OPTX 10-Q
Syntec Optics Holdings, Inc. (OPTX)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(MARK ONE)
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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| ☒ | Smaller reporting company | ||
| Emerging growth company | |||
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As of November 13, 2024, there were shares of Class A common stock, par value $ per share, issued and outstanding.
SYNTEC OPTICS HOLDINGS, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Interim Unaudited Condensed Consolidated Financial Statements
SYNTEC OPTICS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2024 AND DECEMBER 31, 2023
| 2024 (unaudited) | 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts Receivable, Net | ||||||||
| Inventory | ||||||||
| Prepaid Expenses and Other Assets | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, Net | ||||||||
| Deferred Income Taxes | ||||||||
| Intangible Assets, Net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Federal Income Tax Payable | ||||||||
| Deferred Revenue | ||||||||
| Line of Credit | ||||||||
| Current Maturities of Debt Obligations | ||||||||
| Current Maturities of Finance Lease Obligations | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities | ||||||||
| Long-Term Debt Obligations | ||||||||
| Long-Term Finance Lease Obligations | ||||||||
| Deferred Income Taxes | ||||||||
| Total Long-Term Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 16) | ||||||||
| Stockholder’s Equity | ||||||||
| CL A Common Stock, Par value $ per share; authorized; issued and outstanding as of September 30, 2024; issued and outstanding as of December 31, 2023 | ||||||||
| Additional Paid-In Capital | ||||||||
| Retained Earnings | ||||||||
| Total Stockholder’s Equity | ||||||||
| Total Liabilities and Stockholder’s Equity | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 1 |
SYNTEC OPTICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Net Sales | $ | $ | $ | $ | ||||||||||||
| Cost of Goods Sold | ||||||||||||||||
| Gross Profit | ||||||||||||||||
| General and Administrative Expenses | ||||||||||||||||
| Income (Loss) from Operations | ( | ) | ||||||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest Expense, Including Amortization of Debt Issuance Costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income | ||||||||||||||||
| Total Other Income (Expense), Net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (Loss) Before Provision for (Benefit) Income Taxes | ( | ) | ( | ) | ||||||||||||
| Provision (Benefit) for Income Taxes | ( | ) | ( | ) | ||||||||||||
| Net Income (Loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Net Income (Loss) per Common Share | ||||||||||||||||
| Basic and diluted | $ | ) | $ | $ | ) | $ | ||||||||||
| Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 2 |
SYNTEC OPTICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024
| Common Stock | Additional Paid-In | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
| Balances, June 30, 2024 | $ | $ | $ | $ | ||||||||||||||||
| Net Income | - | ( | ) | ( | ) | |||||||||||||||
| Balances, September 30, 2024 | $ | $ | $ | $ | ||||||||||||||||
SYNTEC OPTICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024
| Common Stock | Additional Paid-In | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
| Balances, December 31, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Net Loss | - | ( | ) | ( | ) | |||||||||||||||
| Balances, September 30, 2024 | $ | $ | $ | $ | ||||||||||||||||
SYNTEC OPTICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023
| Common Stock | Additional Paid-In | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
| Balances, June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Net Income | ||||||||||||||||||||
| Balances, September 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
SYNTEC OPTICS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023
| Common Stock | Additional Paid-In | Retained | ||||||||||||||||||
| Shares | Amount | Capital | Earnings | Total | ||||||||||||||||
| Balances, December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Distributions | ( | ) | ( | ) | ||||||||||||||||
| Net Income | ||||||||||||||||||||
| Balances, September 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 3 |
SYNTEC OPTICS HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
| 2024 | 2023 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net (Loss) Income | $ | ( | ) | $ | ||||
| Adjustments to Reconcile (Loss) Income to Net Cash (Used In) | ||||||||
| Provided By Operating Activities: | ||||||||
| Depreciation and Amortization | ||||||||
| Amortization of Debt Issuance Costs | ||||||||
| Gain on Disposal of Property and Equipment | ( | ) | ||||||
| Change in Allowance for Expected Credit Losses | ( | ) | ||||||
| Change in Reserve for Obsolescence | ||||||||
| Deferred Income Taxes | ( | ) | ( | ) | ||||
| (Increase) Decrease in: | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid Expenses and Other Assets | ||||||||
| Increase (Decrease) in: | ||||||||
| Accounts Payables and Accrued Expenses | ( | ) | ||||||
| Federal Income Tax Payable | ( | ) | ||||||
| Deferred Revenue | ( | ) | ||||||
| Net Cash (Used In) Provided By Operating Activities | ( | ) | ||||||
| Cash Flows From Investing Activities | ||||||||
| Purchases of Property and Equipment | ( | ) | ( | ) | ||||
| Proceeds from Disposal of Property and Equipment | ||||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| (Repayments) Borrowing on Line of Credit, Net | ( | ) | ||||||
| Borrowing on Debt Obligations | ||||||||
| Repayments on Debt Obligations | ( | ) | ( | ) | ||||
| Repayments on Finance Lease Obligations | ( | ) | ||||||
| Distributions | ( | ) | ||||||
| Net Cash Provided By (Used in) Financing Activities | ( | ) | ||||||
| Net Decrease in Cash | ( | ) | ( | ) | ||||
| Cash - Beginning | ||||||||
| Cash - Ending | $ | $ | ||||||
| Supplemental Cash Flow Disclosures: | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Taxes | $ | $ | ||||||
| Supplemental Disclosures of Non-Cash Investing Activities: | ||||||||
| Assets Acquired and Included in Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Finance Lease Liability Incurred | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
| 4 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations
Nature of Business
Syntec Optics Holdings, Inc. (the “Company” or “Syntec Optics”) 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.
