OPTX 8-K/A
Syntec Optics Holdings, Inc. (OPTX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported): January 17, 2024 (
(Exact name of registrant as specified in its charter)
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or other jurisdiction of incorporation) |
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class: | Trading Symbol(s) | Name of Each Exchange on Which Registered: | ||
| The Capital Market | ||||
| The Capital Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
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EXPLANATORY NOTE
This Amendment No. 1 on Form 8-K/A (“Amendment No. 1”) amends the Current Report on Form 8-K of Syntec Optics Holdings, Inc, a Delaware corporation (the “Company”) (f/k/a OmniLit Acquisition Corp.), originally filed by the Company on November 14, 2023, in which the Company reported, among other events, the consummation of the Transactions (as defined in the Original Report) on November 14, 2023.
This Amendment No. 1 is being filed solely for the purpose of supplementing the historical consolidated financial statements and pro forma condensed combined financial information provided under Item 9.01(a) in the Original Report to include (i) the unaudited condensed consolidated financial statements of Syntec Optics, Inc., a Delaware corporation (“Legacy Syntec”), as of September 30, 2023 and for the nine months ended September 30, 2023 and 2022, (ii) the related Management’s Discussion and Analysis of Financial Condition and Results of Operations of Legacy Syntec as of September 30, 2023 and for the nine months ended September 30, 2023 and 2022.
This Amendment No. 1 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company or its subsidiaries subsequent to the filing date of the Original Report. The information previously reported in or filed with the Original Report is hereby incorporated by reference to this Amendment No. 1.
Item 9.01 Financial Statement and Exhibits.
(a) Financial Statements of Businesses Acquired.
The unaudited consolidated financial statements of Legacy Syntec as of September 30, 2023 and for the nine months ended September 30, 2023 and 2022, and the related and the related notes are attached as Exhibit 99.1 and are incorporated herein by reference. Also included as Exhibit 99.2 and incorporated by reference is the Management’s Discussion and Analysis of Financial Condition and Results of Operations of Legacy Syntec as of September 30, 2023 and 2022.
(d) Exhibits.
Item 21. Exhibits and financial statements schedules.
Exhibits.
| Exhibit | ||
| Number | Description | |
| 99.1 | Unaudited condensed consolidated financial statements of Legacy Syntec as of September 30, 2023 and for the nine months ended September 30, 2023 and 2022. | |
| 99.2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of Legacy Syntec as of September 30, 2023 and for the nine months ended September 30, 2023 and 2022. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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 hereunto duly authorized.
| SYNTEC OPTICS HOLDINGS, INC. | ||
| By: | /s/ Joseph Mohr | |
| Date: January 17, 2024 | Name: | Joseph Mohr |
| Title: | Chief Executive Officer | |
Exhibit 99.1
SYNTEC OPTICS, INC.
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023 AND 2022
TABLE OF CONTENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTMEBER 30, 2023 AND DECEMBER 31, 2022
| 2023 | 2022 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 103,324 | 526,182 | |||||
| Accounts Receivable, Net | 6,481,803 | 5,925,724 | ||||||
| Inventory, Net | 5,441,721 | 3,626,360 | ||||||
| Prepaid Expenses and Other Assets | 496,006 | 689,385 | ||||||
| Total Current Assets | 12,522,854 | 10,767,651 | ||||||
| Property and Equipment, Net | 11,162,057 | 11,624,819 | ||||||
| Operating Lease Assets, Net | 53,270 | 63,227 | ||||||
| Total Assets | $ | 23,738,181 | $ | 22,455,697 | ||||
| LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 1,705,320 | $ | 412,058 | ||||
| Accrued Expenses | 435,869 | 539,966 | ||||||
| Federal Income Tax Payable | 637,149 | 108,738 | ||||||
| Deferred Revenue | 38,360 | 348,095 | ||||||
| Line of Credit | 6,547,076 | 6,400,000 | ||||||
| Current Maturities of Debt Obligations | 1,382,469 | 1,624,851 | ||||||
| Current Maturities of Operating Lease Liabilities | 16,944 | 13,374 | ||||||
| Total Current Liabilities | 10,763,187 | 9,447,082 | ||||||
| Long-Term Liabilities | ||||||||
| Long-Term Debt Obligations | 1,528,598 | 1,913,538 | ||||||
| Long-Term Operating Lease Liabilities | 36,326 | 49,853 | ||||||
| Due to Related Parties | - | 11,767 | ||||||
| Deferred Grant Revenue | 300,000 | 300,000 | ||||||
| Deferred Income Taxes | 738,014 | 1,274,104 | ||||||
| Total Long-Term Liabilities | 2,602,938 | 3,549,262 | ||||||
| Total Liabilities | 13,366,125 | 12,996,344 | ||||||
| Commitments and Contingencies (Note 14) | ||||||||
| Stockholder’s Equity | ||||||||
| Common Stock, Par value $.001 per share; 5,000 authorized; 3,499 issued and outstanding as of September 30, 2023 and December 31, 2022 | 4 | 4 | ||||||
| Additional Paid-In Capital | 240,848 | 240,848 | ||||||
| Retained Earnings | 10,131,204 | 9,218,501 | ||||||
| Total Stockholder’s Equity | 10,372,056 | 9,459,353 | ||||||
| Total Liabilities and Stockholder’s Equity | $ | 23,738,181 | $ | 22,455,697 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements
| 3 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Net Sales | $ | 6,600,525 | $ | 6,891,497 | $ | 21,177,257 | $ | 20,755,724 | ||||||||
| Cost of Goods Sold | 4,756,466 | 5,487,894 | 15,244,862 | 16,582,871 | ||||||||||||
| Gross Profit | 1,844,059 | 1,403,603 | 5,932,395 | 4,172,853 | ||||||||||||
| General and Administrative Expenses | 1,314,885 | 1,397,565 | 4,442,117 | 4,234,425 | ||||||||||||
| Income (Loss) from Operations | 529,174 | 6,038 | 1,490,278 | (61,572 | ) | |||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest Expense, Including Amortization of Debt Issuance Costs | (185,292 | ) | (98,633 | ) | (446,875 | ) | (214,866 | ) | ||||||||
| Other Income | 21,107 | 8 | 70,914 | 476 | ||||||||||||
| Total Other Expense, Net | (164,185 | ) | (98,625 | ) | (375,961 | ) | (214,390 | ) | ||||||||
| Income (Loss) Before Provision for (Benefit From) Income Taxes | 364,989 | (92,587 | ) | 1,114,317 | (275,962 | ) | ||||||||||
| Provision for (Benefit From) Income Taxes | 11,008 | (21,082 | ) | 139,549 | (70,773 | ) | ||||||||||
| Net Income (Loss) | $ | 353,981 | $ | (71,505 | ) | $ | 974,768 | $ | (205,189 | ) | ||||||
| Net Income (Loss) per Common Share | ||||||||||||||||
| Basic and diluted | $ | 101.17 | $ | (20.44 | ) | $ | 278.58 | $ | (58.64 | ) | ||||||
| Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
| Basic and diluted | 3,499 | 3,499 | 3,499 | 3,499 | ||||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
| 4 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
| Balances, December 31, 2022 | 3,499 | $ | 4 | $ | 240,848 | $ | 9,218,501 | $ | 9,459,353 | |||||||||||
| Distributions | - | - | - | (46,106 | ) | (46,106 | ) | |||||||||||||
| Net Income | - | - | - | 53,022 | 53,022 | |||||||||||||||
| Balances, March 31, 2023 | 3,499 | $ | 4 | $ | 240,848 | $ | 9,225,417 | $ | 9,466,269 | |||||||||||
| Distributions | - | $ | - | $ | - | $ | (15,959 | ) | $ | (15,959 | ) | |||||||||
| Net Income | - | - | - | 567,765 | 567,765 | |||||||||||||||
| Balances, June 30, 2023 | 3,499 | $ | 4 | $ | 240,848 | $ | 9,777,223 | $ | 10,018,075 | |||||||||||
| Net Income | - | - | - | 353,981 | 353,981 | |||||||||||||||
| Balances, September 30, 2023 | 3,499 | $ | 4 | $ | 240,848 | $ | 10,131,204 | $ | 10,372,056 | |||||||||||
See Notes to Unaudited Condensed Consolidated Financial Statements
| 5 |
SYNTEC OPTICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Additional | Stock | |||||||||||||||||||||||||||
| Common Stock | Paid-In | Retained | Loan to | Subscription | ||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Stockholder | Receivable | Total | ||||||||||||||||||||||
| Balances, December 31, 2021 | 3,499 | $ | 4 | $ | 240,848 | $ | 15,615,868 | $ | (5,505,957 | ) | $ | (176,071 | ) | $ | 10,174,692 | |||||||||||||
| Distributions (See Note 6 & 7) | - | - | - | (5,694,339 | ) | 5,505,957 | 176,071 | (12,311 | ) | |||||||||||||||||||
