Lightpath Technologies Inc 10-Q for FY2023 Q3
Lightpath Technologies Inc (LPTH)
About this 10-Q
Lightpath Technologies Inc filed this 10-Q on May 11, 2023, covering the quarter ended March 31, 2023 (FY2023 Q3).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.41M
- down 10.8% from $8.31M a year earlier
- Net loss
- $1.16M
- compared with a net loss of $495K a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(ZIP Code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
LIGHTPATH TECHNOLOGIES, INC.
Form 10-Q
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| Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) |
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 2 |
| Table of Contents |
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 (the “Quarterly Report”) may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures, growth, product development, sales, business strategy, statements related to any further expected effects on our business from the coronavirus (“COVID-19”) pandemic or rising inflation and interest rates, and other similar matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or other comparable terminology. These forward-looking statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. These statements are subject to many risks, uncertainties, and other important factors that could cause actual future results to differ materially from those expressed in the forward-looking statements including, but not limited to, the continued duration and scope of the COVID-19 pandemic and any impact on the demand for our products; our ability to obtain needed raw materials and components from our suppliers; additional actions governments, businesses, and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions, particularly at our foreign facilities; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; geopolitical tensions and the Russian-Ukraine conflict; the effects of steps that we could take to reduce operating costs; rising inflation and increased interest rates, which diminish capital market cash flow and borrowing power; our inability to sustain profitable sales growth, convert inventory to cash, or reduce our costs to maintain competitive prices for our products; circumstances or developments that may make us unable to implement or realize the anticipated benefits, or that may increase the costs, of our current and planned business initiatives; and those factors detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended June 30, 2022. In light of these risks and uncertainties, all of the forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized. We undertake no obligation to update or revise any of the forward-looking statements contained herein.
| 3 |
| Table of Contents |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIGHTPATH TECHNOLOGIES, INC. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(unaudited) | ||||||||
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| June 30, |
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Assets |
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| 2022 |
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Current assets: |
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Cash and cash equivalents |
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Trade accounts receivable, net of allowance of $ |
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Inventories, net |
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Prepaid expenses and other assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangible assets, net |
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Goodwill |
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Deferred tax assets, net |
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Other assets |
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Total assets |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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Accrued liabilities |
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Accrued payroll and benefits |
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Operating lease liabilities, current |
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Loans payable, current portion |
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Finance lease obligation, current portion |
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Total current liabilities |
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Deferred tax liabilities, net |
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Finance lease obligation, less current portion |
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Operating lease liabilities, noncurrent |
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Loans payable, less current portion |
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Total liabilities |
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Commitments and Contingencies |
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Stockholders’ equity: |
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Preferred stock: Series D, $ |
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Common stock: Class A, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
| 4 |
| Table of Contents |
LIGHTPATH TECHNOLOGIES, INC. | ||||||||||||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) | ||||||||||||||||
(unaudited) | ||||||||||||||||
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| Three Months Ended |
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| Nine Months Ended |
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| 2023 |
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Revenue, net |
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Cost of sales |
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Gross margin |
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Operating expenses: |
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Selling, general and administrative |
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New product development |
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Amortization of intangibles |
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(Gain) loss on disposal of property and equipment |
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Total operating expenses |
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Operating loss |
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Other income (expense): |
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Interest expense, net |
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Other income (expense), net |
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Total other income (expense), net |
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Loss before income taxes |
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Income tax provision |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Foreign currency translation adjustment |
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Comprehensive loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Loss per common share (basic) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Number of shares used in per share calculation (basic) |
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Loss per common share (diluted) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Number of shares used in per share calculation (diluted) |
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The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||
| 5 |
| Table of Contents |
LIGHTPATH TECHNOLOGIES, INC. | ||||||||||||||||||||||||
Condensed Consolidated Statements of Changes in Stockholders' Equity | ||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
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| Accumulated |
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| Class A |
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| Additional |
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| Other |
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| Total |
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| Common Stock |
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| Paid-in |
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| Comphrehensive |
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| Accumulated |
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| Stockholders’ |
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| Shares |
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| Amount |
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| Capital |
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| Income |
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| Deficit |
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| Equity |
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Balances at June 30, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Issuance of common stock for: |
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Employee Stock Purchase Plan |
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Exercise of Stock Options & RSUs, net |
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Stock-based compensation on stock options & RSUs |
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Foreign currency translation adjustment |
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Net loss |
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Balances at September 30, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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Issuance of common stock for: |
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Exercise of Stock Options, RSUs & RSAs, net |
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Stock-based compensation on stock options, RSAs & RSUs |
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Foreign currency translation adjustment |
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Net loss |
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Balances at December 31, 2022 |
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| $ |
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| $ |
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| $ |
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Issuance of common stock for: |
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Employee Stock Purchase Plan |
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Exercise of Stock Options, RSUs & RSAs, net |
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Issuance of common stock under public equity placement |
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Stock-based compensation on stock options, RSAs & RSUs |
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Foreign currency translation adjustment |
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Net loss |
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Balances at March 31, 2023 |
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| $ |
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Balances at June 30, 2021 |
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Issuance of common stock for: |
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Employee Stock Purchase Plan |
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Stock-based compensation on stock options & RSUs |
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Foreign currency translation adjustment |
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Net loss |
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Balances at September 30, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
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Issuance of common stock for: |
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Settlement of RSUs, net |
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Stock-based compensation on stock options & RSUs |
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Foreign currency translation adjustment |
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Net loss |
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Balances at December 31, 2021 |
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| $ |
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Issuance of common stock for: |
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Employee Stock Purchase Plan |
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Stock-based compensation on stock options & RSUs |
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Foreign currency translation adjustment |
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Net loss |
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Balances at March 31, 2022 |
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| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
LIGHTPATH TECHNOLOGIES, INC. | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(unaudited) | ||||||||
|
| Nine Months Ended March 31, |
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| 2023 |
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| 2022 |
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Cash flows from operating activities: |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
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Interest from amortization of debt costs |
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(Gain) loss on disposal of property and equipment |
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Stock-based compensation on stock options, RSUs & RSAs, net |
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Provision for doubtful accounts receivable |
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|
|
| ||
Change in operating lease assets and liabilities |
|
| ( | ) |
|
| ( | ) |
Inventory write-offs to allowance |
|
|
|
|
|
| ||
Deferred tax benefit |
|
| ( | ) |
|
|
| |
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 and cash equivalents |
|
|
|
|
| ( | ) | |
Cash and cash equivalents, beginning of period |
|
|
|
|
|
| ||
Cash and cash equivalents, end of period |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid in cash |
| $ |
|
| $ |
| ||
Income taxes paid |
| $ |
|
| $ |
| ||
Supplemental disclosure of non-cash investing & financing activities: |
|
|
|
|
|
|
|
|
Purchase of equipment through finance lease arrangements |
| $ |
|
|
|
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
LIGHTPATH TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
References in this document to “the Company,” “LightPath,” “we,” “us,” or “our” are intended to mean LightPath Technologies, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.
These unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the requirements of Article 8 of Regulation S-X promulgated under the Exchange Act and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and related notes, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC. Unless otherwise stated, references to particular years or quarters refer to our fiscal years ended June 30 and the associated quarters of those fiscal years.
These Condensed Consolidated Financial Statements are unaudited, but include all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. The Consolidated Balance Sheet as of June 30, 2022 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year as a whole. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
2. Significant Accounting Policies
Our significant accounting policies are provided in Note 2, Summary of Significant Accounting Policies, in the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022. There have been no material changes to our significant accounting policies during the nine months ended March 31, 2023, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
Use of Estimates
Management makes estimates and assumptions during the preparation of our unaudited Condensed Consolidated Financial Statements that affect amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes available, which, in turn, could impact the amounts reported and disclosed herein.
3. Revenue
Product Revenue
We are a manufacturer of optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared optical components, and other optical materials used to produce products that manipulate light. We design, develop, manufacture, and distribute optical components and assemblies utilizing advanced optical manufacturing processes. We also perform research and development for optical solutions for a wide range of optics markets. Revenue is derived primarily from the sale of optical components and assemblies.
Revenue Recognition
Revenue is generally recognized upon transfer of control, including the risks and rewards of ownership, of products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We generally bear all costs, risk of loss, or damage and retain title to the goods up to the point of transfer of control of products to customers. Shipping and handling costs are included in the cost of goods sold. We present revenue net of sales taxes and any similar assessments.