On November 7, 2023, a merger transaction between OmniLit Acquisition Corporation (“OLIT”), Syntec Optics, Inc. (“Legacy Syntec”), and Optics Merger Sub, Inc. (“Merger Sub”) was completed pursuant to which Merger Sub was merged with and into Legacy Syntec, with Legacy Syntec surviving the merger. As a result of the merger, Legacy Syntec became a wholly owned subsidiary of New Syntec.
Although New Syntec was the legal acquirer of Legacy Syntec in the merger, Legacy Syntec is deemed to be the accounting acquirer, and the historical financial statements of Legacy Syntec became the basis for the historical financial statements of New Syntec upon the closing of the merger. New Syntec together with its wholly owned subsidiary, Syntec Optics, Inc., is referred to hereinafter as the “Company.”
Furthermore, the historical financial statements of Legacy Syntec became the historical financial statements of the Company upon the consummation of the merger. As a result, the financial statements included in this Quarterly Report reflect (i) the historical operating results of Legacy Syntec prior to the merger; (ii) the combined results of OLIT and Legacy Syntec following the close of the merger; (iii) the assets and liabilities of Legacy Syntec at their historical cost and (iv) the Legacy Syntec’s equity structure for all periods presented, as affected by the recapitalization presentation after completion of the merger.
| 5 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 — Summary of Significant Accounting Policies
The Company has provided a discussion of significant accounting policies, estimates and judgements in its 2023 Annual Report. There have been no changes to the Company’s significant accounting policies since December 31, 2023.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company in United States (“U.S.”) dollars and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and the provisions of Regulation S-X pertaining to interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted. The interim unaudited condensed consolidated financial statements and notes included in this report should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. In the opinion of management, these interim unaudited condensed consolidated financial statements include all adjustments and accruals of a normal and recurring nature necessary to fairly state the results of the interim periods presented. The results for interim periods are not necessarily indicative of results to be expected for the full year or for any future periods.
Principles of Consolidation
The accompanying interim unaudited condensed consolidated financial statements include the accounts of Syntec Optics Holdings, Inc. and its wholly owned subsidiary, Syntec Optics. The interim unaudited condensed consolidated financial statements also include the accounts of ELR Associates, LLC (“ELR”), a variable interest entity wherein the Company is the primary beneficiary. Syntec Optic’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 Optics. All significant intercompany accounts and transactions have been eliminated in consolidation.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (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 interim unaudited condensed consolidated financial statements.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 clarifies or improves financial reporting by requiring disclosure of incremental segment information. The amendments require disclosure, on an annual and interim basis for all public entities, of significant segment expenses included in segment profit or loss, an amount and description of “other segment items” included in segment profit or loss, and an explanation of how reported segment profit or loss is assessed and allocated. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the timing and impacts of the adoption of this ASU.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation, as well as information related to income taxes paid to enhance the transparency and decision usefulness of income tax disclosures. This ASU will be effective for the annual period ending December 31, 2025. The Company is currently evaluating the timing and impacts of adoption of this ASU.
| 6 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — 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.