| Net Loss | - | - | - | (330,370 | ) | - | - | (330,370 | ) | |||||||||||||||||||
| Balances, March 31, 2022 | 3,499 | $ | 4 | $ | 240,848 | $ | 9,591,159 | $ | - | $ | - | $ | 9,832,011 | |||||||||||||||
| Distributions | - | $ | - | $ | - | $ | (27,690 | ) | $ | - | $ | - | $ | (27,690 | ) | |||||||||||||
| Net Income | - | - | - | 196,686 | - | - | 196,686 | |||||||||||||||||||||
| Balances, June 30, 2022 | 3,499 | $ | 4 | $ | 240,848 | $ | 9,760,155 | $ | - | $ | - | $ | 10,001,007 | |||||||||||||||
| Distributions | - | - | - | (22,929 | ) | - | - | (22,929 | ) | |||||||||||||||||||
| Net Loss | - | - | - | (71,505 | ) | - | - | (71,505 | ) | |||||||||||||||||||
| Balances, September 30, 2022 | 3,499 | $ | 4 | $ | 240,848 | $ | 9,665,721 | $ | - | $ | - | $ | 9,906,573 | |||||||||||||||
| 6 |
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTMEBER 30, 2023 AND 2022
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net Income (Loss) | $ | 974,768 | $ | (205,189 | ) | |||
| Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by | ||||||||
| Operating Activities: | ||||||||
| Depreciation and Amortization | 2,096,335 | 2,200,462 | ||||||
| Amortization of Debt Issuance Costs | 5,758 | 7,748 | ||||||
| Change in Allowance for Expected Credit Losses | (51,706 | ) | - | |||||
| Change in Reserve for Obsolescence | 16,299 | (392,545 | ) | |||||
| Deferred Income Taxes | (536,090 | ) | (875,254 | ) | ||||
| (Increase) Decrease in: | ||||||||
| Accounts Receivable | (504,372 | ) | 64,122 | |||||
| Inventory | (1,831,660 | ) | 878,905 | |||||
| Federal Income Tax Receivable | - | 100,000 | ||||||
| Prepaid Expenses and Other Assets | 193,379 | 213,037 | ||||||
| Increase (Decrease) in: | ||||||||
| Accounts Payables and Accrued Expenses | 523,455 | (189,435 | ) | |||||
| Federal Income Tax Payable | 528,411 | 681,427 | ||||||
| Deferred Revenue | (309,735 | ) | (119,099 | ) | ||||
| Net Cash Provided By Operating Activities | 1,104,842 | 2,364,179 | ||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of Property and Equipment | (979,630 | ) | (1,185,524 | ) | ||||
| Net Cash Used in Investing Activities | (979,630 | ) | (1,185,524 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Borrowings (Repayments) on Line of Credit, Net | 147,076 | (1,000,000 | ) | |||||
| Repayments on Debt Obligations | (633,081 | ) | (687,548 | ) | ||||
| Repayments on Finance Lease Obligations | - | (125,103 | ) | |||||
| Distributions | (62,065 | ) | (62,930 | ) | ||||
| Net Cash Used in Financing Activities | (548,070 | ) | (1,875,581 | ) | ||||
| Net Decrease in Cash | (422,858 | ) | (696,926 | ) | ||||
| Cash - Beginning | 526,182 | 2,303,441 | ||||||
| Cash - Ending | $ | 103,324 | $ | 1,606,515 | ||||
| Supplemental Cash Flow Disclosures: | ||||||||
| Cash Paid for Interest | $ | 451,580 | $ | 207,118 | ||||
| Cash Paid for Taxes | $ | 118,616 | $ | - | ||||
| Supplemental Disclosures of Non-Cash Investing and Financing Activities: | ||||||||
| Assets Acquired During the Period | $ | 1,633,573 | $ | 647,708 | ||||
| Add: Asset Acquired and Included in Accounts Payable and Accrued Expenses in the Prior Period | 26,394 | 546,654 | ||||||
| Less: Asset Acquired and Included in Accounts Payable and Accrued Expenses in the Current Period | 680,337 | 8,838 | ||||||
| Cash Paid for Purchases of Property and Equipment | $ | 979,630 | $ | 1,185,524 | ||||
| Distributions During the Period | $ | 62,065 | $ | 5,744,958 | ||||
| Less: Loan to Stockholder Settled | - | 5,505,957 | ||||||
| Less: Stock Subscription Receivable Settled | - | 176,071 | ||||||
| Cash Paid for Distributions | $ | 62,065 | $ | 62,930 | ||||
See Notes to Unaudited Condensed Consolidated Financial Statements
| 7 |
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 1 | Nature of Business and Significant Accounting Policies |
Nature of Business
Syntec Optics, Inc. (the Company or Syntec) is a vertically integrated manufacturer of optics and photonics components and sub-systems – from opto-mechanicals to optical elements of various geometries, diamond turned optics – both prototype and production, and optical systems including optics assembly, electro-optics assembly, design, and coating. Sales are made to customers in the United States and Europe in defense, medical, and consumer end-markets. The Company has one reporting segment as its operating segments meet the requirements for aggregation.
Effective December 28, 2022, Wordingham Machine Co., Inc. and Rochester Tool and Mold, Inc. were merged with and into Syntec Technologies, Inc., with Syntec Technologies, Inc. being the surviving corporation (the Merger). Syntec Technologies, Inc. amended its name to Syntec Optics, Inc. Prior to this transaction, Wordingham Machine Co., Inc. and Rochester Tool and Mold, Inc. were wholly owned subsidiaries of Syntec. Syntec offers a unifying platform to other optics and photonics companies that can be added through acquisition.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information in accordance with Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in unaudited condensed financial statements prepared in accordance with U.S. GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The interim results for the nine-month periods ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or for any future period.
| 8 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 1 | Nature of Business and Significant Accounting Policies - Continued |
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Syntec Technologies, Inc. and its wholly owned subsidiaries, Rochester Tool and Mold, Inc. and Wordingham Machine Co., Inc. prior to the date of the Merger, see Note 16.
The consolidated financial statements also include the accounts of ELR Associates, LLC (ELR), a variable interest entity wherein the Company is the primary beneficiary. Syntec’s variable interest in ELR is the result of providing a guaranty of payment for ELR’s mortgage on the manufacturing facility used exclusively by Syntec.
The consolidated financial statements include the financial position and result of operations of ELR, consisting principally of cash and cash equivalents, other assets and property and equipment of approximately $2,147,000 and $2,149,000 (net of accumulated depreciation) and liabilities, consisting of deferred grant revenue and long-term debt, of approximately $1,869,000 and $1,948,000 as of September 30, 2023 and December 31, 2022, respectively and net income of approximately $31,900 and $107,300 for the three months ended September 30, 2023 and nine months ended September 30, 2023, respectively. Net income was approximately $28,700 and $93,000 for the three and nine months ended September 30, 2022, respectively.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.
Cash
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and accounts receivable. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes that they are not exposed to any significant credit risk on cash. The Company also routinely assesses the financial strength of their customers and, as a consequence, believes that its accounts receivable credit risk exposure is limited. On September 30, 2023 and December 31, 2022 there were amounts due from three customers that totaled approximately 58% and 66% respectively, of accounts receivable. The outstanding accounts receivable due from these customers at September 30, 2023 and December 31, 2022 were approximately $3,828,000 and $3,895,000, respectively.
| 9 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 1 | Nature of Business and Significant Accounting Policies – Continued |
Accounts Receivable
The Company grants credit to substantially all customers and carries its accounts receivable at original invoice, net of an allowance for expected credit losses. On a periodic basis, management evaluates accounts receivable and adjusts the allowance for expected credit losses. The allowance at September 30, 2023 and December 31, 2022 amounted to approximately $181,000 and $213,000, respectively. Customer balances are written off when amounts are deemed uncollectible, or credits are issued. The Company generally does not accrue interest on past-due balances.
