Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark One)
☒
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended June 30, 2021
OR
☐
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from
to
Commission
file number 000-27548
LIGHTPATH
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
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DELAWARE
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86-0708398
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No)
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http://www.lightpath.com
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2603
Challenger Tech Court, Suite 100
Orlando,
Florida 32826
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(407) 382-4003
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(Address of principal executive offices, including zip
code)
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(Registrant’s telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Class A
Common
Stock,
par value $0.01
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LPTH
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The
Nasdaq Stock Market, LLC
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Securities
registered pursuant to Section 12(g) of the Act:
Series
D Participating Preferred Stock Purchase Rights
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. YES
☐ NO ☒
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90
days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
YES ☒ NO ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated
filer, non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large
accelerated filer”, “accelerated filer”,
“non-accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act:
Large accelerated filer ☐ Accelerated
filer ☐
Emerging growth company
☐
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant has filed a report on and
attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report.☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 in the Exchange Act). YES ☐ NO ☒.
The
aggregate market value of the registrant’s voting stock held
by non-affiliates (based on the closing sale price of the
registrant’s Class A Common Stock on The NASDAQ Capital
Market) was approximately $76,925,641 as of December 31,
2020.
As of
September 7, 2021, the number of shares of the registrant’s
Class A Common Stock outstanding was 26,994,534.
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the Fiscal 2022 Annual Meeting of
Stockholders are incorporated by reference in Part II and Part
III.
LightPath
Technologies, Inc.
Form
10-K
Table
of Contents
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3
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13
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21
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21
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Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities |
22 |
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Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations |
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34
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Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure |
34 |
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34
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34
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35
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35
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35
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Item 13. Certain Relationships and Related
Transactions, and Director Independence |
35 |
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35
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36
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39
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Index to Consolidated Financial Statements
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F-1
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Signatures
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34
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CAUTIONARY
NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Annual Report on Form
10-K may constitute “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”), Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, without limitation,
statements concerning plans, objectives, goals, projections,
strategies, future events, or performance, statements related to
the expected effects on our business from the coronavirus
(“COVID-19”) pandemic, and underlying assumptions and
other statements, which are not statements of historical facts. In
some cases, you can identify forward-looking statements by
terminology such as “may,” “will,”
“should,” “expect,” “plan,”
“anticipate,” “believe,”
“estimate,” “predict,”
“potential,” or “continue,” or other
comparable terminology. These forward-looking statements are based
on our current expectations and beliefs concerning future
developments and their potential effect on us. While management
believes that these forward-looking statements are reasonable as
and when made, there can be no assurance that future developments
affecting us will be those that we anticipate. Forward-looking
statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, performance, or
achievements to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements. Given these uncertainties, you should
not place undue reliance on these forward-looking statements.
Forward-looking statements represent management’s beliefs and
assumptions only as of the date of this Annual Report on Form 10-K.
You should read this Annual Report on Form 10-K completely and with
the understanding that our actual future results may be materially
different from what we expect. Except as required by law, we assume
no obligation to update these forward-looking statements, or to
update the reasons actual results could differ materially from
those anticipated in these forward-looking statements, even if new
information becomes available in the future.
PART I
Item 1. Business.
General
Our Company
LightPath Technologies, Inc. (“LightPath”, the
“Company”, “we”, “our”, or
“us”) was incorporated under Delaware law in 1992 as
the successor to LightPath Technologies Limited Partnership, a New
Mexico limited partnership formed in 1989, and its predecessor,
Integrated Solar Technologies Corporation, a New Mexico corporation
formed in 1985. Today, LightPath is a global company with major
facilities in the United States, the People’s Republic of
China and the Republic of Latvia.
Subsidiaries
In November 2005, we formed LightPath Optical Instrumentation (Shanghai) Co.,
Ltd (“LPOI”), a wholly-owned subsidiary, located in
Jiading, People’s Republic of China. The LPOI facility (the
“Shanghai Facility”) is primarily used for sales and
support functions.
In December 2013, we formed LightPath Optical Instrumentation
(Zhenjiang) Co., Ltd. (“LPOIZ”), a wholly-owned
subsidiary located in the New City district, of the Jiangsu
province, of the People’s Republic of China. LPOIZ’s
manufacturing facility (the “Zhenjiang Facility”)
serves as our primary manufacturing facility in China and provides
a lower cost structure for production of larger volumes of optical
components and assemblies. Late in fiscal 2019, this facility was
expanded from 39,000 to 55,000 square feet to add capacity for
polishing to support our growing infrared business.
In
December 2016, we acquired ISP Optics Corporation, a New York
corporation (“ISP”), and its wholly-owned subsidiary,
ISP Optics Latvia, SIA, a limited liability company founded in 1998
under the Laws of the Republic of Latvia (“ISP
Latvia”). ISP is a vertically integrated manufacturer
offering a full range of infrared products from custom infrared
optical elements to catalog and high-performance lens assemblies.
Historically, ISP’s Irvington, New York facility (the
“Irvington Facility”) functioned as its global
headquarters for operations, while also providing manufacturing
capabilities, optical coatings, and optical and mechanical design,
assembly, and testing. In June 2019, we completed the relocation of
this manufacturing facility to our existing facilities in Orlando,
Florida and Riga, Latvia. ISP Latvia is a manufacturer of high
precision optics and offers a full range of infrared products,
including catalog and custom infrared optics. ISP Latvia’s
manufacturing facility is located in Riga, Latvia (the “Riga
Facility”).
3
Industry
We and our customers support a wide range of industries, including
automotive, telecommunications, defense,
medical, bio-technology, industrial, consumer goods and more.
A commonality among these industries is the use of photonics as an
enabling technology in their products.
Over the last ten years we have witnessed a pivotal shift in the
adoption of photonics in new applications. In the early days of the
photonics industry the technology was a specialty, which was both
expensive and required highly specialized technical knowledge,
leading to low adoption of the technology into industries other
than defense and high-end medical applications. Starting with the
commercialization of fiber optic communication, and further driven
by significant cost reduction in key technologies such as sensors
and lasers, the adoption of the technology into more industries and
applications began rapidly growing. According to
the National Academy of Sciences Report: Optics &
Photonics: Essential Technologies for our Nation, the value of
light-enabled products and services is estimated to be between $7
trillion and $10 trillion annually, representing 11% of the
world’s economy.
With the accelerated rate of adoption and highly diversified
industries and applications utilizing an expanding array of
photonics technologies, comes a change in both the needs of the
customers and the supply chain, to support those needs. In
the past, we and other component suppliers mostly served customers
that specialized in photonics. The needs of the large OEMs
were focused on relying on component companies as their supply
chain for optical parts and minor fabrication and
assemblies. Accordingly, the supply chain was fragmented and
consisted of a large number of small companies, often with specific
specialties in the fabrication process. OEMs typically produced
their own designs and relied on the supply chain to fulfill
their needs absent any product planning or
collaboration.
As the industry has evolved and sensory, visualization and imaging
capabilities have become differentiators, if not a necessity for an
expanding array of products in myriad industries, the specialized
requirements of customers are no longer being adequately addressed.
With the wider adaptation of the technology, and with customers
that now possess different expertise in different technologies, the
needs are different, such is often the case with a mature supply
chain. In our case, the change translates to now serving OEM
customers for whom photonics is one of several technologies they
embed into their product. That is, a limited number of
OEMs have been transitioning from relying on a
distributed supply chain that would provide all components for the
bill of materials (“BOM”) to a highly diversified
and fragmented global customer base in which the optical parts of
their system are only a part of multiple technologies
integrated together. As a result, the expanding market of original
equipment and end market manufacturers are increasingly requiring
an ecosystem around them to support their needs for domain
knowledge, design, assembly and supply of their optical needs. We
refer to this ecosystem as optical engineered solutions. We
are uniquely positioned to serve as a single, global solutions
provider with leading engineering and manufacturing
capabilities. This has led to the development of a new
strategy and organizational alignment, discussed below, which we
have begun to implement in recent months, with significant initial
success, including a return to double digit annual revenue growth,
multiple new product designs and key multinational customer
contract wins.
Growth Strategy
Historically, we operated with a focus on optical component
manufacturing, and specifically on our leadership position as a
precision molded lens manufacturer for visual light applications.
While still positioned as a component provider, we expanded
our addressable market with the acquisition of ISP, a manufacturer
of infrared optical components, in December 2016.
Collectively, our operations lacked synergies, maintained
a high cost structure, and lacked a defined path for
capitalizing on the industry’s evolution and growth
opportunities.
In March of 2020, our Board of Directors (our “Board”)
recruited Mr. Sam Rubin, an industry veteran with a proven track
record for delivering high growth through organic and inorganic
means, to assume the role of Chief Executive Officer and to develop
and implement a new strategy going forward. In the fall of
2020, Mr. Rubin led our Board and the leadership team in
collaborative discussions with the purpose of defining a new
comprehensive strategy for our business. The collaborative
strategic planning process included leaders from across the
organization, detailed dialogs with customers, vendors and
partners, and an in-depth analysis of the environment we are in,
changes and trends in and around the use of photonics, and an
analysis of our capabilities, strengths and weaknesses. Throughout
the process, we focused on developing a strategy that creates a
unique and long-lasting value to our customers, and utilizes our
unique capabilities and differentiators, both existing capabilities
and differentiators, as well as new capabilities we acquire and
develop organically.
Understanding the shifts that are happening in the marketplace, and
the changes that come when a technology like photonics moves from
being a specialty, to being integrated into mainstream industries
and applications, we redefined our strategic direction to provide
our wide customer base with domain expertise in optics, and become
their partner for the optical engine of their system. In our view,
as the use of photonics evolves, so do the needs evolve. The
industry is transforming from a fragmented industry with many
component manufacturers into a solution focused industry, with the
potential for partnerships for solution development and
production. We believe such a partnership starts with us, as
the supplier. We have in-house domain expertise in photonics,
knowledge and experience in the most advanced technologies and the
necessary manufacturing techniques. We can then further develop
these partnerships by working closely with the customer throughout
their design process, designing an optical solution that is
tailored to their needs, often times using unique technologies we
own, and supplying the customer with the corresponding complete
optical subsystem to be integrated into their product. Such
an approach builds on our unique, value-added technologies that we
both currently own, such as optical molding, fabrication, and
system design along with other technologies we may acquire or
develop in the future to create tailored solutions for our
customers, which often are based on proprietary manufacturing
technologies.
Providing the domain expertise and the extensive “know
how” in optical design, fabrication, production and testing
technologies will allow our customers to focus on their own
development efforts, without needing to develop subject matter
expertise in optics. By providing the bridge into the optical
solution world, we partner with our customers on a long-term basis,
create value to our customers, and capture that value through the
long-term supply relationships we develop.
4
Organizational Alignment
Along with the development of a new strategic direction, we are
focused on the execution of this strategic plan. First,
we aligned the organization to the strategic plan. Such alignment
has been ongoing in all levels of the organization, starting at the
leadership level through the creation of the role of Vice President
of Operations through the hiring of Peter Grief, and the hiring of
a new Chief Financial Officer, Albert Miranda, upon the retirement
of our former officer. We also appointed a new director to our
Board, S. Eric Creviston, who has extensive experience with
wireless and mobile technology and the semiconductor industry. We
believe that the addition of our new Vice President of Operations,
an expert at building and scaling manufacturing operations, and our
new Chief Financial Officer with strong experience in financial
management and mergers and acquisitions in the optical industry,
will allow us to now focus on building a strong foundation that is
aligned to our strategic plan, and create an operation that will be
ready to take on significant growth, both organic and
inorganic.
To execute our new strategic plan, we also need, among other
things, a strong manufacturing organization, as well as a technical
organization that provides the domain expertise in photonics, from
the design of an optical engineered solution tailored for the
customer’s needs, through the manufacturing, assembly and
testing of such a sub-system. Given the fast pace of advancements
in photonics technologies, achieving a sustainable advantage will
also depend on having unique capabilities and technologies that
allow our team to design and deliver the best tailored
solutions. To support those goals, we began a few different
organization-wide efforts, starting from standardizing and
optimizing our processes and systems, through alignment of
organizational structure, such as separating what used to be one
combined engineering group into the engineering functions that are
part of operations, and a new product development group that
focuses on developing capabilities and technologies that allow us
to design and deliver better solutions. By having a small, focused
new product development group, we are able to develop unique
technologies that allow us to design solutions that we believe are
better than what is otherwise available. Such unique technologies
include developing tailored and optimized optical coatings, and
advanced fabrication techniques such as freeform optical
components, custom materials not available elsewhere,
and cutting edge optical design
capabilities.
In the longer term, we have identified capabilities and
technologies that could be important differentiators, including,
for example, optical detectors and active optical components such
as lasers, motion systems, and more. The collection of
many such unique technologies is what will allow us to
differentiate our optical solution, and provide the customer with a
product that is tailored exactly to their
needs.
In addition to all of the organizational alignment initiatives we
are implementing, we have also had a leadership transition and
operational enhancements at our Chinese subsidiaries. As discussed
in more detail in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations, we
terminated certain of our management employees at our Chinese
subsidiaries, LPOIZ and LPOI, and transitioned to new management
personnel. These events adversely impacted domestic sales in China,
but we expect these impacts to lessen in the first half of fiscal
2022.
Technologies
We believe that to be the preferred partner for the photonics needs
of our customers, domain expertise in photonics is the key element.
Optics and photonics require multidisciplinary skills, including
physics, mechanical engineering, material sciences, electrical
engineering, chemistry, among others. This is part of what makes
using photonics so complicated, and at the same time part of what
we see as the opportunity. Knowing what can and cannot be produced,
designing the architecture and detailed design of the optical
system, including electrical and mechanical interfaces, choosing
and executing the best manufacturing technology, and delivering
both the engineering prototypes that are needed, as well as
long-term producing a high volume of goods, are all part of the
domain expertise required. Additionally, to design the best
solution for a customer, we not only need to know what can be
produced and how to design it, we also must have unique
capabilities that differentiate our solutions and allow us to
design and produce a better solution that is more profitable than
what may otherwise be available.
Along those lines, we continue to focus on developing new,
innovative capabilities and technologies in all of our engineering
and manufacturing groups, including systems design and testing,
optical fabrication of components, material production, optical
coatings, and electro mechanical design and
production.
5
Among the manufacturing technologies we own are:
●
High
precision molded lenses. Historically, precision molding of lenses is the
key technology we built upon. Precision molding of optics is a
unique technology that is well suited for both high volume
production of optical components, as well as production of optics
with unique shapes, which otherwise would require a very lengthy
and complex process, to individually polish each lens to shape.
Precision molded optics, or PMOs, is a technology we continuously
invest in, pushing the envelope further on what materials can be
molded and the shapes and sizes of the optics we can mold. Although
there are several other competitors that can mold optical elements,
we have an established leadership position in this area, as the
original developer of the technology, and we believe we are the
preferred vendor for the most complex, high-end projects of many of
our customers. Some recent advancements we have made in precision
molded optics include molding of non-symmetric shapes such as
freeform optical components, and qualifying new materials for
availability as moldable materials.
●
Traditional
polishing, and diamond turned optics. Through the acquisition of ISP in fiscal 2017, we
added to our capabilities a wide range of traditional fabrication
processes. These include CNC grinding and polishing of optical
elements, traditional grind and polishing of lenses, and diamond
turning of infrared materials
●
Materials.
Materials play an important role in providing design flexibility
and allow tradeoffs between optical performance, weight, and
performance in varying conditions. Traditionally, infrared
applications have only a small number of materials, all of which
are crystal based. However, the introduction of synthetic
Chalcogenide glass in recent years, which allows for synthesizing
of different materials, has created a larger library of materials
to design with. We produce four materials: BD6, our flagship
Chalcogenide glass; (ii) BD2 which we have been producing for over
15 years; (iii) NaCl and (iv) KBr crystals. We believe that having
a larger selection of optical materials will provide us more tools
to design better solutions than exists with current materials, and
we plan to continue to invest in our materials development. In
addition, through a grant from Space Florida foundation and
Israel’s ministry of science, we plan to qualify our
Chalcogenide glass for space applications and in particular thermal
imaging from space, which is a fast-growing
application
●
Optical
coatings. Thin film coatings
are designed to reduce losses and protect the optical material,
which are a key part of any optical system. Through our recent
investments, we have the ability to coat lenses in all of our
facilities, providing efficient, high quality antireflective
coatings, as well as reflective and protective coatings. Our
coating facilities employ both physical vapor deposition techniques
as well as chemical vapor deposition techniques. In addition to our
library of dozens of standard coatings, our coating engineers often
design coatings specific for an application, optimizing the
performance of the system for a specific customer use. One of our
most known advanced coatings is DLC, or Diamond Like Carbon, which
provides materials such as chalcogenide glass significant
environmental protection. This coating is currently available only
at a small number of vendors, and is an example of a capability
that provides us the ability to design better optical
solutions.
●
Assembly
and testing. In recent years we
have invested significantly in capabilities for sub-system level
assemblies and testing in two of our facilities. Even more
recently, we have added capabilities of active alignment, and
extended testing including environmental testing, to support our
growing business of optical assemblies and engineered solutions. We
expect to continue to invest in this area as activity grows, and in
particular in volume manufacturing and testing of
assemblies.
New Product Development
In connection with our new strategic direction, to leverage our
subject matter expertise and provide customers with the optical
sub-system to integrate into their product, our development efforts
during fiscal 2021 also shifted to focus on developing products,
technologies and capabilities that allow us to provide better
solutions, using the most fit technology for each customer and with
alignment to customer product lifecycle. This includes developing
unique materials, processing techniques, optical coating offerings
and more, which allow us to design a better optical system for a
customer than it could obtain elsewhere or through its
in-house/captive capabilities. Examples of such development efforts
include new and unique optical coatings, advanced materials that
provide more flexibility in design, qualifying our materials and
processes for specific environments such as our recently announced
project to develop thermal imaging optics for use in space, and
more. Where possible we apply for patents for the technology we
develop, though in many cases the protection a patent offers is
diminished by the need to disclose in detail the processes, and so
we apply for patents only in cases when we believe the patent is
enforceable and does not compromise our trade secrets and
intellectual properties developed over three decades.
We incurred expenditures for new product development during fiscal
2021 and 2020 of approximately $2.2 million and $1.7 million,
respectively.
In some cases our product and technology development is supported
through billing of engineering services, such as non-recurring
engineering (“NRE”) fees. In other cases we receive
external funding, such as our recently announced funding from the
Space Florida Foundation. In some cases, our efforts are
self-funded.
As part of our product development and research and development
efforts, we have over 50 employees with engineering and related
advanced degrees located in our facilities throughout the world.
Our facilities in Orlando, Florida and Zhenjiang, China are located
in or near industrial technology campuses with substantial access
to optical industry constituencies, including a major university.
This enables us and our staff to remain on the cutting edge of
industry design trends and to enter into collaborative
engagements.
6
Product Groups and Markets
Overview
Our business is organized into three product groups: PMOs, infrared
products and specialty products. These product groups are supported
by our major product capabilities: molded optics, thermal imaging
optics, and custom designed optics.
Our PMO product group consists of visible precision molded optics
with varying applications. Our infrared product group is comprised
of infrared optics, both molded and diamond-turned, and thermal
imaging assemblies. This product group also includes both
conventional and CNC ground and polished lenses. Between these two
product groups, we have the capability to manufacture lenses from
very small (with diameters of sub-millimeter) to over 300
millimeters, and with focal lengths from approximately 0.4
millimeters to over 2000 millimeters. In addition, both product
groups offer both catalog and custom designed optics.
Our specialty product group is comprised of value-added products,
such as optical subsystems, assemblies, and collimators, and NRE
products, consisting of those products we develop pursuant to
product development agreements that we enter into with customers.
Typically, customers approach us and request that we develop new
products or applications for our existing products to fit their
particular needs or specifications. The timing and extent of any
such product development is outside of our control.
Product Groups
Beginning in late 2019, we implemented a product management function, with a product
manager for each of our major product capabilities: molded optics,
thermal imaging optics and custom designed optics. Product
management is principally a portfolio management process that
analyzes products within the product capability areas as defined
above. This function has begun to facilitate choosing investment
priorities to help strategically align our competencies with
strategic industry revenue opportunities. Over the longer term,
this function will also help ensure successful product life cycle
management. The following further discusses the various products we
offer and certain growth opportunities we anticipate for each such
product.
PMO Product Group. Aspheric
lenses are known for their optimal performance. Aspheric lenses
simplify and shrink optical systems by replacing several
conventional lenses. However, aspheric lenses can be difficult and
costly to machine. Our glass molding technology enables the
production of both low and high volumes of aspheric optics, while
still maintaining the highest quality at an affordable price.
Molding is the most consistent and economical way to produce
aspheres and we have perfected this method to offer the most
precise molded aspheric lenses available.
Infrared Product Group. Our infrared
product group is comprised of both molded and turned infrared
lenses and assemblies using a variety of infrared glass materials.
Advances in chalcogenide materials
have enabled compression molding for mid-wave, or MWIR, and
long-wave, or LWIR, optics in a process similar to precision molded
lenses. Our molded infrared optics technology enables high
performance, cost-effective infrared aspheric lenses that do not
rely on traditional diamond turning or lengthy polishing methods.
Utilizing precision molded aspheric optics significantly reduces
the number of lenses required for typical thermal imaging systems
and the cost to manufacture these lenses. Molding is an excellent
alternative to traditional lens processing methods particularly
where volume and repeatability is
required.
Through ISP, our wholly-owned subsidiary, we also offer germanium,
silicon or zinc selenide aspheres and spherical lenses, which are
manufactured by diamond turning. This manufacturing technique
allows us to offer larger lens sizes and the ability to use other
optical materials that cannot be effectively molded. The
capabilities we have from ISP give us the ability to meet complex
optical challenges that demand more exotic optical substrate
materials that are non-moldable, as well as larger size
optics.
7
Near
the end of fiscal 2018, we announced comprehensive production
capabilities and global availability for a new line of infrared
lenses made from chalcogenide glass. We developed this glass and
melt it internally to produce our Black Diamond glass, which has
been trademarked, and is marketed as BD6. Historically, the
majority of our thermal imaging products have been germanium-based,
which is subject to market pricing and availability. BD6 offers a
lower-cost alternative to germanium, which we expect will benefit
the cost structure of some of our current infrared products and
allow us to expand our product offerings in response to the
markets’ increasing requirement for low-cost infrared optics
applications.
Overall, we anticipate growth for infrared optics, particularly as
BD6 continues to be adopted into new applications and new designs.
Infrared systems, which include thermal imaging cameras,
temperature sensing, gas sensing devices, spectrometers, night
vision systems, automotive driver awareness systems, such as blind
spot detection, thermal weapon sights, and infrared counter measure
systems, is an area that is growing rapidly and we are selling
products that are utilized in a number of these applications. As
infrared imaging systems become widely available, market demand
will increase as the cost of components decreases. Our
aspheric molding process is an enabling technology for the cost
reduction and commercialization of infrared imaging systems
utilizing smaller lenses because the aspheric shape of our lenses
enables system designers to reduce the lens element in a system and
provide similar performance at a lower cost. In addition, there is
a trend toward utilizing smaller size sensors in these devices
which require smaller size lenses and that fits well with our
molding technology.
Specialty Product Group. We offer a group of custom specialty optics
products and assemblies that take advantage of our unique
technologies and capabilities. These products include custom
optical designs, mounted lenses, optical assemblies, and collimator
assemblies. Collimator assemblies for applications involving light
detection and ranging, or LIDAR, technology for advanced driver
assistance systems and autonomous vehicles, such as forklifts and
other automated warehouse equipment. This continues to be an
emerging market with long-term growth potential for us. We also
expect growth from medical programs and commercial optical
sub-assemblies.
We design, build, and sell optical assemblies into markets for test
and measurement, medical devices, military, industrial, and
communications based on our proprietary technologies. Many of
our optical assemblies consist of several products that we
manufacture.
In connection with our new strategic direction and the expanding
portfolio of products and services, we are evaluating the ways in
which we may optimize the financial reporting of our product
groups.
Sales and Marketing
Marketing. Extensive product diversity and varying levels of
product maturity characterize the optics industry. Product
verticals range from consumer (e.g., cameras, cell phones, gaming,
and copiers) to industrial (e.g., lasers, data storage, and
infrared imaging), from products where the lenses are the central
feature (e.g., telescopes, microscopes, and lens systems) to
products incorporating lens components (e.g., 3D printing, machine
vision, LIDAR, robotics and semiconductor production equipment) and
communications. As a result, we market our products across a wide
variety of customer groups, including laser systems manufacturers,
laser OEMs, infrared-imaging systems vendors, industrial laser tool
manufacturers, telecommunications equipment manufacturers, medical
instrumentation manufacturers and industrial measurement equipment
manufacturers, government defense agencies, and research
institutions worldwide. Our marketing efforts include a global
unification of our messaging with the use of online advertising,
branding activities that utilize social media, our website and
considerable direct marketing activities. As our focus shifts from
the sale of components and standard products to being the partner
for customized solutions, so do our marketing activities shift from
a focus on technical aspects of the components to a focus on best
practice use cases, the overall outcome from our solutions and user
benefit. Our market messaging will look to inspire interest and
engagement.
Sales Model
& Structure. To align the organization to better serve our new
solution strategy and for accountability of
our key corporate objectives, we have made a number of
organizational changes designed to ensure customer satisfaction and
operational efficiency. First, our organizational structure, with
the creation of a product management function, now enables the
close coordination of supply with demand to help us leverage the
expanded capabilities of our offerings and coordinate the
development efforts of our broad portfolio of products. Second, in
June 2020, we hired a Vice President of Global Sales and Marketing
who is transitioning the organization business unit approach to a
unified global direct sales team that is standardized on a problem
solving, needs analysis sales process. In the fall of 2020, our
direct sales team went through Sandler Training to shift their
mindset, empower action and improve communication techniques. Then,
in January 2021, we realigned the sales structure to also include a
global business development function that is responsible for
identifying and developing new customers, new market opportunities
and association networking to evangelize the brand. In August 2021,
we added technical program managers to better support the
transition of our customized customer programs from prototype
engineering to full scale
manufacturing.
Trade Shows. We display our standard products, new innovation
offerings and our overall portfolio of capabilities at a number of
trade shows each year throughout North America, Europe and
Asia. As a result of COVID-19, most of these trade shows
were either cancelled or modified into virtual online exchanges. In
2021, we participated in several
“virtual shows” including Society of Photographic
Instrumentation Engineers Defense and Commercial Sensing and EPIC
Photonics+. In August 2021, we participated in our first
“in-person” event of 2021 as part of AUVSI XPONENTIAL
held in Atlanta, Georgia that focused on the emerging technologies
supporting autonomous vehicles, drome and robotics. In September
2021, we will exhibit “in-person” at the China
International Optoelectronic Expo (“CIOE”) in
Shenzhen. This engagement strategy underscores our directive
of broadening our base of customers for solutions and involvement
with emerging markets. These trade shows, even when virtual, which
we anticipate will be the norm for the remainder of 2021, provide
us an opportunity to further expand our brand, network to enhance
business relationships, and gain valuable insight with technology
trends in addition to target industry
direction.