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.
| 7 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 — Revenue Recognition (Continued)
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. The balance in
accounts receivable at January 1, 2024 and 2023 was $
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
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 three and nine months ended September 30:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Products | $ | $ | $ | $ | ||||||||||||
| Custom Tooling | ||||||||||||||||
| Non-Recurring Engineering | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Syntec Optics’ management periodically reviews its revenues by its consumer, communication, 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 three and nine months ended September 30:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Consumer | $ | $ | $ | $ | ||||||||||||
| Communication | ||||||||||||||||
| Defense | ||||||||||||||||
| Medical | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 8 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Inventory
Inventory consists of the following at September 30, 2024 and December 31, 2023:
| 2024 | 2023 | |||||||
| Raw Materials | $ | $ | ||||||
| Work-in-Process | ||||||||
| Finished Goods | ||||||||
| Less: Reserve for Obsolescence | ||||||||
| Inventory | $ | $ | ||||||
Note 5 — Property and Equipment
Property and equipment consists of the following at September 30, 2024 and December 31, 2023:
| 2024 | 2023 | |||||||
| Machinery and Equipment | $ | $ | ||||||
| Building and Leasehold Improvements | ||||||||
| Land | ||||||||
| Office Furniture and Equipment | ||||||||
| Tooling | ||||||||
| Vehicles | ||||||||
| Assets Not Placed in Service | ||||||||
| Less: Accumulated Depreciation | ||||||||
| Property and Equipment, Net | $ | $ | ||||||
Depreciation
expenses were approximately $
Note 6 — Intangible Assets
Intangible assets consist of the following at September 30, 2024 and December 31, 2023:
| 2024 | 2023 | |||||||
| Licenses | $ | $ | ||||||
| Total identifiable intangible assets | ||||||||
| Less: Accumulated Amortization | ||||||||
| Intangible Assets, Net | $ | $ | ||||||
Amortization
expense for acquired finite-lived intangibles was $
| December 31, 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total | $ |
| 9 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 7 — Line of Credit
The
Company has a line of credit available in the amount of $
The
Credit Agreement contains 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, 2024, the Company was not in compliance with the
minimum fixed charge coverage ratio and maximum total leverage ratio as defined in the Credit Agreement. On November 12, 2024,
the Company obtained a waiver with respect to the Credit Agreement, pursuant to which the sections of the agreement mentioned above are
waived for the period ending September 30, 2024. The waiver document is also subject to a forthcoming amendment to the credit agreement
which will reduce our available line of credit from $
Note 8 — Long-Term Debt
Long-term debt consists of the following at September 30, 2024 and December 31, 2023:
| 2024 | 2023 | |||||||
| The
Company entered into a $ | $ | $ | ||||||
| The
Company entered into a $ | ||||||||
| The
Company entered into a $ | ||||||||
| The
Company entered into a $ | ||||||||
| Total Long-Term Debt | ||||||||
| Less: Unamortized Debt Issuance Costs | ||||||||
| Long-Term Debt, Less Unamortized Debt Issuance Costs | ||||||||
| Less: Current Maturities | ||||||||
| Long-Term Debt | $ | $ | ||||||
At September 30, 2024, the future debt maturities are as follows:
| December 31, 2024 (remainder of year) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ |
| 10 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9 — Retirement Plan
The
Company maintains a 401(k) retirement plan covering eligible employees of the Company and its affiliate.
Note 10 — 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
Note 11 — Leases
During 2024, the Company has entered into finance lease agreements for equipment utilized in its manufacturing facility. During 2022, the Company signed a five-year vehicle operating lease. As of December 31, 2023, the operating lease has been paid off.
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, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Finance Lease Cost: | ||||||||||||||||
| Amortization of assets | ||||||||||||||||
| Interest on liabilities | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Supplemental cash flow information related to leases are as follows for the three and nine months ended September 30:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Cash paid for amounts included in measurement of lease obligations: | ||||||||||||||||
| Operating cash flows from operating leases | $ | $ | | $ | $ | | ||||||||||
| Operating cash flows from finance leases | ||||||||||||||||
| Financing cash flows from finance leases | ||||||||||||||||
The following table summarizes weighted average remaining lease term and discount rates as of September 30, 2024, and December 31, 2023:
| 2024 | 2023 | |||||||
| Weighted average remaining lease term (years) | ||||||||
| Operating leases | N/A | N/A | ||||||
| Finance leases | N/A | |||||||
| Weighted average discount rate | ||||||||
| Operating leases | N/A | N/A | ||||||
| Finance leases | % | N/A | ||||||
| 11 |
Future maturities of our lease liabilities are as follows as of September 30:
| 2024 (remainder of year) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total Undiscounted Lease Obligations | ||||
| Less: Imputed Interests | ||||
| Present Value of Lease Obligations | $ |
Note 12 — Warrants
Each
warrant entitles the holder to the right to purchase
The measurements of the warrants after the detachment of the warrants from the Units are classified as Level 1 due to the use of an observable market quote in an active market under the ticker OPTXW. For periods subsequent to the detachment of the warrants from the Units, the close price of the warrant price was used as the fair value of the warrants as of each relevant date.