Inventory
Inventory consists of raw materials, work-in-process, finished goods and allocated manufacturing labor and overhead. Inventory is stated at the lower of cost using the first-in, first-out basis or net realizable value. The Company provides inventory reserves for excess, obsolete, or slow-moving inventory, based on changes in customer demand, technology developments or other economic factors.
Property and Equipment Net of Accumulated Deprecation
Property and equipment is stated at cost and is depreciated over the estimated useful lives of the respective assets. The cost of normal maintenance and repairs is charged to expense as incurred, whereas expenditures, which materially extend useful lives, are capitalized. When depreciable property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income.
Depreciation is provided for on the straight-line method over the following estimated useful lives:
| Years | ||||
| Machinery and Equipment | 7 | |||
| Building and Leasehold Improvements | 14 – 15 and/or Lesser of | |||
| Useful Life or Lease Term | ||||
| Office Furniture and Equipment | 3 - 5 | |||
| Tooling | 3 - 10 | |||
| Vehicles | 5 | |||
Long-Lived Assets
Long-lived assets, including property and equipment, are generally stated at cost. The Company reviews its long-lived assets, including right of use assets, for possible impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If such events or changes in circumstances are present, the carrying value of the asset is compared to the undiscounted future cash flows expected to result from the use of the asset and its eventual disposition. If the carrying amount exceeds the undiscounted cash flows, an impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. During the nine months ended September 30, 2023, and year ended December 31, 2022, no material impairment charges were recorded.
| 10 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 1 | Nature of Business and Significant Accounting Policies – Continued |
Leases
The Company determines if an arrangement is or contains a lease at inception. The Company records right-of-use (ROU) assets and lease obligations for its finance and operating leases, which are initially based on the discounted future minimum lease payments over the term of the lease. The payments are discounted using the rate implicit in the lease.
The lease term is defined as the non-cancelable period of the lease plus any options to extend the lease when it is reasonably certain that it will be exercised. Leases may also include options to terminate the arrangement or options to purchase the underlying asset. For leases with an initial term of 12 months or less, no ROU assets or lease obligations are recorded on the balance sheet and the Company recognizes short-term lease expense for these leases on a straight-line basis over the lease term.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. None of the Company’s lease agreements include variable rental payments. The Company has elected to separate lease from non-lease components for all leases.
Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administrative expense. Amortization expense for finance leases is recognized on a straight-line basis over the lease term and is included in cost of goods sold or general and administrative expense. Interest expense for finance leases is recognized using the effective interest method. Short-term rentals and payments associated with non-lease components are expensed as incurred.
.
Debt Issuance Costs
The Company defers certain costs incurred in connection with obtaining financing. Costs related to line of credit agreements are recorded as an asset and are amortized to interest expense over the term of the agreement. Costs related to long-term debt financing are presented as a direct deduction from the carrying amount of the related debt and amortized over the term of the related debt as additional interest.
Shipping and Handling Fees and Costs
Shipping and handling fees billed to the customer are recorded in net sales and the related costs incurred for shipping and handling are included in costs of goods sold.
Advertising
Advertising costs are charged to operations when incurred. Advertising expense for the three months ended September 30, 2023 and 2022 amounted to $46,076 and $58,359, respectively and for the nine months ended September 30, 2023 and 2022 amounted to $140,629 and $194,927, respectively.
| 11 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 1 | Nature of Business and Significant Accounting Policies – Continued |
Income Taxes
The Company accounts for income taxes with the recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry forwards. Measurement of deferred income items is based on enacted tax laws, including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized in the immediate future. A valuation allowance is established when it is necessary to reduce deferred income tax assets to amounts for which realization is likely. In assessing the need for a valuation allowance, management estimates future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards following tax law ordering rules.
The Company reviews tax positions taken to determine if it is more likely than not that the position would be sustained upon examination resulting in an uncertain tax position. The Company did not have any material unrecognized tax benefit as of September 30, 2023 or 2022. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the nine months ended September 30, 2023 and 2022, the Company recognized no interest and penalties. The Company files U.S. federal tax returns and tax returns in various states.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. The Company did not have any dilutive shares for the three and nine months ended September 30, 2023 and 2022.
Fair Value of Financial Instruments
The Company follows the fair value measurement guidance required by accounting principles generally accepted in the United States of America for financial and nonfinancial assets and liabilities. This guidance defines fair value and establishes a framework for measuring fair value and related disclosure requirements. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, accrued expenses and borrowings approximate fair value, based on their terms or due to the short maturity of these instruments.
| 12 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 1 | Nature of Business and Significant Accounting Policies – Continued |
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This update requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting companies. The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements.
| Note 2 | Revenue Recognition |
The Company recognizes revenue in accordance with Accounting Standard Codification 606, Revenue from Contracts with Customers (ASC 606), which provides a five-step model for recognizing revenue from contracts with customers as follows:
| ● | Identify the contract with a customer | |
| ● | Identify the performance obligations in the contract | |
| ● | Determine the transaction price | |
| ● | Allocate the transaction price to the performance obligations in the contract | |
| ● | Recognize revenue when or as performance obligations are satisfied |
The Company’s revenue is primarily derived from three categories of products and services, (i) the production and assembly of molded plastic optics parts including polymer and glass parts, opto-mechanicals, thin film coating, diamond turned optics and optical systems including electro-optics assembly, (“Products”) (ii) the manufacture of custom tooling used to manufacture molded products, and (“Custom Tooling”) (iii) non-recurring engineering services (“Non-Recurring Engineering’). The Company’s products are marketed and sold primarily to end-user commercial customers throughout the United States and Europe. Sales of products and services are subject to economic conditions and may fluctuate based on changes in the industry, trade policies and financial markets.
The Company assesses the contract term as the period in which the parties to the contract have presently enforceable rights and obligations. Certain customer contracts may provide for either party to terminate the contract upon written notice.
| 13 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 2 | Revenue Recognition – Continued |
Nature of Products and Services
Revenue from the sale of molded plastic, polymer and glass parts, opto-mechanicals, thin film coating, diamond turned optic and optical systems is recognized upon transfer of control to the customer, which is typically upon shipment. These sales do not meet the criteria for revenue to be recognized over time. The Company has elected to treat shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated equipment and parts and not as a separate performance obligation.
In general, the Company recognizes revenue from tooling contracts upon delivery and acceptance by the customer, which signifies successful completion of the contract.
Revenue from non-recurring engineering services is recognized upon completion of the negotiated services. These sales do not meet the criteria for revenue to be recognized over time. Non-recurring engineering services are one-off items that are unique to programs such as expedite fees or set-up fees which are billed upon completion of the task with payment terms of 30 - 60 days from date of invoice.
Transaction Price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods and services to the customer. Revenue is recorded based on the transaction price, which includes fixed consideration. The Company’s contracts do not include variable consideration.
Contract Balances
The timing of revenue recognition generally aligns with the right to invoice the customer. The Company records accounts receivable when it has the unconditional right to issue an invoice and receive payment, regardless of whether revenue has been recognized. Deferred revenue is recognized on the consolidated balance sheets when cash payments are received in advance of the Company satisfying its performance obligation. Deferred revenue is recognized as revenue on the consolidated statements of operations when the Company satisfies its performance obligation to the customer. Balances in deferred revenue at January 1, 2023 and July 1, 2023 were $348,095 and $65,250, respectively. Revenue recognized during the three months ended September 30, 2023 and 2022 from amounts included in deferred revenue at the beginning of the period was $18,750 and $256,841, respectively. Revenue recognized during the nine months ended September 30, 2023 and 2022 from amounts included in deferred revenue at the beginning of the period was $460,865 and $505,656, respectively. The Company does not have any contract assets.
Costs to Obtain a Contract
The Company did not incur costs of obtaining contracts expected to benefit longer than one year. As a result, there are no capitalized contract acquisition costs as of September 30, 2023 or December 31, 2022.
| 14 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 2 | Revenue Recognition – Continued |
Warranties
The buyer shall have thirty (30) days from the date of shipment to inspect and either accept or reject. If goods are rejected, written notice of rejection and the specific reasons therefore must be sent to the Company within such thirty (30) day period after receipt. Failure to reject goods or to notify the Company of errors, shortages, or other non-compliance with the agreement within such thirty (30) day period shall constitute irrevocable acceptance of goods and admission that they fully comply with the agreement.