8
Competition
Engineered Solutions
The market for non-captive optical engineered solutions is
emerging. As companies such as LightPath begin transitioning their
offering from components to engineered solutions, we compete on
several fronts:
●
Engineered solutions
companies. While there are not
many, companies such as Excelitas Technologies Corp. and Jenoptik
AG offer optical engineered solutions to the market, with a
specific focus on solutions in visible and ultraviolet light bands,
and with a vertical industry focus, such as life sciences and
semiconductor systems.
●
Engineering firms.
Though less popular, in some cases
customers prefer to work with engineering firms that provide design
services, which then the customer productes or sub-contracts to
third-party component manufacturers. Example of such companies are
Lighthouse Imaging, LLC, Optikos Corporation, and Photon
Engineering, LLC.
●
In-house or captive
design. The most common
approach today is for customers to design the optical system
internally by the OEM. This requires customers to have expertise in
optical system and component design capabilities, along with
knowledge of the most advanced available technologies, however
limited the scope of their capabilities or the profitability of
their solutions may be.
Our key differentiator is our unique technologies that allow us to
design better solutions.
PMO Product Group. Our PMO products compete with conventional lenses
and optical components manufactured from companies such as Asia
Optical Co., Inc., Anteryon BV, Rochester Precision Optics, and
Sunny Optical Technology (Group) Company Limited. Aspheric lens
system manufacturers include Panasonic Corporation, Alps Electric
Co., Ltd., Hoya Corporation, as well as other competitors from
China and Taiwan, such as E-Pin Optical Industry Co., Ltd., and
Kinik Company.
Our aspheric lenses compete with lens systems comprised of multiple
conventional lenses. Machined aspheric lenses compete with our
molded glass aspheric lenses. The use of aspheric surfaces provides
the optical designer with a powerful tool in correcting spherical
aberrations and enhancing performance in state-of-the-art optical
products. However, we believe that our optical design
expertise and our flexibility in providing custom high-performance
optical components at a low price are key competitive advantages
for us over these competitors. An additional
competitive advantage is our ability to switch production between
different facilities in different continents. We do not depend on
one facility and are able to move production in and out of China,
which creates significant value by guaranteeing continuity of
supply chain and adjusting to customers’ geographical
preferences.
Plastic molded aspheres and hybrid plastic/glass aspheric
optics, on the other hand, allow for high volume production, but
primarily are limited to low-cost consumer products that do not
place a high demand on performance (such as plastic lenses in
disposable or mobile phone cameras). Molded plastic aspheres appear
in products that stress cost or weight as their measure of success
over performance and durability. Our low-cost structure allows
us to compete with these lenses based on higher performance and
durability from our glass lenses at only a small premium in price.
We do not compete in the market for plastic lenses unless a glass
substitution presents a viable alternative.
Infrared Product Group. Our infrared optical components compete with
optical products produced by Janos Technology LLC, Ophir Optronics
Solutions Ltd. (a subsidiary of MKS Instruments, Inc.), Clear
Align, II-VI, Inc. and a variety of Eastern European and Asian
manufacturers. Infrared optical components can be produced using
several techniques. Historically, infrared optical components were
produced only using traditional fabrication technologies, which
later changed when diamond turning was introduced (a form of
advanced CNC for optical materials), and most recently, with the
adoption of synthetic chalcogenide glass, we began to precision
mold infrared optical components, by leveraging our years of
leadership and expertise in precision molding. Being
synthetically produced, chalcogenide glass, such as our proprietary
BD6 material, have an inherently lower cost than crystalline
materials such as Germanium. Additionally, glass such as our BD6
material provides further advantages, including a-thermal behavior,
lower weight, and ability to produce high-volumes through precision
molding, something traditional infrared materials cannot achieve,
due to their crystal structure. In addition to molding lenses
directly into finished form, we also developed and patented a
process to mold large optical elements into near net shape, which
offers a significant cost savings for components that cannot be
produced directly from molding. All of this is related in part to
our choice to vertically integrate, and produce our own
chalcogenide glass, positioning us to create more technical
advantages for our customers, by leveraging and optimizing our
glass manufacturing to produce unique materials and better overall
system performance.
We believe that the market shift towards the use of synthetic
materials in infrared products represents a significant opportunity
for us, and we continue to invest in further pushing the limits of
both molding of infrared components, as well as the glass
manufacturing technology and products. We believe this process will
create significant differentiators and value in this industry
segment, and will further change the dynamics of this industry
segment.
Our molded infrared optics competes with products manufactured by
Umicore N.V. (“Umicore”), Rochester Precision Optics,
and a number of Asian and European manufacturers. We believe that
leadership in glass molding technologies, our vertical integration
by producing our own glass, and our continued investment in
technology development in this area, coupled with our diverse
manufacturing flexibility, and our manufacturing facilities located
in Asia, Europe and North America are key advantages over the
products manufactured by these competitors.
9
Manufacturing
Facilities. Our manufacturing
is largely performed in our combined 38,000 square feet of
production facilities in Orlando, Florida (the “Orlando
Facility”), in LPOIZ’s combined 55,000 square feet of
production facilities in Zhenjiang, China, and in ISP
Latvia’s 23,000 square feet of production facilities in Riga,
Latvia. LPOI sales and support functions occupy a 1,900 square foot
facility in Shanghai.
Our Orlando Facility and LPOIZ’s Zhenjiang Facility feature
areas for each step of the manufacturing process, including coating
work areas, diamond turning, preform manufacturing and a clean room
for precision glass molding and integrated assembly. The Orlando
and Zhenjiang Facilities include new product development
laboratories and space that includes development and metrology
equipment. The Orlando and Zhenjiang Facilities have
anti-reflective and infrared coating equipment to coat our lenses
in-house. ISP Latvia’s Riga Facility includes fully
vertically integrated manufacturing processes to produce high
precision infrared lenses and infrared lens assemblies, including
crystal growth, CNC grinding, conventional polishing, diamond
turning, assemblies and state of the art metrology. During fiscal
2021, we began adding infrared coating capabilities in the Riga
Facility as well.
We are
routinely adding additional production equipment at our Orlando,
Zhenjiang and Riga Facilities. In fiscal 2021, we added additional
space in our Riga Facility, and also executed a lease agreement for
additional space at our Orlando Facility, which we expect to occupy
by late fiscal 2022. In addition to adding additional equipment or
space at our manufacturing facilities, we add additional work
shifts, as needed, to increase capacity and meet forecasted demand.
We intend to monitor the capacity at our facilities, and will
increase such space as needed. We believe our facilities and
planned expansions are adequate to accommodate our needs over the
next year.
Production and Equipment. Our Orlando Facility contains glass melting
capability for BD6 chalcogenide glass, a manufacturing area for our
molded glass aspheres, multiple anti-reflective and wear resistant
coating chambers, diamond turning machines and accompanying
metrology equipment offering full scale diamond turning lens
capability, a tooling and machine shop to support new product
development, commercial production requirements for our machined
parts, the fabrication of proprietary precision glass molding
machines and mold equipment, and a clean room for our molding and
assembly workstations and related metrology
equipment.
LPOIZ’s Zhenjiang Facility features precision glass molding
manufacturing area, clean room, machine shop, dicing area, and thin
film coating chambers for anti-reflective coatings on both visible
and infrared optics and related metrology equipment.
ISP Latvia’s Riga Facility consists of crystal growth,
grinding, polishing, diamond turning, quality control departments
and a mechanical shop to provide the departments with the necessary
tooling. The crystal growth department is equipped with multiple
furnaces to grow water soluble crystals. The grind and polish
department has modern CNC equipment, lens centering and
conventional equipment to perform spindle, double sided and
continuous polishing operations. The diamond turning department has
numerous diamond turning machines accompanied with the latest
metrology tools. During fiscal 2021, we began adding infrared
coating capabilities at the Riga Facility. The quality control
department contains numerous inspection stations with various
equipment to perform optical testing of finished
optics.
The Orlando, Zhenjiang, and Riga Facilities are ISO 9001:2015
certified. The Zhenjiang Facility is also ISO/TS 1649:2009
automotive certified for manufacturing of optical lenses and
accessories. The Orlando Facility is International Traffic in Arms
Regulations (“ITAR”) compliant and registered with the
U.S. Department of State. The Riga Facility has a DSP-5 ITAR
license and Technical Assistance Agreement in place that allows
this facility to manufacture items with ITAR
requirements.
For more information regarding our facilities, please see
Item 2.
Properties in this Annual
Report on Form 10-K.
Subcontractors and Strategic Alliances. We
believe that low-cost manufacturing is crucial to our long-term
success. In that regard, we generally use subcontractors in our
production process to accomplish certain processing steps requiring
specialized capabilities. For example, we presently use a number of
qualified subcontractors for fabricating, polishing, and coating
certain lenses, as necessary. We have taken steps to protect our
proprietary methods of repeatable high-quality manufacturing by
patent disclosures and internal trade secret
controls.
Suppliers.
We utilize a number of
glass compositions in manufacturing our molded glass aspheres and
lens array products. These glasses or equivalents are
available from a large number of suppliers, including CDGM Glass
Company Ltd., Ohara Corporation, and Sumita Optical Glass, Inc.
Base optical materials, used in both infrared glass and collimator
products, are manufactured and supplied by a number of optical and
glass manufacturers. ISP utilizes major infrared material suppliers
located around the globe for a broad spectrum of infrared crystal
and glass. The development of our manufacturing capability for BD6
glass provides a low-cost internal source for infrared glass. We
believe that a satisfactory supply of such production materials
will continue to be available, at reasonable or, in some cases,
increased prices, although there can be no assurance in this
regard.
10
We also rely on local and regional vendors for component materials
and services such as housings, fixtures, chemicals and inert gases,
specialty ceramics, UV and AR coatings, and other specialty
coatings. In addition, certain products require external
processing, such as anodizing and metallization. To date, we are
not dependent on any of these manufacturers and have found a
suitable number of qualified vendors and suppliers for these
materials and services.
We currently purchase a few key materials from single or limited
sources. We believe that a satisfactory supply of production
materials will continue to be available at competitive prices,
although there can be no assurance in this regard.
Intellectual Property
Our policy is to protect our technology by, among other things,
patents, trade secret protection, trademarks, and copyrights. We
primarily rely upon trade secrets and unpatented proprietary
know-how to protect certain process inventions, lens designs, and
innovations. We have taken security measures to protect our trade
secrets and proprietary know-how, to the extent that is
reasonable.
We are aggressively pursuing patents for new products that provide
new features, capabilities or other advantages to our customers.
Over the past two years, we have been granted two new patents. We
also have three remaining patents that relate to the fusing of
certain of our lenses that are part of our specialty products
group. These patents expire at various times through 2023. Since
January 2021, we have also submitted three new disclosures of
invention.
Our means of protecting our proprietary rights may not be adequate
and our competitors may independently develop technology or
products that are similar to ours or that compete with ours.
Patent, trademark, and trade secret laws afford only limited
protection for our technology and products. The laws of many
countries do not protect our proprietary rights to as great an
extent as do the laws of the U.S. Despite our efforts to protect
our proprietary rights, unauthorized parties may attempt to obtain
and use information that we regard as proprietary. Third parties
may also design around our proprietary rights, which may render our
protected technology and products less valuable, if the design
around is favorably received in the marketplace. In addition, if
any of our products or technology is covered by third-party patents
or other intellectual property rights, we could be subject to
various legal actions. We cannot assure you that our technology
platform and products do not infringe patents held by others or
that they will not in the future. Litigation may be necessary to
enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary
rights of others, or to defend against claims of infringement,
invalidity, misappropriation, or other claims.
We own several registered and unregistered service marks and
trademarks that are used in the marketing and sale of our products.
The following table sets forth our registered and unregistered
service marks and trademarks, if registered, the country in which
the mark is filed, and the renewal date for such mark.
|
Mark
|
Type
|
Registered
|
Country
|
Renewal
Date
|
|
LightPath®
|
Service mark
|
Yes
|
United States
|
October 22, 2022
|
|
GRADIUM™
|
Trademark
|
Yes
|
United States
|
April 29, 2027
|
|
Circulight
|
Trademark
|
No
|
-
|
-
|
|
BLACK DIAMOND
|
Trademark
|
No
|
-
|
-
|
|
GelTech
|
Trademark
|
No
|
-
|
-
|
|
Oasis
|
Trademark
|
No
|
-
|
-
|
|
LightPath®
|
Service mark
|
Yes
|
People’s Republic of China
|
September 13, 2025
|
|
ISP Optics®
|
Trademark
|
Yes
|
United States
|
August 12, 2022
|
11
Environmental and Governmental Regulation
Currently, emissions and waste from our manufacturing processes are
at such low levels that no special environmental permits or
licenses are required. In the future, we may need to obtain special
permits for disposal of increased waste by-products. The glass
materials we utilize contain some toxic elements in a stabilized
molecular form. However, the high temperature diffusion process
results in low-level emissions of such elements in gaseous form. If
production reaches a certain level, we believe that we will be able
to efficiently recycle certain of our raw material waste, thereby
reducing disposal levels. We believe that we are presently in
compliance with all material federal, state, and local laws and
regulations governing our operations and have obtained all material
licenses and permits necessary for the operation of our
business.
We also utilize certain chemicals, solvents, and adhesives in our
manufacturing process. We believe we maintain all necessary permits
and are in full compliance with all applicable
regulations.
To our knowledge, there are currently no U.S. federal, state, or
local regulations that restrict the manufacturing and distribution
of our products. Certain end-user applications require government
approval of the complete optical system, such as U.S. Food and Drug
Administration approval for use in endoscopy. In these cases, we
will generally be involved on a secondary level and our OEM
customer will be responsible for the license and approval
process.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
imposes disclosure requirements regarding the use of
“conflict minerals” mined from the Democratic Republic
of Congo and adjoining countries in products, whether or not these
products are manufactured by third parties. The conflict minerals
include tin, tantalum, tungsten, and gold, and their derivatives.
Pursuant to these requirements, we are required to report on Form
SD the procedures we employ to determine the sourcing of such
minerals and metals produced from those minerals. There are costs
associated with complying with these disclosure requirements,
including for diligence in regards to the sources of any conflict
minerals used in our products, in addition to the cost of
remediation and other changes to products, processes, or sources of
supply as a consequence of such verification activities. In
addition, the implementation of these rules could adversely affect
the sourcing, supply, and pricing of materials used in our
products. We strive to only use suppliers that source from
conflict-free smelters and refiners; however, in the future, we may
face difficulties in gathering information regarding our suppliers
and the source of any such conflict minerals.
In fiscal 2021, we had sales to three customers that comprised an
aggregate of approximately 38% of our annual revenue with one
customer at 18% of our sales, another customer at 10% of our sales,
and the third customer at 10% of our sales. In fiscal 2020, we had
sales to three customers that comprised an aggregate of
approximately 31% of our annual revenue with one customer at 15% of
our sales, another customer at 10% of our sales, and the third
customer at 6% of our sales. The loss of any of these customers, or
a significant reduction in sales to any such customer, would
adversely affect our revenues and profits. We continue to diversify
our business in order to minimize our sales concentration
risk.
In fiscal 2021, 68% of our net revenue was derived from sales
outside of the U.S., with 95% of our foreign sales derived from
customers in Europe and Asia. In fiscal 2020, 66% of our net
revenue was derived from sales outside of the U.S., with 96% of our
foreign sales derived from customers in Europe and
Asia.
12
Employees
As of June 30, 2021, we had 361 employees, of which 353 were
full-time equivalent employees, with 122 in the U.S., including 119
located in Orlando, Florida and 3 working remotely from various
locations, 101 located in Riga, Latvia, and 138 located in Jiading
and Zhenjiang, China. Of our 353 full-time equivalent employees, we
have 28 employees engaged in management, administrative, and
clerical functions, 35 employees in new product development, 13
employees in sales and marketing, and 277 employees in production
and quality control functions. Any employee additions or
terminations over the next twelve months will be dependent upon the
actual sales levels realized during fiscal 2022. We have used and
will continue utilizing part-time help, including interns,
temporary employment agencies, and outside consultants, where
appropriate, to qualify prospective employees and to ramp up
production as required from time to time. Our employees working in
China are represented by a labor union.
Item 1A. Risk
Factors.
The
following is a discussion of the primary factors that may affect
the operations and/or financial performance of our business. Refer
to the section entitled Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations of this Annual Report on Form 10-K
for an additional discussion of these and other related factors
that affect our operations and/or financial
performance.
Risks Related to Our Business and Financial Results
Our business, results of operations, financial condition, cash
flows, and the stock price of our Class A common stock can be
adversely affected by pandemics, epidemics, or other public health
emergencies, such as the recent outbreak of COVID-19. Our
business, results of operations financial condition, cash flows,
and the stock price of our Class A common stock can be adversely
affected by pandemics, epidemics, or other public health
emergencies, such as the recent global outbreak of COVID-19. In
March 2020, the World Health Organization (the “WHO”)
declared COVID-19 as a pandemic. The COVID-19 pandemic resulted in
governments around the world implementing measures to help control
the spread of the virus, including “stay at home”
orders, travel restrictions, business curtailments, school
closures, and other measures. These restrictions significantly
impacted economic conditions in the U.S. in 2020 and continued into
2021. Beginning in the spring of 2021, we have seen some
restrictions lift as vaccines have become more
available.
We are
considered an “essential business,” as a critical
supplier to both the medical and defense industries. To date, we
have continued to operate our manufacturing facilities consistent
with government guidelines and state and local orders; however, the
outbreak of COVID-19 and any preventive or protective actions taken
by governmental authorities may have a material adverse effect on
our operations, supply chain, customers, and transportation
networks, including business shutdown or disruptions. The extent to
which COVID-19 may adversely impact our business depends on future
developments, which are highly uncertain and unpredictable, depends
upon the severity and duration of the outbreak and the
effectiveness of actions taken globally to contain or mitigate its
effect. Any resulting financial impact cannot be estimated
reasonably at this time, but may materially adversely affect our
business, results of operations, financial condition, and cash
flows. Even after the COVID-19 pandemic has subsided, we may
experience materially adverse impacts to our business due to any
resulting economic recession or depression. Additionally, concerns
over the economic impact of COVID-19 have caused extreme volatility
in financial and other capital markets, which has and may continue
to adversely impact our stock price and our ability to access
capital markets. To the extent the COVID-19 pandemic may adversely
affect our business and financial results, it may also have the
effect of heightening many of the other risks described in this
Annual Report on Form 10-K.
We have a history of losses. We reported a net loss of $3.2
million for fiscal 2021, and although we reported net income of
$0.9 million for fiscal 2020, we incurred a net loss of $2.7
million for fiscal 2019. Prior to fiscal 2019, we reported net
income of $1.1 million and $7.7 million for fiscal 2018 and 2017,
respectively, but we have a history of losses prior to fiscal 2016.
As of June 30, 2021, we had an accumulated deficit of approximately
$200.2 million. We may incur losses in the future if we do not
achieve sufficient revenue to maintain profitability, or if we
continue to incur unusual costs. We expect revenue to grow by
generating additional sales through promotion of our infrared
products and continued cost reduction efforts across all product
groups, but we cannot guarantee such improvement or
growth.
Factors
which could adversely affect our future profitability, include, but
are not limited to, a decline in revenue either due to lower sales
unit volumes or decreasing selling prices, or both, our ability to
order supplies from vendors, which, in turn, affects our ability to
manufacture our products, and slow payments from our customers on
accounts receivable.
Any
failure to maintain profitability would have a materially adverse
effect on our ability to implement our business plan, our results
and operations, and our financial condition, and could cause the
value of our Class A common stock to decline.
13
We are dependent on a few key customers, and the loss of any key
customer could cause a significant decline in our
revenues. In fiscal 2021,
we had sales to three customers that
comprised an aggregate of approximately 38% of our annual revenue,
with one customer at 18% of our sales, another customer at 10% of
our sales, and the third customer at 10% of our sales. We believe
the third customer has lost a significant bid that could affect our
sales in the next two quarters. In fiscal 2020, we had sales to
three customers that comprised an aggregate of approximately 31% of
our annual revenue with one customer at 15% of our sales, another
customer at 10% of our sales, and the third customer at 6% of our
sales. Our current strategy of providing the domain
expertise and the extensive “know how” in optical
design, fabrication, production and testing technologies will allow
our customers to focus on their own development efforts, without
needing to develop subject matter expertise in optics. By providing
the bridge into the optical solution world, we partner with our
customers on a long term basis, create value to our customers, and
capture that value through the long-term supply relationships we
develop. However the loss of any of these customers, or a
significant reduction in sales to any such customer, would
adversely affect our revenues.
We may be affected by political and other risks as a result of our
sales to international customers and/or our sourcing of materials
from international suppliers.
In fiscal 2021, 68% of our net revenue
was derived from sales outside of the U.S., with 95% of our foreign
sales derived from customers in Europe and Asia. In fiscal 2020,
66% of our net revenue was derived from sales outside of the U.S.,
with 96% of our foreign sales derived from customers in Europe and
Asia. Our international sales will be limited, and may even
decline, if we cannot establish relationships with new
international distributors, maintain relationships with our
existing international distributions, maintain and expand our
foreign operations, expand international sales, and develop
relationships with international service providers. Additionally,
our international sales may be adversely affected if international
economies weaken. We are subject to the following risks, among
others:
● greater difficulty
in accounts receivable collection and longer collection
periods;
● potentially
different pricing environments and longer sales
cycles;
● the impact of
recessions in economies outside the U.S.;
● unexpected changes
in foreign regulatory requirements;
● the burdens of
complying with a wide variety of foreign laws and different legal
standards;
● certification
requirements;
● reduced protection
for intellectual property rights in some countries;
●
difficulties in
managing the staffing of international operations, including labor
unrest and current and changing regulatory
environments;
●
potentially adverse
tax consequences, including the complexities of foreign value-added
tax systems, restrictions on the repatriation of earnings, and
changes in tax rates;
● price controls and
exchange controls;
● government
embargoes or foreign trade restrictions;
● imposition of
duties and tariffs and other trade barriers;
● import and export
controls;
● transportation
delays and interruptions;
● terrorist attacks
and security concerns in general; and
● political, social,
economic instability and disruptions.
14
As a U.S. corporation with international operations, we are subject
to the U.S. Foreign Corrupt Practices Act and other similar foreign
anti-corruption laws, as well as other laws governing our
operations. If we fail to comply with these laws, we could be
subject to civil or criminal penalties, other remedial measures,
and legal expenses, which could adversely affect our business,
financial condition, and results of operations. Our operations are subject to anti-corruption
laws, including the U.S. Foreign Corrupt Practices Act
(“FCPA”), and other foreign anti-corruption laws that
apply in countries where we do business. The FCPA and these other
laws generally prohibit us and our employees and intermediaries
from offering, promising, authorizing or making payments to
government officials or other persons to obtain or retain business
or gain some other business advantage. In addition, we cannot
predict the nature, scope, or effect of future regulatory
requirements to which our international operations might be subject
or the manner in which existing laws might be administered or
interpreted. Operations outside of the U.S. may be affected
by changes in trade production laws, policies, and measures, and
other regulatory requirements affecting trade and
investment.
We are also subject to other laws and regulations governing our
international operations, including regulations administered by the
U.S. Department of Commerce’s Bureau of Industry and
Security, the U.S. Department of Treasury’s Office of Foreign
Asset Control, and various non-U.S. government entities, including
applicable export control regulations, economic sanctions on
countries and persons, customs, requirements, currency exchange
regulations, and transfer pricing regulations (collectively, the
“Trade Control Laws”).
Despite our compliance programs, there can be no assurance that we
will be completely effective in ensuring our compliance with all
applicable anti-corruption laws, including the FCPA or other legal
requirements, or Trade Control Laws. If we are not in compliance
with the FCPA and other foreign anti-corruption laws or Trade
Control Laws, we may be subject to criminal and civil penalties,
disgorgement, and other sanctions and remedial measures, and legal
expenses, which could have an adverse impact on our business,
financial condition, results of operations and liquidity. Likewise,
any investigation of any potential violations of the FCPA, other
anti-corruption laws, or Trade Control Laws by the U.S. or foreign
authorities could also have an adverse impact on our reputation,
business, financial condition, and results of
operations.
If the custodians or authorized users of our controlling
non-tangible assets, including corporate chops and seals of
our Chinese subsidiaries, fail to fulfill their responsibilities or
misappropriate or misuse those assets, our business and operations
could be materially and adversely affected. In China, a company chop or seal serves as the
legal representation of the company towards third parties even when
unaccompanied by a signature. Under law of the People’s
Republic of China, legal documents for corporate transactions,
including contracts and leases that our business relies upon, are
executed using “corporate chops,” which are instruments
that contain either the official seal of the signing entity or the
signature of a legal representative whose designation is registered
and filed with the State Administration for Industry and Commerce,
or SAIC.
Our Chinese subsidiaries, LPOI and LPOIZ, generally execute legal
documents with corporate chops. One or more of our corporate chops
may be used to, among other things, execute commercial sales or
purchase contracts, procurement contracts and office leases, open
bank accounts, issue checks and to issue invoices. We have controls
in place over access to and use of the chops. However, we
cannot assure you that unauthorized access to or use of those chops
can be prevented. Our designated employees who hold the corporate
chops could abuse their authority by, for example, binding us to
contracts against our interests or intentions, which could result
in economic harm, disruption or our operations or other damages to
them as a result of any contractual obligations, or resulting
disputes, that might arise. If the party contracting with us
asserted that we did not act in good faith under such
circumstances, then we could incur costs to nullify such contracts.
Such corporate or legal action could involve significant time and
resources, while distracting management from our operations. In
addition, we may not be able to recover corporate assets that are
sold or transferred out of our control in the event of such a
misappropriation if a transferee relies on the apparent authority
of the representative and acts in good faith.
If a designated employee uses a chop in an effort to obtain control
over one or more of our Chinese subsidiaries, we would need to take
legal action to seek the return of the applicable chop(s), apply
for a new chop(s) with the relevant authorities, or otherwise seek
legal redress for the violation of their duties. During any period
where we lose effective control of the corporate activities of one
or more of our Chinese subsidiaries as a result of such misuse or
misappropriation, the business activities of the affected entity
could be disrupted and we could lose the economic benefits of that
aspect of our business. To the extent those chops are stolen or are
used by unauthorized persons or for unauthorized purposes, the
corporate governance of these entities could be severely and
adversely compromised and the operations of those entities could be
significantly and adversely impacted.
International tariffs, including tariffs applied to goods traded
between the U.S. and China, could materially and adversely affect
our business and results of operations. In recent years, the U.S. government took
certain actions that led to, and may lead to, further changes to
U.S. and international trade policies, including the imposition of
tariffs affecting certain products exported by a number of U.S.
trading partners, including China. The institution of trade tariffs
both globally and between the U.S. and China specifically carries
the risk of negatively impacting China’s overall economic
condition, which could have negative repercussions for us.
Furthermore, imposition of tariffs could cause a decrease in the
sales of our products to customers located in China or other
customers selling to Chinese end users, which would directly impact
our business.