The following tables presents a roll-forward of the Company’s warrants from January 1, 2024 to September 30, 2024:
| Common Stock Warrants | ||||
| Warrants outstanding, January 1, 2024 | ||||
| Warrants exercised | ||||
| Warrants outstanding, September 30, 2024 | ||||
The following tables presents a roll-forward of the Company’s warrants from January 1, 2023 to September 30, 2023:
| Common Stock Warrants | ||||
| **Warrants outstanding, January 1, 2023 | ||||
| Assumed in merger | ||||
| Exercised subsequent to merger | ||||
| Warrants outstanding, September 30, 2023 | ||||
| 12 |
SYNTEC OPTICS HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 13 — Common Stock
The Company is authorized to issue up to shares of common stock with $ par value. Common stockholders are entitled to dividends if and when declared by the Board of Directors. As of September 30, 2024 and December 31, 2023, there were shares issued and outstanding and no dividends on common stock had been declared by the Company.
As of September 30, 2024 and December 31, 2023, the Company had reserved shares of common stock for issuance as follows:
| 2024 | 2023 | |||||||
| Common stock outstanding | ||||||||
| Warrants outstanding | ||||||||
| Contingent earnout shares | ||||||||
| Shares available for future issuance (1) | ||||||||
| Total | ||||||||
| (1) |
In connection with the merger, shareholders and board members approved the 2023 Equity Incentive Plan (the “2023 Incentive Plan”). Up to shares of the Syntec Optics common stock (“Common Stock”) will initially be reserved for issuance under the 2023 Incentive Plan, and additional shares will become available for issuance under the 2023 Incentive Plan each year as described below under “Aggregate Share Limit.” Our Board of Directors and stockholders have approved the 2023 Incentive Plan at the annual meeting held on October 31, 2023.
The Company will issue up to shares of Common Stock (the “Performance-based-Earnout”) to members
of the management team of the Company from time to time, to the extent determined by the Board of Directors in its sole discretion, to
be issued as restricted stock units or incentive equity grants pursuant to the Incentive Plan described below.
As of September 30, 2024, there were shares of unissued authorized and available for future awards under the plans.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Basic and diluted net income (loss) per share | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Denominator | ||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||
| Basic and diluted net income (loss) per share | $ | ( | ) | $ | $ | ) | $ | |||||||||
Note 16 — 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.
Note 17 — Significant Customers
For
the three months ended September 30, 2024, the Company generated
For
the three months ended September 30, 2023, the Company generated
For
the nine months ended September 30, 2024, the Company generated
For
the nine months ended September 30, 2023, the Company generated
Note 18 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the interim balance sheet date up to the date that the accompanying interim unaudited condensed consolidated financial statements were issued. Based upon the review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the interim unaudited condensed consolidated financial statements.
On October 1, 2024, a payment of $
The contract stipulates that if the payment is not made, the counterparty has the right to reclaim the rights to both the equipment and intangible asset. However, management is in discussions with the counterparty and believes that the payment will be made in the near future without consequence to the rights of the equipment or intangible asset.
As of the date of this filing, management does not believe that an impairment of the equipment or intangible asset is necessary, and no adjustments have been made to the carrying value of the assets on the balance sheet. Management will continue to monitor the situation and will assess the implications on the financial statements as additional information becomes available.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information in this Management’s Discussion and Analysis should be read in conjunction with the accompanying unaudited condensed financial statements and notes.
Cautionary Note Regarding Forward-Looking Statements
This report includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical facts contained in this report, including among others, our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. Our actual results and financial condition may differ materially from those express or implied in such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.
For a further list and description of various risks, relevant factors and uncertainties that could cause future results or events to differ materially from those expressed or implied in our forward-looking statements, see the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in this report, our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and our other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements in this report are made only as of the date hereof or as indicated and represent our views as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise, except as required by law.