Disaggregated Revenues
The following table disaggregates revenue by revenue recognition methodologies as outlined above for the nine months ended September 30:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Products | $ | 6,257,407 | $ | 6,419,332 | $ | 18,529,993 | $ | 19,567,049 | ||||||||
| Custom Tooling | 211,350 | 450,665 | 1,325,411 | 1,002,265 | ||||||||||||
| Non-Recurring Engineering | 131,768 | 21,500 | 1,321,853 | 186,410 | ||||||||||||
| Total | $ | 6,600,525 | $ | 6,891,497 | $ | 21,177,257 | $ | 20,755,724 | ||||||||
Syntec Optics’ management periodically reviews its revenues by its consumer, medical, and defense end-markets. The purpose of this analysis is to determine its end market mix and identify trends. The following table disaggregates revenue as outlined above for the nine months ended September 30:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Consumer | $ | 2,138,567 | $ | 2,130,395 | $ | 7,007,474 | $ | 7,156,774 | ||||||||
| Defense | 1,961,166 | 2,169,685 | 6,467,556 | $ | 5,377,609 | |||||||||||
| Medical | 2,500,792 | 2,591,417 | 7,702,227 | $ | 8,221,341 | |||||||||||
| Total | $ | 6,600,525 | $ | 6,891,497 | $ | 21,177,257 | $ | 20,755,724 | ||||||||
| 15 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 3 | Other Reimbursements |
On August 9, 2022, the Company suffered a power outage that interrupted business and resulted in various equipment damage. The Company received $120,000 during Q3 2022 from the insurer Acadia Insurance for repair costs that has been included in other income in the consolidated statement of operations for the year ended December 31, 2022. The Company has received an additional $76,951 for repair costs which was paid in 2023. In addition, Acadia Insurance has provided guidelines to the Company for an additional interruption loss claim. The Company has received $23,902 in 2023 in relation to the interruption loss claim to date. The claim is still unresolved, and the Company does not have a best estimate of the final settlement.
| Note 4 | Inventory |
Inventory consists of the following at September 30, 2023 and December 31, 2022:
| 2023 | 2022 | |||||||
| Raw Materials | $ | 696,227 | $ | 865,499 | ||||
| Work-in-Process | 4,509,727 | 2,705,281 | ||||||
| Finished Goods | 443,775 | 247,289 | ||||||
| 5,649,729 | 3,818,069 | |||||||
| Less: Reserve for Obsolescence | 208,008 | 191,709 | ||||||
| Inventory, Net | $ | 5,441,721 | $ | 3,626,360 | ||||
| Note 5 | Property and Equipment |
Property and equipment consist of the following at September 30, 2023 and December 31, 2022:
| 2023 | 2022 | |||||||
| Machinery and Equipment | $ | 31,492,113 | $ | 30,595,840 | ||||
| Building and Leasehold Improvements | 5,093,987 | 5,082,901 | ||||||
| Land | 130,000 | 130,000 | ||||||
| Office Furniture and Equipment | 2,233,608 | 2,196,265 | ||||||
| Tooling | 103,860 | 103,860 | ||||||
| Vehicles | 24,059 | 24,059 | ||||||
| Construction-In-Progress | 688,871 | - | ||||||
| 39,766,498 | 38,132,925 | |||||||
| Less: Accumulated Depreciation | 28,604,441 | 26,508,106 | ||||||
| Property and Equipment, Net | $ | 11,162,057 | $ | 11,624,819 | ||||
Depreciation expenses were approximately $692,000 and $731,000 for the three months ended September 30, 2023 and 2022, respectively and $2,096,000 and $2,200,000 for the nine months ended September 30, 2023 and 2022, respectively.
| 16 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 6 | Loan to Stockholder |
As of December 31, 2021, the Company had an outstanding loan to stockholder that totaled $5,463,299. The loan bore interest at 2.00%. As of December 31, 2021, unpaid accrued interest amounted to $42,658 and was included in loan to stock holder in the accompanying Consolidated Balance Sheet. During 2022, the outstanding loan balance and accrued interest was settled via a non-cash distribution to the stockholder. The loan receivable is to the sole stockholder, it has been classified as a reduction to equity at December 31, 2021. Based on the fact that the loan was made to the sole shareholder with no fixed repayment terms, these financial statements present the loan as a reduction to stockholder’s equity.
| Note 7 | Subscription Receivable |
Syntec loaned $300,000 to a stockholder of Syntec in 1999, the proceeds of which were used by the stockholder to acquire an outstanding interest in Syntec. Syntec has classified the loan receivable as an offset to equity with accrued interest income recorded to additional paid-in capital. Interest income of $3,283 during the year ended December 31, 2021 was recorded as an increase to additional paid-in capital. During 2022, the loan balance and accrued interest amounting to $176,071 in the aggregate was settled via a non-cash distribution to the stockholder.
| Note 8 | Line of Credit |
The Company has a line of credit available in the amount of $8,000,000 with Citizens Bank. Borrowings may be made against the line of credit as ABR Loans, Daily SOFR Loans or SOFR Loans, as defined in the credit agreement. The weighted average rate on outstanding borrowings as of September 30, 2023 was 8.40%. As of September 30, 2023 and December 31, 2022, the Company had $6,547,076 and $6,400,000, respectively, outstanding under the line of credit facility.
The line of credit and term notes contain customary covenants and restrictions on the Company’s ability to engage in certain activities and financial covenants requiring the Company to maintain certain financial ratios. At September 30, 2023 the Company was in compliance with these financial covenants.
| 17 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 9 | Long-Term Debt |
See Note 16 for subsequent event of debt refinancing, all the following have been revised to reflect the new terms. Long-term debt consists of the following at September 30, 2023 and December 31, 2022:
| 2023 | 2022 | |||||||
| The Company entered into a $2,000,000 term note payable with Citizens Bank, requiring monthly principal installments of $33,333 plus interest at the Adjusted LIBOR rate as defined in the credit agreement. The note matured and was paid full in June 2023. | $ | - | $ | 199,126 | ||||
| The Company entered into a $674,000 term note payable with the U.S. Small Business Administration, requiring monthly installments of $6,646, including interest at a fixed rate of 1.87%. The note matures in September 2026. The note is secured by certain assets of the Company and a personal guaranty of the Company’s stockholder. This note is a part of the refinancing mentioned in Note 16. The new maturity date is November 2028. | 215,440 | 267,438 | ||||||
| The Company entered into a $2,000,000 term note payable with Citizens Bank, requiring monthly principal installments of $33,333, plus interest at the Adjusted SOFR rate as defined in the credit agreement. The effective interest rate was 8.65% at September 30, 2023. The note matures in July 2026. This note is a part of the refinancing mentioned in Note 16. The new maturity date is November 2028. | 1,133,333 | 1,433,333 | ||||||
| 18 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 9 | Long-Term Debt – Continued |
| The Company entered into a $1,216,712 mortgage note payable with Citizens Bank, requiring monthly principal installments of $5,633, plus interest at the Adjusted SOFR rate as defined in the credit agreement. The effective interest rate was 8.41% at September 30, 2023. The note matures in July 2023 however, the Company agreed to an extension with Citizens Bank through December 2023 at which point there will be a negotiation on re-financing of the note. | 861,838 | 906,901 | ||||||
| The Company entered into a $1,064,000 term note payable with the U.S. Small Business Administration, requiring monthly installments of $6,963, including fees and interest at a fixed rate of 2.22%. The note matures in June 2026. The note is secured by certain assets of the Company and a personal guaranty of the Company’s stockholder. | 730,876 | 767,771 | ||||||
| Total Long-Term Debt | 2,941,487 | 3,574,569 | ||||||
| Less: Unamortized Debt Issuance Costs | 30,420 | 36,180 | ||||||
| Long-Term Debt, Less Unamortized Debt Issuance Costs | 2,911,067 | 3,538,389 | ||||||
| Less: Current Maturities | 1,382,469 | 1,624,851 | ||||||
| Long-Term Debt | $ | 1,528,598 | $ | 1,913,538 |
Aggregate annual maturities of the debt are estimated as follows:
| December 31, 2023 | $ | 991,768 | ||
| 2024 | 521,240 | |||
| 2025 | 523,707 | |||
| 2026 | 341,056 | |||
| 2027 | 53,904 | |||
| Thereafter | 509,812 | |||
| Total | $ | 2,941,487 |
| 19 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 10 | Retirement Plan |
The Company maintains a 401(k) retirement plan covering eligible employees of the Company and its affiliate. Under the plan, participants may defer up to 84% of their annual compensation, with Syntec matching 50% of employee contributions not to exceed 6% of annual compensation. Total contributions for the Company for the three months ended September 30, 2023 and 2022 amounted to $40,394 and $43,420, respectively and for the nine months ended September 30, 2023 and 2022 amounted to $134,724 and $123,180, respectively.
| Note 11 | Income Taxes |
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made.