Customary payment terms are granted to customers, based on credit evaluations. We currently do not have any contracts where revenue is recognized, but the customer payment is contingent on a future event. We record deferred revenue when cash payments are received or due in advance of our performance. Deferred revenue was not significant as of June 30, 2022 and March 31, 2023, respectively.
| 8 |
| Table of Contents |
Nature of Products
Revenue from the sale of optical components and assemblies is recognized upon transfer of control, including the risks and rewards of ownership, to the customer. The performance obligations for the sale of optical components and assemblies are satisfied at a point in time. Product development agreements are generally short-term in nature, with revenue recognized upon satisfaction of the performance obligation, and transfer of control of the agreed-upon deliverable. We have organized our products in three groups: precision molded optics (“PMO”), infrared, and specialty products. Revenues from product development agreements are included in specialty products. Revenue by product group for the three and nine months ended March 31, 2023 and 2022 was as follows:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
PMO |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Infrared Products |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Specialty Products |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total revenue |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
4. Inventories
The components of inventories include the following:
|
| March 31, 2023 |
|
| June 30, 2022 |
| ||
Raw materials |
| $ |
|
| $ |
| ||
Work in process |
|
|
|
|
|
| ||
Finished goods |
|
|
|
|
|
| ||
Allowance for obsolescence |
|
| ( | ) |
|
| ( | ) |
|
| $ |
|
| $ |
| ||
The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $
5. Property and Equipment
Property and equipment are summarized as follows:
|
| Estimated Lives (Years) |
|
| March 31, 2023 |
|
| June 30, 2022 |
| |||
Manufacturing equipment |
|
|
| $ |
|
| $ |
| ||||
Computer equipment and software |
|
|
|
|
|
|
|
| ||||
Furniture and fixtures |
|
|
|
|
|
|
|
|
| |||
Leasehold improvements |
|
|
|
|
|
|
|
| ||||
Construction in progress |
|
|
|
|
|
|
|
|
|
| ||
Total property and equipment |
|
|
|
|
|
|
|
|
|
| ||
Less accumulated depreciation and amortization |
|
|
|
|
|
| ( | ) |
|
| ( | ) |
Total property and equipment, net |
|
|
|
|
| $ |
|
| $ |
| ||
| 9 |
| Table of Contents |
6. Goodwill and Intangible Assets
There were no changes in the net carrying value of goodwill during the nine months ended March 31, 2023.
Identifiable intangible assets were comprised of:
|
| Useful Lives (Years) |
|
| March 31, 2023 |
|
| June 30, 2022 |
| |||
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, 2023 (remaining three months) |
|
|
| |
June 30, 2024 |
|
|
| |
June 30, 2025 |
|
|
| |
June 30, 2026 |
|
|
| |
After June 30, 2026 |
|
|
| |
|
| $ |
| |
7. Income Taxes
A summary of our total income tax expense and effective income tax rate for the three and nine months ended March 31, 2023 and 2022 is as follows:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
|
| ||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Loss before income taxes |
| $ | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) | |
Income tax provision |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Effective income tax rate |
|
| - | % |
|
| - | % |
|
| - | % |
|
| - | % |
The difference between our effective tax rates in the periods presented above and the federal statutory rate is due to the mix of taxable income and losses generated in our various tax jurisdictions, which include the United States (the “U.S.”), the People’s Republic of China, and the Republic of Latvia. For the three and nine months ended March 31, 2023 and 2022, income tax expense was primarily related to income taxes from our operations in China, including accruals for withholding taxes on intercompany dividends declared by LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”), and paid or payable to LightPath, its parent company.
We record net deferred tax assets to the extent we believe it is more likely than not that some portion or all of these assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of March 31, 2023 and June 30, 2022, our net deferred tax assets are related to the U.S. jurisdiction and we have provided for a valuation allowance to reduce the net deferred tax assets to the amount we estimate is more-likely-than-not to be realized. Our net deferred tax asset consists primarily of federal and state tax credits with indefinite carryover periods.
| 10 |
| Table of Contents |
U.S. Federal and State Income Taxes
Our U.S. federal and state statutory income tax rate is estimated to be
Income Tax Law of the People’s Republic of China
Our Chinese subsidiaries, LightPath Optical Instrumentation (Shanghai) Co., Ltd. (“LPOI”) and LPOIZ, are governed by the Income Tax Law of the People’s Republic of China. As of March 31, 2023, LPOI and LPOIZ were subject to statutory income tax rates of
During fiscal 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. The Company intends to reinvest a 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. The Company accrues withholding taxes on the portion of LPOIZ’s earnings that it intends to repatriate. Accrued and unpaid withholding taxes were approximately $
Law of Corporate Income Tax of Latvia
Our Latvian subsidiary, ISP Optics Latvia, SIA (“ISP Latvia”), is governed by the Law of Corporate Income Tax of Latvia. Effective January 1, 2018, the Republic of Latvia enacted tax reform with the following key provisions: (i) corporations are no longer subject to income tax, but are instead subject to a distribution tax on distributed profits (or deemed distributions, as defined) and (ii) the rate of tax was changed to
8. Stock-Based Compensation
Our directors, officers, and key employees are granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as amended (the “Omnibus Plan”), through October 2018 and after that date, through our 2018 Stock and Incentive Compensation Plan (the “SICP”). Such stock-based compensation may include, among other things, incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). The SICP is administered by the Compensation Committee of the Board of Directors. At our 2018 Annual Stockholders Meeting, our stockholders approved the SICP under which an aggregate of
The stock-based compensation expense is based primarily on the fair value of the award as of the grant date, and is recognized as an expense over the requisite service period.
| 11 |
| Table of Contents |
The following table shows total stock-based compensation expense for the three and nine months ended March 31, 2023 and 2022, the majority of which is included in selling, general and administrative (“SG&A”) expenses in these unaudited Condensed Consolidated Statements of Comprehensive Income:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Stock options |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
RSAs |
|
|
|
|
|
|
|
| ||||||||
RSUs |
|
|
|
|
|
|
|
|
| |||||||
Total |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
We also adopted the LightPath Technologies, Inc. Employee Stock Purchase Plan (the “2014 ESPP”). The 2014 ESPP permits employees to purchase Class A common stock through payroll deductions, subject to certain limitations. A discount of $
Grant Date Fair Values and Underlying Assumptions; Contractual Terms
We estimate the fair value of each stock option as of the date of grant, using the Black-Scholes-Merton pricing model. The fair value of 2014 ESPP shares is the amount of the discount the employee obtains at the date of the purchase transaction.
Most stock options granted vest ratably over two to four years and are generally exercisable for ten years. The assumed
No stock options were granted during either of the nine months ended March 31, 2023 or March 31, 2023.
Restricted Stock Awards
RSAs are granted primarily to our executive officers, employees and consultants, and typically vest over a one to three year period from the date of grant, although some may vest immediately upon grant. The stock underlying RSAs is issued upon vesting.
Restricted Stock Units
RSUs are granted primarily to our directors, although RSU awards may also be made to executive officers, employees and consultants. RSUs typically vest over a one to four year period from the date of grant, although some may vest immediately upon grant.
| 12 |
| Table of Contents |
Information Regarding Current Share-Based Compensation Awards
A summary of the activity for share-based compensation awards in the nine months ended March 31, 2023 is presented below:
|
| Stock Options |
|
| Restricted Stock Units (RSUs) |
|
| Restricted Stock Awards (RSAs) |
| |||||||||||||||||||
|
|
|
|
| Weighted- |
|
| Weighted- |
|
|
|
|
| Weighted- |
|
|
|
|
| Weighted- |
| |||||||
|
|
|
|
| Average |
|
| Average |
|
|
|
|
| Average |
|
|
|
|
| Average |
| |||||||
|
|
|
|
| Exercise |
|
| Remaining |
|
|
|
|
| Remaining |
|
|
|
|
| Remaining |
| |||||||
|
| Shares |
|
| Price |
|
| Contract |
|
| Shares |
|
| Contract |
|
| Shares |
|
| Contract |
| |||||||
June 30, 2022 |
|
|
|
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Granted |
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Exercised |
|
| - |
|
| $ | - |
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ( | ) |
|
|
| |
Cancelled/Forfeited |
|
| - |
|
| $ | - |
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| |
March 31, 2023 |
|
|
|
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards exercisable/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vested as of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
|
| $ |
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards un exercisable/unvested as of |
|
|
|
| $ |
|
|
| 7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
March 31, 2023 |
|
| 534,462 |
|
|
|
|
|
|
|
|
|
|
| 1,601,842 |
|
|
|
|
|
|
| 96,750 |
|
|
|
|
|
As of March 31, 2023, there was approximately $
Fiscal Year Ending: |
| Stock Options |
|
| RSAs |
|
| RSUs |
|
| Total |
| ||||
June 30, 2023 (remaining three months) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
June 30, 2024 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
June 30, 2025 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
June 30, 2026 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
| 13 |
| Table of Contents |
9. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income or loss by the weighted-average number of shares of Class A common stock outstanding, during each period presented. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share, except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue shares of Class A common stock were exercised or converted into shares of Class A common stock. The computations for basic and diluted earnings (loss) per share of Class A common stock are described in the following table:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
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 |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
The following potential dilutive shares were not included in the computation of diluted earnings (loss) per share of Class A common stock, as their effects would be anti-dilutive:
|
| Three Months Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
| ||||
RSUs and RSAs |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
10. Leases
Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida; Riga, Latvia; Shanghai, China; and Zhenjiang, China, and finance leases related to certain equipment located in Orlando, Florida. The operating leases for facilities are non-cancelable operating leases, with terms at various times through
Our operating lease ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. Two of our operating leases include renewal options, which were not included in the measurement of the operating lease ROU assets and related lease liabilities. We previously had two leases on the premises comprising our primary facility in Orlando, Florida (the “Orlando Facility”). We assigned one of such leases to a third-party and agreed that we would vacate the premises subject to the assigned lease on November 30, 2022. In December 2022, we entered into an agreement with the assignee of such lease that extended our right to occupy the subject premises until February 28, 2023, in consideration of payments of rent through February 28, 2023, and other amounts to the assignee. In February 2023, we vacated this space and have no further obligations related to this lease.