Overview
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 up 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 became a leader in the industry by pioneering polymer-based optics and then subsequently adding glass optics and optics made from other materials including crystals and metals. 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.
Our designs and assembly processes are developed in-house in the United States. In 2016, 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 Optics focuses on four end markets of defense, medical, consumer, and communications all with several mission-critical applications with strong tailwinds.
In 2023, Syntec Optics launched low weight night vision optics and further, announced hybrid light-weight magnifier and thermal clip on in the defense end market. Also, in 2023, Syntec Optics announced biomedical mirrors for sensing in the medical end market. Rounding out new product launches for 2023, in the communication end market, Syntec Optics launched microlens arrays and low earth satellite optics.
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.
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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 (global pandemics or geo-political conflicts), 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 global pandemics, and the increased global demand for high-fidelity data communications on all corners of the globe.
Syntec Optics plans to further add bolt-on acquisitions for inorganic growth in 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. Syntec Optics entered the communications end market in 2023. 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.
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 53% of revenues for the nine months ended September 30, 2024 from three customers and 41% of revenues for the nine months ended September 30, 2023 from two 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.
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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.
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.
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
Comparisons for the three months ended September 30, 2024 and 2023
The following table sets forth our results of operations for the three months ended September 30, 2024 and 2023, respectively. This data should be read together with our financial statements and related notes included elsewhere in this Quarterly Report, and is qualified in its entirety by reference to such financial statements and related notes.
| Three Months Ended | ||||||||||||||||
| September 30, 2024 | % Net Sales | September 30, 2023 | % Net Sales | |||||||||||||
| Net Sales | 7,866,355 | 100 | % | 6,600,525 | 100 | % | ||||||||||
| Cost of Goods Sold | 6,032,635 | 77 | % | 4,756,467 | 72 | % | ||||||||||
| Gross profit | 1,833,720 | 23 | % | 1,844,058 | 28 | % | ||||||||||
| General and administrative | 1,727,480 | 22 | % | 1,314,885 | 20 | % | ||||||||||
| Income From Operations | 106,240 | 1 | % | 529,173 | 8 | % | ||||||||||
| Other Income (Expense), Net | ||||||||||||||||
| Other Income | 8,575 | 0 | % | 21,107 | 0 | % | ||||||||||
| Interest Income (Expense) | (206,069 | ) | (3 | )% | (185,292 | ) | (3 | )% | ||||||||
| Total Other Income (Expense), Net | (197,494 | ) | (3 | )% | (164,185 | ) | (2 | )% | ||||||||
| Income Before Taxes | (91,254 | ) | (1 | )% | 364,988 | 6 | % | |||||||||
| Provision for Income Tax | (77,965 | ) | (1 | )% | 11,008 | 0 | % | |||||||||
| Net Income | $ | (13,289 | ) | (0 | )% | $ | 353,980 | 5 | % | |||||||
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Net Sales
Net sales increased by $1.3 million, or 19.2%, to $7.9 million for the three months ended September 30, 2024, as compared to $6.6 million for the three months ended September 30, 2023. This increase was primarily due to a increase of $2.0 million spread across the communication, defense and medical end markets offset by a decrease of $0.7 million in the consumer end market.
Cost of Goods Sold
Cost of revenue increased by $1.3 million, or 26.8%, to $6.0 million for the three months ended September 30, 2024, as compared to $4.8 million for the three months ended September 30, 2023. This decrease was primarily due to an increase of $0.4 million in payroll costs and $0.9 million in material and subcontractor costs.
Gross Profit
Gross profit decreased by $0.01 million, or 0.6%, to $1.8 million for the three months ended September 30, 2024, as compared to $1.8 million for the three months ended September 30, 2023. This decrease was primarily due to an increase in cost of goods sold as a percent of revenue.
General and Administrative Expenses
General and administrative expenses increased by $0.4 million, or 31.4%, to $1.7 million for the three months ended September 30, 2024, as compared to $1.3 million for the three months ended September 30, 2023. This increase was primarily due to an approximately $0.4 million increase in increase in salaries and wages.
Total Other Income (Loss)
Other income (expense) increased by $0.03 million, or 20.3%, to ($0.20) million for the three months ended September 30, 2024, as compared to other income (expense) of ($0.16) million for the three months ended September 30, 2023. This increase was primarily due to a decrease in other income of $0.1 due to an insurance reimbursement in the prior period as well as $0.02 million increase in interest expense.