The effective income tax rate was 13.81% and 25.65% for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate for the nine months ended September 30, 2023 and 2022 does not include any discrete tax benefits.
| 20 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 12 | Leases |
The Company has entered into lease agreements for equipment utilized in its manufacturing facility. As of December 31, 2022, these finance leases have been paid off. During 2022, the Company signed a five-year vehicle operating lease.
The components of operating and finance lease costs are as follows for the three and nine months ended September 30:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Operating lease cost | $ | 4,236 | $ | - | $ | 12,708 | $ | - | ||||||||
| Finance Lease Cost: | ||||||||||||||||
| Amortization of assets | - | 31,319 | - | 93,956 | ||||||||||||
| Interest on liabilities | - | 1,296 | - | 5,392 | ||||||||||||
| Total lease cost | $ | 4,236 | $ | 32,615 | $ | 12,708 | $ | 99,348 | ||||||||
There were no variable payments or material short-term rentals for the nine months ended September 30, 2023.
Supplemental cash flow information related to leases are as follows for the nine months ended September 30:
| 2023 | 2022 | |||||||
| Cash paid for amounts included in measurement of lease obligations: | ||||||||
| Operating cash flows from operating leases | $ | 12,708 | $ | 8,472 | ||||
| Operating cash flows from finance leases | - | 5,392 | ||||||
| Financing cash flows from finance leases | - | 125,103 | ||||||
| Non-cash lease disclosures: | ||||||||
| Operating lease assets obtained in exchange for operating lease liabilities | - | 72,709 | ||||||
The following table summarizes weighted average remaining lease term and discount rates as of September 30, 2023 and December 31, 2022:
| 2023 | 2022 | |||||||
| Weighted average remaining lease term (years) | ||||||||
| Operating leases | 3.50 | 4.25 | ||||||
| Finance leases | N/A | N/A | ||||||
| Weighted average discount rate | ||||||||
| Operating leases | 6.40 | % | 6.40 | % | ||||
| Finance leases | N/A | N/A | ||||||
| 21 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 12 | Leases – Continued |
Future maturities of our lease liabilities are as follows as of September 30:
| 2023 | $ | 4,236 | ||
| 2024 | 16,944 | |||
| 2025 | 16,944 | |||
| 2026 | 16,944 | |||
| 2027 | 4,236 | |||
| Total Undiscounted Lease Obligations | 59,304 | |||
| Less: Imputed Interests | 6,034 | |||
| Present Value of Lease Obligations | $ | 53,270 |
| Note 13 | Related Party Transactions |
Accrued Management Fees
The Company pays a management fee to the majority stockholder for services provided to the Company. For the three months ended September 30, 2023 and 2022, the management fee income was $2,404 and expense was $131,739, respectively and for the nine months ended September 30, 2023 and 2022, the management fee expenses were $210,112 and $293,774, respectively. As of September 30, 2023 and December 31, 2022, unpaid management fees to the majority stockholder amounted to $75,000 and $25,000, respectively and included in the accrued expenses line on the accompanying consolidated balance sheets.
Other Related Party Transactions
SWI DISC, Inc. (the DISC) is owned by the majority stockholder of the Company. During 2014 the Company entered into a commission agreement with the DISC related to the Company’s foreign sales. Total commissions under the terms of this agreement amounted to $-0- for the three and nine months ended September 30, 2023, and 2022.
| Note 14 | Commitments and Contingencies |
The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position or results of operations.
| 22 |
Syntec Optics, Inc.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2023 AND 2022
| Note 15 | Significant Customers |
For the three months ended September 30, 2023, the Company generated 41% of revenues from two customers. These two customers are in different end-markets utilizing diverse manufacturing capabilities from the Company. The outstanding accounts receivable due from these customers were approximately $3,148,000 as of September 30, 2023.
For the three months ended September 30, 2022, the Company generated 51% of revenues from three customers. These three customers are in different end-markets utilizing diverse manufacturing capabilities from the Company.
For the nine months ended September 30, 2023, the Company generated 41% of revenues from two customers. These two customers are in different end-markets utilizing diverse manufacturing capabilities from the Company. The outstanding accounts receivable due from these customers were approximately $3,148,000 as of September 30, 2023.
For the nine months ended September 30, 2022, the Company generated 52% of revenues from four customers. These three customers are in different end-markets utilizing diverse manufacturing capabilities from the Company.
| Note 16 | Subsequent Events |
Syntec Optics, Inc. entered into an Agreement and Plan of Merger with OmniLit Acquisition Corp. (OmniLit), dated May 9, 2023 in a tax-free reorganization provided for in Section 368(a) of the Internal Revenue Code of 1986. OmniLit is a publicly traded Special Purpose Acquisition Corporation (SPAC). The majority stockholder and Chairman of Syntec Optics is also a shareholder, director and officer of OmniLit. OmniLit’s shareholder’s approved this transaction on October 31, 2023 and the merger was executed on November 8, 2023 which resulted in the Company becoming a wholly owned subsidiary of OmniLit. The combined company will operate under the name Syntec Optics Holdings, Inc.
On November 8, 2023, the Company entered into new commercial banking loan agreements with a different financial institution. The maturity dates in the new agreement are November 2028, the line of credit increased by 25%, interest rates on all existing loans were decreased by 85 basis points, and an additional new loan/lease facility became available in the amount of $5,000,000.
| 23 |
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this section to “we,” “our,” “us,” and “Legacy Syntec” generally refer to Syntec Optics, Inc. and its consolidated subsidiaries prior to the business combination with OmniLit Acquisition Corp. (the “Business Combination”). References in this section to “Syntec” generally refer to Syntec Optics, Inc. and its consolidated subsidiaries after giving effect to the Business Combination. The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the unaudited condensed consolidated financial statements as of September 30, 2023 and for the nine months ended September 30, 2023 and 2022, together with related notes thereto filed as Exhibit 99.1 to the Amendment No. 1 to the Current Report on Form 8-K/A (the “Form 8-K/A”) to which this Exhibit is filed. This discussion contains forward-looking statements based upon expectations, estimates and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed below and in Syntec’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 14, 2023.
Percentage amounts included in the Form 8-K/A and the Exhibits thereto have not in all cases been calculated on the basis of such rounded figures, but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this discussion and analysis may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements included elsewhere in the Form 8-K/A and the exhibits thereto. Certain other amounts that appear in the Form 8-K/A and the Exhibits thereto may not sum due to rounding.
Overview
Syntec Optics believes that photon enabled technologies are more than just a trend. Our goal is to deliver impactful solutions for optics and photonics enabled solutions globally. We believe that the innovative design for manufacturing of our optics and photonics enabling products is ideally suited for the demands of modern OEMs who rely on opto-electronics, light enabled devices, and intelligence that require high-precision and reliability. Ultimately, our vertically integrated advanced manufacturing platform offers our clients across several end markets competitively priced and disruptive light-enabled technologies and sub-systems.
Syntec Optics was formed more than two decades ago from the aggregation of three advanced manufacturing companies (Wordingham Machine Co., Inc., Rochester Tool and Mold, Inc. and Syntec Technologies, Inc.) that were started in the 1980s. In 2000, Syntec Technologies, Inc created the “doing business as” name of Syntec Optics to unify the three companies’ respective offerings under a single trade name. Wordingham Machine Co., Inc, and Rochester Tool and Mold, Inc. became wholly owned subsidiaries of Syntec Technologies, Inc. in 2018 and the three companies legally merged in December 2022 as Syntec Optics, Inc. Syntec Optics has addressed the optical needs of customers in defense, consumer, and biomedical industries. Over the past 20 years, Syntec has been based in the Greater Rochester, New York area, and steadily growing and developing the unifying platform. Our intellectual property is protected with a portfolio of over 4 issued and/or pending patents, with several proprietary trade secrets surrounding our advanced manufacturing techniques. One in five employees has been with Syntec Optics for over a decade.