15
It remains unclear how tax or trade policies, tariffs, or trade
relations may change or evolve under the new U.S. Presidential
Administration. Perceived or actual changes in U.S. trade policy
could trigger retaliatory actions by affected countries, which
could impose restrictions on our ability to do business in or with
affected countries or prohibit, reduce, or discourage purchases of
our products by foreign customers, leading to increased costs of
products that contain our components, increased costs of
manufacturing our products, and higher prices of our products in
foreign markets. Changes in, and responses to, U.S. trade policy
could reduce the competitiveness of our products and cause our
sales and revenues to drop, which could materially and adversely
impact our business and results of operations.
Tariffs had a negative impact on our cost of sales beginning late
in fiscal 2019. As a result, we implemented a number of strategies
to mitigate the current and, hopefully, future impact of tariffs.
These strategies mitigated the impact of tariffs beginning in the
second quarter of fiscal 2020 and continued through fiscal 2021.
However, given the uncertainty regarding the scope and duration of
the effective and proposed tariffs, as well as the potential for
additional trade actions by the U.S. or other countries in the
future, any future impact on our operations and financial results
is uncertain and these impacts could be more significant than those
we experienced in fiscal 2020. Further, we can provide no assurance
that the strategies we implemented to mitigate the impact of such
tariffs or other trade actions will continue to be successful. To
the extent that our supply chain, costs, sales, or profitability
are negatively affected by the tariffs or other trade actions, our
business, financial condition, and results of operations may be
materially adversely affected.
Our future growth is partially dependent on our market penetration
efforts. Our future growth
is partially dependent on our market penetration efforts, which
include diversifying our sales and offering to provide complete
optical solutions such as assemblies to existing and other markets.
While we believe we are able to provide such engineered solutions,
we anticipate the need to gain the customer’s trust in
providing more than the optical component, a process that can
sometimes take months, if not years. Expansion of our product lines
and sales into new markets will require significant investment in
equipment, facilities, and materials. There can be no assurance
that any proposed products will be successfully developed,
demonstrate desirable optical performance, be capable of being
produced in commercial quantities at reasonable costs, or be
successfully marketed.
We rely, in large part, on key business and sales relationships for
the successful commercialization of our products, which, if not
developed or maintained, will have an adverse impact on achieving
market awareness and acceptance and will result in a loss of
business opportunities. To achieve wide market awareness and
acceptance of our products and technologies, as part of our
business strategy, we will attempt to enter into a variety of
business relationships with other companies that will incorporate
our technologies into their products and/or market products based
on our technologies. The successful commercialization of our
products and technologies will depend in part on our ability to
meet obligations under contracts with respect to the products and
related development requirements. The failure of these business
relationships will limit the commercialization of our products and
technologies, which will have an adverse impact on our business
development and our ability to generate revenues.
If we do not expand our sales and marketing organization, our
revenues may not increase. The sale of our products requires
prolonged sales and marketing efforts targeted at several key
departments within our prospective customers’ organizations
and often involves our executives, personnel, and specialized
systems and applications engineers working together. Currently, our
direct sales and marketing organization is somewhat limited. We
believe we will need to continue to strengthen our sales and
marketing organization in order to increase market awareness and
sales of our products. There is significant competition for
qualified personnel, and we might not be able to hire the kind and
number of sales and marketing personnel and applications engineers
we need. If we are unable to continue to expand our sales
operations globally, we may not be able to continue to increase
market awareness or sales of our products, which would adversely
affect our revenues, results of operations, and financial
condition.
If we are unable to develop and successfully introduce new and
enhanced products that meet the needs of our customers, our
business may not be successful. Our future success depends,
in part, on our ability to anticipate our customers’ needs
and develop products that address those needs. Introduction of new
products and product enhancements will require that we effectively
transfer production processes from research and development to
manufacturing, and coordinate our efforts with the efforts of our
suppliers to rapidly achieve efficient volume production. If we
fail to effectively transfer production processes, develop product
enhancements, or introduce new products that meet the needs of our
customers as scheduled, our net revenues may decline, which would
adversely affect our results of operations and financial
condition.
If we are unable to effectively compete, our business and operating
results could be negatively affected. We face substantial
competition in the optical markets in which we operate. Many of our
competitors are large public and private companies that have longer
operating histories and significantly greater financial, technical,
marketing, and other resources than we have. As a result, these
competitors are able to devote greater resources than we can to the
development, promotion, sale, and support of their products. In
addition, the market capitalization and cash reserves of several of
our competitors are much larger than ours, and, as a result, these
competitors are better positioned than we are to exploit markets,
develop new technologies, and acquire other companies in order to
gain new technologies or products. We also compete with
manufacturers of conventional spherical lens products and
aspherical lens products, producers of optical quality glass, and
other developers of gradient lens technology, as well as
telecommunications product manufacturers. In both the optical lens
and communications markets, we are competing against, among others,
established international companies, especially in Asia. Many of
these companies also are primary customers for optical and
communication components, and, therefore, have significant control
over certain markets for our products. There can be no assurance
that existing or new competitors will not develop technologies that
are superior to or more commercially acceptable than our existing
and planned technologies and products or that competition in our
industry will not lead to reduced prices for our products. If we
are unable to successfully compete with existing companies and new
entrants to the markets we compete in, our business, results of
operations, and financial condition could be adversely
affected.
16
We anticipate further reductions in the average selling prices of
some of our products over time, and, therefore, must increase our
sales volumes, reduce our costs, and/or introduce higher margin
products to reach and maintain consistent profitable
results. We have experienced decreases in the average
selling prices of some of our products over the last ten years,
including most of our passive component products. We anticipate
that as certain products in the optical component and module market
become more commodity-like, the average selling prices of our
products will decrease in response to competitive pricing
pressures, new product introductions by us or our competitors, or
other factors. We attempt to offset anticipated decreases in our
average selling prices by increasing our sales volumes and/or
changing our product mix. If we are unable to offset anticipated
future decreases in our average selling prices by increasing our
sales volumes or changing our product mix, our net revenues and
gross margins will decline, increasing the projected cash needed to
fund operations. To address these pricing pressures, we must
develop and introduce new products and product enhancements that
will generate higher margins, continue to reduce costs, and/or
change our product mix in order to generate higher margins. If we
cannot maintain or improve our gross margins, our financial
position, and results of operations may be
harmed.
Because of our limited product offerings, our ability to generate
additional revenues may be limited without additional
growth. We organized our
business based on three product groups: PMOs, infrared products,
and specialty products. In fiscal 2021, sales of PMO products
represented approximately 41% of our net revenues, sales of
infrared products represented approximately 55% of our net
revenues, and sales of specialty products represented 4% of our
revenues. In the future, we expect growth in both our PMO and
infrared product groups. Continued and expanding market acceptance
of these products, particularly our BD6-based infrared products, is
critical to our future success. There can be no assurance that our
current or new products will achieve market acceptance at the rate
at which we expect, or at all, which could adversely affect our
results of operations and financial condition.
We may need additional capital to sustain our operations in the
future, and may need to seek further financing, which we may not be
able to obtain on acceptable terms or at all, which could affect
our ability to implement our business strategies. We have
limited capital resources. Our operations have historically been
largely funded from the proceeds of equity financings with some
level of debt financing as well as cash flow from operations. In
recent years we have generated sufficient capital to fund our
operations and necessary investments. Accordingly, in future years,
we anticipate only requiring additional capital to support
acquisitions that would further expand our business and product
lines. We may not be able to obtain additional financing when we
need it on terms acceptable to us, or at all.
Our
future capital needs will depend on numerous factors including: (i)
profitability; (ii) the release of competitive products by our
competition; (iii) the level of our investment in research and
development; and (iv) the amount of our capital expenditures,
including equipment and acquisitions. We cannot assure you that we
will be able to obtain capital in the future to meet our needs. If
we are unable to raise capital when needed, our business, financial
condition, and results of operations would be materially adversely
affected, and we could be forced to reduce or discontinue our
operations.
Litigation may adversely affect our business, financial condition,
and results of operations. From time to time in the normal
course of business operations, we may become subject to litigation
that may result in liability material to our financial statements
as a whole or may negatively affect our operating results if
changes to our business operations are required. The cost to defend
such litigation may be significant and is subject to inherent
uncertainties. Insurance may not be available at all or in
sufficient amounts to cover any liabilities with respect to these
or other matters. There also may be adverse publicity with
litigation that could negatively affect customer perception of our
business, regardless of whether the allegations are valid or
whether we are ultimately found liable. An adverse result in any
such matter could adversely impact our operating results or
financial condition. Additionally, any litigation to which we are
subject could also require significant involvement of our senior
management and may divert management’s attention from our
business and operations.
We are exposed to fluctuations in currency exchange rates that
could negatively impact our financial results and cash
flows. We execute all foreign sales from our U.S.-based
facilities and inter-company transactions in U.S. dollars in order
to partially mitigate the impact of foreign currency fluctuations.
However, a portion of our international revenues and expenses are
denominated in foreign currencies. Accordingly, we experience the
risks of fluctuating currencies and corresponding exchange rates.
In fiscal years 2021 and 2020, we
recognized net losses of approximately $1,000 and $214,000 on
foreign currency transactions, respectively. Any such
fluctuations that result in a less favorable exchange rate could
adversely affect a portion of our revenues and expenses, which
could negatively impact our results of operations and financial
condition.
We also
source certain raw materials from outside the U.S. Some of those
materials, priced in non-dollar currencies, fluctuate in price due
to the value of the U.S. dollar against non-dollar-pegged
currencies, especially the Euro and Renminbi. As the dollar
strengthens, this increases our margins and helps with our ability
to reach positive cash flow and profitability. If the strength of
the U.S. dollar decreases, the cost of foreign sourced materials
could increase, which would adversely affect our financial
condition and results of operations. If the Euro or Renminbi
currencies were to trend unfavorably against the U.S. dollar on a
long-term basis, then we would seek to rebalance our strategic
materials sourcing.
17
A significant portion of our cash is generated and held outside of
the U.S. The risks of maintaining significant cash abroad could
adversely affect our cash flows and financial results.
During fiscal 2021, greater than 50%
of our cash was held abroad. Historically, we generally considered
unremitted earnings of our subsidiaries operating outside of the
U.S. to be indefinitely reinvested. During fiscal 2020, we began
declaring intercompany dividends to remit a portion of the earnings
of our foreign subsidiaries to us. Remaining cash held outside of
the U.S. is primarily used for the ongoing operations of the
business in the locations in which the cash is held. Certain
countries, such as China, have monetary laws that limit our ability
to utilize cash resources in China for operations in other
countries. Before any funds can be repatriated, the retained
earnings of the legal entity must equal at least 50% of its
registered capital. Based on retained earnings as of December 31,
2020, the end of the most recent statutory tax year, LPOIZ had
approximately $5.6 million available for repatriation and LPOI did
not have any earnings available for repatriation. This limitation
may affect our ability to fully utilize our cash resources for
needs in the U.S. or other countries and may adversely affect our
liquidity. Further, since repatriation of such cash is subject to
limitations and may be subject to significant taxation, we cannot
be certain that we will be able to repatriate such cash on
favorable terms or in a timely manner. If we incur operating losses
and/or require cash that is held in international accounts for use
in our operations based in the U.S., a failure to repatriate such
cash in a timely and cost-effective manner could adversely affect
our business and financial results.
Our business may be materially affected by changes to fiscal and
tax policies. Potentially negative or unexpected tax consequences
of these policies, or the uncertainty surrounding their potential
effects, could adversely affect our results of operations and the
price of our Class A common stock. The U.S. Tax Cuts and Jobs Act of 2017 (the
“TCJA”) was approved by the U.S. Congress on December
20, 2017 and signed into law on December 22, 2017. This legislation
made significant changes to the U.S. Internal Revenue Code of 1986,
as amended (the “IRC”). Such changes include a
reduction in the corporate tax rate from 35% to 21%,
limitation
on the deductibility of interest expense and performance-based
incentive compensation, and implementation of a modified
territorial tax system, including a provision that requires
companies to include their
global
intangible low-taxed income and its effect on our U.S. taxable
income (effectively, non-U.S. income in excess of a deemed return
on tangible assets of non-U.S. corporations), among other changes.
In addition, the TCJA requires complex computations to be performed
that were not previously required in U.S. tax law, significant
judgments to be made in interpretation of the provisions of the
TCJA and significant estimates in calculations, and the preparation
and analysis of information not previously relevant or regularly
produced. Implementation of the TCJA required us to calculate a
one-time transition tax on certain foreign earnings and profits
(“foreign E&P”) that had not been previously
repatriated. During fiscal 2018, we provisionally determined our
foreign E&P inclusion, and anticipated that we would not owe
any one-time transition tax due to the utilization of U.S. net
operating loss (“NOL”) carryforward benefits against
these earnings. During fiscal 2019, we completed our analysis of
the TCJA, and although we did not owe any one-time transition tax,
the deferred tax asset related to our NOL carryforwards decreased
by approximately $202,000. This amount is offset by our valuation
allowance for a net impact of zero to our income tax
provision.
The TCJA may also impact our repatriation strategies in the future.
Foreign governments may enact tax laws in response to the TCJA that
could result in further changes to global taxation and materially
affect our financial position and results of operations. The
uncertainty surrounding the effect of the reforms on our financial
results and business could also weaken confidence among investors
in our financial condition. This could, in turn, have a materially
adverse effect on the price of our Class A common
stock.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security Act (the “CARES Act”) was signed into law,
which, among other things, is intended to provide emergency
assistance to qualifying businesses and individuals. The CARES Act
also suspends the limitation on the deduction of NOLs arising in
taxable years beginning before January 1, 2021, permits a five-year
carryback of NOLs arising in taxable years beginning after December
31, 2017 and before January 1, 2021, and generally modifies the
limitation on the deduction for net interest expense to 50% of
adjusted taxable income for taxable years beginning in 2019 and
2020. During fiscal 2020, as a result of the CARES Act, the Company
was able to accelerate the recovery of an income tax receivable
related to previously paid alternative minimum tax. The receivable
amount of approximately $107,000 as of June 30, 2020 was collected
in July 2020. In addition, the Company elected to utilize the
payroll tax deferral under the CARES Act, resulting in cash savings
of approximately $325,000, accrued as of June 30, 2021 and deferred
until at least December 31, 2021. While we may receive further
financial, tax, or other relief and other benefits under and as a
result of the CARES Act, it is not possible to estimate at this
time the availability, extent, or impact of any such
relief.
Further, our worldwide operations subject us to the jurisdiction of
a number of taxing authorities. The income earned in these various
jurisdictions is taxed on differing basis, including net income
actually earned, net income deemed earned, and revenue-based tax
withholding. The final determination of our income tax liabilities
involves the interpretation of local tax laws, tax treaties, and
related authorities in each jurisdiction, as well as the use of
estimates and assumptions regarding the scope of future operations
and results achieved and the timing and nature of income earned and
expenditures incurred. Changes in or interpretations of tax law and
currency/repatriation control could impact the determination of our
income tax liabilities for a tax year, which, in turn, could have a
materially adverse effect on our financial condition and results of
operations. For example, President Biden has proposed various
changes to existing U.S. tax laws, including increasing the
corporate income tax rate and increasing the income tax rate on
certain earnings of foreign subsidiaries, which if enacted could
have a material impact on our business, results of operations,
financial condition, and cash flows.
18
Our future success depends on our key executive officers and our
ability to attract, retain, and motivate qualified
personnel. Our future success largely depends upon the
continued services of our key executive officers, management team,
and other engineering, sales, marketing, manufacturing, and support
personnel. If one or more of our key employees are unable or
unwilling to continue in their present positions, we may not be
able to replace them readily, if at all. Additionally, we may incur
additional expenses to recruit and retain new key employees. If any
of our key employees joins a competitor or forms a competing
company, we may lose some or a significant portion of our
customers. Because of these factors, the loss of the services of
any of these key employees could adversely affect our business,
financial condition, and results of operations.
Our
continuing ability to attract and retain highly qualified personnel
will also be critical to our success because we will need to hire
and retain additional personnel to support our business strategy.
We expect to continue to hire selectively in the manufacturing,
engineering, sales and marketing, and administrative functions to
the extent consistent with our business levels and to further our
business strategy. We face significant competition for skilled
personnel in our industry. This competition may make it more
difficult and expensive to attract, hire, and retain qualified
managers and employees. Because of these factors, we may not be
able to effectively manage or grow our business, which could
adversely affect our financial condition or business.
We depend on single or limited source suppliers for some of the key
materials or process steps in our products, making us susceptible
to supply shortages, poor performance, or price
fluctuations. We currently purchase several key materials,
or have outside vendors perform process steps, such as lens
coatings, used in or during the manufacture of our products from
single or limited source suppliers. We may fail to obtain required
materials or services in a timely manner in the future, or could
experience delays as a result of evaluating and testing the
products or services of potential alternative suppliers. The
decline in demand in the telecommunications equipment industry may
have adversely impacted the financial condition of certain of our
suppliers, some of whom have limited financial resources. We have
in the past, and may in the future, be required to provide advance
payments in order to secure key materials from financially limited
suppliers. Financial or other difficulties faced by these suppliers
could limit the availability of key components or materials. For
example, increasing labor costs in China has increased the risk of
bankruptcy for suppliers with operations in China, and has led to
higher manufacturing costs for us and the need to identify
alternate suppliers. Additionally, financial difficulties could
impair our ability to recover advances made to these suppliers. Any
interruption or delay in the supply of any of these materials or
services, or the inability to obtain these materials or services
from alternate sources at acceptable prices and within a reasonable
amount of time, would impair our ability to meet scheduled product
deliveries to our customers and could cause customers to cancel
orders, thereby negatively affecting our business, financial
condition, and results of operation.
We face product liability risks, which could adversely affect our
business. The sale of our
optical products involves the inherent risk of product liability
claims by others. We do not currently maintain product liability
insurance coverage. Product liability insurance is expensive,
subject to various coverage exclusions, and may not be obtainable
on terms acceptable to us if we decide to procure such insurance in
the future. Moreover, the amount and scope of any coverage may be
inadequate to protect us in the event that a product liability
claim is successfully asserted. If a claim is asserted and
successfully litigated by an adverse party, our financial position
and results of operations could be adversely affected.
Business interruptions could adversely affect our
business. We manufacture our
products at manufacturing facilities located in Orlando, Florida,
Riga, Latvia, and Zhenjiang, China. Our revenues are dependent upon
the continued operation of these facilities. The Orlando Facility
is subject to two leases, one that expires in November 2022 and the
other in November 2032. The Riga Facility is subject to two leases,
one that expires in December 2022 and the other in December 2025,
and the Zhenjiang Facility is subject to three leases that expire
in December 2021, April 2022, and June 2022. Our operations are
vulnerable to interruption by fire, hurricane winds and rain,
earthquakes, electric power loss, telecommunications failure, and
other events beyond our control. We do not have detailed disaster
recovery plans for our facilities and we do not have a backup
facility, other than our other facilities, or contractual
arrangements with any other manufacturers in the event of a
casualty to or destruction of any facility or if any facility
ceases to be available to us for any other reason. If we are
required to rebuild or relocate either of our manufacturing
facilities, a substantial investment in improvements and equipment
would be necessary. We carry only a limited amount of business
interruption insurance, which may not sufficiently compensate us
for losses that may occur.
Our
facilities may be subject to electrical blackouts as a consequence
of a shortage of available electrical power. We currently do not
have backup generators or alternate sources of power in the event
of a blackout. If blackouts interrupt our power supply, we would be
temporarily unable to continue operations at such
facility.
Any
losses or damages incurred by us as a result of blackouts,
rebuilding, relocation, or other business interruptions, could
result in a significant delay or reduction in manufacturing and
production capabilities, impair our reputation, harm our ability to
retain existing customers and to obtain new customers, and could
result in reduced sales, lost revenue, increased costs and/or loss
of market share, any of which could substantially harm our business
and our results of operations.
19
Our failure to accurately forecast material requirements could
cause us to incur additional costs, have excess inventories, or
have insufficient materials to manufacture our products. Our
material requirements forecasts are based on actual or anticipated
product orders. It is very important that we accurately predict
both the demand for our products and the lead times required to
obtain the necessary materials. Lead times for materials that we
order vary significantly and depend on factors, such as specific
supplier requirements, the size of the order, contract terms, and
the market demand for the materials at any given time. If we
overestimate our material requirements, we may have excess
inventory, which would increase our costs. If we underestimate our
material requirements, we may have inadequate inventory, which
could interrupt our manufacturing and delay delivery of our
products to our customers. Any of these occurrences would
negatively impact our results of operations. Additionally, in order
to avoid excess material inventories, we may incur cancellation
charges associated with modifying existing purchase orders with our
vendors, which, depending on the magnitude of such cancellation
charges, may adversely affect our results of
operations.
If we do not achieve acceptable manufacturing yields our operating
results could suffer. The manufacture of our products
involves complex and precise processes. Our manufacturing costs for
several products are relatively fixed, and, thus, manufacturing
yields are critical to the success of our business and our results
of operations. Changes in our manufacturing processes or those of
our suppliers could significantly reduce our manufacturing yields.
In addition, we may experience manufacturing delays and reduced
manufacturing yields upon introducing new products to our
manufacturing lines. The occurrence of unacceptable manufacturing
yields or product yields could adversely affect our financial
condition and results of operations.
If our customers do not qualify our manufacturing lines for volume
shipments, our operating results could suffer. Our manufacturing
lines have passed our qualification standards, as well as our
technical standards. However, our customers may also require that
our manufacturing lines pass their specific qualification
standards, and that we be registered under international quality
standards, beyond our ISO 9001:2015 certification. This customer
qualification process determines whether our manufacturing lines
meet the customers’ quality, performance, and reliability
standards. Generally, customers do not purchase our products, other
than limited numbers of evaluation units, prior to qualification of
the manufacturing line for volume production. We may be unable to
obtain customer qualification of our manufacturing lines or we may
experience delays in obtaining customer qualification of our
manufacturing lines. If there are delays in the qualification of
our products or manufacturing lines, our customers may drop the
product from a long-term supply program, which would result in
significant lost revenue opportunity over the term of each such
customer’s supply program, or our customers may purchase from
other manufacturers. The inability to obtain customer qualification
of our manufacturing lines, or the delay in obtaining such
qualification, could adversely affect our financial condition and
results of operations.
Our business could suffer as a result of the United Kingdom’s
decision to end its membership in the European Union. In
January 2020, the United Kingdom and the European Union entered
into a withdrawal agreement pursuant to which the United Kingdom
formally withdrew from the European Union on January 31, 2020
(generally referred to as “BREXIT”). Following such
withdrawal, the United Kingdom entered into a transition period
scheduled to end on December 31, 2020. Effective May 1, 2021, the
United Kingdom and the European Union struck a bilateral trade and
cooperation deal governing the future relationship between the
United Kingdom and the European Union. However, there remains
uncertainties and risks to our business related to Brexit and the
new relationship between the United Kingdom and European Union,
which will continue to be developed and defined, as well as any
resulting political and economic instability created by Brexit. The
political and economic impact of Brexit has caused and may continue
to cause significant volatility in global markets as well as
greater restrictions on imports and exports between the United
Kingdom and European Union countries, a fluctuation in currency
exchange rates, and increased regulatory complexities. The impact
of the withdrawal of the United Kingdom may adversely affect
business activity, political stability, and economic conditions in
the United Kingdom, the European Union, and elsewhere. Such
developments and their ultimate impact, or the perception that any
of these developments are likely to occur, could have a material
adverse effect on economic growth or business activity in the
United Kingdom, the Eurozone ,or the European Union, and could
result in the relocation of businesses, cause business
interruptions, lead to economic recession or depression, inhibit
the growth of the European economy, cause greater volatility in all
of the global currencies that we currently use to transact business
and impact the stability of the financial markets, availability of
credit, political systems or financial institutions, and the
financial and monetary system. Such developments could have a
material adverse effect on our business, financial position,
liquidity and results of operations.
Risks Related To Our Intellectual Property
If we are unable to protect and enforce our intellectual property
rights, we may be unable to compete effectively. We believe
that our intellectual property rights are important to our success
and our competitive position, and we rely on a combination of
patent, copyright, trademark, and trade secret laws and
restrictions on disclosure to protect our intellectual property
rights. Although we have devoted substantial resources to the
establishment and protection of our intellectual property rights,
the actions taken by us may be inadequate to prevent imitation or
improper use of our products by others or to prevent others from
claiming violations of their intellectual property rights by
us.
In
addition, we cannot assure that, in the future, our patent
applications will be approved, that any patents that may be issued
will protect our intellectual property, or that third parties will
not challenge any issued patents. Other parties may independently
develop similar or competing technology or design around any
patents that may be issued to us. We also rely on confidentiality
procedures and contractual provisions with our employees,
consultants, and corporate partners to protect our proprietary
rights, but we cannot assure the compliance by such parties with
their confidentiality obligations, which could be very time
consuming, expensive, and difficult to enforce.
It may
be necessary to litigate to enforce our patents, copyrights, and
other intellectual property rights, to protect our trade secrets,
to determine the validity of and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity.
Such litigation can be time consuming, distracting to management,
expensive, and difficult to predict. Our failure to protect or
enforce our intellectual property could have an adverse effect on
our business, financial condition, prospects, and results of
operation.
20
We do not have patent protection for our formulas and processes,
and a loss of ownership of any of our formulas and processes would
negatively impact our business. We believe that we own our
formulas and processes. However, we have not sought, and do not
intend to seek, patent protection for all of our formulas and
processes. Instead, we rely on the complexity of our formulas and
processes, trade secrecy laws, and employee confidentiality
agreements. However, we cannot assure you that other companies will
not acquire our confidential information or trade secrets or will
not independently develop equivalent or superior products or
technology and obtain patent or similar rights. Although we believe
that our formulas and processes have been independently developed
and do not infringe the patents or rights of others, a variety of
components of our processes could infringe existing or future
patents, in which event we may be required to modify our processes
or obtain a license. We cannot assure you that we will be able to
do so in a timely manner or upon acceptable terms and conditions
and the failure to do either of the foregoing would negatively
affect our business, results of operations, financial condition,
and cash flows.
We may not be able to protect our intellectual property rights
throughout the world. Filing, prosecuting, and defending
patents or establishing other intellectual property rights in all
countries throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the
U.S. can be less extensive than those in the U.S. or non-existent.
Further, many companies have encountered significant problems in
protecting and defending intellectual property rights in foreign
jurisdictions. The legal systems of some countries do not favor the
enforcement of patents and other intellectual property protection,
which could make it difficult for us to stop the infringement of
our patents or misappropriation of our intellectual property rights
generally. Proceedings to enforce our patent and other intellectual
property rights in foreign jurisdictions could result in
substantial costs and divert our efforts and attention from other
aspects of our business, could put our patents or intellectual
property rights at risk of being invalidated or interpreted
narrowly and our patent applications at risk of not issuing and
could provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate, and the damages or other
remedies awarded, if any, may not be commercially meaningful. We
believe that we have adequate protections in place with respect to
our intellectual property; however, we cannot provide any
assurances that such protections will be sufficient in the future.
Any infringement or misappropriations of our patents and
intellectual property rights would adversely affect our business,
results of operations, financial condition, and cash
flows.
