL”) for additional information.
EXHIBIT 4.1
General
Our authorized capital stock consists of 55,000,000 shares, divided into 50,000,000 shares of common stock, par value $0.01 per share (the “Common
Stock”), and 5,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”). Under our Certificate of Incorporation, our board of
directors (our “Board”) has the authority to issue such shares of Common Stock and Preferred Stock in one or more classes or series, with such voting
powers, designations, preferences and relative, participating, optional or other special rights, if any, and such qualifications, limitations or restrictions
thereof, if any, as shall be provided for in a resolution or resolutions adopted by our Board and filed as designations.
Class A Common Stock
Of the 50,000,000 shares of Common Stock authorized in our Certificate of Incorporation, our Board has designated 44,500,000 shares as Class A common
stock, par value $0.01 per share (the “Class A Common Stock”). As of September 8, 2023, 37,455,438 shares of our Class A Common Stock were
outstanding. The remaining 5,500,000 shares of authorized Common Stock were designated as Class E-1 Common Stock, Class E-2 Common Stock, or
Class E-3 Common Stock, all previously outstanding shares of which have been previously redeemed or converted into shares of our Class A Common
Stock.
Holders of our Class A Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders, including
the election of directors, and are entitled to receive dividends when and as declared by our Board out of funds legally available therefore for distribution to
stockholders and to share ratably in the assets legally available for distribution to stockholders in the event of the liquidation or dissolution, whether
voluntary or involuntary, of LightPath. We have not paid any dividends and do not anticipate paying any dividends on our Class A Common Stock in the
foreseeable future. It is our present policy to retain earnings, if any, for use in the development of our business. Our Class A Common Stockholders do not
have cumulative voting rights in the election of directors and have no preemptive, subscription, or conversion rights. Our Class A Common Stock is not
subject to redemption by us.
As of September 8, 2023, we have reserved for issuance 1,596,222 shares of our Class A Common Stock underlying outstanding restricted stock units,
92,746 shares of our Class A Common Stock underlying outstanding restricted stock awards, 534,462 shares of our Class A Common Stock for issuance
upon the exercise of outstanding stock options, 1,625,538 shares of our Class A Common Stock for issuance under the 2018 Stock and Incentive
Compensation Plan, and 229,313 shares of our Class A Common Stock for issuance under our 2014 Employee Stock Purchase Plan.
1
The transfer agent and registrar for our Class A Common Stock is Computershare Trust Company, N.A.
Preferred Stock
Of the 5,000,000 shares of Preferred Stock authorized, our Board has previously designated:
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250 shares of Preferred Stock as Series A Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A Common Stock and may not be reissued;
300 shares of Preferred Stock as Series B Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A Common Stock and may not be reissued;
500 shares of Preferred Stock as Series C Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A Common Stock and may not be reissued;
500,000 shares of Preferred Stock as Series D Preferred Stock, none of which have been issued; however, in 1998, our Board declared a
dividend distribution as a right to purchase one share of Series D Preferred Stock for each outstanding share of Class A Common Stock upon
occurrence of certain events. The rights expired on February 28, 2021; and
500 shares of our Preferred Stock as Series F Preferred Stock, all previously outstanding shares of which have been previously redeemed or
converted into shares of our Class A Common Stock and may not be reissued.
Of the 5,000,000 shares of Preferred Stock, 4,498,450 shares of our Preferred Stock remain available for designation by our Board. Accordingly, our Board
is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting or other rights that could adversely
affect the voting power or other rights of the holders of Common Stock. The issuance of Preferred Stock could have the effect of restricting dividends on
the Class A Common Stock, diluting the voting power of the Class A Common Stock, impairing the liquidation rights of the Class A Common Stock, or
delaying or preventing a change in control of us, all without further action by our stockholders.
Options
As of September 8, 2023, we had 534,462 shares of our Class A Common Stock underlying stock options outstanding, having a weighted-average exercise
price of approximately $2.03 per share.
Certain Provisions of our Certificate of Incorporation, our Bylaws, and the DGCL
Certain provisions in our Certificate of Incorporation and Bylaws, as well as certain provisions of the DGCL, may be deemed to have an anti-takeover
effect and may delay, deter, or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that
might result in a premium being paid over the market price of the shares held by stockholders. These provisions contained in our Certificate of
Incorporation and Bylaws include the items described below.
2
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·
Classified Board. Our Certificate of Incorporation provides that our Board is to be divided into three classes, as nearly equal in number as
possible, with directors in each class serving three-year terms. Provisions of this type may serve to delay or prevent an acquisition of us or a
change in our directors and officers.
No Written Consents. Our Certificate of Incorporation and Bylaws provide that all stockholder actions must be effected at a duly called meeting
of stockholders and not by written consent.
Special Meetings of Stockholders. Our Bylaws provide that special meetings of our stockholders may be called only by the Chairman of the
Board, President, or a majority of our Board.
Stockholder Advance Notice Procedures. Our Bylaws provide that stockholders seeking to present proposals before a meeting of stockholders
or to nominate candidates for election as directors at a meeting of stockholders must provide timely notice in writing and also specify
requirements as to the form and content of a stockholder’s notice. These provisions may delay or preclude stockholders from bringing matters
before a meeting of our stockholders or from making nominations for directors at a meeting of stockholders, which could delay or deter
takeover attempts or changes in our management.
No Cumulative Voting. Our Certificate of Incorporation does not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of shares could be able to ensure the election of one or more directors.
Exclusive Forum. Our Bylaws provide that unless we consent in writing to the selection of an alternative forum, the courts in the State of
Delaware are, to the fullest extent permitted by applicable law, the sole and exclusive forum for any claims, including claims in the right of the
Company, brought by a stockholder (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such
capacity or (ii) as to which the DGCL confers jurisdiction upon the Court of Chancery of the State of Delaware.