Syntec Optics is vertically integrated from design and component manufacturing for lens system assembly to imaging module integration for system solutions. Making our own tools, molding, and nanomachining allows close interaction and recut ability, enabling special techniques to hold tolerances to sub-micron level. Syntec has assembled a world class design for manufacturability team to augment its production team with deep expertise to fully leverage our vertical integration from component making to optics and electronics assembly. Syntec Optics has steadily developed variety of other complementary manufacturing techniques to provide a wide suite of horizontal capabilities including thin films deposition coatings, glass molding, polymer molding, tool-making, mechanicals manufacturing, and nanomachining.
Syntec is a leader in the industry because of our focus on polymer-based optics. Polymer-based optics provide numerous advantages compared to incumbent glass-based optics. Polymer-based optics are smaller, lower weight, lower cost, and offer very high-performance optical solutions. For all these reasons, Syntec is able to deliver products to our clients that are lighter, smaller, and suitable for cutting edge technology products, including the newly evolving silicon photonics industry.
| 1 |
Our designs and assembly processes are developed in-house in the United States. In 2016, with significant investments through the cash flows, Syntec Optics expanded its manufacturing facility to nearly 90,000 square-feet, allowing us to increase our production capacity and offer additional advanced manufacturing processes under one roof which provide us the ability to increase sales to existing customers and increase penetration of our end-markets. Our facility provides a streamlined, partially autonomous production process for our current customers, which comprises optical assembly, electro-optics assembly, polymer optics molding, glass optics molding, opto-mechanical assembly, nanomachining and thin films coating. Our facility also provides availability to expand the number of advanced manufacturing processes to handle increased volumes of existing and new customer orders.
Syntec is focused on three key end markets of defense, biomedical, and consumer all with several mission-critical applications with strong tailwinds. We believe these end markets to be acyclical based upon the company having positive aggregate cash flow for the past decade in spite of economic downturns. We believe the consistency of revenues over the past decade of operations, independent of the trends of the general economy, and the mission-critical nature of our product offerings, are our bases that these markets are acyclical. We believe our platform is well positioned as the foundation for further organic and inorganic growth with quality earnings and high margin offerings.
Optics is currently enabling 11% of the global economy, from smart phone cameras and extended reality devices to low orbit satellite telescopes to keeping our soldiers safe with night vision devices and patients healthy with intelligent light. This 11% figure represents the estimated value of the global optics and photonics products relative to annual global gross domestic product. As the world transitions to further adopt optically and photonically enabled products, we will continue our mission of developing innovative technology to serve these markets with affordable high-performance products globally. We will continue to focus on our core competencies of providing innovative technology, expanding our brand portfolio and providing affordable, sustainable and accessible optics and photonics enablers, all while being designed and manufactured in the United States.
On November 7, 2023, or the Closing Date, we consummated the Business Combination. Pursuant to the Business Combination Agreement, Merger Sub merged with and into Legacy Syntec, with Legacy Syntec surviving the merger and becoming a wholly-owned direct subsidiary of OmniLit. Thereafter, Merger Sub ceased to exist and OmniLit was renamed Syntec Optics Holdings, Inc. Legacy Syntec is deemed the accounting acquirer, which means that Legacy Syntec’s financial statements for previous periods will be disclosed in our future periodic reports filed with the SEC. Following the Business Combination, our business is the business of Legacy Syntec.
The Business Combination
On November 7, 2023, or the Closing Date, we consummated the Business Combination. Pursuant to the Business Combination Agreement, Merger Sub merged with and into Legacy Syntec, with Legacy Syntec surviving the merger and becoming a wholly-owned direct subsidiary of OmniLit. Thereafter, Merger Sub ceased to exist and OmniLit was renamed Syntec Optics Holdings, Inc. Legacy Syntec is deemed the accounting acquirer, which means that Legacy Syntec’s financial statements for previous periods will be disclosed in our future periodic reports filed with the SEC. Following the Business Combination, our business is the business of Legacy Syntec.
The Business Combination was accounted for as a reverse recapitalization. Under this method of accounting, OmniLit was treated as the acquired company for financial statement reporting purposes.
| 2 |
As a result of becoming a publicly traded company, we continue to need to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Key Factors Affecting Our Operating Results
Our financial position and results of operations depend to a significant extent on the following factors:
End Market Consumers
The demand for our products ultimately depends on demand from customers in our current end markets. We generate sales through (1) Tier 1 suppliers and (2) through OEMs.
An increasing proportion of our sales has been and is expected to continue to be derived from sales to defense. biomedical and industrial/consumer OEMs, driven by continued efforts to develop and expand sales to OEMs with whom we have longstanding relationships. Future OEM sales will be subject to risks and uncertainties, including the number of defense, biomedical and industrial/consumer products these OEMs manufacture and sell, which in turn may be driven by the expectations these OEMs have around end market demand.
Demand from end markets is impacted by a number of factors, including travel restrictions (as a result of COVID-19 or otherwise), fuel costs and energy demands (including an increasing trend towards the use of green energy), as well as overall macro-economic conditions. Sales of our optics and photonics enabled components and sub-components have also benefited from the increased global conflict, the United States dynamic relationships with other world powers that may have a conflicting view with western-style democracy, the movement towards reshoring of advanced manufacturing, biomedical components and sub-components needed to support physicians in their battle against the COVID-19 pandemic, and the increased global demand for high-fidelity data communications on all corners of the globe. However, we also experienced delays and disruptions in our supply chain, as well as labor shortages and shutdowns, which disrupted the production of our optic and photonics enables components and sub-components and impacted our ability to keep up with customer demand.
Syntec Optics plans to further consolidate the fragmented photonics industry by expanding our portfolio of our existing, U.S.-based, advanced manufacturing processes of making thin-film coated glass, crystal, or polymer components and their housings, which are ultimately assembled into high performance hybrid electro-optics sub-systems. By doing so, Syntec Optics plans to grow to the new end markets of communications and sensing. The anticipated timeline of entering the communications end market is 2023, as Syntec Optics has been prototyping products during Q1 and Q2 and anticipates entering the production phase by the latter half of the year. Syntec Optics is currently engaged as a supplier for a U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) funded research and development project for the sensing end market. The communication end market is characterized by the use of optics and photonics for data transmittal and reception of information, including, for example, satellite communications and other associated applications. The sensing end-market is characterized by the use of optics and photonics to detect scattered light or light with an altered refractive index due to the presence of a medium within a wide range of potential applications, including, for example, disease detection and other associated applications.
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Supply
We currently rely on strategically selected electronics, highly engineered polymers and aluminum manufacturers located in the United States to manufacture our highly specialized optic and photonics enabled components and sub-components, and we intend to continue to rely on these suppliers going forward. Our close working relationships with our Unites States based suppliers, reflected in our ability to (x) increase our purchase order volumes (qualifying us for related volume-based discounts) and (y) order and receive delivery of raw materials in anticipation of required demand, has helped us moderate increased supply-related costs associated with inflation and to avoid potential shipment delays. To mitigate against potential adverse production events, we opted to build our inventory of key raw materials. In connection with these stockpiling activities, we experienced an increase in prepaid inventory compared to prior periods as suppliers required upfront deposits in response to supply chain disruptions.
As a result of the active steps we have taken to manage our inventory levels, we have not been subject to the shortages or price impacts that have been present for manufacturers of optic and photonic enabled components or sub-components.
Product and Customer Mix
Our sales consist of sales of highly specialized optic and photonic enabled components and sub-components. These products are sold to different customer types (e.g., OEMs and Tier 1 manufacturers) and at different prices and involve varying levels of costs. In any particular period, changes in the mix and volume of particular products sold and the prices of those products relative to other products will impact our average selling price and our cost of goods sold. The price of our products may also increase as a result of increases in the cost of components due to inflation, labor and raw materials. The Company generated 50% of revenues for the year ended December 31, 2022 from three customers and 54% of revenues for the year ended December 31, 2021 from three customers. In addition, revenues from these larger customers may fluctuate from time to time based on these customers’ business needs and customer experience, the timing of which may be affected by market conditions or other factors outside of our control. These customers have a broad product purchase mix across various departments of Syntec Optics. Syntec Optics supplies several mission critical components and sub-components to these customers that are not tied to a single application, customer initiative, or purchase order. We expect sales to increase as we further advance our full-system design expertise and product offerings and customers increasingly demand more sophisticated systems, rather than drop-in replacements. In addition to the impacts attributable to the general sales mix across our products, our results of operations are impacted by the relative margins of products sold. As we continue to introduce new products at varying price points, our overall gross margin may vary from period to period as a result of changes in product and customer mix.