We may become involved in intellectual property disputes and
litigation, which could adversely affect our
business. We anticipate, based
on the size and sophistication of our competitors and the history
of rapid technological advances in our industry that several
competitors may have patent applications in progress in the U.S. or
in foreign countries that, if issued, could relate to products
similar to ours. If such patents were to be issued, the patent
holders or licensees may assert infringement claims against us or
claim that we have violated other intellectual property rights.
These claims and any resulting lawsuits, if successful, could
subject us to significant liability for damages and invalidate our
proprietary rights. The lawsuits, regardless of their merits, could
be time-consuming and expensive to resolve and would divert
management time and attention. Any potential intellectual property
litigation could also force us to do one or more of the following,
any of which could harm our business and adversely affect our
financial condition and results of operations:
● stop selling,
incorporating or using our products that use the disputed
intellectual property;
●
obtain from third
parties a license to sell or use the disputed technology, which
license may not be available on reasonable terms, or at all;
or
● redesign our
products that use the disputed intellectual property.
Item
2. Properties.
Our
properties consist primarily of leased office and manufacturing
facilities. Our corporate headquarters are located in Orlando,
Florida and our manufacturing facilities are primarily located in
Zhenjiang, China and Riga, Latvia. We also have a sales, marketing,
and administrative office in Shanghai, China. The following
schedule presents the approximate square footage of our offices and
facilities as of June 30, 2021:
|
Location
|
Square Feet
|
Commitment and Use
|
|
Orlando, Florida
|
65,000
|
Leased; 4 suites used for corporate headquarters offices,
manufacturing, and research and development
|
|
Riga, Latvia
|
29,000
|
Leased; 3 suites used for administrative offices, manufacturing and
crystal growing
|
|
Zhenjiang, China
|
55,000
|
Leased; 1 building used for manufacturing, and 1 floor of 1
building used for manufacturing
|
|
Shanghai, China
|
1,900
|
Leased; 1 office suite used for sales, marketing and administrative
offices
|
|
|
|
|
Our territorial sales personnel maintain an office from their homes
to serve their geographical territories.
For additional information regarding our facilities, please
see Item 1.
Business in this Annual Report
on Form 10-K. For additional information regarding leases,
see Note 13, Lease
Commitments, to the Notes to the Consolidated Financial
Statements to this Annual Report on Form 10-K.
Item 3. Legal
Proceedings.
From
time to time, we are involved in various legal actions arising in
the normal course of business. We currently have no material legal
proceeding to which we are a party to or to which our property is
subject to and, to the best of our knowledge, no material adverse
legal activity is anticipated or threatened.
21
PART II
Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.
Market Information
Our
Class A common stock is traded on the Nasdaq Capital Market under
the symbol “LPTH”.
Holders
As of
August 31, 2021, we estimate there were approximately 199 holders
of record and approximately 17,951 street name holders of our Class
A common stock.
Dividends
We have
never declared or paid any cash dividends on our Class A common
stock and do not intend to pay any cash dividends in the
foreseeable future. We currently intend to retain all future
earnings in order to finance the operation and expansion of our
business. In addition, the
payment of dividends, if any, in the future, will depend on our
earnings, capital requirements, financial conditions, and other
relevant factors.
Item
7. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations.
You should read the following discussion and analysis by our
management of our financial condition and results of operations in
conjunction with our consolidated financial statements and the
accompanying notes.
The following discussion contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans,
objectives, expectations and intentions. Our actual results could
differ materially from those discussed in the forward-looking
statements. Please also see the cautionary language at the
beginning of this Annual Report on Form 10-K regarding
forward-looking statements.
The following discussions also include use of the non-GAAP term
“gross margin,” as well as other non-GAAP measures
discussed in more detail under the heading “Non-GAAP
Financial Measures.” Gross margin is determined
by deducting the cost of sales from operating revenue. Cost of
sales includes manufacturing direct and indirect labor, materials,
services, fixed costs for rent, utilities and depreciation, and
variable overhead. Gross margin should not be considered an
alternative to operating income or net income, both of which are
determined in accordance with GAAP. We believe that gross margin,
although a non-GAAP financial measure, is useful and meaningful to
investors as a basis for making investment decisions. It provides
investors with information that demonstrates our cost structure and
provides funds for our total costs and expenses. We use gross
margin in measuring the performance of our business and have
historically analyzed and reported gross margin information
publicly. Other companies may calculate gross margin in a different
manner.
Potential Impact of COVID-19
In
March 2020, the WHO declared the outbreak of COVID-19 as a pandemic
based on the rapid increase in global exposure. COVID-19 has spread
throughout world, including the United States, and continues to
spread as additional variants emerge. As a result of the COVID-19
pandemic, our employees at our facilities in China, Latvia, and the
U.S. were subject to stay-at-home orders during a portion of fiscal
2021, which restrictions have been lifted as of the date of this
Annual Report on Form 10-K. In addition to stay-at-home orders,
many jurisdictions also implemented socially distancing and other
restrictions and measures to slow the spread of COVID-19. These
restrictions significantly impacted economic conditions in the U.S.
in 2020 and continued into 2021. Beginning in the spring of 2021,
we have seen some restrictions lift as vaccines have become more
available. Despite these stay-at-home orders and other measures and
restrictions implemented in the areas in which we operate, as a
critical supplier to both the medical and defense industries, we
were deemed to be an essential business; thus, regardless of the
stay-at-home orders, our workforce was permitted to work from our
facilities and our business operations have generally continued to
operate as normal. Nonetheless, despite the lifting of these
stay-at-home orders, out of concern for our workforce, our U.S.-
and Latvia-based non-manufacturing employees have continued to work
remotely to some extent. In the case of our manufacturing staff in
the United States, China, and Latvia, we have staggered shifts to
reduce contact within shifts and between different shifts, where
possible, and have minimized interaction and physical proximity
between employees working within the same building. To date, we
have not seen any significant direct financial impact of COVID-19
to our business. However, the COVID-19 pandemic continues to impact
economic conditions, which could impact the short-term and
long-term demand from our customers and, therefore, has the
potential to negatively impact our results of operations, cash
flows, and financial position in the future. Management is actively
monitoring this situation and any impact on our financial
condition, liquidity, and results of operations. However, given the
daily evolution of the COVID-19 pandemic and the global responses
to curb its spread, we are not presently able to estimate the
effects of the COVID-19 pandemic on our future results of
operations, financial, or liquidity in fiscal 2022 or
beyond.
22
Effect of Certain Events Occurring at Our Chinese
Subsidiaries
In
April 2021, we terminated several employees of our China
subsidiaries, LPOIZ and LPOI, including the General Manager, the
Sales Manager, and the Engineering Manager, after determining that
they had engaged in malfeasance and conduct adverse to our
interests, including efforts to misappropriate certain of our
proprietary technology, diverting sales to entities owned or
controlled by these former employees and other suspected acts of
fraud, theft and embezzlement. In connection with such
terminations, our China subsidiaries have engaged in certain legal
proceedings with the terminated employees.
We have
incurred various expenses associated with our investigation into
these matters prior and subsequent to the termination of the
employees and the associated legal proceedings. These expenses,
which included legal, consulting and other transitional management
fees, totaled $718,000 during the year ended June 30, 2021. Such
expenses were recorded as “Selling, general and
administrative” expenses in the accompanying Consolidated
Statement of Comprehensive Income (Loss).
We also
identified a further potential liability in the amount of $210,000,
which we may incur in the future due to the actions of these
employees. This amount has been accrued as of June 30, 2021,
pending further investigation, and included in “Other
Expense, net” in the accompanying Consolidated Statement of
Comprehensive Income (Loss).
We have
transitioned the management of LPOI and LPOIZ to a new management
team without any significant detrimental effects on their ability
to operate. We do not expect any material adverse impact to the
business operations of LPOI or LPOIZ as a result of the
transition.
We
expect to incur additional legal fees and consulting expenses in
future periods as we continue to pursue our legal options and
remedies; however, such future fees are expected to be at lower
levels than have been incurred to date.
Although
we have taken steps to minimize the business impacts from the
termination of the local management employees and transition to new
management personnel, we experienced some short-term adverse
impacts on LPOIZ’s and LPOI’s domestic sales in China
and results of operations in the three-month period ended June 30,
2021, which we anticipate may continue for the next one to two
quarters. We have not experienced, nor do we anticipate, any
material adverse impact on LPOIZ’s or LPOI’s production
and supply of products to LightPath for LightPath's
customers.
Results of Operations
Operating Results for Fiscal Year Ended June 30, 2021 compared to
the Fiscal Year Ended June 30, 2020:
Revenues:
Revenue
for fiscal 2021 was approximately $38.5 million, an increase of
10%, as compared to $35.0 million in fiscal 2020. Revenue generated
by infrared products was approximately $21.0 million in fiscal
2021, an increase of 16%, as compared to the prior fiscal year. The
increase in revenue is attributed to increases in sales of both
molded and diamond-turned infrared products to customers in the
industrial market, including a key customer with an annual supply
agreement, which agreement was renewed for a higher dollar value
during fiscal 2021. Industrial applications, firefighting cameras,
and other public safety applications continue to be the primary
drivers of the increased demand for infrared products, including
thermal imaging assemblies. More recently, we have seen an increase
in demand for medical and temperature sensing applications, such as
fever detection. Demand for temperature sensing applications have
been accelerated by COVID-19, and although the demand has leveled
off since the initial spike, it remains elevated.
23
Revenue
generated by PMO products was approximately $15.9 million for
fiscal 2021, an increase of 8%, as compared to the prior fiscal
year. The increase in revenue is primarily attributed to a
significant increase in sales through catalog and distribution
channels, which were negatively impacted during the second half of
fiscal 2020 due to the impact of COVID-19 on colleges and
universities. This increase was partially offset by a decrease in
sales to customers in the telecommunications market, for which
orders began to slow down in the second half of fiscal 2021. We
believe this slowdown to be temporary; however, we expect it to
continue for at least two more quarters, as customers align their
inventory levels to the next phase of their 5G
rollout.
Revenue
generated by specialty products was approximately $1.6 million in
fiscal 2021, a decrease of approximately 29% as compared to fiscal
2020. This decrease is primarily due to NRE project revenue as well
as sales of certain legacy specialty products in fiscal 2020 not
recurring in fiscal 2021. NRE revenue is project based and the
timing of any such projects is wholly dependent on our customers
and their project activity.
Cost of Sales and Gross Margin:
Gross
margin for fiscal 2021 was approximately $13.4 million, a decrease
of 3%, as compared to approximately $13.8 million in fiscal 2020.
Total cost of sales was approximately $25.0 million for fiscal
2021, compared to $21.1 million for fiscal 2020, an increase of
18%. Gross margin as a percentage of revenue was 35% for fiscal
2021, compared to 40% for the prior fiscal year. Margins for PMO
products have generally been strong, although the decrease in sales
for the fourth quarter of fiscal 2021, as compared to the fourth
quarter of fiscal 2020, resulted in some inefficiencies due to
under-utilized capacity. However, margins for our infrared products
have been below our target levels. During fiscal 2021, we began
high-volume delivery of several key infrared OEM projects, which
orders consisted of products with both our molded as well as
diamond turned BD6 material. As is typical of scaling new products
into volume production, we experienced a number of technical
challenges, both related to the fabrication of the components, as
well as some of the value-added activities such as coating and
assembly. While such early-stage problems are common, we expect to
resolve the issues, improve production yields and elevate the
products to their target gross margin levels.
Selling, General and Administrative:
For
fiscal 2021, Selling, General and Administrative
(“SG&A”) costs were approximately $12.0 million, an
increase of approximately $3.0 million, or 34%, as compared to the
prior fiscal year. SG&A for fiscal 2021 included the following
non-recurring expenses: (i) $1.2 million of expenses associated
with the previously described events that occurred at our Chinese
subsidiaries, including severance, legal and consulting fees, (ii)
approximately $400,000 of additional compensation to our former
Chief Executive Officer, as previously disclosed in the Current
Report on Form 8-K filed with the SEC on November 18, 2020, and
(iii) approximately $150,000 of additional stock compensation
recorded as certain RSUs vested upon the retirement of two
directors. The remaining increase of $1.3 million is due to an
increase in recruiting costs associated with the changes to our
executive leadership team, as well as an increase in outside
consulting services for projects related to operational
improvements, and an increase in personnel-related costs associated
with filling key positions.
New Product Development:
New
product development costs were approximately $2.2 million in fiscal
2021, an increase of approximately 26%, as compared to
approximately $1.7 million in the prior fiscal year. This increase
was primarily due to the addition of engineering employees and
outside services in order to support the demand for optical
design.
Other Expense:
Interest
expense was approximately $215,000 for fiscal 2021, compared to
approximately $339,000 in the prior fiscal year. The decrease in
interest expense is due to lower interest rates and a 17% reduction
in our total debt, including finance lease obligations, and
excluding operating lease liabilities, as of June 30, 2021, as
compared to the end of the prior fiscal year.
Other
expense, net, was approximately $194,000 in for fiscal 2021,
compared to approximately $175,000 for fiscal 2020. Net losses on
foreign exchange transactions were lower for fiscal 2021, however
fiscal 2021 also includes expenses of $210,000 that we accrued,
pending further investigation, related to the previously described
events that occurred at our Chinese subsidiaries. We execute all
foreign sales from our U.S. facilities and inter-company
transactions in U.S. dollars, partially mitigating the impact of
foreign currency fluctuations. Assets and liabilities denominated
in non-United States currencies, primarily the Chinese Yuan and
Euro, are translated at rates of exchange prevailing on the balance
sheet date, and revenues and expenses are translated at average
rates of exchange for the year. During fiscal 2021, we incurred net
foreign currency transaction losses of approximately $1,000,
compared to $214,000 for fiscal 2020.
Income Taxes:
During
the fiscal 2021, we recorded income tax expense of approximately
$934,000, compared to approximately $764,000 in fiscal 2020,
primarily related to income taxes from our operations in China.
Income taxes for fiscal 2021 and 2020 also included Chinese
withholding taxes of $500,000 and $200,000, respectively,
associated with intercompany dividends declared by LPOIZ, payable
to us as the parent company. While this repatriation transaction
resulted in some additional Chinese withholding taxes, LPOIZ
currently qualifies for a reduced Chinese income tax rate;
therefore, the total tax on those earnings was still below the
normal income tax rate. The remaining income tax provision
for fiscal 2021 resulted from an increase in the valuation
allowance on our U.S. deferred tax assets. Please refer to Note 9,
Income Taxes, in the Notes
to the Consolidated Financial Statements in this Annual Report on
Form 10-K for additional information related to each of our tax
jurisdictions.
24
Net Income (Loss):
Net
loss for fiscal 2021 was approximately $3.2 million, or $0.12 basic
and diluted loss per share, compared to net income of approximately
$867,000, or $0.03 basic and diluted earnings per share, for fiscal
2020. The decrease in net income for fiscal 2021, as compared to
fiscal 2020, is primarily attributable to a $4.0 million decrease
in operating income resulting from lower gross margin, and higher
operating expenses, including the aforementioned $2.0 million of
SG&A and Other expenses related to expenses incurred in
connection with the previously described events that occurred at
our Chinese subsidiaries, the payment of additional compensation to
our former Chief Executive Officer, and additional stock
compensation as a result of the retirement of two of our directors.
Non-operating items include a favorable difference in foreign
exchange gains and losses of approximately $213,000, and an
unfavorable difference of approximately $170,000 in the provision
for income taxes.
Weighted-average
common stock shares outstanding were 26,314,025 for both basic and
diluted in fiscal 2021, compared to 25,853,419 and 27,469,845 basic
and diluted, respectively, in fiscal 2020. The increase in the
weighted-average basic common shares was due to the issuance of
shares of Class A common stock (i) under the 2014 ESPP, (ii) upon
the exercises of stock options, and (iii) underlying vested RSUs.
Potential dilutive common stock equivalents were excluded from the
calculation of diluted shares for fiscal 2021, as their effects
would have been anti-dilutive due to the net loss in that
period.
Liquidity and Capital Resources
At June 30, 2021, we had working capital of approximately $12.3
million and total cash and cash equivalents of approximately $6.8
million. Greater than 50% of our total cash and cash equivalents
was held by our foreign subsidiaries in China and Latvia. Cash and
cash equivalents held by our foreign subsidiaries in China and
Latvia were generated in-country as a result of foreign earnings.
Historically, we considered unremitted earnings held by our foreign
subsidiaries to be permanently reinvested. However, during fiscal
2020, we began declaring intercompany dividends to remit a portion
of the earnings of our foreign subsidiaries to us, as the U.S.
parent company. It is still our intent to reinvest a significant
portion of earnings generated by our foreign subsidiaries, however
we also plan to repatriate a portion of their
earnings.
In China, before any funds can be repatriated, the retained
earnings of the legal entity must equal at least 50% of the
registered capital. During fiscal 2021 and 2020, we repatriated
approximately $4 million and $2 million, respectively, from LPOIZ.
Based on retained earnings as of December 31, 2020, the end of the
prior statutory tax year, LPOIZ had an additional $5.6 million
available and LPOI did not have any earnings available for
repatriation. Based on our previous intent, we had not historically
provided for future Chinese withholding taxes on the related
earnings. However, during fiscal 2020 we began to accrue for these
taxes on the portion of earnings that we intend to
repatriate.
Loans
payable as of June 30, 2021 consisted of the term loan in the
original principal amount of approximately $5.8 million (the
“BankUnited Term Loan”) issued in favor of BankUnited,
N.A. (“BankUnited”) and an equipment loan with a third
party. Details of the loans are as follows:
BankUnited Loans
On
February 26, 2019, we entered into the Loan Agreement (the
“Loan Agreement”) with BankUnited for the
BankUnited Term Loan, a revolving line of credit up to a maximum
amount of $2 million (the “BankUnited Revolving Line”),
and a non-revolving guidance line of credit up to a maximum amount
of $10 million (the “Guidance Line” and together with
the BankUnited Revolving Line and BankUnited Term Loan, the
“BankUnited Loans”). On May 6, 2019, we entered into
that certain First Amendment to Loan Agreement, effective February
26, 2019, with BankUnited (the “Amendment” and,
together with the Loan Agreement, the “Amended Loan
Agreement”). On September 9,
2021, we entered into a letter agreement with BankUnited (the
“Letter Agreement”). The Letter Agreement: (i) reduces
the fixed charge coverage ratio to 1.0 for the quarter ending
September 30, 2021 and to 1.1 for the quarter ended December 31,
2021; (ii) modifies the calculation for both the fixed charge
coverage ratio and the total leverage ratio to provide for
adjustments related to expenses incurred in connection with the
events at LPOI and LPOIZ, which expenses must be approved by
BankUnited; (iii) terminates the Guidance Line; and (iv) requires
approval from BankUnited prior to our being able to draw upon the
Revolving Line, subject to our compliance with the fixed charge
coverage ratio for the quarters ending September 30, 2021 and
December 31, 2021. The Letter Agreement also granted us a waiver of
default arising prior to the Letter Agreement for our failure to
comply with the fixed charge coverage ratio measured on June 30,
2021. Based on the waiver, we are no longer in default of the
Amended Loan Agreement. Finally, in connection with the Letter
Agreement, we paid BankUnited a fee equal to
$10,000.
Our
obligations under the Amended Loan Agreement are collateralized by
a first priority security interest (subject to permitted liens) in
all of our assets and the assets of our U.S. subsidiaries, GelTech,
Inc. (“GelTech”) and ISP, pursuant to a Security
Agreement granted by GelTech, ISP, and us in favor of BankUnited.
Our equity interests in, and the assets of, our foreign
subsidiaries are excluded from the security
interest.
BankUnited Revolving Line
Amounts
borrowed under the BankUnited Revolving Line may be repaid and
re-borrowed at any time prior to February 26, 2022, at which time
all amounts will be immediately due and payable.
Pursuant
to the Letter Agreement, advances from the BankUnited Revolving
Line will require specific lender approval, which will not be
granted in the absence of compliance with all applicable covenants,
as amended. The advances under the BankUnited
Revolving Line bear interest, on the outstanding daily balance, at
a per annum rate equal to 2.75% above the 30-day LIBOR.
Interest payments are due and payable, in arrears, on the
first day of each month. There were no amounts outstanding
under the BankUnited Revolving Line as of June 30,
2021.
25
BankUnited Term Loan
Pursuant
to the Amended Loan Agreement, BankUnited advanced us $5,813,500 to
satisfy in full the amounts owed to our previous lender for
financing related to the acquisition of ISP, and to pay the fees
and expenses incurred in connection with closing of the BankUnited
Loans. The BankUnited Term Loan is for a 5-year term, but
co-terminus with the BankUnited Revolving Line should the
BankUnited Revolving Line not be renewed beyond February 22, 2022.
Management expects the BankUnited Revolving Line to be renewed. The
BankUnited Term Loan bears interest at a per annum rate equal to
2.75% above the 30-day LIBOR. Equal monthly principal payments of
$48,445.83, plus accrued interest, are due and payable, in arrears,
on the first day of each month during the term. Upon maturity, all
principal and interest shall be immediately due and payable. As of
June 30, 2021, the applicable interest rate was 2.84% and the
outstanding balance on the BankUnited Term Loan was approximately
$4.5 million.
Guidance Line
Prior
to the Letter Agreement, the Amended Loan Agreement provided that
BankUnited, in its sole discretion, could make loan advances
to us under the Guidance Line up to a maximum aggregate principal
amount outstanding not to exceed $10,000,000, which proceeds could
have been used for capital expenditures and approved business
acquisitions. Such advances were required to be in minimum amounts
of $1,000,000 for acquisitions and $500,000 for capital
expenditures, and would have been limited to 80% of cost or as
otherwise determined by BankUnited. Amounts borrowed under the
Guidance Line could not be re-borrowed. The advances under the
Guidance Line would bear interest, on the outstanding daily
balance, at a per annum rate equal to 2.75% above the 30-day LIBOR.
Interest payments would be due and payable, in arrears, on
the first day of each month. On each anniversary of the Amended
Loan Agreement, monthly principal payments would become payable,
amortized based on a ten-year term. There were no amounts
outstanding under the Guidance Line at June 30, 2021.
The
Guidance Line was terminated after the end of fiscal 2021 in
accordance with the Letter Agreement.
General Terms
The
Amended Loan Agreement contains customary covenants, including, but
not limited to certain financial covenants. Generally, we
must maintain a fixed charge coverage ratio of 1.25 to 1.00 and a
total leverage ratio of 4.00 to 1.00. The Letter
Agreement granted us a waiver of default arising prior to the
Letter Agreement from our failure to comply with the fixed charge
coverage ratio measured on June 30, 2021. Based on the waiver, we
are no longer in default of the Amended Loan
Agreement. As of June 30, 2021, we were in compliance
with all other covenants.
Equipment Loan
In
December 2020, ISP Latvia entered into an equipment loan with a
third party (the “Equipment Loan”), which party is also
a significant customer. The Equipment Loan is subordinate to the
BankUnited Loans and is collateralized by certain equipment. The
initial advance under the Equipment Loan was 225,000 EUR (or USD
$275,000), payable in equal installments over 60 months, the
proceeds of which were used to make a prepayment to a vendor for
equipment to be delivered at a future date. The Equipment Loan
bears interest at a fixed rate of 3.3%. An additional 225,000 EUR
(or USD $275,000) is expected to be drawn when the final payment is
due to the vendor for the equipment.
For
additional information regarding the BankUnited Loans and the
Equipment Loan, see Note 17, Loans
Payable, to the Notes to the Consolidated Financial
Statements to this Annual Report on Form 10-K.
We believe we have adequate financial resources to sustain our
current operations in the coming year. We have established
milestones that will be tracked to ensure that as funds are
expended we are achieving results before additional funds are
committed. We anticipate sales growth in future years,
primarily from the engineered solutions we plan to focus
on.
We generally rely on cash from operations and equity and debt
offerings, to the extent available, to satisfy our liquidity needs
and to maintain our ability to repay the BankUnited Term Loan and
Equipment Loan. There are a number of factors that could result in
the need to raise additional funds, including a decline in revenue
or a lack of anticipated sales growth, increased material costs,
increased labor costs, planned production efficiency improvements
not being realized, increases in property, casualty, benefit and
liability insurance premiums, and increases in other costs. We will
also continue efforts to keep costs under control as we seek
renewed sales growth. Our efforts are directed toward generating
positive cash flow and profitability. If these efforts are not
successful, we may need to raise additional capital. Should capital
not be available to us at reasonable terms, other actions may
become necessary in addition to cost control measures and continued
efforts to increase sales. These actions may include exploring
strategic options for the sale of the Company, the sale of certain
product lines, the creation of joint ventures or strategic
alliances under which we will pursue business opportunities, the
creation of licensing arrangements with respect to our technology,
or other alternatives.
Cash Flows – Operating:
Cash flow provided by operations was approximately $4.7 million for
fiscal 2021, compared to approximately $3.7 million for fiscal
2020. The increase in cash flow from operations is primarily due to
improved receivables and inventory management, despite the increase
in sales compared to the prior fiscal year. In addition, accounts payable and accrued
liabilities increased in fiscal 2021, as compared to fiscal 2020,
primarily due to the previously described events that occurred at
our Chinese subsidiaries, for which certain expenses have been
incurred but not yet paid.
We anticipate continued improvement in our cash flows provided by
operations in future years, as we continue to focus on managing our
receivables, payables and inventory, while continuing to grow our
sales and improve gross margins, with moderate increases in
general, administrative, sales and marketing and new product
development costs.
26
Cash Flows – Investing:
During fiscal 2021, we expended approximately $3.2 million for
capital equipment, as compared to approximately $2.4 million during
fiscal 2020. Our capital expenditures during fiscal 2021 were
primarily related to the continued expansion of our infrared
coating capacity as well as increasing our lens pressing and dicing
capacity to meet current and forecasted demand. During fiscal 2020, our capital expenditures were
primarily related to continued expansion of our infrared glass
capacity, increasing coating capacity and capabilities, and adding
press capacity.
Cash Flows – Financings:
Net cash used in financing activities was approximately $843,000 in
fiscal 2021, compared to $622,000 in fiscal 2020. Cash used in
financing activities for fiscal 2021 reflects approximately $1.3
million in principal payments on our loans and finance leases,
offset by proceeds of approximately $275,000 from the Equipment
Loan, and approximately $173,000 in proceeds from the exercise of
stock options and from the sale of Class A common stock under the
2014 ESPP. Cash used in financing activities for fiscal 2020
reflects approximately $1.1 million in principal payments on our
loans and finance leases, offset by proceeds of approximately
$400,000 from the BankUnited Revolving Line, and approximately
$47,000 in proceeds from the exercise of stock options and from the
sale of Class A common stock under the 2014 ESPP.
We anticipate a similar level of capital expenditures during fiscal
2022; however, the total amount expended will depend on sales
growth opportunities and other circumstances.