Undesignated Preferred Stock. Because our Board has the power to establish the preferences and rights of the shares of any additional series of
Preferred Stock, it may afford holders of any Preferred Stock preferences, powers, and rights, including voting and dividend rights, senior to
the rights of holders of our Class A Common Stock, which could adversely affect the holders of our Class A Common Stock and could
discourage a takeover of us even if a change of control of LightPath would be beneficial to the interests of our stockholders.
These and other provisions contained in our Certificate of Incorporation and Bylaws are expected to discourage coercive takeover practices and inadequate
takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board. However, these
provisions could delay or discourage transactions involving an actual or potential change in control of us, including transactions in which stockholders
might otherwise receive a premium for their shares over then current prices. Such provisions could also limit the ability of stockholders to remove current
management or approve transactions that stockholders may deem to be in their best interests.
In addition, we are subject to the provisions of Section 203 of the DGCL. Section 203 of the DGCL prohibits a publicly-held Delaware corporation from
engaging in a “business combination” with an “interested stockholder” for a period of three years after the person became an interested stockholder, unless:
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The board of directors of the corporation approved the business combination or other transaction in which the person became an interested
stockholder prior to the date of the business combination or other transaction;
Upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares
outstanding, shares owned by persons who are directors and also officers of the corporation and shares issued under which employee
participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange
offer; or
on or subsequent to the date the person became an interested stockholder, the board of directors of the corporation approved the business
combination and the stockholders of the corporation authorized the business combination at an annual or special meeting of stockholders by
the affirmative vote of at least 66-2/3% of the outstanding voting stock of the corporation that is not owned by the interested stockholder.
A “business combination” includes mergers, asset sales, and other transactions resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within the prior three years did own, 15%
or more of a corporation’s voting stock.
Section 203 of the DGCL could depress our stock price and delay, discourage, or prohibit transactions not approved in advance by our Board, such as
takeover attempts that might otherwise involve the payment to our stockholders of a premium over the market price of our Class A Common Stock.
3
Subsidiaries
EXHIBIT 21.1
GelTech Inc.
Delaware
LightPath Optical Instrumentation
(Shanghai) Co., Ltd
People’s Republic of China
LightPath Optical Instrumentation
(Zhenjiang) Co., Ltd
People’s Republic of China
ISP Optics Corporation
New York
ISP Optics Latvia, SIA
Latvia
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
LightPath Technologies, Inc.
Orlando, Florida
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-23515, 333-23511, 333-41705, 333-92017, 333-
121389, 333-121385, 333-96083, 333-50976, 333-50974, 333-155044, 333-188482, 333-201871, 333-201872 and 333-221665), Form S-3 (Nos. 333-
113814, 333-37443, 333-39641, 333-47905, 333-86185, 333-93179, 333-94303, 333-31014, 333-37622, 333-47992, 333-51474, 333-75528, 333-127053,
333-133772, 333-146550, 333-153743, 333-159603, 333-162342, 333-163416, 333-166633, 333-182240, 333-223028 and 333-262768) and Form S-1 (No.
333-213860) of LightPath Technologies, Inc., of our report dated September 14, 2023, relating to the consolidated financial statements, which appear in
this Annual Report on Form 10-K.
/s/ MSL, P.A.
Orlando, Florida
September 14, 2023
POWER OF ATTORNEY
EXHIBIT 24
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints Shmuel Rubin and Albert Miranda, and each of them, his true and
lawful attorneys’-in-fact and agents, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to
sign the Annual Report on Form 10-K for the fiscal year ended June 30, 2023, and any and all amendments thereto and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully
to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them,
or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this _14th_ day of September 2023 by the following persons.
/s/ M. Scott Faris
M. Scott Faris
Director (Chair of the Board)
/s/ Louis Leeburg
Louis Leeburg
Director
/s/ S. Eric Creviston
S. Eric Creviston
Director
/s/ Shmuel Rubin
Shmuel Rubin
President & CEO
/s/ Darcie Peck
Darcie Peck
Director
/s/ Joseph Menaker
Joseph Menaker
Director
EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Shmuel Rubin, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended June 30, 2023 of LightPath Technologies, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Dated: September 14, 2023
/s/ Shmuel Rubin
Shmuel Rubin
President and Chief Executive Officer
EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Albert Miranda, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K for the year ended June 30, 2023 of LightPath Technologies, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control
over financial reporting.
Dated: September 14, 2023
/s/ Albert Miranda
Albert Miranda
Chief Financial Officer
Certification of Chief Executive Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
EXHIBIT 32.1
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of
LightPath Technologies, Inc. (the "Company") does hereby certify, to the best of such officer's knowledge, that:
1.
2.
The Annual Report on Form 10-K of the Company for the annual period ended June 30, 2023 (the "Report") fully complies with the
requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: September 14, 2023
/s/ Shmuel Rubin
Shmuel Rubin
President and Chief Executive Officer
The certifications set forth above are being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not
be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference
in any filing under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to LightPath
Technologies, Inc. and will be retained by LightPath Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Certification of Chief Financial Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
EXHIBIT 32.2
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of
LightPath Technologies, Inc. (the "Company") does hereby certify, to the best of such officer's knowledge, that:
1.
2.
The Annual Report on Form 10-K of the Company for the annual period ended June 30, 2023 (the "Report") fully complies with the
requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Dated: September 14, 2023
/s/ Albert Miranda
Albert Miranda
Chief Financial Officer
The certifications set forth above are being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not
be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference
in any filing under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the
signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to LightPath
Technologies, Inc. and will be retained by LightPath Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.