| 14 |
| Table of Contents |
As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Currently, none of our leases include variable lease payments that are dependent on an index or rate. We are responsible for payment of certain real estate taxes, insurance and other expenses on certain of our leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU assets and the related lease liabilities. We generally account for non-lease components, such as maintenance, separately from lease components. Our lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
We received tenant improvement allowances for each of our two leases with respect to our Orlando Facility. These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities. The balances are being amortized over the corresponding lease terms. We are constructing additional tenant improvements within the premises subject to our continuing lease for our Orlando Facility, of which the landlord has agreed to provide $
The components of lease expense were as follows:
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| Three Months Ended March 31, |
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| Nine Months Ended March 31, |
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| 2023 |
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| 2022 |
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| 2023 |
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| 2022 |
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Operating lease cost |
| $ |
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| $ |
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| $ |
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| $ |
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Finance lease cost: |
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Depreciation of lease assets |
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Interest on lease liabilities |
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Total finance lease cost |
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Total lease cost |
| $ |
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| $ |
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| $ |
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| $ |
| ||||
Supplemental balance sheet information related to the leases was as follows:
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| Classification |
| March 31, 2023 |
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| June 30, 2022 |
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Assets: |
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Operating lease assets |
| Operating lease assets |
| $ |
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| $ |
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Finance lease assets |
| Property and equipment, net(1) |
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Total lease assets |
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| $ |
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| $ |
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Liabilities: |
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Current: |
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Operating leases |
| Operating lease liabilities, current |
| $ |
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| $ |
| ||
Finance leases |
| Finance lease liabilities, current |
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Noncurrent: |
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Operating leases |
| Operating lease liabilities, less current portion |
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Finance leases |
| Finance lease liabilities, less current portion |
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Total lease liabilities |
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|
| $ |
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| $ |
| ||
(1) Finance lease assets were recorded net of accumulated depreciation of approximately $
| 15 |
| Table of Contents |
Lease term and discount rate information related to leases was as follows:
Lease Term and Discount Rate |
| March 31, 2023 |
| |
Weighted Average Remaining Lease Term (in years) |
| |||
Operating leases |
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| |
Finance leases |
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Weighted Average Discount Rate |
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Operating leases |
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| % | |
Finance leases |
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| % | |
Supplemental cash flow information:
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| Nine Months Ended March 31, |
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| 2023 |
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| 2022 |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash used for operating leases |
| $ |
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| $ |
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Operating cash used for finance leases |
| $ |
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| $ |
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Financing cash used for finance leases |
| $ |
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| $ |
| ||
Future maturities of lease liabilities were as follows as of March 31, 2023:
Fiscal year ending: |
| Finance Leases |
|
| Operating Leases |
| ||
June 30, 2023 (remaining three months) |
| $ |
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| $ |
| ||
June 30, 2024 |
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June 30, 2025 |
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June 30, 2026 |
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June 30, 2027 |
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Thereafter |
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Total future minimum payments |
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Less imputed interest |
|
| ( | ) |
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| ( | ) |
Present value of lease liabilities |
| $ |
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| $ |
| ||
11. Loans Payable
As of March 31, 2023 and June 30, 2022, loans payable primarily consisted of the BankUnited Term Loan (as defined below) payable to BankUnited N.A. (“BankUnited”). On February 26, 2019, we entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to a maximum amount of $2,000,000 (the “BankUnited Revolving Line”), (ii) a term loan in the amount of up to $
On May 6, 2019, we entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the “First Amendment”). The First Amendment amended the definition of the fixed charge coverage ratio to more accurately reflect the parties’ understandings at the time the Loan Agreement was executed. On September 9, 2021, we entered into a letter agreement with BankUnited (the “Letter Agreement”). The Letter Agreement adjusted certain financial covenants through December 31, 2021, terminated the Guidance Line, and granted us a waiver of default arising prior to the Letter Agreement for our failure to comply with the fixed charge coverage ratio measured on June 30, 2021. Based on the waiver, we were no longer in default of the Amended Loan Agreement as of June 30, 2021. Finally, in connection with the Letter Agreement, we paid BankUnited a fee equal to $10,000.
| 16 |
| Table of Contents |
On November 5, 2021, we entered into a second letter agreement with BankUnited (the “Second Letter Agreement”) and thereafter, in accordance with the Second Letter Agreement, on December 20, 2021, we entered into the Second Amendment to the Loan Agreement dated February 26, 2019 (the “Second Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Second Amendment, the parties agreed to the following terms, among others: (i) a maturity date of April 15, 2023 with respect to the Term Loan (as defined in the Amended Loan Agreement); (ii) an increased monthly payment amount of $
On May 11, 2022, we entered into the Third Amendment to the Loan Agreement dated February 26, 2019 (the “Third Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Third Amendment, the parties agreed to the following terms, among others:
On February 7, 2023, we entered into the Fourth Amendment to the Loan Agreement dated February 26, 2019 (the “Fourth Amendment” and, together with the First Amendment, the Letter Agreement and the Second Letter Agreement, the Second Amendment, and the Third Amendment, the “Amended Loan Agreement”), which further amended the Loan Agreement with BankUnited. In accordance with the Fourth Amendment, the parties agreed to the following terms, among others: (i) an amended maturity date of December 31, 2024 with respect to the Term Loan (as defined in the Amended Loan Agreement); 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 $
On May 9, 2023, we entered into the Fifth Amendment to the Loan Agreement dated February 26, 2019 (the “Fifth Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Fifth Amendment, the parties agreed to the following terms, among others:
BankUnited Revolving Line
Pursuant to the BankUnited Loan Agreement, BankUnited agreed to make loan advances under the BankUnited Revolving Line to us up to a maximum aggregate principal amount outstanding not to exceed $
| 17 |
| Table of Contents |
BankUnited Term Loan
Pursuant to the BankUnited Loan Agreement, BankUnited advanced us $
Security and Guarantees
Our obligations under the Amended Loan Agreement are collateralized by a first priority security interest (subject to permitted liens) in all of our assets and the assets of our U.S. subsidiaries, GelTech, Inc. (“GelTech”), and ISP, pursuant to a Security Agreement granted by GelTech, ISP, and us in favor of BankUnited. Our equity interests in, and the assets of, our foreign subsidiaries are excluded from the security interest. In addition, all of our subsidiaries have guaranteed our obligations under the Amended Loan Agreement and related documents, pursuant to Guaranty Agreements executed by us and our subsidiaries in favor of BankUnited.
General Terms
The Amended Loan Agreement contains customary covenants, including, but not limited to: (i) limitations on the disposition of property; (ii) limitations on changing our 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
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 were to 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. Pursuant to the Second Amendment, beginning on December 20, 2021, the default rate was converted to five percent (5%) above BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time. The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and others.
Financing costs incurred related to the BankUnited Loans were recorded as a discount on debt and will be amortized over the term. Amortization of approximately $
In December 2020, ISP Latvia entered into an equipment loan with a third party (the “Equipment Loan”), which party is also a significant customer, and which the Equipment Loan is subordinate to the BankUnited Loans, and collateralized by certain equipment. The initial advance under the Equipment Loan was 225,000 EUR (or USD $
| 18 |
| Table of Contents |
Future maturities of loans payable are as follows:
|
| BankUnited Term Loan |
|
| Equipment Loan |
|
| Unamortized Debt Costs |
|
| Total |
| ||||
Fiscal year ending: |
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June 30, 2023 (remaining three months) |
| $ |
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| $ |
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| ( | ) |
| $ |
| |||
June 30, 2024 |
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June 30, 2025 |
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June 30, 2026 |
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After June 30, 2026 |
|
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Total payments |
| $ |
|
| $ |
|
| $ | ( | ) |
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| |||
Less current portion |
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| ( | ) |
Non-current portion |
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| $ |
| |
12. 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 $
Our cash and cash equivalents totaled approximately $
Assets and net assets in foreign countries are as follows:
China | Latvia | |||||||
March 31, 2023 | June 30, 2022 | March 31, 2023 | June 30, 2022 | |||||
Assets | $ | $ | $ | $ | ||||
Net assets | $ | $ | $ | $ | ||||
13. Contingencies
Legal
The Company, from time to time, is involved in various legal actions arising in the normal course of business. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company’s financial position or results of operations.
In April 2021, we terminated several employees of our China subsidiaries, LPOIZ and LPOI, including the General Manager, the Sales Manager, and the Engineering Manager, after determining that they had engaged in malfeasance and conduct adverse to our interests, including efforts to misappropriate certain of our proprietary technology, diverting sales to entities owned or controlled by these former employees and other suspected acts of fraud, theft and embezzlement. In connection with such terminations, our China subsidiaries have engaged in certain legal proceedings with the terminated employees.
| 19 |
| Table of Contents |
We have incurred various expenses associated with the investigation into these matters prior and subsequent to the termination of the employees and the associated legal proceedings. These expenses, which include legal, consulting and other transitional management fees, totaled $
Knowing that employee transitions in international subsidiaries can lead to lengthy legal proceedings that can interrupt the subsidiary’s ability to operate, compounded by the fact that our officers could not travel to China to oversee the transitions because of the travel restrictions imposed by COVID-19, we chose to enter into severance agreements with certain of the employees at the time of termination. Pursuant to the severance agreements, LPOIZ and LPOI agreed to pay such employees severance of approximately $
We have transitioned the management of LPOI and LPOIZ to a new management team without any significant detrimental effects on the ability of those subsidiaries to operate. We have not experienced any material adverse impact to the business operations of LPOI or LPOIZ as a result of the transition. We expect to incur minimal additional legal fees and consulting expenses in future periods as we have exhausted nearly all of our legal options and remedies.