How We Operate:
We have
continuing sales of two basic types: sales via ad-hoc purchase
orders of mostly standard product configurations (our
“turns” business) and the more challenging and
potentially more rewarding business of customer product
development. In this latter type of business, we work with
customers to help them determine optical specifications and even
create certain optical designs for them, including complex
multi-component designs that we call “engineered
solutions.” This is followed by “sampling” small
numbers of the product for the customers’ test and
evaluation. Thereafter, should a customer conclude that our
specification or design is the best solution to their product need;
we negotiate and “win” a contract (sometimes called a
“design win”) – whether of a “blanket
purchase order” type or a supply agreement. The strategy is
to create an annuity revenue stream that makes the best use of our
production capacity, as compared to the turns business, which is
unpredictable and uneven. This annuity revenue stream can also
generate low-cost, high-volume type orders. A key business
objective is to convert as much of our business to the design win
and annuity model as is possible. We face several challenges in
doing so:
●
Maintaining an
optical design and new product sampling capability, including a
high-quality and responsive optical design engineering
staff;
●
The fact that as
our customers take products of this nature into higher volume,
commercial production (for example, in the case of molded optics,
this may be volumes over one million pieces per year) they begin to
work seriously to reduce costs – which often leads them to
turn to larger or overseas producers, even if sacrificing quality;
and
●
Our small business
mass means that we can only offer a moderate amount of total
productive capacity before we reach financial constraints imposed
by the need to make additional capital expenditures – in
other words, because of our limited cash resources and cash flow,
we may not be able to service every opportunity that presents
itself in our markets without arranging for such additional capital
expenditures.
Despite
these challenges to winning more “annuity” business, we
nevertheless believe we can be successful in procuring this
business because of our unique capabilities in optical design
engineering that we make available on the merchant market, a market
that we believe is underserved in this area of service offering.
Additionally, we believe that we offer value to some customers as a
source of supply in the U.S. should they be unwilling to commit to
purchase their supply of a critical component from foreign merchant
production sources. For information regarding revenue recognition
related to our various revenue streams, refer to Critical Accounting Policies and
Estimates in this Annual Report on Form 10-K.
27
Our Key Performance Indicators:
Usually
on a weekly basis, management reviews several performance
indicators. Some of these indicators are qualitative and others are
quantitative. These indicators change from time to time as the
opportunities and challenges in the business change. They are
mostly non-financial indicators, such as units of shippable output
by product line, production yield rates by major product line, and
the output and yield data from significant intermediary
manufacturing processes that support the production of the finished
shippable product. These indicators can be used to calculate such
other related indicators as fully yielded unit production
per-shift, which varies by the product and our state of automation
in production of that product at any given time. Higher unit
production per shift means lower unit cost, and, therefore,
improved margins or improved ability to compete, where desirable,
for price sensitive customer applications. The data from these
reports is used to determine tactical operating actions and
changes. We believe that our non-financial production indicators,
such as those noted, are proprietary information.
Financial
indicators that are usually reviewed at the same time include the
major elements of the micro-level business cycle:
●
sales
backlog;
●
revenue dollars and
units by product group;
●
inventory
levels;
●
accounts receivable
levels and quality; and
●
other key
indicators.
These
indicators are similarly used to determine tactical operating
actions and changes and are discussed in more detail below.
Management will evaluate these key indicators as we transition to
our new strategic plan to determine whether any changes or updates
to our key indicators are warranted.
Sales Backlog:
We
believe our sales growth has been and continues to be our best
indicator of success. Our best view into the efficacy of our sales
efforts is in our “order book.” Our order book equates
to sales “backlog.” It has a quantitative and a
qualitative aspect: quantitatively, our backlog’s prospective
dollar value and qualitatively, what percent of the backlog is
scheduled by the customer for date-certain delivery. Historically,
we evaluated our backlog on a 12-month basis, which examined orders
required by a customer for delivery within a one-year period. To
better align with our strategic focus on longer-term customer
orders and relationships, beginning in fiscal 2021, management
began evaluating our total backlog, which includes all firm orders
requested by a customer that are reasonably believed to remain in
the backlog and be converted into revenues. This includes customer
purchase orders and may include amounts under supply contracts if
they meet the aforementioned criteria. Generally, a higher total
backlog is better for us.
Our
total backlog remained near the same level as the prior fiscal
year, while we also increased our sales by 10%, compared to the
prior year, maintaining our strong booking performance. Our total
backlog as of June 30, 2021 was approximately $21.3 million,
compared to $21.9 million as of June 30, 2020. Backlog growth rates
for fiscal 2021 and 2020 are as follows:
|
Quarter
|
Total
Backlog ($ 000)
|
Change
From Prior Year End
|
Change
From Prior Quarter End
|
|
Q1 2020
|
$16,567
|
-9%
|
-9%
|
|
Q2 2020
|
$22,559
|
24%
|
36%
|
|
Q3 2020
|
$22,772
|
26%
|
1%
|
|
Q4 2020
|
$21,908
|
21%
|
-4%
|
|
Q1 2021
|
$20,866
|
-5%
|
-5%
|
|
Q2 2021
|
$23,835
|
9%
|
14%
|
|
Q3 2021
|
$19,498
|
-11%
|
-18%
|
|
Q4 2021
|
$21,329
|
-3%
|
9%
|
The
increase in our total backlog from the first quarter to the second
quarter of both fiscal 2021 and 2020 was largely due to the renewal
of a large annual contract during the second quarter of the
respective fiscal year, which we began shipping against during the
third quarter of the respective fiscal year. The timing of this
renewal is similar to the prior fiscal year. The timing of other
annual and multi-year contract renewals may vary, and may
substantially increase backlog levels at the time the orders are
received, and backlog will subsequently be drawn down as shipments
are made against these orders.
28
We
continue to experience a growing demand for infrared products used
in the industrial, defense and first responder sectors. Demand for
infrared products continues to be fueled by interest in lenses made
with our new BD6 material. We expect to maintain moderate growth in
our visible PMO product group by continuing to diversify and offer
new applications, with a cost competitive structure; however, we
believe that the terminations of certain of our employees at our
China subsidiaries, LPOIZ and LPOI, and transition to new
management personnel, could adversely impact the domestic sales in
China of these subsidiaries over the next one to two quarters,
which would affect potential growth in our PMO lens business for
that period. Our former employees, including management personnel,
maintained relationships with certain of our customers in China and
we expect that until our new employees establishes relationships
with these customers, of which there can be no assurance, domestic
sales in China may be adversely impacted.
Revenue Dollars and Units by Product Group:
The
following table sets forth revenue dollars and units by our three
product groups for the three and twelve months ended June 30, 2021
and 2020:
|
|
(unaudited)
|
|
|
|
|
|
|
|
Three Months
EndedJune 30,
|
Year Ended June
30,
|
|
|
||
|
|
|
Quarter
|
Year-to-date
|
|||
|
|
2021
|
2020
|
2021
|
2020
|
%
Change
|
%
Change
|
|
Revenue
|
|
|
|
|
|
|
|
PMO
|
$2,941,270
|
$3,893,162
|
$15,882,189
|
$14,639,687
|
-24%
|
8%
|
|
Infrared
Products
|
4,975,947
|
4,793,246
|
20,971,080
|
18,052,856
|
4%
|
16%
|
|
Specialty
Products
|
415,099
|
420,732
|
1,611,552
|
2,275,420
|
-1%
|
-29%
|
|
Total
revenue
|
$8,332,316
|
$9,107,140
|
$38,464,821
|
$34,967,963
|
-9%
|
10%
|
|
Units
|
|
|
|
|
|
|
|
PMO
|
323,404
|
1,050,668
|
3,139,774
|
3,198,672
|
-69%
|
-2%
|
|
Infrared
Products
|
122,127
|
150,194
|
579,563
|
384,344
|
-19%
|
51%
|
|
Specialty
Products
|
8,901
|
7,876
|
32,980
|
41,443
|
13%
|
-20%
|
|
Total
units
|
454,432
|
1,208,738
|
3,752,317
|
3,624,459
|
-62%
|
4%
|
Three months ended June 30, 2021 compared to three months ended
June 30, 2020
Our
revenue decreased by 9% in the fourth quarter of fiscal 2021, as
compared to the same quarter of the prior fiscal year, primarily as
a result of a decrease in demand for PMO products, partially offset
by a slight increase in sales of infrared products.
Revenue
from the PMO product group for the fourth quarter of fiscal 2021
was $2.9 million, a decrease of 24%, as compared to the same
quarter of the prior fiscal year. The decrease in revenue is
primarily attributed to decreases in sales to customers in the
telecommunications market, partially offset by an increase in sales
through our catalog and distribution channels. The increase in
catalog and distribution sales reflects a recovery from the initial
impact of COVID-19 on colleges and universities. Sales of PMO units
decreased by 69%, as compared to the prior year period, however,
average selling prices increased 145%. The increase in average
selling prices is due to a significant decrease in
telecommunications products unit sales, which typically have higher
volumes and lower average selling prices. The unit volume for
telecommunications products decreased by approximately 93% as
compared to the prior year period due to a slowdown in orders,
which we believe will continue for at least two more quarters, as
customers align their inventory levels to the next phase of their
5G rollout.
Revenue
generated by the infrared product group for the fourth quarter of
fiscal 2021 was $5.0 million, an increase of 4%, as compared to
same quarter of the prior fiscal year. The increase in revenue is
primarily driven by sales diamond-turned infrared products, while
sales of BD6-based molded infrared products decreased. The increase
in sales of diamond-turned infrared products was primarily due to
the timing of order shipments against a large-volume annual
contract, for which shipments were lower in the fourth quarter of
the prior fiscal year. Demand for BD6-based infrared products has
leveled off, particularly for temperature sensing applications,
demand for which was previously accelerated by COVID-19. Demand for
industrial applications, firefighting and other public safety
applications continues to be strong. Molded infrared products are
higher in volume and lower in average selling prices than
diamond-turned infrared products. Due to the lower mix of molded
infrared products sold during the fourth quarter of fiscal 2021,
sales of infrared units decreased by 19%, as compared to the prior
year period, and average selling prices increased 28%.
Our
specialty products revenue decreased by 1%, as compared to the same
period of the prior fiscal year, and represented 5% of total
revenue for both the fourth quarters of fiscal 2021 and
2020.
29
Year ended June 30, 2021 compared to year ended June 30,
2020
Our
revenue increased by approximately $3.5 million, or 10%, for fiscal
2021, as compared to fiscal 2020, with increases in both infrared
and PMO product sales.
Revenue
from the PMO product group increased for fiscal 2021 was $15.9
million, an increase of 8%, as compared to fiscal 2020. The
increase in revenue is primarily attributed to a significant
increase in sales through catalog and distribution channels, which
were down during the second half of fiscal 2020 due to the impact
of COVID-19 on colleges and universities. This increase was
partially offset by a decrease in sales to customers in the
telecommunications market, for which orders began to slow down in
the second half of fiscal 2021. We believe this slowdown to be
temporary, however we expect it to continue for at least two more
quarters, as customers align their inventory levels to the next
phase of their 5G rollout. Sales of PMO units decreased by 2%, as
compared to the prior fiscal year, however, average selling prices
increased 11%, due to the decrease in telecommunications products
sales, which typically have higher volumes and lower average
selling prices. The unit volume for telecommunications products
decreased by 4%, as compared to the prior fiscal year.
Revenue
generated by the infrared product group for fiscal 2021 was $21.0
million, an increase of approximately 16%, as compared to the prior
fiscal year. The increase in revenue is attributed to increases in
sales of both molded and diamond-turned infrared products to
customers in the industrial market, including a key customer with
an annual supply agreement which was renewed for a higher amount
during fiscal 2021. During fiscal 2021, sales of infrared units
increased by 51%, as compared to the prior year period, and average
selling prices decreased 23%. The increase in units and decrease in
average selling prices are driven by an increase in sales of molded
infrared products, including products made with our new BD6
material, which are higher in volume and lower in prices than
diamond-turned infrared products. Industrial applications,
firefighting cameras, and other public safety applications continue
to be the primary drivers of the increased demand for infrared
products, including thermal imaging assemblies. During fiscal 2021,
we saw an increase in demand for medical and temperature sensing
applications, such as fever detection. Demand for temperature
sensing applications was accelerated by COVID-19, and although the
demand has leveled off since the initial spike, it remains
elevated.
In
fiscal 2021, our specialty products revenue decreased by $664,000,
or 29%, as compared to prior fiscal year, primarily due to NRE
project revenue as well as sales of certain legacy specialty
products in fiscal 2020 not recurring in fiscal 2021. NRE revenue
is project based and the timing of any such projects is wholly
dependent on our customers and their project activity.
Inventory Levels:
We manage inventory levels to minimize investment in working
capital but still have the flexibility to meet customer demand to a
reasonable degree. We review our inventory for obsolete items
quarterly. While the mix of inventory is an important factor,
including adequate safety stocks of long lead-time materials, an
important aggregate measure of inventory in all phases of
production is the quarter’s ending inventory expressed as a
number of days’ worth of the quarter’s cost of sales,
also known as “days cost of sales in inventory,” or
“DCSI.” It is calculated by dividing the
quarter’s ending inventory by the quarter’s cost of
goods sold, multiplied by 365 and divided by 4. Generally, a lower
DCSI measure equates to a lesser investment in inventory, and,
therefore, more efficient use of capital. The table below shows our
DCSI for the immediately preceding eight fiscal
quarters:
|
Fiscal
Quarter
|
Ended
|
DCSI (days)
|
|
|
Q4-2021
|
6/30/2021
|
126
|
|
|
Q3-2021
|
3/31/2021
|
119
|
|
|
Q2-2021
|
12/31/2020
|
142
|
|
|
Q1-2021
|
9/30/2020
|
154
|
|
| Fiscal 2021 average |
|
135
|
|
|
Q4-2020
|
6/30/2020
|
146
|
|
|
Q3-2020
|
3/31/2020
|
160
|
|
|
Q2-2020
|
12/31/2019
|
121
|
|
|
Q1-2020
|
9/30/2019
|
142
|
|
| Fiscal 2020 average |
|
142
|
|
Our average DCSI for fiscal 2021 was 135, compared to 142 for
fiscal 2020. The decrease in DCSI is driven by the increase in
sales and a decrease in inventory levels, due to an increased focus
on inventory management. In the prior fiscal year, inventory levels
had increased in part due to strategic buys of certain raw
materials to reduce lead times and meet increasing demand for
infrared glass. For the second half of 2020, the increase in
inventory was also driven by the shift in customer order activity
due to COVID-19, where we were given short notice to delay
shipments of some products and accelerate the manufacturing and
shipment of other products. As we continue to see increasing demand
for both infrared and PMO products, we expect DCSI to return to a
range of between 110 to 120.
30
Accounts Receivable Levels and Quality:
Similarly,
we manage our accounts receivable to minimize investment in working
capital. We measure the quality of receivables by the proportions
of the total that are at various increments past due from our
normally extended terms, which are generally 30 days. The most
important aggregate measure of accounts receivable is the
quarter’s ending balance of net accounts receivable expressed
as a number of days’ worth of the quarter’s net
revenues, also known as “days sales outstanding,” or
“DSO.” It is calculated by dividing the quarter’s
ending net accounts receivable by the quarter’s net revenues,
multiplied by 365 and divided by 4. Generally, a lower DSO measure
equates to a lesser investment in accounts receivable and,
therefore, more efficient use of capital. The table below shows our DSO for the preceding
eight fiscal quarters:
|
Fiscal
Quarter
|
Ended
|
DSO (days)
|
|
|
Q4-2021
|
6/30/2021
|
51
|
|
|
Q3-2021
|
3/31/2021
|
53
|
|
|
Q2-2021
|
12/31/2020
|
63
|
|
|
Q1-2021
|
9/30/2020
|
60
|
|
| Fiscal 2021 average |
|
57
|
|
|
Q4-2020
|
6/30/2020
|
62
|
|
|
Q3-2020
|
3/31/2020
|
66
|
|
|
Q2-2020
|
12/31/2019
|
70
|
|
|
Q1-2020
|
9/30/2019
|
67
|
|
| Fiscal 2020 average |
|
66
|
|
Our average DSO for fiscal 2021 was 57, compared to 66 for fiscal
2020. The improvement in fiscal 2021 reflects our increased focus
on collections, and tightening of payment terms policies. The
decrease in the second half of fiscal 2021 also reflects a higher
sales mix to customers with shorter payment terms. We strive to
have a DSO no higher than 60.
Other Key Indicators:
Other
key indicators include various operating metrics, some of which are
qualitative and others are quantitative. These indicators change
from time to time as the opportunities and challenges in the
business change. They are mostly non-financial indicators, such as
on time delivery trends, units of shippable output by major product
line, production yield rates by major product line, and the output
and yield data from significant intermediary manufacturing
processes that support the production of the finished shippable
product. These indicators can be used to calculate such other
related indicators as fully-yielded unit production per-shift,
which varies by the particular product and our state of automation
in production of that product at any given time. Higher unit
production per shift means lower unit cost, and, therefore,
improved margins or improved ability to compete where desirable for
price sensitive customer applications. The data from these reports
is used to determine tactical operating actions and changes.
Management also assesses business performance and makes business
decisions regarding our operations using certain non-GAAP measures.
These non-GAAP measures are described in more detail below under
the heading “Non-GAAP Financial Measures”.
Non-GAAP Financial Measures
We
report our historical results in accordance with GAAP; however, our
management also assesses business performance and makes business
decisions regarding our operations using certain non-GAAP financial
measures. We believe these non-GAAP financial measures provide
useful information to management and investors that is
supplementary to our financial condition and results of operations
computed in accordance with GAAP; however, we acknowledge that our
non-GAAP financial measures have a number of limitations. As such,
you should not view these disclosures as a substitute for results
determined in accordance with GAAP, and they are not necessarily
comparable to non-GAAP financial measures that other companies
use.
EBITDA:
EBITDA is a non-GAAP financial measures used by management,
lenders, and certain investors as a supplemental measure in the
evaluation of some aspects of a corporation's financial position
and core operating performance. Investors sometimes use EBITDA as
it allows for some level of comparability of profitability trends
between those businesses differing as to capital structure and
capital intensity by removing the impacts of depreciation and
amortization. EBITDA also does not include changes in major working
capital items, such as receivables, inventory, and payables, which
can also indicate a significant need for, or source of, cash. Since
decisions regarding capital investment and financing and changes in
working capital components can have a significant impact on cash
flow, EBITDA is not a good indicator of a business's cash flows. We
use EBITDA for evaluating the relative underlying performance of
our core operations and for planning purposes. We calculate EBITDA
by adjusting net income to exclude net interest expense, income tax
expense or benefit, depreciation, and amortization, thus the term
“Earnings Before Interest, Taxes, Depreciation and
Amortization” and the acronym
“EBITDA.”
31
The following table adjusts net income to EBITDA for the three and
twelve months ended June 30, 2021 and 2020:
|
|
(unaudited)
|
|
|
|
|
|
Quarter Ended June
30,
|
Year Ended June
30,
|
||
|
|
2021
|
2020
|
2021
|
2020
|
|
Net income
(loss)
|
$(2,913,210)
|
$656,952
|
$(3,185,251)
|
$866,929
|
|
Depreciation and
amortization
|
900,964
|
837,123
|
3,509,436
|
3,424,438
|
|
Income tax
provision
|
(49,671)
|
90,442
|
933,915
|
763,998
|
|
Interest
expense
|
48,863
|
66,184
|
215,354
|
339,446
|
|
EBITDA
|
$(2,013,054)
|
$1,650,701
|
$1,473,454
|
$5,394,811
|
|
% of
revenue
|
-24%
|
18%
|
4%
|
15%
|
Our EBITDA for the quarter ended June 30, 2021 was a loss of
approximately $2.0 million, compared to earnings of $1.7 million
for the quarter ended June 30, 2020. The
decrease in EBITDA in the fourth quarter of fiscal 2021 was
primarily attributable to lower gross margin and increased SG&A
and Other expenses, including approximately $1.3 million of
expenses incurred related to the previously described events that
occurred in our Chinese subsidiaries, as well as certain director
and personnel matters that occurred during the period as discussed
above, as well as increased new product development costs. In
addition, there was an unfavorable difference of approximately
$112,000 in foreign exchange gains and losses.
Our EBITDA for fiscal 2021 was approximately $1.5 million, compared
to approximately $5.4 million for fiscal 2020. The decrease in EBITDA for fiscal 2021 is
primarily attributable to increased SG&A and Other expenses,
including approximately $2.0 million of expenses incurred related
to the previously described events that occurred in our Chinese
subsidiaries, as well as certain officer, director, and personnel
matters that occurred during the period as discussed above, and
increased new product development costs. These increased costs were
partially offset by a favorable difference of approximately
$213,000 in foreign exchange gains and losses.
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest
entities or off balance sheet arrangements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of income and expense
during the reporting periods presented. Our critical estimates
include the allowance for trade receivables, which is made up of
allowances for bad debts, allowances for obsolete inventory,
valuation of compensation expense on stock-based awards and
accounting for income taxes. Although we believe that these
estimates are reasonable, actual results could differ from those
estimates given a change in conditions or assumptions that have
been consistently applied. We also have other policies that we
consider key accounting policies, such as our policy for revenue
recognition, however, the application of these policies does not
require us to make significant estimates or judgments that are
difficult or subjective.
Management has discussed the selection of critical accounting
policies and estimates with our Board, and the Board has reviewed
our disclosure relating to critical accounting policies and
estimates in this Annual Report on Form 10-K. The critical
accounting policies used by management and the methodology for its
estimates and assumptions are as follows:
Allowance for accounts receivable is calculated by taking 100% of the total of
invoices that are over 90 days past due from the due date and 10%
of the total of invoices that are over 60 days past due from the
due date for U.S.- and Latvia-based accounts and 100% on invoices
that are over 120 days past due for China-based accounts without an
agreed upon payment plan. Accounts receivable are customer
obligations due under normal trade terms. We perform continuing
credit evaluations of our customers’ financial condition.
Recovery of bad debt amounts which were previously written off is
recorded as a reduction of bad debt expense in the period the
payment is collected. If our actual collection experience changes,
revisions to our allowance may be required. After attempts to
collect a receivable have failed, the receivable is written off
against the allowance. To date, our actual results have been
materially consistent with our estimates, and we expect such
estimates to continue to be materially consistent in the
future.
32
Inventory obsolescence allowance is calculated by reserving 100% for items that
have not been sold in two years or that have not been purchased in
two years. These items, as identified, are allowed for at 100%, as
well as allowing 50% for other items deemed to be slow moving
within the last twelve months and allowing 25% for items deemed to
have low material usage within the last six months. Items of which
we have greater than a two-year supply are also reserved at 25% to
100%, depending on usage rates. The parts identified are adjusted
for recent order and quote activity to determine the final
inventory allowance. To date, our actual results have been
materially consistent with our estimates, and we expect such
estimates to continue to be materially consistent in the
future.
Revenue is generally recognized
upon transfer of control, including the risks and rewards of
ownership, of products or services to customers in an amount that
reflects the consideration we expect to receive in exchange for
those products or services. The performance obligations for
the sale of optical components and assemblies are satisfied at a
point in time. We generally bear all
costs, risk of loss, or damage and retain title to the goods up to
the point of transfer of control of products to customers. Shipping
and handling costs are included in the cost of goods sold. Revenues
from product development agreements are recognized as performance
obligations are met in accordance with the terms of the agreements
and upon transfer of control of products, reports or designs to the
customer. Product development agreements are generally short
term in nature, with revenue recognized upon satisfaction of the
performance obligation, and transfer of control of the agreed-upon
deliverable. Invoiced amounts for
value-added taxes (“VAT”) related to sales are posted
to the balance sheet and are not included in
revenue.
Stock-based compensation is
measured at grant date, based on the fair value of the award, and
is recognized as an expense over the employee’s requisite
service period. We estimate the fair value of each stock option as
of the date of grant using the Black-Scholes-Merton pricing model.
Our directors, officers, and key employees were granted stock-based
compensation through our Amended and Restated Omnibus Incentive
Plan, as amended (the “Omnibus Plan”), through October
2018 and after that date, the 2018 Stock and Incentive Compensation
Plan (the “SICP”). Most options granted under the
Omnibus Plan and the SICP vest ratably over two to four years and
generally have ten-year contract lives. The volatility rate is
based on four-year historical trends in common stock closing prices
and the expected term was determined based primarily on historical
experience of previously outstanding options. The interest rate
used is the U.S. Treasury interest rate for constant maturities.
The likelihood of meeting targets for option grants that are
performance based are evaluated each quarter. If it is determined
that meeting the targets is probable, then the compensation expense
will be amortized over the remaining vesting
period.
Goodwill and intangible assets acquired in a business
combination are recognized at fair value using generally accepted
valuation methods appropriate for the type of intangible asset and
reported separately from goodwill. Purchased intangible assets
other than goodwill are amortized over their useful lives unless
these lives are determined to be indefinite. Purchased intangible
assets are carried at cost, less accumulated amortization.
Amortization is computed over the estimated useful lives of the
respective assets, generally two to fifteen years. We periodically
reassess the useful lives of intangible assets when events or
circumstances indicate that useful lives have significantly changed
from the previous estimate. Definite-lived intangible assets
consist primarily of customer relationships, know-how/trade secrets
and trademarks. They are generally valued as the present
value of estimated cash flows expected to be generated from the
asset using a risk-adjusted discount rate. When determining
the fair value of our intangible assets, estimates and assumptions
about future expected revenue and remaining useful lives are used.
Goodwill and intangible assets are tested for impairment on an
annual basis and during the period between annual tests if events
or changes in circumstances indicate that the carrying value of
goodwill may not be recoverable.
We
assess the qualitative factors to determine whether it is more
likely than not that the fair value of its reporting unit is less
than its carrying amount as a basis for determining whether it is
necessary to perform the goodwill impairment analysis. If we
determine that it is more likely than not that its fair value is
less than its carrying amount, then the goodwill impairment test is
performed. The fair value of the reporting unit is compared to its
carrying amount, and if the carrying amount exceeds its fair value,
then an impairment charge would be recognized for the amount by
which the carrying amount exceeds the reporting unit’s fair
value, up to the total amount of goodwill allocated to that
reporting unit.
Accounting for income taxes requires estimates and judgments
in determining income tax expense for financial statement purposes.
These estimates and judgments occur in the calculation of tax
credits, benefits, and deductions, and in the calculation of
certain tax assets and liabilities, which arise from differences in
the timing of the recognition of revenue and expense for tax and
financial statement purposes. We assessed the likelihood of the
realization of deferred tax assets and concluded that a valuation
allowance is needed to reserve the amount of the deferred tax
assets that may not be realized due to the uncertainty of the
timing and amount of taxable income in certain jurisdictions. In
reaching our conclusion, we evaluated certain relevant criteria,
including the amount of pre-tax income generated during the current
and prior two years, as adjusted for non-recurring items, the
existence of deferred tax liabilities that can be used to realize
deferred tax assets, the taxable income in prior carryback years in
the impacted jurisdictions that can be used to absorb net operating
losses and taxable income in future years. Our judgments regarding
future profitability may change due to future market conditions,
changes in U.S. or international tax laws and other factors. These
changes, if any, may require material adjustments to these deferred
tax assets, resulting in a reduction in net income or an increase
in net loss in the period when such determinations are made, which,
in turn, may result in an increase or decrease to our tax provision
in a subsequent period.