Production Capacity
All of our design, advanced manufacturing and assembly currently takes place at our nearly 90,000 square foot headquarters and manufacturing facility located in Rochester, New York. We currently operate optical, opto-mechanical and electro-optical assembly lines in addition to molding, nanomachining, testing and thin-film production lines. Consistent with our operating history, we plan to continue to automate additional aspects of our advanced manufacturing operations. Our existing facility has the capacity to add additional production lines and construct and operate pilot production lines for new components and sub-components, all designed to maximize the capacity of our manufacturing facility. Although our automation efforts are expected to reduce our costs of goods, we may not fully recognize the anticipated savings when planned and could experience additional costs or disruptions to our production activities. In Q3 2022, Syntec Optics experienced a one-time business interruption event where a power company was excavating and accidentally cut an underground power line that supplied electricity to Syntec Optics and the local community. After repairs were made to Syntec Optics manufacturing equipment, Syntec Optics regained its full manufacturing capacity.
Competition
We compete with traditional glass optic manufacturers and electro-optic manufacturers, who primarily either import their products or components or manufacture products under a private label. As we continue to expand into new markets, develop new products and move towards production of our polymer based and glass-polymer based optic hybrids and photonics enabled components and sub-components, we will experience competition with a wider range of companies. These competitors may have greater resources than we do and may be able to devote greater resources to the development of their current and future technologies. Our competitors may be able to source materials and components at lower costs, which may require us to evaluate measures to reduce our own costs, lower the price of our products or increase sales volumes in order to maintain our expected levels of profitability.
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Research and Development
Our research and development are primarily focused on the advanced manufacturing of polymer and glass-polymer based optic and photonics enabled components and sub-components. The next stage in our technical development is to construct our products to optimize performance, lower weight and increase longevity to meet and exceed industry standards for our target end markets. Ongoing testing and optimizing of more complicated systems and sub-systems for our existing end markets will assist us in increasing penetration in our current end markets and expanding into targeted end markets. This is expected to require additional expense, and we may use the funds available to us following Closing to continue these research and development efforts.
Components of Results of Operations
Net Sales
Net sales are primarily generated from the sale of our optics and photonics enabled components and sub-components to OEMs.
Cost of Goods Sold
Cost of goods sold includes the cost of raw materials and other components of our optic and photonic enabled components and sub-components, labor, overhead, utilities, and depreciation and amortization.
Gross Profit
Gross profit, calculated as net sales less cost of goods sold, may vary between periods and is primarily affected by various factors including average selling prices, product costs, product mix, customer mix and production volumes.
Operating Expenses
General and Administrative
General and administrative costs include personnel-related expenses attributable to our executive, finance, human resources, and information technology organizations, certain facility costs, and fees for professional services.
Total Other Income (Expense)
Other income (expense) consists primarily of interest expense and debt issuance costs.
Results of Operations for the Nine Months Ended September 30, 2023 and 2022
The following table sets forth our results of operations for the nine months ended September 30, 2023 and 2022. This data should be read together with our unaudited financial statements and related notes included in Exhibit 99.1 to the Form 8-K/A, and is qualified in its entirety by reference to such financial statements and related notes.
| Nine Months ended September 30, | ||||||||||||||||
| 2023 | % Net Sales | 2022 | % Net Sales | |||||||||||||
| (in thousands) | ||||||||||||||||
| Net Sales | $ | 21,177,257 | 100 | % | $ | 20,755,724 | 100 | % | ||||||||
| Cost of Goods Sold | 15,244,862 | 72 | % | 16,582,871 | 80 | % | ||||||||||
| Gross profit | 5,932,395 | 28 | % | 4,172,853 | 20 | % | ||||||||||
| Operating expenses | ||||||||||||||||
| General and administrative | 4,442,117 | 21 | % | 4,234,425 | 20 | % | ||||||||||
| Income (Loss) From Operations | 1,490,278 | 7 | % | (61,572 | ) | 0 | % | |||||||||
| Other Income (Expense) | ||||||||||||||||
| Paycheck PPL Forgiveness | ||||||||||||||||
| Other Income | 70,914 | 0 | % | 476 | 0 | % | ||||||||||
| Interest Income (Expense) | (446,875 | ) | -2 | % | (214,866 | ) | -1 | % | ||||||||
| Gain on disposition of assets | - | - | ||||||||||||||
| Total Other Income (Expense) | (375,961 | ) | -2 | % | (214,390 | ) | -1 | % | ||||||||
| Income (Loss) Before Taxes | 1,114,317 | 5 | % | (275,962 | ) | -1 | % | |||||||||
| Income Tax Expense (Benefit from) | 139,549 | 1 | % | (70,773 | ) | 0 | % | |||||||||
| Net Income (Loss) | $ | 974,768 | 5 | % | $ | (205,189 | ) | -1 | % | |||||||
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Net Sales
Net sales increased by $0.4 million, or 2%, to $21.2 million for the nine months ended September 30, 2023, as compared to $20.8 million for the nine months ended September 30, 2022. This increase was primarily due to a temporary increase in sales in the tooling and non-recurring engineering categories offset by a temporary decrease in sales of the product category.
Cost of Goods Sold
Cost of goods sold decreased by $1.4 million, or 8%, to $15.2 million for the nine months ended September 30, 2023, as compared to $16.6 million for the nine months ended September 30, 2022. This decrease was primarily due to temporarily capitalizing more costs in inventory with similar production levels in anticipation of an increase in production.
Gross Profit
Gross profit increased by $1.7 million, or 40%, to $5.9 million for the nine months ended September 30, 2023, as compared to $4.2 million for the nine months ended September 30, 2022. This increase was primarily due to the decrease in cost of goods sold and an increase in higher-margin nonrecurring engineering revenues.
General and Administrative Expenses
General and administrative expenses increased by $0.2 million, or 5%, to $4.4 million for the nine months ended September 30, 2023, as compared to $4.2 million for the nine months ended September 30, 2022. This increase was primarily due to a temporary increase in labor costs.
Total Other Income (Expense)
Other income (expense) increased by $0.2 million, or 100%, to ($0.4) million for the nine months ended September 30, 2023, as compared to other income of ($0.2) million for the nine months ended September 30, 2022. This increase was primarily due to a temporary increase in interest expenses driven from higher interest rates.
Income Tax Expense (Benefit from)
Income tax expense increased by $0.21 million, or 30%, to $0.14 million for the nine months ended September 30, 2023, as compared to ($0.07) million for the nine months ended September 30, 2022. This increase was primarily due to higher income for the period.
Net Income (Loss)
Net income increased by $1.17 million, or 585%, to $0.97 million for the nine months ended September 30, 2023, as compared to ($0.2) million for the nine months ended September 30, 2022. This increase was primarily driven by the increase of $0.4 million in revenue and a reduction in cost of goods sold of $1.4 million for the period.
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Non-GAAP Financial Measures
The Form 8-K/A and the Exhibits thereto include a non-GAAP measure that we use to supplement our results presented in accordance with U.S. GAAP. EBITDA is defined as earnings before interest and other income, tax and depreciation and amortization. Adjusted EBITDA is calculated as EBITDA adjusted for non-recurring items, and business combination expenses. Adjusted EBITDA is a performance measure that we believe is useful to investors and analysts because it illustrates the underlying financial and business trends relating to our core, recurring results of operations and enhances comparability between periods.
Adjusted EBITDA is not a recognized measure under U.S. GAAP and is not intended to be a substitute for any U.S. GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. Investors should exercise caution in comparing our non-GAAP measure to any similarly titled measure used by other companies. This non-GAAP measure excludes certain items required by U.S. GAAP and should not be considered as an alternative to information reported in accordance with U.S. GAAP.