Although we have taken steps to minimize the business impacts from the termination of the management employees and transition to new management personnel, we have experienced some short-term adverse impacts on LPOIZ’s and LPOI’s domestic sales in China and results of operations in the three-month period ended June 30, 2021 and the fiscal year ended June 30, 2022. The Company has not experienced, nor does management anticipate, any material adverse impact on LPOIZ’s or LPOI’s production and supply of products to its other subsidiaries for their customers.
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 COVID-19 pandemic and its lasting impacts.
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 for the remainder of fiscal 2023 or 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, we cannot reasonably estimate the impact of the Russian-Ukraine conflict on our financial condition, results of operations or cash flows into the foreseeable future.
| 20 |
| Table of Contents |
Potential Impact of Economic Conditions in China
Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline. Deteriorating economic conditions in China generally and as a remnant of China’s zero-COVID strategy, have led to lower demand for our products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall. A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a material adverse effect on our business and results of operations in future quarters.
14. Liquidity
We generally rely on cash from operations and equity and debt offerings, to the extent available, to satisfy our liquidity needs and to maintain our ability to repay the BankUnited Term Loan. As discussed in in Note 11, Loans Payable, on February 7, 2023, we entered into the Fourth Amendment with BankUnited to amend the BankUnited Loan Agreement. In accordance with the Fourth Amendment, the parties agreed to a further extension of the term, and reduced payments beginning March 1, 2023 through December 31, 2023, among other items.
On February 16, 2022, we filed a shelf registration statement to facilitate the issuance of our Class A common stock, warrants exercisable for shares of our Class A common stock, and/or units up to an aggregate offering price of $
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
Following this equity raise, we do 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, we may identify opportunities for acquisitions and other strategic transactions to expand and further enhance our business that may require that we raise additional capital should be elect to pursue any of such transactions.
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| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited Condensed Consolidated Financial Statements and notes thereto and our Annual Report on Form 10-K for the year ended June 30, 2022, including the audited Consolidated Financial Statements and notes thereto. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.
Continual Impact of COVID-19
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 2021, which restrictions have since been lifted. 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 that continued into 2021 and 2022. 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 generally continued to operate as normal. Nonetheless, despite the lifting of these stay-at-home orders, out of concern for our workforce, our U.S. and Latvia-based non-manufacturing employees have continued to work remotely to some extent. To date, we have not seen 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 our 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 presently able to estimate the effects of the continuing COVID-19 pandemic on our future results of operations, financials, or liquidity in fiscal 2023 or beyond.
Introduction
We were incorporated in Delaware in 1992 as the successor to LightPath Technologies Limited Partnership, a New Mexico limited partnership, formed in 1989, and its predecessor, Integrated Solar Technologies Corporation, a New Mexico corporation, formed in 1985. Today, LightPath is a global company with major facilities in the United States, the People’s Republic of China, and the Republic of Latvia.
Our capabilities include precision molded optics, thermal imaging optics, custom designed optics, and the design and manufacturing of optical assemblies and subsystems. These capabilities allow us to manufacture optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared aspheric lenses and other optical materials used to produce products that manipulate light. We design, develop, manufacture and integrate optical components and assemblies utilizing advanced optical manufacturing processes. Product verticals range from consumer (e.g., cameras, cell phones, gaming, and copiers) to industrial (e.g., lasers, data storage, and infrared imaging), from products where the lenses are the central feature (e.g., telescopes, microscopes, and lens systems) to products incorporating lens components (e.g., 3D printing, machine vision, LIDAR, robotics and semiconductor production equipment) and communications. As a result, we market our products across a wide variety of customer groups, including laser systems manufacturers, laser OEMs, infrared-imaging systems vendors, industrial laser tool manufacturers, telecommunications equipment manufacturers, medical instrumentation manufacturers and industrial measurement equipment manufacturers, government defense agencies, and research institutions worldwide.
| 22 |
| Table of Contents |
Subsidiaries
In November 2005, we formed LPOI, a wholly-owned subsidiary, located in Jiading, People’s Republic of China. LPOI provides sales and support functions. In December 2013, we formed LPOIZ, a wholly-owned subsidiary located in the New City district, of the Jiangsu province, of the People’s Republic of China. LPOIZ’s 55,000 square foot manufacturing facility (the “Zhenjiang Facility”) serves as our primary manufacturing facility in China and provides a lower cost structure for production of larger volumes of optical components and assemblies.
In December 2016, we acquired ISP, and its wholly-owned subsidiary, ISP Latvia. ISP is a vertically integrated manufacturer offering a full range of infrared products from custom infrared optical elements to catalog and high-performance lens assemblies. Since June 2019, ISP’s manufacturing operation has been located at our Orlando Facility. ISP Latvia is a manufacturer of high precision optics and offers a full range of infrared products, including catalog and custom infrared optics. ISP Latvia’s facility in Riga, Latvia (the “Riga Facility”) functions as its manufacturing facility.
For additional information, please refer to our Annual Report on Form 10-K for the year ended June 30, 2022.
Product Groups
Our business is organized in three product groups: PMO, infrared products and specialty products. These product groups are supported by our major product capabilities: molded optics, thermal imaging optics, and custom designed optics, with a product manager for each. Product management is principally a portfolio management process that analyzes products within the product capability areas as defined above. This function facilitates choosing investment priorities to help strategically align our competencies with strategic industry revenue opportunities. Over the longer term, this function will also help ensure successful product life cycle management.
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 (computer numerical control) ground and polished lenses. Between these two product groups, we have the capability to manufacture lenses from very small (with diameters of a sub-millimeter) to over 300 millimeters, and with focal lengths from approximately 0.4 millimeters to over 2000 millimeters. In addition, both product groups offer both catalog and custom designed optics.
Our specialty product group is comprised of value-added products, such as optical subsystems, assemblies, and collimators, and non-recurring engineering (“NRE”) products, consisting 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 for our existing products to fit their particular needs or specifications. The timing and extent of any such product development is outside of our control.
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.
Growth Strategy
The industry is transforming from a fragmented industry with many component manufacturers into a solution-focused industry with the potential for partnerships for solution development and production. Based on the shifts in the marketplace and the changes that come when a technology, like photonics, moves from being a specialty product to being integrated into mainstream industries and applications, we redefined our strategic direction to leverage our strengths and specifically our subject matter expertise in optics, to provide our wide customer base with complete optical and electro-optical solutions, and to become their partner for the optical engine of their systems.
Since 2020, we have focused on developing a strategy and executing a plan that capitalizes on the changing market conditions, creates a unique and long-lasting value to our customers, and utilizes our unique capabilities and differentiators. We intend to use our differentiators to move up the value chain, thereby offering a more comprehensive value proposition to our customers.
| 23 |
| Table of Contents |
We believe such partnerships can start with us as the supplier. We have in-house expertise in photonics, knowledge and experience in advanced optical technologies, and the necessary manufacturing techniques and capabilities. We believe we can develop these partnerships by working closely with the customer throughout their design process, designing an optical solution that is 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 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. A current example of a unique, value-added solution is our new multispectral camera, Mantis, that we recently developed as a showcase of our capabilities and to demonstrate what is possible with today’s technology.
Our subject-matter expertise and extensive “know how” in optical design, fabrication, production and testing technologies will allow our customers to focus on their own development efforts, freeing them from the need to develop subject matter expertise in optics. By providing the bridge into the optical solution world, we are able to partner with our customers on a long-term basis, create value for our customers, and capture that value through the long-term supply relationships we seek to develop.
Further information about our strategic direction can be found in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.
Results of Operations
Revenue
Three months ended March 31, 2023, compared to three months ended March 31, 2022
Revenue for the third quarter of fiscal 2023 was approximately $7.4 million, a decrease of approximately $0.9 million, or 11%, as compared to approximately $8.3 million in the same period of the prior fiscal year, primarily due to a decrease in sales of PMO products. Revenue was negatively impacted across all product groups by temporary production disruptions in the Orlando Facility during the third quarter of fiscal 2023, which occurred as a result of the construction. Although the project is not yet complete, the remaining phases are expected to be minimally disruptive.
Revenue generated by infrared products was approximately $3.6 million in the third quarter of fiscal 2023, a decrease of approximately $119,000, or 3%, as compared to approximately $3.7 million in the same period of the prior fiscal year. The decrease in revenue is primarily due to timing sales of infrared products under a large annual contract, the shipments for which were completed in the second quarter of fiscal 2023, while shipments under the renewed contract signed in November 2022 began late in the third quarter of fiscal 2023. The renewed contract represents a 20% increase over the previous contract. This decrease was partially offset by the sale of the majority of our infrared catalog inventory to Edmund Optics, as they will now service this portion of our catalog business.
Revenue generated by PMO products was approximately $3.1 million for the third quarter of fiscal 2023, a decrease of approximately $0.9 million, or 23%, as compared to approximately $4.0 million in the same period 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 our specialty products was approximately $698,000 in the third quarter of fiscal 2023, an increase of approximately $151,000, or 28%, compared to $547,000 in the same period of the prior fiscal year. The increase is primarily due to increased demand for collimator assemblies, and increased sales of a custom visible lens assembly to a medical customer.