In the
ordinary course of global business, there are many transactions and
calculations where the ultimate tax outcome is uncertain. Some of
these uncertainties arise as a consequence of cost reimbursement
and royalty arrangements among related entities, which could impact
our income or loss in each jurisdiction in which we operate.
Although we believe our estimates are reasonable, no assurance can
be given that the final tax outcome of these matters will not be
different than that which is reflected in our historical income tax
provisions and accruals. In the event our assumptions are
incorrect, the differences could have a material impact on our
income tax provision and operating results in the period in which
such determination is made. In addition to the factors described
above, our current and expected effective tax rate is based on
then-current tax law. Significant changes during the year in
enacted tax law could affect these estimates.
Impact of recently issued accounting pronouncements that
have recently been issued but have not yet been implemented by us
are described in Note 2, Summary
of Significant Accounting Policies, to the Notes to the
Consolidated Financial Statements to this Annual Report on Form
10-K, which describes the potential impact that these
pronouncements are expected to have on our financial condition,
results of operations and cash flows.
33
Item 8. Financial
Statements and Supplementary Data.
The
information required by this Item is incorporated herein by
reference to the consolidated financial statements and
supplementary data set forth in Item 15. Exhibits, Financial Statement
Schedules of Part IV of this Annual Report on Form
10-K.
Item 9. Changes in
and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls
and Procedures.
Evaluation of Disclosure Controls and Procedures
As of
the end of the fiscal year ended June 30, 2021, we carried out
an evaluation, under the supervision and with the participation of
members of our management, including our Chief Executive Officer
(“CEO”) and our Chief Financial Officer
(“CFO”), of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to
Rule 13a-15(b) of the Exchange Act. Our CEO and our CFO have
concluded, based on their evaluation, that as of June 30,
2021, our disclosure controls and procedures were effective at the
end of the fiscal year to provide reasonable assurance that
information required to be disclosed by us in the reports that we
file or submit with the SEC under the Exchange Act is recorded,
processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms and is accumulated and
communicated to our management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure.
Management’s Annual Report on Internal Control over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act). Internal control over
financial reporting is a process, including policies and
procedures, designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with U.S.
generally accepted accounting principles. Our management assessed
our internal control over financial reporting based on the
Internal Control—Integrated
Framework (2013 Framework) issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on the results of this assessment, our
management concluded that our internal control over financial
reporting was effective as of June 30, 2021 based on such
criteria.
A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met under all potential
conditions, regardless of how remote, and may not prevent or detect
all errors and all fraud. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any,
within LightPath have been prevented or detected. Our internal
control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting
principles.
Auditor’s Report on Internal Control over Financial
Reporting
This
Annual Report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not
subject to attestation by our independent registered public
accounting firm pursuant to rules of the Securities and Exchange
Commission (the “SEC”) that permit us to provide only
management’s report in this Annual Report.
Changes in Internal Controls over Financial Reporting
In
connection with our continued monitoring and maintenance of our
controls procedures as part of the implementation of
Section 404 of the Sarbanes-Oxley Act, we continue to review,
test, and improve the effectiveness of our internal controls.
In
connection with the events that occurred at our Chinese
subsidiaries, we have adopted additional policies and procedures
designed to improve our internal controls, including, without
limitation, revising the reporting structure for our foreign-based
finance directors, adopting Codes of Conduct applicable to our
subsidiaries’ foreign-based employees, adopting an internal
authority approval matrix, and hiring additional staff for our
accounting departments at LPOI and LPOIZ to improve segregation of
duties, among other items. Other than these modifications,
there have not been any significant changes in our internal
control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth
quarter and since the year ended June 30, 2021 that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information.
Entry Into a Material Definitive Agreement
Creation of a Direct Financial Obligation or an Obligation Under an
Off-Balance Sheet Arrangement of Registrant
On
September 9, 2021, we entered into the Letter Agreement. The Letter
Agreement: (i) reduces the fixed charge coverage ratio to 1.0 for
the quarter ending September 30, 2021 and to 1.1 for the quarter
ended December 31, 2021; (ii) modifies the calculation for both the
fixed charge coverage ratio and the total leverage ratio to provide
for adjustments related to expenses incurred in connection with the
events at LPOI and LPOIZ, which expenses must be approved by
BankUnited; (iii) terminates the Guidance Line; and (iv) requires
approval from BankUnited prior to our being able to draw upon the
Revolving Line, subject to our compliance with the fixed charge
coverage ratio for the quarters ending September 30, 2021 and
December 31, 2021. The Letter Agreement also granted us a waiver of
default arising prior to the Letter Agreement for our failure to
comply with the fixed charge coverage ratio measured on June 30,
2021. Based on the waiver, we are no longer in default of the
Amended Loan Agreement. Finally, in connection with the Letter
Agreement, we paid BankUnited a fee equal to $10,000.
The
foregoing description of the Letter Agreement is a summary only and
is qualified in its entirety by reference to the complete text of
the Letter Agreement filed herewith as Exhibit 10.21.
34
PART III
Item
10. Directors, Executive Officers and
Corporate Governance.
The information required under this item is incorporated herein by
reference to our proxy statement for our fiscal 2022 Annual
Stockholders’ Meeting to be filed with the SEC not later than
120 days after the end of fiscal 2021.
Item
11. Executive Compensation.
The information required under this item is incorporated herein by
reference to our proxy statement for our fiscal 2022 Annual
Stockholders’ Meeting to be filed with the SEC not later than
120 days after the end of fiscal 2021.
Item 12. Security
Ownership of Certain Beneficial Owners and Management.
The information required under this item is incorporated herein by
reference to our proxy statement for our fiscal 2022 Annual
Stockholders’ Meeting to be filed with the SEC not later than
120 days after the end of fiscal 2021, with the exception of those
items listed below.
Securities Authorized for Issuance Under Equity Compensation
Plans
The
following table sets forth information with respect to compensation
plans under which our equity securities are authorized for issuance
as of the end of fiscal 2021:
|
Plan category
|
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
|
Weighted average exercise and grant price of outstanding options,
warrants and rights
|
Number of securities remaining available for future
issuance
|
|
Equity
compensation plans approved by security holders
|
2,194,812
|
$1.78
|
829,786
|
|
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
Item 13. Certain Relationships and
Related Transactions, and Director Independence.
The information required under this item is incorporated herein by
reference to our proxy statement for our fiscal 2022 Annual
Stockholders’ Meeting to be filed with the SEC not later than
120 days after the end of fiscal 2021.
Item
14. Principal Accountant Fees and
Services.
The information required under this item is incorporated herein by
reference to our proxy statement for our fiscal 2022 Annual
Stockholders’ Meeting to be filed with the SEC not later than
120 days after the end of fiscal 2021.
35
PART IV
Item
15. Exhibits, Financial Statement
Schedules.
(a)
The following documents
are filed as part of this Annual Report on Form 10-K:
(1)
Financial Statements
– See Index on page F-1 of this report
(b)
The following exhibits
are filed herewith as a part of this report
|
Exhibit Number
|
|
Description
|
|
|
|
|
|
|
Certificate
of Incorporation of LightPath Technologies, Inc., filed June 15,
1992 with the Secretary of State of Delaware, which was filed as
Exhibit 3.1.1 to our Annual Report on Form 10-K (File No.
000-25748) filed with the Securities and Exchange Commission on
September 10, 2020, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
|
|
Certificate
of Amendment to Certificate of Incorporation of LightPath
Technologies, Inc., filed October 2, 1995 with the Secretary of
State of Delaware, which was filed as exhibit 3.1.2 to our Annual
Report on Form 10-K (File No. 000-25748) filed with the Securities
and Exchange Commission on September 10, 2020, and is incorporated
herein by reference thereto
|
|
|
|
|
|
|
|
Certificate
of Designations of Class A common stock and Class E-1 common stock,
Class E-2 common stock, and Class E-3 common stock of LightPath
Technologies, Inc., filed November 9, 1995 with the Secretary of
State of Delaware, which was filed as Exhibit 3.1.3 to our Annual
Report on Form 10-K (File No. 000-25748) filed with the Securities
and Exchange Commission on September 10, 2020, and is incorporated
herein by reference thereto
|
|
|
|
|
|
|
|
Certificate
of Designation of Series A Preferred Stock of LightPath
Technologies, Inc., filed July 9, 1997 with the Secretary of State
of Delaware, which was filed as Exhibit 3.4 to our Annual Report on
Form 10-KSB40 filed with the Securities and Exchange Commission on
September 11, 1997, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
|
|
Certificate
of Designation of Series B Stock of LightPath Technologies, Inc.,
filed October 2, 1997 with the Secretary of State of Delaware,
which was filed as Exhibit 3.2 to our Quarterly Report on Form
10-QSB (File No. 000-27548) filed with the Securities and Exchange
Commission on November 14, 1997, and is incorporated herein by
reference thereto.
|
|
|
|
|
|
|
|
Certificate
of Amendment of Certificate of Incorporation of LightPath
Technologies, Inc., filed November 12, 1997 with the Secretary of
State of Delaware, which was filed as Exhibit 3.1 to our Quarterly
Report on Form 10-QSB (File No. 000-27548) filed with the
Securities and Exchange Commission on November 14, 1997, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Certificate
of Designation of Series C Preferred Stock of LightPath
Technologies, Inc., filed February 6, 1998 with the Secretary of
State of Delaware, which was filed as Exhibit 3.2 to our
Registration Statement on Form S-3 (File No. 333-47905) filed with
the Securities and Exchange Commission on March 13, 1998, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Certificate
of Designation, Preferences and Rights of Series D Participating
Preferred Stock of LightPath Technologies, Inc. filed April 29,
1998 with the Secretary of State of Delaware, which was filed as
Exhibit 1 to our Registration Statement on Form 8-A (File No.
000-27548) filed with the Securities and Exchange Commission on
April 28, 1998, and is incorporated herein by reference
thereto.
|
|
|
Certificate
of Designation of Series F Preferred Stock of LightPath
Technologies, Inc., filed November 2, 1999 with the Secretary of
State of Delaware, which was filed as Exhibit 3.2 to our
Registration Statement on Form S-3 (File No: 333-94303) filed with
the Securities and Exchange Commission on January 10, 2000, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
|
Certificate
of Amendment of Certificate of Incorporation of LightPath
Technologies, Inc., filed February 28, 2003 with the Secretary of
State of Delaware, which was filed as Appendix A to our Proxy
Statement (File No. 000-27548) filed with the Securities and
Exchange Commission on January 24, 2003, and is incorporated herein
by reference thereto.
|
|
|
|
|
|
|
Certificate
of Amendment of Certificate of Incorporation of LightPath
Technologies, Inc., filed March 1, 2016 with the Secretary of State
of Delaware, which was filed as Exhibit 3.1.11 to our Quarterly
Report on Form 10-Q (File No: 000-27548) filed with the Securities
and Exchange Commission on November 14, 2016, and is incorporated
herein by reference thereto.
|
|
|
|
|
|
|
|
Certificate
of Amendment of Certificate of Incorporation of LightPath
Technologies, Inc., filed October 30, 2017 with the Secretary of
State of Delaware, which was filed as Exhibit 3.1 to our Current
Report on Form 8-K (File No: 000-27548) filed with the Securities
and Exchange Commission on October 31, 2017, and is incorporated
herein by reference thereto.
|
|
|
|
|
|
|
|
Certificate
of Amendment of Certificate of Designations of Class A Common Stock
and Class E-1 Common Stock, Class E-2 Common Stock, and Class E-3
Common Stock of LightPath Technologies, Inc., filed October 30,
2017 with the Secretary of State of Delaware, which was filed as
Exhibit 3.2 to our Current Report on Form 8-K (File No: 000-27548)
filed with the Securities and Exchange Commission on October 31,
2017, and is incorporated herein by reference thereto.
|
|
|
|
|
|
36
|
|
Certificate
of Amendment of Certificate of Designation, Preferences and Rights
of Series D Participating Preferred Stock of LightPath
Technologies, Inc., filed January 30, 2018 with the Secretary of
State of Delaware, which was filed as Exhibit 3.1 to our Current
Report on Form 8-K (File No: 000-27548) filed with the Securities
and Exchange Commission on February 1, 2018, and is incorporated
herein by references thereto.
|
|
|
|
|
|
|
3.2.1
|
|
Second
Amended and Restated Bylaws of LightPath Technologies, Inc., which
was filed as Exhibit 3.1 to our Current Report on Form 8-K (File
No: 000-27548) filed with the Securities and Exchange Commission on
February 2, 2021, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
|
Description
of Securities Registered under Section 12 of the Securities
Exchange Act of 1934, as amended.*
|
|
|
|
|
|
|
|
Amended
and Restated Omnibus Incentive Plan dated October 15, 2002, as
amended, which was filed as Exhibit 10.1 to our Current Report on
Form 8-K (File No.: 000-27548) filed with the Securities and
Exchange Commission on October 31, 2017, and is incorporated herein
by reference thereto.
|
|
|
|
|
|
|
|
LightPath Technologies, Inc. Employee Stock Purchase Plan effective
January 30, 2015, which was filed as Appendix A to our Definitive
Proxy Statement on Schedule 14A (File No.: 000-27548) filed with
the Securities and Exchange Commission on December 19, 2014, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Sixth Amendment to Lease dated as of July 2, 2014 between LightPath
Technologies, Inc. and Challenger Discovery LLC, which was filed as
Exhibit 10.1 to our Current Report on Form 8-K (File No.:
000-27548) filed with the Securities and Exchange Commission on
July 8, 2014, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
|
|
Amendment No. 8 to the Amended and Restated LightPath Technologies,
Inc. Omnibus Incentive Plan dated February 8, 2018, which was filed
as Exhibit 10.7 to our Quarterly Report on Form 10-Q (File No.:
000-27548) filed with the Securities and Exchange Commission on
February 13, 2018, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
|
|
Lease
dated April 20, 2018, by and between LightPath Technologies, Inc.
and CIO University Tech, LLC, which was filed as Exhibit 10.1 to
our Current Report on Form 8-K (File No.: 000-27548) filed with the
Securities and Exchange Commission on April 26, 2018, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
First
Amendment to Lease, dated January 9, 2019, by and between LightPath
Technologies, Inc. and CIO University Tech, LLC, which was filed as
Exhibit 10.3 to our Quarterly Report on Form 10-Q (File No.:
000-27548) filed with the Securities and Exchange Commission on
February 7, 2019, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
|
|
Loan
Agreement dated February 26, 2019 by and between LightPath
Technologies, Inc. and BankUnited, N.A., which was filed as Exhibit
10.1 to our Current Report on Form 8-K (File No.: 000-27548) filed
with the Securities and Exchange Commission on March 1, 2019, and
is incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Term
Loan Note dated February 26, 2019 by LightPath Technologies, Inc.
in favor of BankUnited, N.A., which was filed as Exhibit 10.2 to
our Current Report on Form 8-K (File No.: 000-27548) filed with the
Securities and Exchange Commission on March 1, 2019, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Revolving
Credit Note dated February 26, 2019 by LightPath Technologies, Inc.
in favor of BankUnited, N.A., which was filed as Exhibit 10.3 to
our Current Report on Form 8-K (File No.: 000-27548) filed with the
Securities and Exchange Commission on March 1, 2019, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Guidance
Line Note dated February 26, 2019 by LightPath Technologies, Inc.
in favor of BankUnited, N.A., which was filed as Exhibit 10.4 to
our Current Report on Form 8-K (File No.: 000-27548) filed with the
Securities and Exchange Commission on March 21, 2019, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
37
|
|
Security
Agreement dated February 26, 2019 by LightPath Technologies, Inc.
in favor of BankUnited, N.A., and joined by GelTech, Inc. and ISP
Optics Corporation, which was filed as Exhibit 10.5 to our Current
Report on Form 8-K (File No.: 000-27548) filed with the Securities
and Exchange Commission on March 1, 2019, and is incorporated
herein by reference thereto.
|
|
|
|
|
|
|
|
Guaranty
Agreement (Term Loan) dated February 26, 2019 by GelTech Inc., ISP
Optics Corporation, LightPath Optical Instrumentation (Shanghai)
Co., Ltd., LightPath Optical Instrumentation (Zhenjiang) Co., Ltd.,
and ISP Optics Latvia, SIA in favor of BankUnited, N.A., which was
filed as Exhibit 10.6 to our Current Report on Form 8-K (File No.:
000-27548) filed with the Securities and Exchange Commission on
March 1, 2019, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
|
|
Guaranty
Agreement (Revolving Credit) dated February 26, 2019 by GelTech
Inc., ISP Optics Corporation, LightPath Optical Instrumentation
(Shanghai) Co., Ltd., LightPath Optical Instrumentation (Zhenjiang)
Co., Ltd., and ISP Optics Latvia, SIA in favor of BankUnited, N.A.,
which was filed as Exhibit 10.7 to our Current Report on Form 8-K
(File No.: 000-27548) filed with the Securities and Exchange
Commission on March 1, 2019, and is incorporated herein by
reference thereto.
|
|
|
|
|
|
|
|
Guaranty
Agreement (Guidance Line) dated February 26, 2019 by GelTech Inc.,
ISP Optics Corporation, LightPath Optical Instrumentation
(Shanghai) Co., Ltd., LightPath Optical Instrumentation (Zhenjiang)
Co., Ltd., and ISP Optics Latvia, SIA in favor of BankUnited, N.A.,
which was filed as Exhibit 10.8 to our Current Report on Form 8-K
(File No.: 000-27548) filed with the Securities and Exchange
Commission on March 1, 2019, and is incorporated herein by
reference thereto.
|
|
|
|
|
|
|
|
First
Amendment to Loan Agreement dated May 6, 2019, and effective
February 26, 2019, by and between LightPath Technologies, Inc. and
BankUnited, N.A., which was filed as Exhibit 10.10 to our Quarterly
Report on Form 10-Q (File No.: 000-27548) filed with the Securities
and Exchange Commission on May 9, 2019, and is incorporated herein
by reference thereto.
|
|
|
|
|
|
|
|
LightPath
Technologies, Inc. 2018 Stock and Incentive Compensation Plan,
which was filed as Exhibit 10.1 to our Current Report on Form 8-K
(File No.: 000-27548) filed with the Securities and Exchange
Commission on November 19, 2018, and is incorporated herein by
reference thereto.
|
|
|
|
|
|
|
|
Employment
Agreement between LightPath Technologies, Inc. and Mr. Sam Rubin,
which was filed as Exhibit 10.1 to our Current Report on Form 8-K
(File No.: 000-27548) filed with the Securities and Exchange
Commission on February 28, 2020, and is incorporated herein by
reference thereto.
|
|
|
|
|
|
|
|
Letter Agreement, dated November 13, 2020, by and between the
Company and J. James Gaynor which was filed as Exhibit 10.1
to our Quarterly Report on Form 10-Q (File No.: 000-27548) filed
with the Securities and Exchange Commission on February 3, 2021,
and is incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Employment
Agreement between LightPath Technologies, Inc. and Mr. Albert
Miranda, which was filed as Exhibit 10.1 to our Current Report on
Form 8-K (File No.: 000-27548) filed with the Securities and
Exchange Commission on April 22, 2021, and is incorporated herein
by reference thereto.
|
|
|
|
|
|
|
|
Eighth
Amendment to Lease Agreement between LightPath Technologies, Inc.
and Challenger-Discovery, LLC which was filed as Exhibit 99.1 to
our Current Report on Form 8-K (File No.: 000-27548) filed with the
Securities and Exchange Commission on May 17, 2021, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Letter
Agreement dated September 9, 2021, by and between LightPath
Technologies, Inc. and BankUnited, N.A.*
|
|
|
|
|
|
|
|
Code of Business Conduct and Ethics, which was filed as Exhibit
14.1 to our Current Report on Form 8-K (File No.: 000-27548) filed
with the Securities and Exchange Commission on May 3, 2016, and is
incorporated herein by reference thereto.
|
|
|
|
|
|
|
|
Code of Business Conduct and Ethics for Senior Financial Officers,
which was filed as Exhibit 14.2 to our Current Report on Form 8-K
(File No.: 000-27548) filed with the Securities and Exchange
Commission on May 3, 2016, and is incorporated herein by reference
thereto.
|
|
|
|
|
|
38
|
|
Subsidiaries of the Registrant*
|
|
|
|
|
|
|
|
Consent of MSL, P.A.*
|
|
|
|
|
|
|
|
Power of Attorney*
|
|
|
|
|
|
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934*
|
|
|
|
|
|
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934*
|
|
|
|
|
|
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 of Chapter 63
of Title 18 of the United States Code*
|
|
|
|
|
|
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 of Chapter 63
of Title 18 of the United States Code*
|
101.INS
XBRL Instance Document*
101.SCH
XBRL Taxonomy Extension Schema Document*
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB
XBRL Taxonomy Extension Label Linkbase Document*
101.PRE
XBRL Taxonomy Presentation Linkbase Document*
*filed
herewith
Item 16. Form 10-K Summary.
None.
39
LightPath Technologies, Inc.
Index
to Consolidated Financial Statements
|
Report
of Independent Registered Public Accounting Firm – MSL,
P.A.
|
|
F-2
|
|
|
|
|
|
|
|
|
|
Consolidated
Financial Statements:
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2021 and 2020
|
|
F-3
|
|
Consolidated
Statements of Comprehensive Income (Loss) for the years ended June
30, 2021 and 2020
|
|
F-4
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years
ended June 30, 2021 and 2020
|
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2021 and
2020
|
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Stockholders
of
LightPath Technologies, Inc.
Opinion on the Consolidated Financial Statements
We have
audited the accompanying consolidated balance sheets of LightPath
Technologies, Inc. (the “Company”) as of June 30,
2021 and 2020, and the related consolidated statements of
comprehensive income (loss), changes in stockholders’ equity,
and cash flows for each of the years ended June 30, 2021 and
2020, and the related notes (collectively referred to as the
consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of June 30,
2021 and 2020, and the results of its operations and its cash flows
for each of the years ended June 30, 2021 and 2020, in
conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial
reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such
opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in
the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
The
critical audit matter communicated below is a matter arising from
the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit
committee and that: (1) relates to accounts or disclosures that are
material to the consolidated financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
Inventory Allowance
As
disclosed in Note 2 of the notes to the Company’s
consolidated financial statements, the Company records an estimated
inventory allowance to state the Company’s inventories at the
lower of cost or net realizable value. The Company relies on, among
other things, past usage, sales experience, recent order and quote
activity, future sales forecasts, and its strategic business plan
to develop the estimate. As a result of management’s
assessment, the Company recorded an inventory allowance of
approximately $1,200,000 as of June 30, 2021.
Auditing
management’s estimate of the inventory allowance involved
subjective evaluation and high degree of auditor judgement due to
significant assumptions involved in estimating future inventory
turnover and sales.
Addressing
the matter involved performing procedures and evaluating audit
evidence in connection with forming our overall opinion on the
consolidated financial statements. We obtained an understanding and
evaluated the design of internal controls that address the risks of
material misstatement relating to recording inventory at the lower
of cost or net realizable value. We tested the accuracy and
completeness of the underlying data used in calculating the
inventory allowance, including testing of a sample of inventory
usage transactions, and recomputed the allowance calculation. We
also evaluated the Company’s ability to accurately estimate
the assumptions used to develop the estimate by comparing
historical allowance amounts to the history of actual inventory
write-offs. Furthermore, we reviewed management’s business
plan and forecasts of future sales.
We have
served as the Company’s auditor since 2017.
/s/
MSL, P.A.