Adjusted EBITDA
We define adjusted EBITDA, a non-GAAP financial measure, as net earnings (loss) before interest and other expenses, net, income tax expense, depreciation and amortization, as adjusted to exclude non-recurring items such as management fees, and transaction expenses. The non-recurring costs included as Management Fees will not be incurred after the Closing and therefore are non-recurring in nature. Likewise, the transaction filing fees are non-recurring in connection with the Business Combination which will not be incurred after the Closing. Transaction costs represent professional service fees associated with the proposed business combination and will not occur after the Business Combination. We utilize adjusted EBITDA as an internal performance measure in the management of our operations because we believe the exclusion of these non-cash and non-recurring charges allow for a more relevant comparison of our results of operations to other companies in our industry and is in accordance with the Non-GAAP Financial Measures Compliance & Disclosure Interpretations (Reference Question 102.03).
The table below presents our adjusted EBITDA, reconciled to net income for the nine months ended September 30, 2023 and 2022.
NON-GAAP RECONCILICATION OF EBITDA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
| 2023 | 2022 | |||||||
| Net (Loss) Income | $ | 974,768 | $ | (205,189 | ) | |||
| Depreciation & Amortization | 2,102,095 | 2,208,983 | ||||||
| Interest Expenses | $ | 441,115 | $ | 206,346 | ||||
| Taxes | 139,549 | (70,773 | ) | |||||
| Non-Recurring Items | ||||||||
| Transaction Filing Fees | 212,056 | - | ||||||
| Management Fees | 210,112 | 293,774 | ||||||
| Adjusted EBITDA | $ | 4,079,695 | $ | 2,433,141 | ||||
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. In Q3, 2023, the Company utilized a sweep agreement with its commercial bank. As of September 30, 2023, our principal source of liquidity was cash totaling $0.1 million.
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We believe that our cash on hand following the Closing will be sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of this Form 8-K/A and longer term. We may, however, need additional cash if there are material changes to our business conditions or other developments, including unanticipated delays in production, supply chain challenges, disruptions due to the COVID-19 pandemic, competitive pressures and regulatory developments. To the extent that our resources are insufficient to satisfy our cash requirements, we may need to seek additional equity or debt financing. If the financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to take actions to reduce our capital or operating expenditures, including by not seeking potential acquisition opportunities, or eliminating redundancies, which may adversely affect our business, operating results, financial condition and prospects. For more information about risks related to our business, please see the sections entitled “Risk Factors — Risks Related to Syntec Optics’ Existing Operations” as originally filed on Form S-4/A made effective by the SEC on October 5, 2023.
In addition to the foregoing, based on our current assessment, we do not expect any material adverse effect on our long-term liquidity due to the COVID-19 pandemic. However, we will continue to assess the effect of the pandemic to our operations. The pandemic has in recent periods moderated in the United States following the availability of vaccines (although vaccination rates often vary by geography, age and other factors) and increased immunity (including natural immunity from infection). However, the extent to which the COVID-19 pandemic will affect our business and operations will depend on future developments that are highly uncertain and cannot be predicted with confidence. These uncertainties include the ultimate geographic spread of the disease (including emergence of new variants against which existing vaccinations or treatments may be ineffective), the duration of the pandemic and the perceived effectiveness of actions taken in the United States and other countries to contain and treat the disease. While the potential economic impact of COVID-19 may be difficult to assess or predict, a widespread pandemic alone or in combination with other events, such as the Russia/Ukraine conflict, could result in significant disruption of global financial markets and supply chains, reducing our ability to access capital in the future or access required raw materials and components, which could result in price increases. In addition, a recession or long-term market correction resulting from the spread of COVID-19 or other events could materially affect our business and the value of our common stock.
Financing Obligations and Requirements
As of September 30, 2023, we had cash totaling $0.1 million. As part of the Business Combination, we expect additional cash from the transaction to provide additional capital and liquidity requirements in the short and long-term.
Cash Flow — Nine months ended September 30, 2023 and 2022
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash provided by/(used in) operating activities | $ | 1,104,842 | $ | 2,364,179 | ||||
| Net cash provided by/(used in) investing activities | $ | (979,630 | ) | $ | (1,185,524 | ) | ||
| Net cash provided by/(used in) financing activities | $ | (548,070 | ) | $ | (1,875,581 | ) | ||
Operating Activities
Net cash provided by operating activities was $1.1 million for the nine months ended September 30, 2023, as compared to net cash provided by operating activities of $2.4 million for the nine months ended September 30, 2022. The primary drivers for the year over year change include an increase to inventory of $2.7 million, and an increase to net income of $1.3 million.
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Investing Activities
Net cash used in investing activities was $0.98 million for the nine months ended September 30, 2023, as compared to $1.2 million for the nine months ended September 30, 2022. The decrease in net cash used in investing activities was primarily due to a decrease in capital expenditures of $0.13 million.
Financing Activities
Net cash used in financing activities was $0.55 million for the nine months ended September 30, 2023, and was primarily due to payment of term loans. Net cash used by financing activities was $1.88 million for the nine months ended September 30, 2022, and was primarily due to payment of line-of-credit and term loans.
Contractual Obligations
Our estimated future obligations consist of short-term and long-term operating lease liabilities. As of September 30, 2023, we had $0.02 million in short-term operating lease liabilities and $0.05 million in long-term operating lease liabilities.
Quantitative and Qualitative Disclosures about Market Risk
We have not experienced any significant losses in such accounts, nor does management believe it is exposed to any significant credit risk. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. We use an assumed dividend yield of zero as we have never paid dividends and have no current plans to pay any dividends on our common stock. We account for forfeitures as they occur.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.
Revenue Recognition
Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. We exclude from the transaction price all taxes that are assessed by a governmental authority and imposed on and concurrent with our revenue transactions, and therefore present these taxes (such as sales tax) on a net basis in operating revenues on the Statement of Income.
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Revenue is recognized when control of the promised goods is transferred to the customer or distributor, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services. Revenue associated with products holding rights of return are recognized when we conclude there is no risk of significant revenue reversal in the future periods for the expected consideration in the transaction. There are no material instances including discounts and refunds where variable consideration is constrained and not recorded at the initial time of sale. Generally, our revenue is recognized at a point in time for standard promised goods at the time of shipment when title and risk of loss pass to the customer.
We may receive payments at the onset of the contract and before delivery of goods for tooling. In such instances, we record a customer deposit liability. Payment terms for customers are typically 50% up front and 50% on delivery of first article. We recognize these contract liabilities as sales after the revenue criteria are met.
Inventory
Inventories, which consist of raw materials, work in process and finished goods, are stated at the lower of cost (weighted average) or net realizable value, net of reserves for obsolete inventory. We continually analyze our slow moving and excess inventories. Based on historical and projected sales volumes and anticipated selling prices, we established reserves. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete are written down to net realizable value. As of September 30, 2023, our reserve was approximately $0.2 million compared to $0.2 million as of December 31, 2022.
Property and Equipment
Property and equipment are stated at cost and is depreciated over the estimated useful lives of the respective assets. The cost of normal maintenance and repairs is charged to expense as incurred, whereas expenditures, which materially extend useful lives, are capitalized. When depreciable property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income. Depreciation expense for the nine months ended September 30, 2023 and 2022 was $2.1 million and $2.2 million, respectively. The various classes of property and equipment and estimated useful lives are as follows:
| Office furniture and equipment | 3 to 7 years | ||
| Tooling | 3 to 10 years | ||
| Vehicles | 5 years | ||
| Machinery and equipment | 3 to 10 years | ||
| Building and Leasehold improvements | 14-15 and/or lesser of remaining Term of Lease |
Recent Accounting Pronouncements
For information regarding recently issued accounting pronouncements and recently adopted accounting pronouncements, please see Note 1, Nature of Business and Significant Accounting Policies, to our consolidated financial statements included elsewhere in Exhibit 99.1.
JOBS Act Accounting Election
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, New Syntec Optics can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. New Syntec Optics has elected to avail itself of this exemption from new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. New Syntec Optics intends to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. As a result, New Syntec Optics’ financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
New Syntec Optics will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of OmniLit’s initial public offering, (ii) the last day of the fiscal year in which New Syntec Optics has total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which New Syntec Optics is deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of New Syntec Optics’ common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which New Syntec Optics has issued more than $1.0 billion in non- convertible debt securities during the prior three-year period.
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