Nine months ended March 31, 2023, compared to nine months ended March 31, 2022
Revenue for the first nine months of fiscal 2023 was approximately $23.2 million, a decrease of approximately $3.4 million, or 13%, as compared to approximately $26.7 million in the same period of the prior fiscal year, driven by both PMO and Infrared products. Revenue was negatively impacted across all product groups by temporary production disruptions in the Orlando Facility during the third quarter of fiscal 2023, which occurred as a result of the construction. Although the project is not yet complete, the remaining phases are expected to be minimally disruptive.
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Revenue generated by infrared products was approximately $11.3 million in the first nine months of fiscal 2023, a decrease of approximately $2.4 million, or 18%, as compared to approximately $13.7 million in the same period of the prior fiscal year. The decrease in revenue is primarily driven by sales of diamond-turned infrared products, primarily attributable to customers in the defense and industrial markets, including the timing of sales of infrared products under a large annual contract. Shipments against the prior contract were completed in the second quarter of fiscal 2023, while shipments under the renewed contract signed in November 2022 began late in the third quarter of fiscal 2023. The renewed contract represents a 20% increase over the previous contract. Sales of BD6-based molded infrared products also decreased, particularly to customers in the China industrial and commercial markets.
Revenue generated by PMO products was approximately $10.3 million for the first nine months of fiscal 2023, a decrease of approximately $1.4 million, or 12%, as compared to approximately $11.6 million in the same period of the prior fiscal year. The decrease in revenue is primarily attributed to decreases in sales to customers in the telecommunications and commercial industries. 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 our specialty products was approximately $1.7 million in the first nine months of fiscal 2023, an increase of approximately $369,000, or 27%, compared to $1.4 million in the same period of the prior fiscal year. The increase is primarily due to increased demand for collimator assemblies, and increased sales of a custom visible lens assembly to a medical customer. 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
Three months ended March 31, 2023, compared to three months ended March 31, 2022
Gross margin in the third quarter of fiscal 2023 was approximately $2.5 million, a decrease of 16%, as compared to approximately $3.0 million in the same period of the prior fiscal year. Total cost of sales was approximately $4.9 million for the third quarter of fiscal 2023, compared to approximately $5.3 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 34% for the third quarter of fiscal 2023, compared to 37% for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue is primarily due to the lower revenue level, with less contribution toward fixed manufacturing costs. The mix of revenue by product group for the third quarter of fiscal 2023 was also more heavily weighted toward infrared products, which typically have lower margins than PMO products. Gross margin of 34% at this low revenue level with a less favorable product mix reflects the benefit of a number of the operational and cost structure improvements that we have been implementing.
Nine months ended March 31, 2023, compared to nine months ended March 31, 2022
Gross margin in the first nine months of fiscal 2023 was approximately $8.0 million, a decrease of 11%, as compared to approximately $9.0 million in the same period of the prior fiscal year. Total cost of sales was approximately $15.3 million for the first nine months of fiscal 2023, compared to approximately $17.6 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 34% for the first nine months of fiscal 2023 and for the same period of the prior fiscal year. The lower revenue level for the first nine months of fiscal 2023, as compared to the same period of the prior fiscal year, resulted in less contribution toward fixed manufacturing costs. The mix of revenue by product group for the first nine months of fiscal 2023 was similar to that of the same period of the prior fiscal year. Maintaining a gross margin of 34% at a lower revenue level reflects the benefit of a number of the operational and cost structure improvements that we have been implementing.
Selling, General and Administrative
Three months ended March 31, 2023, compared to three months ended March 31, 2022
SG&A costs were approximately $2.8 million for the third quarter of fiscal 2023, an increase of approximately $140,000, or 5%, as compared to approximately $2.6 million in the same period of the prior fiscal year. The increase in SG&A costs is primarily due to an increase in stock compensation and other personnel-related costs. In addition, we incurred approximately $129,000 related to the exit of our secondary facility in Orlando, for which the lease ended in February 2023. These increases are partially offset by a decrease of approximately $45,000 of expenses associated with the previously disclosed events that occurred at our Chinese subsidiaries, including legal and consulting fees. Please refer to Note 13, Contingencies, in the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.
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Nine months ended March 31, 2023, compared to nine months ended March 31, 2022
SG&A costs were approximately $8.4 million for the first nine months of fiscal 2023, a decrease of less than 1%, as compared to approximately $8.4 million in the same period of the prior fiscal year. The decrease in SG&A costs reflects a decrease of $248,000 in value-added tax (“VAT”) and related taxes from prior years that were accrued by one of our Chinse subsidiaries in the second quarter of fiscal 2022, as well as a decrease of approximately $526,000 of expenses associated with the previously disclosed events that occurred at our Chinese subsidiaries, including legal and consulting fees incurred during the first nine months of fiscal 2022. Please refer to Note 13, Contingencies, in the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information. These decreases were offset by an increase in stock compensation, partially due to director retirements that occurred during the second quarter, as well as increases in other personnel-related costs. In addition, we incurred approximately $129,000 during the first nine months of fiscal 2023 related to the exit of our secondary facility in Orlando, for which the lease ended in February 2023. SG&A costs for the first nine months of fiscal 2023 also include fees of $53,000 paid to BankUnited under our Amended Loan Agreement for not prepaying the BankUnited Term Loan by certain dates. Please refer to Note 11, Loans Payable, in the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.
New Product Development
New product development costs were approximately $514,000 in the third quarter of fiscal 2023, a decrease of approximately $76,000, or 13%, as compared to the same period of the prior fiscal year. For the first nine months of fiscal 2023, new product development costs were approximately $1.5 million, a decrease of $40,000, or 3%, as compared to the same period of the prior fiscal year. The differences are primarily due to varying allocations of personnel resources among our new product development and manufacturing engineering functions, the latter of which is included in cost of goods sold. In addition, the second and third quarters of fiscal 2023 reflect some cost savings from seasoned engineer retirements.
Other Income (Expense)
Interest expense, net, was approximately $77,000 for the third quarter of fiscal 2023, as compared to $55,000 for the same period of the prior fiscal year. For the first nine months of fiscal 2023, interest expense, net was approximately $229,000, as compared to $151,000 for the same period of the prior fiscal year. The increase in interest expense is due to higher interest rates and increased amortization of loan fees. Total debt has decreased 40% as of the quarter ended March 31, 2023, as compared to the quarter ended March 31, 2022.
Other expense, net, was approximately $61,000 for the third quarter of fiscal 2023, as compared to other income, net, of $180,000 for the same period of the prior fiscal year. For the first nine months of fiscal 2023, other expense, net was approximately $35,000, as compared to other income, net, of $140,000 for the same period of the prior fiscal year. Other income, net, for the third quarter and the first nine months of fiscal 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 2022 that our Chinese subsidiary would not be responsible for this amount.
The remainder of other income and expenses are primarily comprised of net gains and losses on foreign exchange transactions. We execute all foreign sales from our U.S. facilities and inter-company transactions in U.S. dollars, partially mitigating the impact of foreign currency fluctuations. Assets and liabilities denominated in non-United States currencies, primarily the Chinese Yuan and Euro, are translated at rates of exchange prevailing on the balance sheet date, and revenues and expenses are translated at average rates of exchange for the year. We incurred foreign currency transaction losses of $79,000 and $67,000 during the third quarter of fiscal 2023 and 2022, respectively. For the first nine months of fiscal 2023 and 2022, we recognized net foreign currency transaction losses of $85,000 and $107,000, respectively.
Income Taxes
During the third quarter of fiscal 2023, income tax expense was $65,000, compared to approximately $163,000 for the same period of the prior fiscal year. During the first nine months of fiscal 2023, income tax expense was approximately $222,000, compared to approximately $328,000 for the same period of the prior fiscal year. Income tax expense is primarily related to income taxes from our operations in China, including estimated Chinese withholding taxes associated with intercompany dividends declared by LPOIZ and payable to us as its parent company. The decrease is due to lower taxable income in that jurisdiction.
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Net Loss
Net loss for the third quarter of fiscal 2023 was approximately $1.2 million, or $0.03 basic and diluted loss per share, compared to $495,000, or $0.02 basic and diluted loss per share, for the same quarter of the prior fiscal year.The increase in net loss for the third quarter of fiscal 2023, as compared to the same period of the prior fiscal year, was primarily attributable to lower revenue and gross margin.
Net loss for the first nine months of fiscal 2023 was approximately $3.2 million, or $0.11 basic and diluted loss per share, compared to $2.2 million, or $0.08 basic and diluted loss per share, for the same period of the prior fiscal year. The increase in net loss for the first nine months of fiscal 2023, as compared to the same period of the prior fiscal year, was primarily attributable to lower revenue and gross margin, partially offset by lower operating expenses.
Weighted-average common shares outstanding were 35,124,095, basic and diluted, in the third quarter of fiscal 2023, compared to 27,033,578, basic and diluted, in the third quarter of fiscal 2022. For the first nine months of fiscal 2023, weighted-average common shares outstanding were 29,750,138, basic and diluted, as compared to 27,011,943, basic and diluted, for the first nine months of fiscal 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 Impact of Economic Conditions in China
Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline. According to the National Bureau of Statistics of China, the annual economic growth rate in China was 6.9% in 2017, 6.8% in 2018, 6.1% in 2019, 2.3% in 2020, 8.1% in 2021, and 3% in 2022. The annual economic growth rate in 2023 is estimated to be 5.1%, although some analysts have indicated that China’s economic growth could be lower. Deteriorating economic conditions in China generally and as a result of China’s zero-COVID strategy, have led to lower demand for the Company’s products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall. A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a material adverse effect on our business and results of operations in future quarters.