Orlando,
Florida
September
13, 2021
F-2
|
LIGHTPATH
TECHNOLOGIES, INC.
|
||
|
Consolidated Balance Sheets
|
||
|
|
||
|
|
June
30,
|
June
30,
|
|
Assets
|
2021
|
2020
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$6,774,694
|
$5,387,388
|
|
Trade accounts
receivable, net of allowance of $45,643 and $9,917
|
4,656,354
|
6,188,726
|
|
Inventories,
net
|
8,659,587
|
8,984,482
|
|
Other
receivables
|
137,103
|
132,051
|
|
Prepaid expenses
and other assets
|
475,364
|
565,181
|
|
Total current
assets
|
20,703,102
|
21,257,828
|
|
|
|
|
|
Property and
equipment, net
|
13,279,867
|
11,799,061
|
|
Operating lease
right-of-use assets
|
9,015,498
|
1,220,430
|
|
Intangible assets,
net
|
5,582,881
|
6,707,964
|
|
Goodwill
|
5,854,905
|
5,854,905
|
|
Deferred tax
assets, net
|
147,000
|
659,000
|
|
Other
assets
|
27,737
|
75,730
|
|
Total
assets
|
$54,610,990
|
$47,574,918
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$2,924,333
|
$2,558,638
|
|
Accrued
liabilities
|
1,067,265
|
992,221
|
|
Accrued payroll and
benefits
|
2,810,043
|
1,827,740
|
|
Operating lease
liabilities, current
|
799,507
|
765,422
|
|
Loans payable,
current portion
|
634,846
|
981,350
|
|
Finance lease
obligation, current portion
|
212,212
|
278,040
|
|
Total current
liabilities
|
8,448,206
|
7,403,411
|
|
|
|
|
|
Finance lease
obligation, less current portion
|
66,801
|
279,435
|
|
Operating lease
liabilities, noncurrent
|
8,461,133
|
887,766
|
|
Loans payable, less
current portion
|
4,057,365
|
4,437,365
|
|
Total
liabilities
|
21,033,505
|
13,007,977
|
|
|
|
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred stock:
Series D, $.01 par value, voting;
|
|
|
|
500,000 shares
authorized; none issued and outstanding
|
—
|
—
|
|
Common stock:
Class A, $.01 par value, voting;
|
|
|
|
44,500,000 shares
authorized; 26,985,913 and 25,891,885
|
|
|
|
shares issued and
outstanding
|
269,859
|
258,919
|
|
Additional paid-in
capital
|
231,438,651
|
230,634,056
|
|
Accumulated other
comprehensive income
|
2,116,152
|
735,892
|
|
Accumulated
deficit
|
(200,247,177)
|
(197,061,926)
|
|
Total
stockholders’ equity
|
33,577,485
|
34,566,941
|
|
Total liabilities
and stockholders’ equity
|
$54,610,990
|
$47,574,918
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
||
F-3
|
LIGHTPATH
TECHNOLOGIES, INC.
|
||
|
Consolidated Statements of Comprehensive
Income (Loss)
|
||
|
|
||
|
|
|
|
|
|
Year
Ended
|
|
|
|
June
30,
|
|
|
|
2021
|
2020
|
|
Revenue,
net
|
$38,464,821
|
$34,967,963
|
|
Cost of
sales
|
25,017,051
|
21,125,464
|
|
Gross
margin
|
13,447,770
|
13,842,499
|
|
Operating
expenses:
|
|
|
|
Selling, general
and administrative
|
11,989,597
|
8,961,150
|
|
New product
development
|
2,165,951
|
1,714,077
|
|
Amortization of
intangibles
|
1,125,083
|
1,129,341
|
|
Loss (gain) on
disposal of property and equipment
|
8,951
|
(107,280)
|
|
Total operating
expenses
|
15,289,582
|
11,697,288
|
|
Operating income
(loss)
|
(1,841,812)
|
2,145,211
|
|
Other
expense:
|
|
|
|
Interest expense,
net
|
(215,354)
|
(339,446)
|
|
Other expense,
net
|
(194,170)
|
(174,838)
|
|
Total other
expense, net
|
(409,524)
|
(514,284)
|
|
Income (loss)
before income taxes
|
(2,251,336)
|
1,630,927
|
|
Income tax
provision
|
933,915
|
763,998
|
|
Net income
(loss)
|
$(3,185,251)
|
$866,929
|
|
Foreign currency
translation adjustment
|
1,380,260
|
(72,626)
|
|
Comprehensive
income (loss)
|
$(1,804,991)
|
$794,303
|
|
Earnings (loss) per
common share (basic)
|
$(0.12)
|
$0.03
|
|
Number of shares
used in per share calculation (basic)
|
26,314,025
|
25,853,419
|
|
Earnings (loss) per
common share (diluted)
|
$(0.12)
|
$0.03
|
|
Number of shares
used in per share calculation (diluted)
|
26,314,025
|
27,469,845
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
||
F-4
|
LIGHTPATH
TECHNOLOGIES, INC.
|
||||||
|
Consolidated Statements of Changes in Stockholders'
Equity
|
||||||
|
|
||||||
|
|
|
|
|
Accumulated
|
|
|
|
|
Class
A
|
|
Additional
|
Other
|
|
Total
|
|
|
Common
Stock
|
|
Paid-in
|
Comphrehensive
|
Accumulated
|
Stockholders’
|
|
|
Shares
|
Amount
|
Capital
|
Income
|
Deficit
|
Equity
|
|
Balances
at June 30, 2019
|
25,813,895
|
$258,139
|
$230,321,324
|
$808,518
|
$(197,928,855)
|
$33,459,126
|
|
Issuance of common
stock for:
|
|
|
|
|
|
|
|
Employee Stock
Purchase Plan
|
30,537
|
305
|
24,307
|
—
|
—
|
24,612
|
|
Exercise of Stock
Options & RSUs, net
|
42,453
|
425
|
21,838
|
—
|
—
|
22,263
|
|
Shares
issued as compensation
|
5,000
|
50
|
6,100
|
—
|
—
|
6,150
|
|
Stock-based
compensation on stock options & RSUs
|
—
|
—
|
260,487
|
—
|
—
|
260,487
|
|
Foreign currency
translation adjustment
|
—
|
—
|
—
|
(72,626)
|
—
|
(72,626)
|
|
Net
income
|
—
|
—
|
—
|
—
|
866,929
|
866,929
|
|
Balances
at June 30, 2020
|
25,891,885
|
$258,919
|
$230,634,056
|
$735,892
|
$(197,061,926)
|
$34,566,941
|
|
Issuance of common
stock for:
|
|
|
|
|
|
|
|
Employee Stock
Purchase Plan
|
8,145
|
81
|
29,897
|
—
|
—
|
29,978
|
|
Exercise of Stock
Options & RSUs, net
|
1,085,883
|
10,859
|
131,833
|
—
|
—
|
142,692
|
|
Stock-based
compensation on stock options & RSUs
|
—
|
—
|
642,865
|
—
|
—
|
642,865
|
|
Foreign currency
translation adjustment
|
—
|
—
|
—
|
1,380,260
|
—
|
1,380,260
|
|
Net
loss
|
—
|
—
|
—
|
—
|
(3,185,251)
|
(3,185,251)
|
|
Balances
at June 30, 2021
|
26,985,913
|
$269,859
|
$231,438,651
|
$2,116,152
|
$(200,247,177)
|
$33,577,485
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
||||||
F-5
|
LIGHTPATH
TECHNOLOGIES, INC.
|
||
|
Consolidated Statements of Cash Flows
|
||
|
|
||
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
Cash flows from
operating activities:
|
|
|
|
Net (loss)
income
|
$(3,185,251)
|
$866,929
|
|
Adjustments to
reconcile net (loss) income to net cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
3,509,436
|
3,424,438
|
|
Interest from
amortization of debt costs
|
18,572
|
18,572
|
|
Loss (gain) on
disposal of property and equipment
|
8,951
|
(107,280)
|
|
Stock-based
compensation on stock options & RSUs, net
|
642,865
|
250,737
|
|
Provision for
doubtful accounts receivable
|
(35,799)
|
18,826
|
|
Change in operating
lease liabilities
|
(187,616)
|
(157,757)
|
|
Inventory
write-offs to allowance
|
157,399
|
127,872
|
|
Deferred tax
expense (benefit)
|
512,000
|
(7,000)
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Trade accounts
receivable
|
1,568,171
|
3,279
|
|
Other
receivables
|
(5,052)
|
221,644
|
|
Inventories
|
167,496
|
(1,427,827)
|
|
Prepaid
expenses and other assets
|
137,810
|
403,220
|
|
Accounts
payable and accrued liabilities
|
1,423,042
|
97,160
|
|
Net
cash provided by operating activities
|
4,732,024
|
3,732,813
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
Purchase
of property and equipment
|
(3,158,784)
|
(2,442,779)
|
|
Proceeds
from sale of equipment
|
—
|
186,986
|
|
Net
cash used in investing activities
|
(3,158,784)
|
(2,255,793)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from
exercise of stock options
|
142,692
|
22,263
|
|
Proceeds from sale
of common stock from Employee Stock Purchase Plan
|
29,978
|
24,612
|
|
Borrowings on loans
payable
|
275,377
|
400,000
|
|
Payments on loans
payable
|
(1,013,014)
|
(581,350)
|
|
Repayment of
finance lease obligations
|
(278,462)
|
(487,233)
|
|
Net
cash used in financing activities
|
(843,429)
|
(621,708)
|
|
Effect of exchange
rate on cash and cash equivalents
|
657,495
|
(72,625)
|
|
Change in cash and
cash equivalents
|
1,387,306
|
782,687
|
|
Cash and cash
equivalents, beginning of period
|
5,387,388
|
4,604,701
|
|
Cash and cash
equivalents, end of period
|
$6,774,694
|
$5,387,388
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
Interest paid
in cash
|
$199,524
|
$330,910
|
|
Income taxes
paid
|
$1,054,232
|
$526,225
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
||
F-6
LIGHTPATH
TECHNOLOGIES, INC.
Notes to Consolidated Financial
Statements
1.
Organization
and History
LightPath
Technologies, Inc. (“LightPath”, the
“Company”, “we”, “us” or
“our”) was incorporated in Delaware in 1992. It was the
successor to LightPath Technologies Limited Partnership formed in
1989, and its predecessor, Integrated Solar Technologies
Corporation formed in 1985. The Company completed its initial
public offering during fiscal 1996. On April 14, 2000, the Company
acquired Horizon Photonics, Inc. (“Horizon”). On
September 20, 2000, the Company acquired Geltech, Inc.
(“Geltech”). In November 2005, we formed LightPath
Optical Instrumentation (Shanghai) Co., Ltd (“LPOI”), a
wholly-owned subsidiary located in Jiading, People’s Republic
of China. In December 2013, we formed LightPath Optical
Instrumentation (Zhenjiang) Co., Ltd (“LPOIZ”), a
wholly-owned subsidiary located in Zhenjiang, Jiangsu Province,
People’s Republic of China. In December 2016, we acquired ISP
Optics Corporation, a New York corporation (“ISP”), and
its wholly-owned subsidiary, ISP Optics Latvia, SIA, a limited
liability company founded in 1998 under the Laws of the Republic of
Latvia (“ISP Latvia”).
LightPath
is a manufacturer of optical components and higher-level
assemblies, including precision molded glass aspheric optics,
molded and diamond-turned infrared aspheric lenses, and other
optical components used to produce products that manipulate light.
LightPath designs, develops, manufactures, and distributes optical
components and assemblies utilizing advanced optical manufacturing
processes. LightPath products are incorporated into a variety of
applications by customers in many industries, including defense
products, medical devices, laser aided industrial tools, automotive
safety applications, barcode scanners, optical data storage, hybrid
fiber coax datacom, telecommunications, machine vision and sensors,
among others.
As used
herein, the terms “LightPath,” the
“Company,” “we,” “us” or
“our,” refer to LightPath individually or, as the
context requires, collectively with its subsidiaries on a
consolidated basis.
2.
Significant
Accounting Policies
Consolidated Financial Statements include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in
consolidation.
Management estimates. Management makes estimates and assumptions during
the preparation of the Company’s Consolidated Financial
Statements that affect amounts reported in the Consolidated
Financial Statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes
available, which, in turn, could impact the amounts reported and
disclosed herein.
Cash and cash equivalents consist of cash in the bank and cash equivalents
with maturities of 90 days or less when purchased. The Company
maintains its cash accounts in various institutions, generally with
high credit ratings. The Company’s domestic cash accounts are
maintained in one financial institution, and balances may exceed
Federal insured limits at times. The Company’s foreign cash
accounts are not insured. The Company did not have any restricted
cash as of June 30, 2021 or 2020.
Allowance for accounts receivable is calculated by taking 100% of the total of
invoices that are over 90 days past due from the due date and 10%
of the total of invoices that are over 60 days past due from the
due date for U.S.- and Latvia-based accounts and 100% of invoices
that are over 120 days past due for Chinese-based accounts.
Accounts receivable are customer obligations due under normal trade
terms. The Company performs continuing credit evaluations of its
customers’ financial condition. If the Company’s actual
collection experience changes, revisions to its allowance may be
required. After all attempts to collect a receivable have failed,
the receivable is written off against the
allowance.
F-7
Inventories, which consist
principally of raw materials, tooling, work-in-process and finished
lenses, collimators and assemblies are stated at the lower of cost
or net realizable value, on a first-in, first-out basis. Inventory
costs include materials, labor and manufacturing overhead.
Acquisition of goods from our vendors has a purchase burden added
to cover customs, shipping and handling costs. Fixed costs related
to excess manufacturing capacity are expensed when incurred. The
Company looks at the following criteria for parts to consider for
the inventory allowance: (i) items that have not been sold in two
years and (ii) items that have not been purchased in two
years. These items, as identified, are allowed for at
100%, as well as allowing 50% for other items deemed to be slow
moving within the last twelve months and allowing 25% for items
deemed to have low material usage within the last six months. Items
of which we have greater than a two-year supply are also reserved
at 25% to 100%, depending on usage rates. The parts identified are
adjusted for recent order and quote activity to determine the final
inventory allowance.
Property and equipment are
stated at cost and depreciated using the straight-line method over
the estimated useful lives of the related assets ranging from one
to ten years. Leasehold improvements are amortized over the shorter
of the lease term or the estimated useful lives of the related
assets using the straight-line method. Construction in process
represents the accumulated costs of assets not yet placed in
service and primarily relates to manufacturing
equipment.
Long-lived assets, such as
property, plant, and equipment and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an
asset to its estimated undiscounted future cash flows expected to
be generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount of the asset
exceeds the fair value of the asset. The Company did not record any
impairment of long-lived assets during the fiscal years ended June
30, 2021 and 2020. Assets to be disposed of would be separately
presented in the Consolidated Balance Sheet and reported at the
lower of the carrying amount or fair value less costs to sell, and
would no longer be depreciated. The assets and liabilities of a
disposed group classified as held for sale would be presented
separately in the appropriate asset and liability sections of the
Consolidated Balance Sheet.
Goodwill and Intangible Assets acquired in a business
combination are recognized at fair value using generally accepted
valuation methods appropriate for the type of intangible asset and
reported separately from goodwill. Purchased intangible assets
other than goodwill are amortized over their useful lives unless
these lives are determined to be indefinite. Purchased intangible
assets are carried at cost, less accumulated amortization.
Amortization is computed over the estimated useful lives of the
respective assets, generally two to fifteen years. The Company
periodically reassesses the useful lives of its intangible assets
when events or circumstances indicate that useful lives have
significantly changed from the previous estimate. Definite-lived
intangible assets consist primarily of customer relationships,
know-how/trade secrets and trademarks. They are generally
valued as the present value of estimated cash flows expected to be
generated from the asset using a risk-adjusted discount rate.
When determining the fair value of our intangible assets, estimates
and assumptions about future expected revenue and remaining useful
lives are used. Goodwill and intangible assets are tested for
impairment on an annual basis and during the period between annual
tests if events or changes in circumstances indicate that the
carrying value of goodwill may not be recoverable.
The
Company will assess the qualitative factors to determine whether it
is more likely than not that the fair value of its reporting unit
is less than its carrying amount as a basis for determining whether
it is necessary to perform the goodwill impairment analysis. If the
Company determines that it is more likely than not that its fair
value is less than its carrying amount, then the goodwill
impairment test is performed. The first step, identifying a
potential impairment, compares the fair value of the reporting unit
with its carrying amount. If the carrying amount exceeds its fair
value, the second step would need to be performed; otherwise, no
further steps are required. The second step, measuring the
impairment loss, compares the implied fair value of the goodwill
with the carrying amount of the goodwill. Any excess of the
goodwill carrying amount over the implied fair value is recognized
as an impairment loss, and the carrying value of goodwill is
written down to fair value. The Company did not record any goodwill
impairment during the fiscal years ended June 30, 2021 or
2020.
Leases. During the first quarter of fiscal 2020, the Company
adopted ASU No. 2016-02, Leases
(Topic 842) (“ASC Topic 842”). This guidance
requires an entity to recognize lease liabilities and a
right-of-use asset for all leases on the balance sheet and to
disclose key information about the entity’s leasing
arrangements. The Company adopted this standard as of July 1, 2019,
using the modified retrospective transition method by applying the
new standard to all leases existing at the date of initial
application and not restating comparative periods. The Company
elected the package of practical expedients permitted under the
transition guidance, which allowed the Company to carryforward
historical lease classification, and not reassess (i) whether a
contract was or contained a lease, and (ii) initial direct costs
for any leases that existed prior to July 1, 2019. The Company also
elected to combine lease and non-lease components and not to record
leases with an initial term of 12 months or less on the
Consolidated Balance Sheet. As a result of adopting ASC Topic 842
on July 1, 2019, the Company recognized operating lease
right-of-use assets of $1.7 million and corresponding operating
lease liabilities of $2.3 million from existing leases on the
Company's Consolidated Balance Sheet. See Note 13, Leases, for further details. The
adoption of ASC Topic 842 had no impact on the Company’s
Consolidated Statement of Comprehensive Income (Loss) or
Consolidated Statement of Cash Flows.
F-8
Income taxes are accounted for
under the asset and liability method. Deferred income tax assets
and liabilities are computed on the basis of differences between
the financial statement and tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future
based upon enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income.
Valuation allowances have been established to reduce deferred tax
assets to the amount expected to be realized.
The Company has not recognized a liability for uncertain tax
positions. A reconciliation of the beginning and ending amount of
unrecognized tax benefits or penalties has not been provided since
there has been no unrecognized benefit or penalty. If there were an
unrecognized tax benefit or penalty, the Company would recognize
interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses.
The Company files United States (“U.S.”) Federal income
tax returns, as well as tax returns in various states and foreign
jurisdictions. Open tax years subject to examination by the
Internal Revenue Service generally remain open for three years from
the filing date. Tax years subject to examination by the state
jurisdictions generally remain open for up to four years from the
filing date. In Latvia, tax years subject to examination remain
open for up to five years from the filing date and, in China, tax
years subject to examination remain open for up to ten years from
the filing date.
Our cash, cash equivalents totaled approximately $6.8 million at
June 30, 2021. Of this amount, greater than 50% was held by
our foreign subsidiaries in China and Latvia. These foreign funds
were generated in China and Latvia as a result of foreign earnings.
Historically, we considered unremitted earnings held by our foreign
subsidiaries to be permanently reinvested. However, during fiscal
2020, we began declaring intercompany dividends to remit a portion
of the earnings of our foreign subsidiaries to the U.S. parent
company. It is still our intent to reinvest a significant portion
of earnings generated by our foreign subsidiaries, however we also
plan to repatriate a portion of their earnings.
With respect to the funds generated by our foreign subsidiaries in
China, the retained earnings of
the legal entity must equal at least 50% of the registered capital
before any funds can be repatriated. During fiscal 2021 and 2020,
we repatriated approximately $4 million and $2 million,
respectively, from LPOIZ. Based on retained earnings as of December
31, 2020, the end of the most recent statutory tax year, LPOIZ had
an additional $5.6 million available and LPOI did not have any
funds available for repatriation. Based on our previous intent, we
had not historically provided for future Chinese withholding taxes
on the related earnings. However, during fiscal 2020 we began to
accrue for these taxes on the portion of earnings that we intend to
repatriate. As of June 30, 2021, withholding taxes of $100,000 have
been accrued related to future dividends.
Beginning in fiscal 2019, earnings from the Company’s
non-U.S. subsidiaries were subject to the global intangible
low-taxed income (“GILTI”) inclusion pursuant to U.S.
income tax rules. See Note 9, Income
Taxes, to these Consolidated
Financial Statements for additional
information.
Revenue recognition – See
Note 3, Revenue, to these Consolidated Financial Statements for
additional information.
VAT is computed on the gross
sales price on all sales of the Company’s products sold in
the People’s Republic of China and Latvia. The VAT rates
range up to 21%, depending on the type of products sold. The VAT
may be offset by VAT paid by the Company on raw materials and other
materials included in the cost of producing or acquiring its
finished products. The Company recorded a VAT receivable, net of
payables, in the accompanying Consolidated Financial
Statements.
New product development costs
are expensed as incurred.
F-9
Stock-based compensation is
measured at grant date, based on the fair value of the award, and
is recognized as an expense over the employee’s requisite
service period. We estimate the fair value of each restricted
stock unit or stock option as of the date of grant using the
Black-Scholes-Merton pricing model. Our directors, officers, and
key employees were granted stock-based compensation through our
Amended and Restated Omnibus Incentive Plan, as amended (the
“Omnibus Plan”), through October 2018 and after that
date, the 2018 Stock and Incentive Compensation Plan (the
“SICP”). Most options granted under the Omnibus Plan
and the SICP vest ratably over
two to four years and generally have four to ten-year contract
lives. The volatility rate is based on historical trends
in common stock closing prices and the expected term was determined
based primarily on historical experience of previously outstanding
awards. The interest rate used is the U.S. Treasury
interest rate for constant maturities. The likelihood of meeting
targets for option grants that are performance based are evaluated
each quarter. If it is determined that meeting the targets is
probable, then the compensation expense will be amortized over the
remaining vesting period.
Fair value of financial instruments. The Company accounts for financial instruments in
accordance with the Financial Accounting Standards Board’s
(“FASB”) Accounting Standards Codification Topic 820,
“Fair Value Measurements and Disclosures” (“ASC
820”), which provides a framework for measuring fair value
and expands required disclosure about fair value measurements of
assets and liabilities. ASC 820 defines fair value as the
exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair
value:
Level 1 - Quoted prices in active markets for identical assets or
liabilities.
Level 2 - Inputs other than quoted prices included within Level 1
that are either directly or indirectly observable.
Level 3 - Unobservable inputs that are supported by little or no
market activity, therefore requiring an entity to develop its own
assumptions about the assumptions that market participants would
use in pricing.
Fair value estimates discussed herein are based upon certain market
assumptions and pertinent information available to
management.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. These
financial instruments include accounts receivable, accounts payable
and accrued liabilities. Fair values were assumed to
approximate carrying values for these financial instruments since
they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on
demand. The fair value of the Company’s finance lease
obligations and loans payable approximate their carrying values,
based upon current rates available to us. See Note 17, Loans Payable, to these Consolidated
Financial Statements for additional information. Management
considers these fair value estimates to be level 2 fair value
measurements.
The Company does not have any other financial or non-financial
assets or liabilities that would be characterized as Level 1, Level
2 or Level 3 instruments.
Debt issuance costs are recorded as a reduction to the
carrying value of the related notes payable, by the same amount,
and are amortized ratably over the term of the related
note.
Comprehensive income is defined
as the change in equity (net assets) of a business enterprise
during a period from transactions and other events and
circumstances from non-owner sources. It includes all
changes in equity during a period, except those resulting from
investments by owners and distributions to
owners. Comprehensive income has two components, net
income, and other comprehensive income, and is included on the
Consolidated Statements of Comprehensive Income. Our other
comprehensive income consists of foreign currency translation
adjustments made for financial reporting
purposes.
Business segments. As the
Company only operates in principally one business segment, no
additional reporting is required.
F-10
Recent accounting pronouncements. There
are new accounting pronouncements issued by the FASB that are not
yet effective for the Company for the year ended June 30,
2021.
In
December 2019, the FASB issued Accounting Standards Update
(“ASU”) 2019-12, “Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes.” The amendments
in this update simplify the accounting for income taxes by removing
certain exceptions to the general principles in Topic 740. The
amendments also improve consistent application of and simplify U.S.
GAAP for other areas of Topic 740 by clarifying and amending
existing guidance. For public business entities, the amendments in
this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2020. This
ASU will be effective for the Company in the first quarter of
fiscal year 2022. Early adoption is permitted. The Company is
currently evaluating the impact of the adoption of this update on
its Consolidated Financial Statements.
No
other new accounting pronouncement recently issued or newly
effective had or is expected to have a material impact on the
Consolidated Financial Statements.
3.
Revenue
Product Revenue
The
Company manufactures optical components and higher-level
assemblies, including precision molded glass aspheric optics,
molded and diamond-turned infrared aspheric lenses, and other
optical components used to produce products that manipulate light.
The Company designs, develops, manufactures, and distributes
optical components and assemblies utilizing advanced optical
manufacturing processes. The Company also performs research and
development for optical solutions for a wide range of optics
markets. Revenue is derived primarily from the sale of optical
components and assemblies.
Revenue Recognition
Revenue
is generally recognized upon transfer of control, including the
risks and rewards of ownership, of products or services to
customers in an amount that reflects the consideration the Company
expects to receive in exchange for those products or services. The
Company generally bears all costs, risk of loss, or damage and
retains title to the goods up to the point of transfer of control
of products to customers. Shipping and handling costs are included
in the cost of goods sold. Revenue is presented net of sales taxes
and any similar assessments.
Customary
payment terms are granted to customers, based on credit
evaluations. The Company does not have any contracts where revenue
is recognized, but the customer payment is contingent on a future
event. Deferred revenue is recorded when cash payments are received
or due in advance of the Company’s performance. Deferred
revenue was not significant as of June 30, 2021 and
2020.
Nature of Products
Revenue
from the sale of optical components and assemblies is recognized
upon transfer of control, including the risks and rewards of
ownership, to the customer. The performance obligations for the
sale of optical components and assemblies are satisfied at a point
in time. Product development agreements are generally short term in
nature, with revenue recognized upon satisfaction of the
performance obligation, and transfer of control of the agreed-upon
deliverable. The Company has organized its products in three
groups: precision molded optics (“PMO”), infrared, and
specialty products. Revenues from product development agreements
are included in specialty products. The Company’s revenue by
product group for the years ended June 30, 2021 and 2020 was as
follows:
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
PMO
|
$15,882,189
|
$14,639,687
|
|
Infrared
Products
|
20,971,080
|
18,052,856
|
|
Specialty
Products
|
1,611,552
|
2,275,420
|
|
Total
revenue
|
$38,464,821
|
$34,967,963
|
F-11
4.
Inventories,
net
The
components of inventories include the following:
|
|
June 30,
2021
|
June 30,
2020
|
|
Raw
materials
|
$3,908,630
|
$3,876,955
|
|
Work in
process
|
2,473,070
|
2,989,070
|
|
Finished
goods
|
3,467,105
|
3,134,800
|
|
Allowance for
obsolescence
|
(1,189,218)
|
(1,016,343)
|
|
|
$8,659,587
|
$8,984,482
|
|
|
|
|
During
fiscal 2021 and 2020, the Company evaluated all allowed items and
disposed of approximately $157,000 and $128,000, respectively, of
inventory parts and wrote them off against the allowance for
obsolescence.
The value of tooling in raw materials, net of the related allowance
for obsolescence, was approximately $2.0 million and $2.3 million
at June 30, 2021 and 2020, respectively.
5.
Property
and Equipment, net
Property
and equipment consist of the following:
|
|
Estimated
|
June
30,
|
June
30,
|
|
|
Lives
(Years)
|
2021
|
2020
|
|
Manufacturing
equipment
|
5 - 10
|
$21,465,402
|
$18,444,448
|
|
Computer equipment
and software
|
3 - 5
|
918,679
|
801,625
|
|
Furniture and
fixtures
|
5
|
362,944
|
321,418
|
|
Leasehold
improvements
|
5 - 7
|
2,944,543
|
2,171,388
|
|
Construction in
progress
|
|
1,529,452
|
1,274,880
|
|
Total property and
equipment
|
|
27,221,020
|
23,013,759
|
|
Less accumulated
depreciation and amortization
|
|
(13,941,153)
|
(11,214,698)
|
|
Total property and
equipment, net
|
|
$13,279,867
|
$11,799,061
|
|
|
|
|
|
During
fiscal 2015, the Company extended the term of its Orlando lease and
received a tenant improvement allowance from the landlord of
$420,014. During fiscal 2019, the Company received a tenant
improvement allowance from the landlord related to the new portion
of the Orlando facility in the amount of $309,450. These allowances
were used to construct improvements and were initially recorded as
leasehold improvements and deferred rent liability. The balances
are being amortized over the corresponding lease terms, and are
included in leasehold improvements and operating lease liabilities
as of June 30, 2021 and 2020.
F-12
6. Goodwill and Intangible Assets
In
connection with the December 2016 acquisition of ISP, the Company
identified intangible assets, which were recorded at fair value and
are being amortized on a straight-line basis over their useful
lives. The excess purchase price over the fair values of all
identified assets and liabilities was recorded as goodwill,
attributable primarily to expected synergies and the assembled
workforce of ISP.
There
were no changes in the net carrying value of goodwill during the
years ended June 30, 2021 and 2020, and there have been no events
or changes in circumstances that indicate the carrying value of
goodwill may not be recoverable.
Identifiable
intangible assets were comprised of:
|
|
Useful
Lives (Years)
|
June
30, 2021
|
June
30, 2020
|
|
Customer
relationships
|
15
|
$3,590,000
|
$3,590,000
|
|
Trade
secrets
|
8
|
3,272,000
|
3,272,000
|
|
Trademarks
|
8
|
3,814,000
|
3,814,000
|
|
Total
intangible assets
|
|
10,676,000
|
10,676,000
|
|
Less
accumulated amortization
|
|
(5,093,119)
|
(3,968,036)
|
|
Total
intangible assets, net
|
|
$5,582,881
|
$6,707,964
|
Future
amortization of identifiable intangibles is as
follows:
|
Fiscal
year ending:
|
|
|
June
30, 2022
|
1,125,083
|
|
June
30, 2023
|
1,125,083
|
|
June
30, 2024
|
1,125,083
|
|
June
30, 2025
|
658,398
|
|
After
June 30, 2025
|
1,549,234
|
|
|
$5,582,881
|
7. Accounts Payable
The
accounts payable balances as of June 30, 2021 and 2020 include
earned but unpaid Board of Directors’ fees of approximately
$99,500 and $91,000, respectively.