Income Tax Expense (Benefit)
Income tax expense decreased by $0.09 million, or 808.3%, to ($0.08) million for the three months ended September 30, 2024, as compared to $0.01 million for the three months ended September 30, 2023. This decrease was primarily due to the decrease in net income.
Net Income (Loss)
Net income (loss) decreased by $0.4 million, or 103.8%, to $0.02 million for the three months ended September 30, 2024, as compared to $0.35 million for the three months ended September 30, 2023. This decrease was primarily due to an increase in cost of goods sold of $1.3 million, and an increase in general and administrative expenses of $0.4 million, offset by an increase in sales of $1.3 million.
Comparisons for the nine months ended September 30, 2024 and 2023
The following table sets forth our results of operations for the nine months ended September 30, 2024 and 2023, respectively. This data should be read together with our financial statements and related notes included elsewhere in this Quarterly Report, and is qualified in its entirety by reference to such financial statements and related notes.
| Nine Months Ended | ||||||||||||||||
| September 30, 2024 | % Net Sales | September 30, 2023 | % Net Sales | |||||||||||||
| Net Sales | 21,128,263 | 100 | % | 21,177,257 | 100 | % | ||||||||||
| Cost of Goods Sold | 16,412,773 | 78 | % | 15,244,863 | 72 | % | ||||||||||
| Gross profit | 4,715,490 | 22 | % | 5,932,394 | 28 | % | ||||||||||
| General and administrative | 5,857,806 | 28 | % | 4,442,117 | 21 | % | ||||||||||
| (Loss) Income From Operations | (1,142,316 | ) | (5 | )% | 1,490,277 | 7 | % | |||||||||
| Other Income (Expense), Net | ||||||||||||||||
| Other Income | 347,547 | 2 | % | 70,914 | 0 | % | ||||||||||
| Interest Income (Expense) | (533,178 | ) | (3 | )% | (446,875 | ) | (2 | )% | ||||||||
| Total Other Income (Expense), Net | (185,631 | ) | (1 | )% | (375,961 | ) | (2 | )% | ||||||||
| (Loss) Income Before Taxes | (1,327,947 | ) | (6 | )% | 1,114,316 | 5 | % | |||||||||
| (Benefit from) Provision for Income Tax | (387,358 | ) | (2 | )% | 139,549 | 1 | % | |||||||||
| Net (Loss) Income | $ | (940,589 | ) | (4 | )% | $ | 974,767 | 5 | % | |||||||
Net Sales
Net sales decreased by $0.05 million, or 0.2%, to $21.1 million for the nine months ended September 30, 2024, as compared to $21.2 million for the nine months ended September 30, 2023. This decrease was primarily due to a decrease of $4.2 million spread across the medical, consumer and defense end markets offset by an increase of $4.1 million in the communications end market.
Cost of Goods Sold
Cost of revenue increased by $1.2 million, or 7.7%, to $16.4 million for the nine months ended September 30, 2024, as compared to $15.2 million for the nine months ended September 30, 2023. This increase was primarily due to a $1.1 million increase in payroll costs and $0.1 million increase in material and subcontracted costs.
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Gross Profit
Gross profit decreased by $1.2 million, or 20.5%, to $4.7 million for the nine months ended September 30, 2024, as compared to $5.9 million for the nine months ended September 30, 2023. This decrease was primarily due to the decrease in revenue and the increase in cost of goods sold.
General and Administrative Expenses
General and administrative expenses increased by $1.4 million, or 31.9%, to $5.9 million for the nine months ended September 30, 2024, as compared to $4.4 million for the nine months ended September 30, 2023. This increase was primarily due to an approximately $0.4 million increase in salaries and wages, $0.7 million in professional fees, $0.2 million in research and development expenses, and $0.1 million in advertising expenses.
Total Other Income (Loss)
Other income (expense) decreased by $0.2 million, or 50.6%, to ($0.2) million for the nine months ended September 30, 2024, as compared to other income (expense) of ($0.4) million for the nine months ended June 30, 2023. This decrease was primarily due to the sale of machinery and equipment of $0.3 million offset by increased interest expense of ($0.09) million due to increased rates for the debt facilities.
Income Tax Expense (Benefit)
Income tax expense (benefit) decreased by ($0.5) million, or 377.6%, to ($0.39) million for the nine months ended September 30, 2024, as compared to $0.14 million for the nine months ended September 30, 2023. This increase was primarily due to the increase in net loss.