Liquidity and Capital Resources
As of March 31, 2023, we had working capital of approximately $16.0 million and total cash and cash equivalents of approximately $9.9 million, of which, greater than 25% of our cash and cash equivalents was held by our foreign subsidiaries.
Cash and cash equivalents held by our foreign subsidiaries in China and Latvia were generated in-country as a result of foreign earnings. 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 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. During fiscal 2020, we began to accrue for these taxes on the portion of earnings that we intend to repatriate.
In China, before any funds can be repatriated, the retained earnings of the legal entity must equal at least 50% of the registered capital. As of March 31, 2023, LPOIZ had approximately $3.4 million 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 March 31, 2023.
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Loans payable consists of the BankUnited Term Loan, pursuant to the Amended Loan Agreement, and the subordinated Equipment Loan. As of March 31, 2023, the outstanding balance on the BankUnited Term Loan was approximately $2.4 million. The outstanding balance on the Equipment Loan was approximately $284,000 as of March 31, 2023.
The Amended Loan Agreement and the Letter Agreement include certain customary covenants. As of March 31, 2023, we obtained a waiver of compliance for both the fixed charge coverage ratio and total leverage ratio, and we were in compliance with all other covenants, as amended. For additional information, see Note 11, Loans Payable, to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
On February 16, 2022, we filed a shelf registration statement to facilitate the issuance of our Class A common stock, warrants exercisable for shares of our Class A common stock, and/or units up to an aggregate offering price of $75.8 million from time to time. In connection with the filing of the shelf registration statement, we also included a prospectus supplement relating to an at-the-market equity program under which we may issue and sell shares of our Class A common stock up to an aggregate offering price of $25.2 million from time to time, decreasing the aggregate offering price available under the shelf registration statement to $50.6 million. The shelf registration statement was declared effective by the SEC on March 1, 2022.
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. 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, we may identify opportunities for acquisitions and other strategic transactions to expand and further enhance our business that may require that we raise additional capital should we elect to pursue any of such transactions.
Cash Flows – Operating:
Cash used in operations was approximately $921,000 for the first nine months of fiscal 2023, compared to cash provided by operations of approximately $352,000 for the same period of the prior fiscal year.Cash used in operations for the first nine months of fiscal 2023 was largely driven by an increase in inventory, which occurred during the third quarter as production was disrupted by the construction in the Orlando Facility. Cash provided by operations in the first nine months of fiscal 2022 reflects a lower net loss than in the first nine months of fiscal 2023, as well as an inventory reduction. These inflows were partially offset by a decrease in accounts payable and accrued liabilities during such period resulting from the payment of certain other expenses related to previously disclosed events that occurred at our Chinese subsidiaries which were accrued as of June 30, 2021.
Cash Flows – Investing:
During the first nine months of fiscal 2023, we expended approximately $2.3 million in investments in capital equipment, compared to approximately $1.5 million in the same period of the prior fiscal year. The first nine months of fiscal 2023 is largely driven by the Orlando Facility expansion, whereas the majority of our capital expenditures during the first nine months of fiscal 2022 were related to the continued expansion of our infrared coating capacity as well as increasing our lens diamond turning capacity to meet current and forecasted demand.As disclosed in Note 10, Leases, in the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, we are constructing additional tenant improvements in our Orlando Facility subject to our continuing lease, of which the landlord agreed to provide $2.4 million in tenant improvement allowances. The balance of the tenant improvement costs is estimated to be $2.5 million, which we began to fund during the third quarter of fiscal 2023. Through the third quarter of fiscal 2023, we expended $1.2 million toward this project, with the remaining estimated $1.3 million expected to be expended during the fourth quarter of fiscal 2023.
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Cash Flows – Financings:
Net cash provided by financing activities was approximately $7.5 million for the first nine months of fiscal 2023, compared to cash used in financing activities of approximately $425,000 in the same period of the prior fiscal year. Cash provided by financing activities for the first nine months of fiscal 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 $1.7 million in principal payments on our loans and finance leases. Cash used in financing activities for the first nine months of fiscal 2022 reflects approximately $682,000 in principal payments on our loans and finance leases, loan costs of approximately $61,000 associated with the restructure of the BankUnited Term Loan, offset by proceeds of approximately $267,000 from the Equipment Loan, and approximately $52,000 in proceeds from the sale of Class A common stock under the 2014 ESPP.
Contractual Obligations and Commitments
As of March 31, 2023, our principal commitments consisted of obligations under operating and finance leases, and debt agreements. No material changes occurred during the first nine months of fiscal 2023 in our contractual cash obligations to repay debt or to make payments under operating and finance leases, or in our contingent liabilities as disclosed in our Annual Report on Form 10-K for the year ended June 30, 2022.
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
There have been no material changes to our critical accounting policies and estimates during the nine months ended March 31, 2023 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended June 30, 2022.
How We Operate
We have continuing sales of two basic types: sales via ad-hoc purchase orders of mostly standard product configurations (our “turns” business) and the more challenging and potentially more rewarding business of customer product development. In this latter type of business, we work with customers to help them determine optical specifications and even create certain optical designs for them, including complex, multi-component, integrated designs that we call “engineered solutions.” These engineered solutions are often based on existing reference designs we have demonstrated, that then get further customized to the customer’s specific needs. This is followed by “sampling” small numbers of the product for the customers’ test and evaluation. Thereafter, should a customer conclude that our specification or design is the best solution to their product need; we negotiate and “win” a contract (sometimes called a “design win”) – whether of a “blanket purchase order” type or a supply agreement. The strategy is to create an annuity revenue stream that leverages our engineering capabilities and makes the best use of our production capacity, as compared to the turns business, which is unpredictable and uneven. A key business objective is to convert as much of our business to the design win and annuity model as is possible. We face several challenges in doing so:
| · | Maintaining an optical design and new product design and sampling capability, including a high-quality and responsive optical design engineering staff, and proactive design of reference designs or technology demonstrators; |
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| · | The fact that as our customers take products of this nature into higher volume, commercial production (for example, in the case of molded optics, this may be volumes over one million pieces per year) they begin to focus on reducing costs – which often leads them to turn to larger or overseas producers, even if sacrificing quality; and |
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| · | Our small business mass means that we can only offer a moderate amount of total productive capacity before we reach financial constraints imposed by the need to make additional capital expenditures – in other words, because of our limited cash resources and cash flow, we may not be able to service every opportunity that presents itself in our markets without arranging for such additional capital expenditures. |
Despite these challenges to winning more “annuity” and “engineered solutions” business, we nevertheless believe we can be successful in procuring this business because of our unique capabilities in optical design engineering and manufacturing. Additionally, we believe that we offer value to some customers as a source of supply in the U.S. should they be unwilling to commit to purchase their supply of a critical component from foreign production sources. For information regarding revenue recognition related to our various revenue streams, refer to Critical Accounting Policies and Estimates in our Annual Report on Form 10-K dated June 30, 2022.
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Our Key Performance Indicators:
Typically, on a weekly basis, management reviews a number of performance indicators, both qualitative and quantitative. These indicators change from time to time as the opportunities and challenges in the business change. These indicators are used to determine tactical operating actions and changes. We believe that our non-financial production indicators, such as those noted, are proprietary information.
Financial indicators that are considered key and reviewed regularly are as follows:
| · | Sales backlog; |
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| · | Revenue dollars and units by product group; and |
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| · | Other key indicators. |
These indicators are also used to determine tactical operating actions and changes and are discussed in more detail below. Management is evaluating these key indicators as we transition to our new strategic plan, and is implementing certain changes and updates as further described below.
Sales Backlog
We believe our sales growth has been and continues to be our best indicator of success. Our best view into the efficacy of our sales efforts is in our “order book.” Our order book equates to sales “backlog.” It has a quantitative and a qualitative aspect: quantitatively, our backlog’s prospective dollar value and qualitatively, what percent of the backlog is scheduled by the customer for date-certain delivery. We evaluate our total backlog, which includes all firm orders requested by a customer that are reasonably believed to remain in the backlog and be converted into revenues. This includes customer purchase orders and may include amounts under supply contracts if they meet the aforementioned criteria. Generally, a higher total backlog is better for us.
Our total backlog at March 31, 2023 was approximately $26.6 million, an increase of 35%, as compared to $19.7 million as of March 31, 2022. Compared to the end of fiscal 2022, our total backlog increased by 50% during the first nine months of fiscal 2023. Backlog change rates for the last five fiscal quarters are:
Quarter |
| Total Backlog ($ 000) |
|
| Change From Prior Year End |
|
| Change From Prior Quarter End |
| |||
Q3 2022 |
| $ | 19,678 |
|
|
| -8 | % |
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| -10 | % |
Q4 2022 |
| $ | 17,767 |
|
|
| -17 | % |
|
| -10 | % |
Q1 2023 |
| $ | 22,973 |
|
|
| 29 | % |
|
| 29 | % |
Q2 2023 |
| $ | 29,427 |
|
|
| 66 | % |
|
| 28 | % |
Q3 2023 |
| $ | 26,620 |
|
|
| 50 | % |
|
| -10 | % |
The increase in backlog during the first nine months of fiscal 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 will go into effect in the fourth quarter of our fiscal year 2023 and is expected to run for around 12-18 months. During the second quarter of fiscal 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 2023, after shipments against the previous contract were completed. Also during the second quarter of fiscal 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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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. We expect to maintain moderate growth in our visible PMO product group by continuing to diversify and offer new applications, with a cost competitive structure. 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 continue to negatively impact fiscal 2023 revenue in that region.
Revenue Dollars and Units by Product Group
The following table sets forth revenue dollars and units for our three product groups for the three and nine-month periods ended March 31, 2023 and 2022:
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| (unaudited) |
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| Three Months Ended March 31, |
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| Nine Months Ended March 31, |
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| Quarter |
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| Year-to-date |
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| 2023 |
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| 2022 |
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| % Change |
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| 2023 |
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| 2022 |
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| % Change |
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Revenue |
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PMO |
| $ | 3,105,533 |
|
| $ | 4,033,218 |
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| -23 | % |
| $ | 10,254,715 |
|
| $ | 11,608,665 |
|
|
| -12 | % |
Infrared Products |
|
| 3,606,535 |
|
|
| 3,725,684 |
|
|
| -3 | % |
|
| 11,270,785 |
|
|
| 13,688,770 |
|
|
| -18 | % |
Specialty Products |
|
| 697,580 |
|
|
| 546,510 |
|
|
| 28 | % |
|
| 1,723,728 |
|
|
| 1,354,494 |
|
|
| 27 | % |
Total revenue |
| $ | 7,409,648 |
|
| $ | 8,305,412 |
|
|
| -11 | % |
| $ | 23,249,228 |
|
| $ | 26,651,929 |
|
|
| -13 | % |
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Units |
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PMO |
|
| 296,107 |
|
|
| 586,528 |
|
|
| -50 | % |
|
| 1,147,894 |
|
|
| 1,600,836 |
|
|
| -28 | % |
Infrared Products |
|
| 28,109 |
|
|
| 89,476 |
|
|
| -69 | % |
|
| 124,218 |
|
|
| 337,773 |
|
|
| -63 | % |
Specialty Products |
|
| 5,909 |
|
|
| 5,075 |
|
|
| 16 | % |
|
| 41,989 |
|
|
| 14,869 |
|
|
| 182 | % |
Total units |
|
| 330,125 |
|
|
| 681,079 |
|
|
| -52 | % |
|
| 1,314,101 |
|
|
| 1,953,478 |
|
|
| -33 | % |
Three months ended March 31, 2023
Our revenue decreased by 11% in the third quarter of fiscal 2023, as compared to the same quarter of the prior fiscal year, primarily driven by a decrease in sales of PMO products.
Revenue from the PMO product group for the third quarter of fiscal 2023 was $3.1 million, a decrease of 23%, 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 third quarter of fiscal 2023 was $3.6 million, a decrease of 3%, as compared to same quarter of the prior fiscal year. The decrease in revenue is primarily due to timing sales of infrared products against a large annual contract, for which shipments against the prior contract were completed in the second quarter of fiscal 2023, while shipments against the renewed contract signed in November 2022 began late in the third quarter of fiscal 2023. The renewed contract represents a 20% increase over the previous contract. This decrease was partially offset by the sale of the majority of our infrared catalog inventory to Edmund Optics, as they will now service this portion of our catalog business.
Our specialty products revenue increased by 28%, as compared to the same period of the prior fiscal year. The increase is primarily due to increased demand for collimator assemblies, and 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.
| 31 |
| Table of Contents |
Nine months ended March 31, 2023
Our revenue decreased by 13% in the first nine months of fiscal 2023, as compared to the same period of the prior fiscal year, driven by decreases in both PMO and infrared products.
Revenue from the PMO product group for the first nine months of fiscal 2023 was $10.3 million, a decrease of 12%, as compared to the same period of the prior fiscal year. The decrease in revenue is primarily attributed to decreases in sales to customers in the telecommunications and commercial industries. 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 first nine months of fiscal 2023 was $11.3 million, a decrease of 18%, as compared to same period of the prior fiscal year. The decrease in revenue is primarily driven by sales of diamond-turned infrared products, primarily attributable to customers in the defense and industrial markets, including the timing of sales of infrared products against a large annual contract. Shipments against the prior contract were completed in the second quarter of fiscal 2023, while shipments against the renewed contract signed in November 2022 began late in the third quarter of fiscal 2023. The renewed contract represents a 20% increase over the previous contract. Sales of BD6-based molded infrared products also decreased, particularly to customers in the China industrial and commercial markets.
Our specialty products revenue increased by 27%, as compared to the same period of the prior fiscal year, and represented 7% and 5% of total revenue for the first nine months of fiscal 2023 and 2022, respectively. 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.
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 evaluating the pipeline of sales opportunities, 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.
EBITDA
EBITDA is a non-GAAP financial measure 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 necessarily 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.”
| 32 |
| Table of Contents |
We believe EBITDA is helpful for investors to better understand our underlying business operations. The following table adjusts net loss to EBITDA for the three and nine months ended March 31, 2023 and 2022:
|
| (unaudited) |
| |||||||||||||
|
| Quarter Ended March 31, |
|
| Nine Months Ended March 31, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net loss |
| $ | (1,163,270 | ) |
| $ | (495,003 | ) |
| $ | (3,238,031 | ) |
| $ | (2,182,391 | ) |
Depreciation and amortization |
|
| 778,668 |
|
|
| 924,219 |
|
|
| 2,359,550 |
|
|
| 2,763,620 |
|
Income tax provision |
|
| 65,282 |
|
|
| 163,059 |
|
|
| 222,416 |
|
|
| 328,328 |
|
Interest expense |
|
| 77,094 |
|
|
| 54,984 |
|
|
| 228,705 |
|
|
| 151,064 |
|
EBITDA |
| $ | (242,226 | ) |
| $ | 647,259 |
|
| $ | (427,360 | ) |
| $ | 1,060,621 |
|
% of revenue |
|
| -3 | % |
|
| 8 | % |
|
| -2 | % |
|
| 4 | % |
Our EBITDA for the quarter ended March 31, 2023 was a loss of approximately $242,000, compared to earnings of $647,000 for the same period of the prior fiscal year. The decrease in EBITDA in the third quarter of fiscal 2023 was primarily attributable to lower revenue and gross margin.
Our EBITDA for the nine months ended March 31, 2023 was a loss of approximately $427,000, compared to earnings of $1.1 million for the same period of the prior fiscal year. The decrease in EBITDA in the first nine months of fiscal 2023 was primarily attributable to lower revenue and gross margin, partially offset by lower operating expenses.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2023, the end of the period covered by this Quarterly Report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2023 in reporting on a timely basis information required to be disclosed by us in the reports we file or submit under the Exchange Act.
There have not been any significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 33 |
| Table of Contents |
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K, for the year ended June 30, 2022, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with the SEC in connection with evaluating us, our business, and the forward-looking statements contained in this Quarterly Report on Form 10-Q. During the nine months ended March 31, 2023, there have been no material changes from the risk factors previously disclosed under Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K, for the year ended June 30, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
| 34 |
| Table of Contents |
Item 6. Exhibits
The following exhibits are filed herewith as a part of this report.
Exhibit Number Description
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| ||
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| 35 |
| Table of Contents |
101.INS |
| Inline XBRL Instance Document |
| * |
|
|
|
|
|
|
|
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
| * |
|
|
|
|
|
|
|
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| * |
|
|
|
|
|
|
|
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
| * |
|
|
|
|
|
|
|
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
| * |
|
|
|
|
|
|
|
101.PRE |
| Inline XBRL Taxonomy Presentation Linkbase Document |
| * |
|
|
|
|
|
|
|
104 |
| Cover Page Interactive Data File – formatted in Inline XBRL and contained in Exhibit 101 |
| * |
|
*filed herewith
| 36 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements 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.
| LIGHTPATH TECHNOLOGIES, INC. | |||
| Date: May 11, 2023 | By: | /s/ Shmuel Rubin | |
|
| Shmuel Rubin | |
| President and Chief Executive Officer | |||
Date: May 11, 2023 | By: | /s/ Albert Miranda |
|
|
| Albert Miranda |
|
|
| Chief Financial Officer |
|
| 37 |
EXHIBIT 10.2
FIFTH AMENDMENT TO
LOAN AGREEMENT
Dated February 26, 2019 Between
LIGHTPATH TECHNOLOGIES, INC.,
a Delaware corporation
and
BANKUNITED, N.A.,
a national banking association
Dated as of May 9, 2023
| 1 |
FIFTH AMENDMENT TO
LOAN AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AGREEMENT (“Fifth Amendment”) is made as of May 9, 2023, by and between LIGHTPATH TECHNOLOGIES, INC., a Delaware corporation, (“Borrower”), and BANKUNITED, N.A., a national banking association (“Lender”).
RECITALS
A. Borrower and Lender are parties to a Loan Agreement dated as of February 26, 2019 as amended by First Amendment to Loan Agreement dated as of May 6, 2019, but effective as of February 26, 2019 (the “First Amendment”), by Second Amendment to Loan Agreement dated as of December 20, 2021 (the “Second Amendment”) by Third Amendment to Loan Agreement dated as of May 11, 2022 (the Third Amendment”) and by Fourth Amendment to Loan Agreement dated as of February 7, 2023 (the “Fourth Amendment (collectively the “Loan Agreement”). Capitalized terms used, but not defined herein, shall have their respective meanings as set forth in the Loan Agreement.