Net Income (Loss)
Net income decreased by $1.9 million, or 196.5%, to ($0.9) million for the nine months ended September 30, 2024, as compared to $1.0 million for the nine months ended September 30, 2023. This decrease was primarily due to an increase in cost of goods sold of $1.3 million and an increase in general and administrative expenses of $1.5 million, offset by a decrease in other income (expense) of $0.2 million and a decrease in provision for income tax of $0.5 million.
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these condensed consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. On a recurring basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. The effects of material revisions in an estimate, if any, will be reflected in the consolidated financial statements prospectively from the date of the change in the estimate.
We believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Inventory Valuation
We periodically review physical inventory for excess, obsolete, and potentially impaired items and reserves. Any such inventory is written down to net realizable value. The reserve estimate for excess and obsolete inventory is dependent on expected future use and requires management judgement.
Warrants
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own ordinary share, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in-capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
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Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities using enacted rates. The effect of a change in tax rates on deferred taxes is recognized in income in the period that includes the enactment date.
We recognize the financial statement effect of an uncertain income tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Recognized income tax positions are measured at the largest amount that is greater than 50% likely to be realized. A valuation allowance is recorded to reduce deferred income tax assets to an amount, which in the opinion of management is more likely than not to be realized.
Management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. We consider factors such as the cumulative income or loss in recent years; reversal of deferred tax liabilities; projected future taxable income exclusive of temporary differences; the character of the income tax asset, including income tax positions; tax planning strategies and the period over which we expect the deferred tax assets to be recovered in the determination of the valuation allowance. In the event that actual results differ from these estimates, or we adjust our estimates in the future, we may need to adjust our valuation allowance, which could materially impact our financial position and results of operations.
Non-GAAP Financial Measures
This Quarterly Report includes a non-generally accepted account principles within the United States (“U.S. 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. 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 company has identified several non-recurring items included in our non-GAAP adjusted EBITDA financial measure. These items encompass management fees, professional & transaction fees, technology start-up costs, optical molding evaluation expenses, glass molding evaluation expenses, and executive transition expenses. Notably, several projects were concluded during the three months ended September 30, 2024, while some expenses were incurred in prior periods. The company evaluated these projects and retroactively adjusted prior periods to account for these expenses. This retroactive adjustment is reflected in the nine months ended September 30, 2024, below.
The table below presents our adjusted EBITDA, reconciled to net income for the three and nine months ended September 30, 2024 and 2023.
NON-GAAP RECONCILIATION OF EBITDA
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Net (Loss) Income | $ | (13,289 | ) | $ | 353,980 | $ | (940,589 | ) | $ | 974,767 | ||||||
| Depreciation & Amortization | 739,812 | 692,716 | 2,129,805 | 2,102,093 | ||||||||||||
| Interest Expenses | 203,650 | 184,358 | 526,372 | 441,115 | ||||||||||||
| Taxes | (77,965 | ) | 11,008 | (387,358 | ) | 139,549 | ||||||||||
| Non-Recurring Items | ||||||||||||||||
| Other Income - Sale of Equipment & Accessories | - | - | - | (10,068 | ) | |||||||||||
| Discount Income | - | - | - | 192 | ||||||||||||
| Non-Recurring Contributions, Management Fees & Expenses | - | (2,404 | ) | - | 210,112 | |||||||||||
| Non-Recurring Professional & Transaction Fees | - | 55,444 | 174,500 | 213,500 | ||||||||||||
| Technology Start-up Costs | 22,275 | - | 272,067 | - | ||||||||||||
| Non-Recurring Optical Molding Evaluation Expenses | 77,386 | - | 187,734 | - | ||||||||||||
| Non-Recurring Glass Molding Evaluation Expenses | 28,240 | - | 130,196 | - | ||||||||||||
| Non-Recurring Executive Transition Expense | 122,374 | - | 122,374 | - | ||||||||||||
| Adjusted EBITDA | $ | 1,102,483 | $ | 1,295,104 | $ | 2,215,101 | $ | 4,071,261 | ||||||||
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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. As of September 30, 2024, our principal sources of liquidity were cash totaling $0.5 million and a line of credit with $3.9 million available.