B. Borrower and Lender have elected to further modify the terms and conditions of the Loan Agreement as more particularly set forth herein.
C. Borrower has requested that Lender release its security interest and UCC-1 Financing statement in Borrower’s personal property and other Collateral and accept a pledge of cash collateral in substitution thereof.
D. Lender is willing to accept cash collateral and release its security interest on the terms set forth in this Fifth Amendment.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:
1. Recitals; Defined Terms. The Recitals set forth above are true and correct and are incorporated herein by reference. Unless otherwise defined, all initially capitalized terms in this Fifth Amendment shall be as defined in the Loan Agreement.
2. Cash Collateral Account. Borrower has opened a cash collateral account (the “Account” 9855987421) with Lender in the amount of $2,457,150.99 and pledged its interest in the Account to Lender as security for the repayment of the Term Loan Facility pursuant to the Security Agreement.
3. Release of Security Interest. Within five (5) business days after Borrower’s and Guarantors’ execution of this Fifth Amendment, Lender will release its security interest in Borrower’s personal property and other Collateral securing the Loans other than the Account and file such UCC-3 amendments as are necessary to limit the Collateral only to the Account.
4. Release of Portion of Pledged Account. Within five (5) business days after the end of each calendar quarter hereafter commencing for the quarter ending June 30, 2023, Lender will release to Borrower from the Account cash equal to 110% of the principal reductions effected during such calendar quarter.
5. Modification of Loan Agreement. Sections 3.1, 3.2, 3.5, 6.6, 6.8, 7.2, 7.3, 7.4, 7.5, 7.7, 7.9, 8.1(c), 8.1(f), and 8.1(g) are deleted from the Loan Agreement and of no further force or effect. The definition of “Collateral” is hereby amended to mean and refer only to the Account. The definition of “Excluded Collateral” is hereby amended to mean and refer to all Property and assets of the Borrower and Guarantors, whether now owned or hereafter acquired, other than the Account. Exhibit “C” is hereby deleted in its entirety.
| 2 |
6. No Other Changes. Except as specifically set forth herein all other terms and conditions remain in full force and effect.
7. Ratification of Guaranties. As a material inducement to Lender to enter into this Fifth Amendment, each Guarantor hereby agrees as follows:
(a) Guarantor acknowledges the continuing validity and effectiveness of the Guaranty Agreement and any other agreements, documents, or instruments securing or otherwise relating to the Guaranties previously executed and delivered by Guarantor (including without limitation any environmental indemnity agreement);
(b) Guarantor hereby joins in this Fifth Amendment for the purpose of consenting to: (i) this Fifth Amendment and all other matters, terms and conditions stated in this Fifth Amendment, and any other agreement, instrument or document executed simultaneously herewith;
(c) No offsets, defenses or counterclaims exist with respect to Guarantor’s obligations under the Guaranty Agreement;
(d) Guarantor hereby subordinates to Lender’s rights any claim or other right which Guarantor might now have or hereafter may acquire against Borrower, which arises from the existence or performance of Guarantors’ liability or other obligations under each Guaranty Agreement which Guarantors have executed in favor of Lender, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, and any right to participate in any claim or remedy of Lender against Borrower or any of the Collateral or any other property securing the Loan, whether or not such claim, remedy, or right arises in equity, or under contract, statute, or common law; and
(e) The execution, delivery, and performance by Guarantor of this Fifth Amendment and all documents and agreements of Guarantor relating hereto (i) are within the duly authorized power of Guarantor, (ii) have been duly authorized by all requisite action, and (iii) will not violate any provision of law, any order of any court or other agency of government, or the terms and provisions of any court or other agency of government, or the terms and provisions of any agreement with any third party or any instrument under which Guarantor is organized and constituted.
8. Affirmation of Loan Documents. Borrower further hereby affirms each of its covenants and obligations under the Loan Documents and acknowledges that Lender has fully complied with each of its covenants and obligations under the Loan Documents. Borrower acknowledges that it has no defenses, set offs or counterclaims to its obligations under any of the Loan Documents.
9. Events of Default. Failure to comply in any respect with any term, condition or undertaking contained in this Fifth Amendment shall constitute an event of default by Borrower under this Fifth Amendment and each of the Loan Documents, as applicable.
| 3 |
10. Release.
(a) As a material inducement to Lender to enter into this Fifth Amendment, each of Borrower and Guarantors (each an “Obligor”) hereby releases and discharges Lender and each of its agents, employees, directors, officers, attorneys, accountants, affiliates, representatives, receivers, trustees, subsidiaries, predecessors, successors and assigns (collectively, the “Released Parties”) from all claims, damages, losses, demands, liabilities, obligations, actions and causes of action whatsoever (whether arising in contract or in tort, and whether at law or in equity), which each Obligor may now have or claim to have against the Released Parties, whether known or unknown, matured or contingent, liquidated or unliquidated, arising from, in connection with, or in any way concerning or relating to (i) the Loan (ii) the Loan Documents (iii) this Fifth Amendment, or (iv) any action or inaction of any person or entity released hereunder with respect to the Loan, the Loan Documents, and this
Fifth Amendment (collectively “Claims”), except to the extent resulting from acts first arising after the execution and delivery of this Fifth Amendment and which are caused solely by Lender’s gross negligence or willful misconduct.
(b) In connection herewith, each Obligor hereby acknowledge that factual matters now unknown to it may have given or may hereafter give rise to Claims which are presently unknown, unanticipated and unsuspected, and it further agrees, represents and warrants that this release has been negotiated and agreed upon in light of that realization and that it nevertheless hereby intends to release, discharge and acquit the Released Parties from any such unknown Claims.
(c) Each Obligor represents and warrants that it has not heretofore assigned or transferred, or purported to assign or to transfer, to any person any Claim released hereunder or any portion thereof or interest therein, and each Obligor agrees to indemnify, defend and hold the Released Parties harmless from and against any and all claims based on or arising out of any such assignment or transfer or purported assignment or transfer.
11. Waiver of Jury Trial. EACH OBLIGOR AND LENDER HEREBY EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT, POWER, OR REMEDY UNDER OR IN CONNECTION WITH THIS FIFTH AMENDMENT OR ANY LOAN DOCUMENT OR UNDER OR IN CONNECTION WITH ANY AMENDMENT, INSTRUMENT, DOCUMENT, OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS FIFTH AMENDMENT OR ANY LOAN DOCUMENT, AND AGREE THAT ANY SUCH ACTION SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE TERMS AND PROVISIONS OF THIS SECTION CONSTITUTE A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS FIFTH AMENDMENT.
Except as amended hereby the Loan Agreement remains in full force and effect.
[SIGNATURE PAGES FOLLOW]
| 4 |
IN WITNESS WHEREOF the parties have executed this Fifth Amendment as of the date first written above.
| BORROWER:
LIGHTPATH TECHNOLOGIES, INC., a Delaware corporation | |||
| By: | /s/ Sam Rubin | ||
|
|
| Sam Rubin, President | |
| LENDER:
BANKUNITED, N.A., a national banking association | |||
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| By: | /s/ Monica Antongeorgi |
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| Monica Antongeorgi, SVP |
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| The following Guarantors acknowledge and consent to this Fifth Amendment as of the date first written above.
GUARANTORS:
GELTECH INC., a Delaware corporation |
| |
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| By: | /s/ Sam Rubin |
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| Sam Rubin, President |
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| ISP OPTICS CORPORATION, a New York corporation |
| |
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| By: | /s/ Sam Rubin |
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| Sam Rubin, President |
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| 5 |
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| LIGHTPATH OPTICAL INSTRUMENTATION (SHANGHAI) CO., LTD., a company formed under the law of the People’s Republic of China |
| |
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| By: | /s/ Sam Rubin |
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| LIGHTPATH OPTICAL INSTRUMENTATION (ZHENJIANG) CO., LTD., a company formed under the law of the People’s Republic of China |
| |
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| By: | /s/ Sam Rubin |
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| ISP OPTICS LATVIA, SIA, a company formed under the law of the Republic of Latvia |
| |
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| By: | /s/ Sam Rubin |
|
| 6 |
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. | I have reviewed this Quarterly Report on Form 10-Q of LightPath Technologies, Inc.; |
|
|
|
| 2. | 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; |
|
|
|
| 3. | 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; |
|
|
|
| 4. | 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) | 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; |
|
|
|
|
|
| b) | 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; |
|
|
|
|
|
| c) | 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 |
|
|
|
|
|
| d) | 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) | 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 |
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|
|
|
|
| b) | 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. |
| Date: May 11, 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. | I have reviewed this Quarterly Report on Form 10-Q of LightPath Technologies, Inc.; |
|
|
|
| 2. | 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; |
|
|
|
| 3. | 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; |
|
|
|
| 4. | 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) | 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; |
|
|
|
|
|
| b) | 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; |
|
|
|
|
|
| c) | 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 |
|
|
|
|
|
| d) | 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) | 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 |
|
|
|
|
|
| b) | 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. |
| Date: May 11, 2023 | ||
| /s/ Albert Miranda | ||
|
| Albert Miranda | |
| Chief Financial Officer |
EXHIBIT 32.1
Certification of Chief Executive Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
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. | The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 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 |
|
|
|
|
|
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: May 11, 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.
EXHIBIT 32.2
Certification of Chief Financial Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
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:
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| 1. | The Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 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 |
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| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: May 11, 2023 | /s/ Albert Miranda | |
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| 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.