Significant factors affecting the management of our ongoing cash requirements are the adequacy of available bank lines of credit and our ability to attract long-term capital with satisfactory terms. The sources of our liquidity are subject to all of the risks of our business and could be adversely affected by, among other factors, risks associated with events outside of our control, such as economic consequences of global pandemics and geopolitical conflicts, monetary policy changes in the U.S. and other countries and their impact on the global financial markets, supply chain disruptions and electronics and other material shortages, a decrease in demand for our products, our ability to integrate current and future acquisitions, deterioration in certain financial ratios, availability of borrowings under our revolving credit facility, and other market changes in general. See “Risks Relating to Syntec Optics’ Financial Position and Capital Requirements” included in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Cash Flow — Nine months ended September 30, 2024 and 2023
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net Cash (Used in) Provided by Operating Activities | $ | (1,566,598 | ) | $ | 1,104,841 | |||
| Net Cash Used in Investing Activities | (319,229 | ) | (979,630 | ) | ||||
| Net Cash Provided by (Used in) Financing Activities | 204,366 | (548,070 | ) | |||||
Operating Activities
Net cash used in operating activities was $1.6 million for the nine months ended September 30, 2024, as compared to net cash provided by operating activities of $1.1 million for the nine months ended September 30, 2023. The primary drivers for the year-over-year change include an increase in net loss of $1.9 million, a decrease in federal income tax payable of $0.8 million, a decrease in accounts payable and accrued expenses of $1.6 million, offset by a decrease in accounts receivable of $1.3 million and an increase in deferred revenue of $0.4 million.
Investing Activities
Net cash used in investing activities was $0.3 million for the nine months ended September 30, 2024, as compared to net cash used in investing activities of $1.0 million for the nine months ended September 30, 2023. The net cash used in investing activities decreased primarily due to a decrease in capital expenditures of $0.4 million and an increase in proceeds from sale of equipment of $0.3 million.
Financing Activities
Net cash provided by financing activities was $0.2 million for the nine months ended September 30, 2024, as compared to net cash used in financing activities of $0.5 million for the nine months ended September 30, 2023. The primary drivers for the year-over-year change include an increase in borrowing of debt obligations of $1.1 million, a decrease in repayments on debt obligations of $0.3 million, offset by an increase in repayments on the line of credit of $0.6 million, and an increase in repayments on finance lease obligations of $0.1 million.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Our primary market risk exposure is interest rate sensitivity. During the nine months ended September 30, 2024, there have been no material changes to the information included under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Based on the evaluation of our disclosure controls and procedures as of September 30, 2024, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective due to the following identified material weaknesses:
| 1. | We lack documentation of formal internal control process and controls including lack of review of journal entries. | |
| 2. | We lack necessary corporate accounting resources to maintain adequate segregation of duties. | |
| 3. | We lack timely reconciliation controls in the areas of accounts payable, accrued legal expenses, and inventory. | |
| 4. | We lack controls related to proper cut-off of costs of goods sold and other income from business interruption claim. | |
| 5. | We lack control related to identification and disclosure of related party transactions. | |
| 6. | We lack control related to proper fair value methodology utilized for valuation of complex financial instrument in connection with contingent earnout arrangement. | |
| 7. | We lack the necessary information technology (“IT”) general controls infrastructure in the areas of user access and program change-management due to insufficient documentation and training, and inadequate IT risk assessment process. Additionally, we lack controls around the review of SOC-1 reports and lack of cyber security related controls. | |
| 8. | We lack control related to the evaluation and calculation of finance leases in accordance with Accounting Standards Codification 842-20-25-1a. |
The Company is instituting controls and procedures that we expect will improve the effectiveness of the Company’s disclosure controls and procedures.
Management’s Report on Internal Control over Financial Reporting
This Report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s registered public accounting firm due to a transition period established by rules of the SEC for newly public companies. Additionally, our auditors will not be required to formally opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an “emerging growth company” as defined in the JOBS Act.
Changes in Internal Control over Financial Reporting
Other than the material weaknesses and remediation efforts mentioned above, there were no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We may be subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are not currently a party to any material litigation or other legal proceedings brought against us. We are also not aware of any legal proceeding, investigation or claim, or other legal exposure that has a more than remote possibility of having a material adverse effect on our business, financial condition or results of operations.
Item 1A. Risk Factors
The Company’s risk factors are described in Part I, Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations. The risk factors should be read together with, the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herewith. |
| ** | Furnished. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| OMNILIT ACQUISITION CORP. | ||
| Date: November 14, 2024 | By: | /s/ Al Kapoor |
| Name: | Al Kapoor | |
| Title: | Chairman and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 14, 2024 | By: | /s/ Dean Rudy |
| Name: | Dean Rudy | |
| Title: | Chief Financial Officer | |
| (Principal Accounting Officer and Financial Officer) | ||
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