F-13
8. Stockholders’ Equity
The
Company’s authorized capital stock consists of 55,000,000
shares, comprised of 50,000,000 shares of common stock, par value
$0.01 per share, and 5,000,000 shares of preferred stock, par value
$0.01 per share.
Of the
5,000,000 shares of preferred stock authorized, the board of
directors has previously designated:
●
250 shares of
preferred stock as Series A Preferred Stock, all previously
outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be
reissued;
●
300 shares of
preferred stock as Series B Preferred Stock, all previously
outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be
reissued;
●
500 shares of
preferred stock as Series C Preferred Stock, all previously
outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be
reissued;
●
500,000 shares of
preferred stock as Series D Preferred Stock, none of which have
been issued; and
●
500 shares of our
preferred stock as Series F Preferred Stock, all previously
outstanding shares of which have been previously redeemed or
converted into shares of our Class A common stock and may not be
reissued.
Of the
50,000,000 shares of common stock authorized, the board of
directors has previously designated 44,500,000 shares authorized as
Class A common stock. The stockholders of Class A common stock are
entitled to one vote for each share held. The remaining 5,500,000
shares of authorized common stock were designated as Class E-1
common stock, Class E-2 common stock, or Class E-3 common stock,
all previously outstanding shares of which have been previously
redeemed or converted into shares of Class A common
stock.
9.
Income
Taxes
For
financial reporting purposes, income before income taxes includes
the following components:
|
|
Year
Ended June 30,
|
|
|
|
2021
|
2020
|
|
Pretax income (loss):
|
|
|
|
United
States
|
$(5,265,803)
|
$(3,739,527)
|
|
Foreign
|
3,014,467
|
5,370,454
|
|
Income
(loss) before income taxes
|
$(2,251,336)
|
$1,630,927
|
The
components of the provision for income taxes are as
follows:
|
|
Year
Ended June 30,
|
|
|
|
2021
|
2020
|
|
Current:
|
|
|
|
Federal
tax
|
$-
|
$-
|
|
State
|
18,563
|
3,047
|
|
Foreign
|
403,352
|
767,951
|
|
Total
current
|
421,915
|
770,998
|
|
|
|
|
|
Deferred:
|
|
|
|
Federal
tax
|
510,069
|
4,931
|
|
State
|
1,931
|
(11,931)
|
|
Foreign
|
-
|
-
|
|
Total
deferred
|
512,000
|
(7,000)
|
|
|
|
|
|
Total
income tax provision
|
$933,915
|
$763,998
|
F-14
The
reconciliation of income tax computed at the U.S. federal statutory
rates to the total income tax provision is as follows:
|
|
Year
Ended June 30,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
U.S.
federal statutory tax rate
|
21.0%
|
21.0%
|
|
|
|
|
|
Income tax provision reconciliation:
|
|
|
|
Tax
at statutory rate:
|
$(472,782)
|
$342,495
|
|
Net
foreign income subject to lower tax rate
|
(169,276)
|
(497,959)
|
|
State
income taxes, net of federal benefit
|
(196,719)
|
(75,415)
|
|
Valuation
allowance
|
(1,400,450)
|
344,793
|
|
NOL
expiration and adjustments
|
3,516,695
|
(206,807)
|
|
GILTI
|
310,431
|
835,101
|
|
Federal
research and development and other credits
|
(74,288)
|
(71,962)
|
|
Stock-based
compensation
|
(265,485)
|
-
|
|
Other
permanent differences
|
(67,893)
|
(183,367)
|
|
Other,
net
|
(246,318)
|
277,119
|
|
|
$933,915
|
$763,998
|
On
March 27, 2020, the Coronavirus Aid, Relief, and Economic Security
Act (the “CARES Act”) was signed into law, which, among
other things, is intended to provide emergency assistance to
qualifying businesses and individuals. The CARES Act also suspends
the limitation on the deduction of NOLs arising in taxable years
beginning before January 1, 2021, permits a five-year carryback of
NOLs arising in taxable years beginning after December 31, 2017 and
before January 1, 2021, and generally modifies the limitation on
the deduction for net interest expense to 50% of adjusted taxable
income for taxable years beginning in 2019 and 2020. During fiscal
2020, as a result of the CARES Act, the Company was able to
accelerate the recovery of an income tax receivable related to
previously paid alternative minimum tax. The receivable amount of
approximately $107,000 as of June 30, 2020 was collected in July
2020. In addition, the Company elected to utilize the payroll tax
deferral under the CARES Act, resulting in cash savings of
approximately $325,000, accrued as of June 30, 2021 and deferred
until at least December 31, 2021.
Income Tax Law of the People’s Republic of China
The
Company’s Chinese subsidiaries, LPOI and LPOIZ, are governed
by the Income Tax Law of the People’s Republic of China
concerning the privately run and foreign invested enterprises,
which are generally subject to tax at a statutory rate of 25% on
income reported in the statutory financial statements after
appropriate tax adjustments. For both the years ended June 30, 2021
and 2020, the tax rate for LPOIZ was 15%, in accordance with an
incentive program for technology companies. No deferred tax
provision has been recorded for China, as the effect is deemed de
minimis.
During
the years ended June 30, 2021 and 2020, the Company declared
intercompany dividends of $4 million and $2 million, respectively,
from LPOIZ, payable to the Company as its parent company.
Accordingly, the Company accrued and paid Chinese withholding taxes
of $400,000 and $200,000 associated with the dividend during fiscal
2021 and 2020, respectively. Other than these withholding taxes,
this intercompany dividend has no impact on the Consolidated
Financial Statements. As of June 30, 2021, the Company has accrued
a further $100,000 of withholding taxes related to future
dividends.
Historically, the Company considered unremitted earnings held by
its foreign subsidiaries to be permanently reinvested. However,
during fiscal 2020, the Company began declaring intercompany
dividends to remit a portion of the historical earnings of its
foreign subsidiaries to the U.S. parent company. It is still the
Company’s intent to reinvest a significant portion of the
more recent earnings generated by its foreign subsidiaries, however
the Company also plans to repatriate a portion of the historical
earnings of its subsidiaries. Based on its previous intent, the
Company had not historically provided for future Chinese
withholding taxes on the related earnings. However, during fiscal
2020 the Company began to accrue for these taxes on the portion of
historical earnings that it intends to repatriate.
F-15
Law of Corporate Income Tax of Latvia
The
Company’s Latvian subsidiary, ISP Latvia, is governed by the
Law of Corporate Income Tax of Latvia. Until December 31, 2017, ISP
Latvia was subject to a statutory income tax rate of 15%. Effective
January 1, 2018, the Republic of Latvia enacted tax reform with the
following key provisions: (i) corporations are no longer subject to
income tax, but are instead subject to a distribution tax on
distributed profits (or deemed distributions, as defined), and (ii)
the tax rate was changed to 20%; however, distribution amounts are
first divided by 0.8 to arrive at the taxable amount of profit,
resulting in an effective tax rate of 25%. As a transitional
measure, distributions made from earnings prior to January 1, 2018,
distributed prior to December 31, 2019, are not subject to tax if
declared prior to December 31, 2019. ISP Latvia has declared an
intercompany dividend to be paid to ISP, its U.S. parent company,
for the full amount of earnings accumulated prior to January 1,
2018. Distributions of this dividend will be from earnings prior to
January 1, 2018 and, therefore, will not be subject to tax. The
Company currently does not intend to distribute any current
earnings generated after January 1, 2018. If, in the future, the
Company changes such intention, distribution taxes, if any, will be
accrued as profits are generated.
The tax
effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as
follows at June 30:
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
Deferred tax
assets:
|
|
|
|
Net operating loss
carryforwards
|
$13,585,000
|
$16,039,000
|
|
Stock-based
compensation
|
563,000
|
868,000
|
|
R&D and other
credits
|
2,177,000
|
2,108,000
|
|
Capitalized R&D
expenses
|
564,000
|
487,000
|
|
Inventories
|
253,000
|
218,000
|
|
Accrued expenses
and other
|
347,000
|
99,000
|
|
Gross deferred tax
assets
|
17,489,000
|
19,819,000
|
|
Valuation allowance
for deferred tax assets
|
(15,644,000)
|
(17,044,000)
|
|
Total deferred tax
assets
|
1,845,000
|
2,775,000
|
|
Deferred tax
liabilities:
|
|
|
|
Depreciation and
other
|
(255,000)
|
(390,000)
|
|
Intangible
assets
|
(1,443,000)
|
(1,726,000)
|
|
Total deferred tax
liabilities
|
(1,698,000)
|
(2,116,000)
|
|
Net deferred tax
assets
|
$147,000
|
$659,000
|
As of
June 30, 2019, the Company has also recorded a non-current income
tax receivable of $214,000 related to previously paid alternative
minimum tax that is expected to be recovered within the next five
years pursuant to certain provisions of the TCJA. During fiscal
2020, approximately $107,000 of this receivable was collected, and
the balance was reclassified to other receivables, current, and
subsequently collected in July 2020. No balance remains as of June
30, 2021.
F-16
In
assessing the potential future recognition of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which
those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset, the
Company will need to generate future taxable income of
approximately $61 million prior to the expiration of NOL
carry-forwards from 2022 through 2034. Based on the level of
historical taxable income, management has provided for a valuation
adjustment against the deferred tax assets of $15,644,000 at June
30, 2021, a decrease of approximately $1.4 million as compared to
June 30, 2020. The increase in the valuation allowance for deferred
tax assets as compared to the prior year is primarily the result of
the various movements in the current year deferred items. The net
deferred tax asset of $147,000 results from federal and state tax
credits with indefinite carryover periods. State income tax expense disclosed on the
effective tax rate reconciliation above includes state deferred
taxes that are offset by a full valuation
allowance.
At June
30, 2021, in addition to net operating loss carry forwards, the
Company also has research and development and other credit carry
forwards of approximately $2,177,000, which will expire from 2022
through 2041. A portion of the NOL carry forwards may be subject to
certain limitations of the Internal Revenue Code Sections 382 and
383, which would restrict the annual utilization in future periods
due principally to changes in ownership in prior
periods.
10. Compensatory Equity Incentive Plan and
Other Equity Incentives
Share-based payment arrangements — The Company’s
directors, officers, and key employees were granted stock-based
compensation through the Omnibus Plan, through October 2018 and
after that date, the SICP. The awards include incentive stock
options, non-qualified stock options and restricted stock unit
(“RSU”) awards. Stock-based compensation is measured at
grant date, based on the fair value of the award, and is recognized
as an expense over the employee’s requisite service period.
The Company estimates the fair value of each stock option as of the
date of grant using the Black-Scholes-Merton pricing model. Most
options granted under the Omnibus Plan and the SICP vest ratably
over two to four years and generally have ten-year contract lives.
The volatility rate is based on four-year historical trends in
common stock closing prices and the expected term was determined
based primarily on historical experience of previously outstanding
options. The interest rate used is the U.S. Treasury interest rate
for constant maturities. The likelihood of meeting targets for
option grants that are performance based are evaluated each
quarter. If it is determined that meeting the targets is probable,
then the compensation expense will be amortized over the remaining
vesting period.
The
LightPath Technologies, Inc. Employee Stock Purchase Plan
(“2014 ESPP”) was adopted by the Company’s board
of directors on October 30, 2014 and approved by the
Company’s stockholders on January 29, 2015. The 2014 ESPP
permits employees to purchase Class A common stock through payroll
deductions, which may not exceed 15% of an employee’s
compensation, at a price not less than 85% of the market value of
the Class A common stock on specified dates (June 30 and
December 31). In no event can any participant purchase more
than $25,000 worth of shares of Class A common stock in any
calendar year and an employee cannot purchase more than 8,000
shares on any purchase date within an offering period of 12 months
and 4,000 shares on any purchase date within an offering period of
six months. This discount of approximately $3,000 and $2,500 for
fiscal 2021 and 2020, respectively, is included in the selling,
general and administrative expense in the accompanying Consolidated
Statements Comprehensive Income (Loss), which represents the value
of the 10% discount given to the employees purchasing stock under
the 2014 ESPP.
These
plans are summarized below:
|
Equity
Compensation Arrangement
|
Award Shares
Authorized
|
Outstanding at June
30, 2021
|
Available for
Issuance at June 30, 2021
|
|
SICP (or Omnibus
Plan)
|
5,115,625
|
2,194,812
|
829,786
|
|
2014
ESPP
|
400,000
|
—
|
298,455
|
|
|
5,515,625
|
2,194,812
|
1,128,241
|
F-17
Grant Date Fair Values and Underlying Assumptions; Contractual
Terms—The Company estimates the fair value of each
equity option as of the date of grant. The Company uses the
Black-Scholes-Merton pricing model. The 2014 ESPP fair value is the
amount of the discount the employee obtains at the date of the
purchase transaction.
For
stock options and RSUs granted in the years ended June 30, 2021 and
2020, the Company estimated the fair value of each stock award as
of the date of grant using the following assumptions:
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
Weighted-average
expected volatility
|
72.0%
|
65.9%
|
|
Dividend
yields
|
0%
|
0%
|
|
Weighted-average
risk-free interest rate
|
0.74%
|
1.47%
|
|
Weighted-average
expected term, in years
|
7.49
|
7.49
|
The
assumed forfeiture rates used in calculating the fair value of
options and restricted stock unit grants with both performance and
service conditions were 20% for each of the years ended June 30,
2021 and 2020. The volatility rate and expected term are based on
seven-year historical trends in Class A common stock closing prices
and actual forfeitures. The interest rate used is the U.S. Treasury
interest rate for constant maturities.
Information Regarding Current Share-Based Payment Awards
— A summary of the activity for share-based payment
awards in the years ended June 30, 2021 and 2020 is presented
below:
|
|
Stock
Options
|
Restricted
Stock Units (RSUs)
|
|||
|
|
|
Weighted-
|
Weighted-
|
|
Weighted-
|
|
|
|
Average
|
Average
|
|
Average
|
|
|
|
Exercise
|
Remaining
|
|
Remaining
|
|
|
Shares
|
Price
|
Contract
|
Shares
|
Contract
|
|
June
30, 2019
|
979,925
|
$1.80
|
5.5
|
1,864,526
|
0.9
|
|
|
|
|
|
|
|
|
Granted
|
314,817
|
$1.60
|
9.6
|
484,000
|
2.4
|
|
Exercised
|
(29,356)
|
$1.35
|
|
(17,204)
|
|
|
Cancelled/Forfeited
|
(322,811)
|
$2.08
|
|
(3,019)
|
|
|
June
30, 2020
|
942,575
|
$1.65
|
6.5
|
2,328,303
|
0.9
|
|
|
|
|
|
|
|
|
Granted
|
121,933
|
$2.97
|
9.7
|
296,386
|
2.3
|
|
Exercised
|
(225,137)
|
$1.50
|
|
(862,804)
|
|
|
Cancelled/Forfeited
|
(406,444)
|
$1.75
|
|
-
|
|
|
June
30, 2021
|
432,927
|
$2.01
|
8.8
|
1,761,885
|
0.9
|
|
|
|
|
|
|
|
|
Awards
exercisable/
|
|
|
|
|
|
|
vested as
of
|
|
|
|
|
|
|
June
30, 2021
|
110,943
|
$1.55
|
7.9
|
1,163,298
|
—
|
|
|
|
|
|
|
|
|
Awards
unexercisable/
|
|
|
|
|
|
|
unvested as
of
|
|
|
|
|
|
|
June
30, 2021
|
321,984
|
$2.17
|
9.1
|
598,587
|
0.9
|
|
|
432,927
|
|
|
1,761,885
|
|
|
|
|
|
|
|
|
F-18
The
total intrinsic value of stock options exercised for the years
ended June 30, 2021 and 2020 was approximately $344,000 and
$35,000, respectively.
The
total intrinsic value of stock options outstanding and exercisable
at June 30, 2021 and 2020 was approximately $285,000 and $1.2
million, respectively.
The
total fair value of stock options vested during the years ended
June 30, 2021 and 2020 was approximately $142,000 and $94,000,
respectively.
The
total intrinsic value of RSUs exercised during the years ended June
30, 2021 and 2020 was approximately $2.8 million and $12,000,
respectively.
The
total intrinsic value of RSUs outstanding and exercisable at June
30, 2021 and 2020 was approximately $3.0 million and $5.5 million,
respectively.
The
total fair value of RSUs vested during the years ended June 30,
2021 and 2020 was approximately $1.1 million and $443,000,
respectively.
As of
June 30, 2021, there was approximately $1.1 million of total
unrecognized compensation cost related to non-vested share-based
compensation arrangements, including share options and RSUs,
granted under the Omnibus Plan, through October 2018 and after that
date, the SICP. The expected compensation cost to be recognized is
as follows:
|
Fiscal
Year Ending:
|
Stock
Options
|
RSUs
|
Total
|
|
June 30,
2022
|
$110,128
|
$312,766
|
$422,894
|
|
June 30,
2023
|
116,986
|
258,592
|
375,578
|
|
June 30,
2024
|
94,516
|
132,045
|
226,561
|
|
June 30,
2025
|
33,885
|
34,707
|
68,592
|
|
|
$355,515
|
$738,110
|
$1,093,625
|
The
table above does not include shares under the Company’s 2014
ESPP, which has purchase settlement dates in the second and fourth
fiscal quarters.
RSU
awards vest immediately or up to four years from the grant
date.
The
Company issues new shares of Class A common stock upon the exercise
of stock options. The following table is a summary of the number
and weighted-average grant date fair values, estimated using the
Black-Scholes-Merton pricing model, regarding the Company’s
unexercisable/unvested awards as of June 30, 2021 and 2020 and
changes during the two years then ended:
|
Unexercisable/Unvested
Awards
|
Stock Options
Shares
|
RSU
Shares
|
Total
Shares
|
Weighted-Average
Grant Date Fair Values
(per
share)
|
|
June 30,
2019
|
110,695
|
400,144
|
510,839
|
$2.09
|
|
Granted
|
314,817
|
484,000
|
798,817
|
$0.79
|
|
Vested
|
(99,151)
|
(203,147)
|
(302,298)
|
$1.78
|
|
Cancelled/Forfeited
|
(60,079)
|
(11,471)
|
(71,550)
|
$2.70
|
|
June 30,
2020
|
266,282
|
669,526
|
935,808
|
$1.10
|
|
Granted
|
121,933
|
296,386
|
418,319
|
$2.48
|
|
Vested
|
(64,636)
|
(367,325)
|
(431,961)
|
$1.39
|
|
Cancelled/Forfeited
|
(1,595)
|
-
|
(1,595)
|
$2.85
|
|
June 30,
2021
|
321,984
|
598,587
|
920,571
|
$1.59
|
|
|
|
|
|
|
F-19
Acceleration of Vesting — The Company does not
generally accelerate the vesting of any stock options or RSUs,
however in the case of retirements, the Board of Directors may
accelerate vesting.
Financial Statement Effects and Presentation — The
following table shows total stock-based compensation expense for
the years ended June 30, 2021 and 2020, which is included in
selling, general and administrative expenses in the accompanying
Consolidated Statements of Comprehensive Income
(Loss):
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Stock
options
|
$76,616
|
$(59,019)
|
|
RSUs
|
566,249
|
309,757
|
|
Total
|
$642,865
|
$250,738
|
During
the year ended June 30, 2020, an unusually large number of grants
were forfeited unvested due to the departure of several
executives.
11. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted-average number of shares of Class A common
stock outstanding during each period presented. Diluted earnings
(loss) per share is computed similarly to basic earnings (loss) per
share except that it reflects the potential dilution that could
occur if dilutive securities or other obligations to issue shares
of Class A common stock were exercised or converted into shares of
Class A common stock. The computations for basic and diluted
earnings (loss) per share are described in the following
table:
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
|
|
|
|
Net income
(loss)
|
$(3,185,251)
|
$866,929
|
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
Basic
number of shares
|
26,314,025
|
25,853,419
|
|
|
|
|
|
Effect of dilutive
securities:
|
|
|
|
Options to purchase
common stock
|
-
|
7,026
|
|
RSUs
|
-
|
1,609,400
|
|
Diluted
number of shares
|
26,314,025
|
27,469,845
|
|
|
|
|
|
Earnings
(loss) per common share:
|
|
|
|
Basic
|
$(0.12)
|
$0.03
|
|
Diluted
|
$(0.12)
|
$0.03
|
F-20
The
following weighted-average potential dilutive shares were not
included in the computation of diluted earnings per share, as their
effects would be anti-dilutive:
|
|
Year Ended June
30,
|
|
|
|
2021
|
2020
|
|
Options to purchase
common stock
|
490,703
|
918,951
|
|
RSUs
|
2,220,710
|
518,610
|
|
|
2,711,413
|
1,437,561
|
12.
Defined
Contribution Plan
The
Company provides retirement benefits to its U.S.-based employees
through a defined contribution retirement plan. These benefits are
offered under the Insperity 401(k) plan (the “Insperity
Plan”). The Insperity Plan is a defined 401(k) contribution
plan that all employees, over the age of 21, are eligible to
participate in after three months of employment. Under the
Insperity Plan, the Company matches 100% of the first 2% of
employee contributions. As of June 30, 2021, there were 70
employees enrolled in this plan. The Company made matching
contributions of approximately $111,000 and $97,000 during the
years ended June 30, 2021 and 2020, respectively.
13.
Leases
The
Company has operating leases for its manufacturing and office
space. As of June 30, 2021, the Company had two lease agreements
for its corporate headquarters and manufacturing facilities in
Orlando, Florida. The first lease (the “Orlando Lease”)
was amended effective April 30, 2021 to expand the space from
approximately 26,000 square feet to approximately 52,000 square
feet. The lease term was extended from April 30, 2022, to that
certain date that is one hundred twenty-seven (127) months after
the date the landlord completes certain work to be done at the
leased premises. The commencement date is expected to be May 1,
2022. Minimum rental rates for the extension term were established
based on annual increases of approximately three percent (3%).
Additionally, there is one five-year extension option exercisable
by the Company. The minimum rental rates for such additional
extension option will be determined at the time an option is
exercised and will be based on a “fair market rental
rate,” as determined in accordance with the Orlando Lease, as
amended. The second lease was entered into in April 2018 for 12,378
square feet in Orlando, Florida (the “Orlando Lease
II”), which provides additional manufacturing and office
space near the Company’s corporate headquarters. The
commencement date of the Orlando Lease II was December 1, 2018, and
it has a four-year original term with one renewal option for an
additional five-year term. This lease will expire in November 2022
and will not be renewed, as this manufacturing and office space
will be relocated to the expanded space included in the Orlando
Lease, as amended.
As of
June 30, 2021, the Company, through its wholly-owned subsidiary,
LPOI, had a lease agreement for an office facility in Shanghai,
China (the “Shanghai Lease”) for 1,900 square feet. The
Shanghai Lease commenced in October 2015. During fiscal 2020, the
Shanghai Lease was renewed for an additional three-year term, and
now expires in October 2022.
As of
June 30, 2021, the Company, through its wholly-owned subsidiary,
LPOIZ, had three lease agreements for manufacturing and office
facilities in Zhenjiang, China for an aggregate of 55,000 square
feet. The initial lease (the “Zhenjiang Lease I”) is
for approximately 26,000 square feet, and had a five-year original
term with renewal options. In fiscal 2019, the Company renewed the
Zhenjiang Lease I and it now expires in June 2022. During fiscal
2018, another lease was executed for 13,000 additional square feet
in this same facility (the “Zhenjiang Lease II”). The
Zhenjiang Lease II has a 54-month term, and expires in December
2021. During fiscal 2019, LPOIZ entered into a third lease
agreement for manufacturing space near the existing facility, for
an additional 16,000 square feet (the “Zhenjiang Lease
III”). The Zhenjiang Lease III has a three-year term and
expires in April 2022.
F-21
At June
30, 2021, the Company, through ISP’s wholly-owned subsidiary
ISP Latvia, had two lease agreements for a manufacturing and office
facility in Riga, Latvia for an aggregate of 29,000 square feet.
The first lease (“Riga Lease I”) was amended in August
2020, to expand the space to approximately 24,000 square feet. The
lease term was extended from December 31, 2022 to December 31,
2025. The second lease (“Riga Lease II”), for
approximately 5,000 square feet, had a five-year original term with
renewal options, and was set to expire in December 2019. During
fiscal 2019, the Riga Lease II was renewed, and now expires in
December 2022.
Until
August 31, 2020, the Company, through its wholly-owned subsidiary
ISP, had a lease agreement for a manufacturing and office facility
in Irvington, New York (the “ISP Lease”) for 13,000
square feet. The ISP Lease, which had a five-year original term
with renewal options, expired in August 2020. As of June 30, 2019,
the relocation of the operations formerly housed in this facility
was complete and we had ceased use of this facility. See Note 18,
Restructuring, to these
Consolidated Financial Statements for additional
information.
As
discussed in Note 2, Significant Accounting Policies, to these
Consolidated Financial Statements, the Company adopted ASC Topic
842 effective July 1, 2019. The Company’s facility leases are
classified as operating leases, and the Company also has finance
leases related to certain equipment located in Orlando, Florida.
The operating leases for facilities are non-cancelable, expiring
through 2022. The Company includes options to renew (or terminate)
in the lease term, and as part of the right-of-use
(“ROU”) assets and lease liabilities, when it is
reasonably certain that the Company will exercise that option. The
Company currently has obligations under four finance lease
agreements, entered into during fiscal years 2018 and 2019, with
terms ranging from three to five years. The leases are for computer
and manufacturing equipment.
The
Company’s operating lease ROU assets and the related lease
liabilities are initially measured at the present value of future
lease payments over the lease term. Two of our operating leases
include renewal options, which were not included in the measurement
of the operating lease ROU assets and related lease liabilities. As
most of the Company’s leases do not provide an implicit rate,
the Company used its collateralized incremental borrowing rate
based on the information available at the commencement date in
determining the present value of future payments. Currently, none
of the Company’s leases include variable lease payments that
are dependent on an index or rate. The Company is responsible for
payment of certain real estate taxes, insurance and other expenses
on certain of its leases. These amounts are generally considered to
be variable and are not included in the measurement of the ROU
asset and lease liability. The Company generally accounts for
non-lease components, such as maintenance, separately from lease
components. The Company’s lease agreements do not contain any
material residual value guarantees or material restricted
covenants. Leases with a term of 12 months or less are not recorded
on the Consolidated Balance Sheet; the Company recognizes lease
expense for these leases on a straight-line basis over the lease
term.
The
Company received tenant improvement allowances for the Orlando
Lease and for Orlando Lease II. These allowances were used to
construct improvements and are included in leasehold improvements
and operating lease liabilities. The balances are being amortized
over the corresponding lease terms.
The
components of lease expense were as follows:
|
|
Year
Ended June 30,
|
|
|
|
2021
|
2020
|
|
Operating
lease cost
|
$682,980
|
$646,845
|
|
Finance
lease cost:
|
|
|
|
Depreciation
of lease assets
|
207,931
|
324,058
|
|
Interest
on lease liabilities
|
44,248
|
77,540
|
|
Total
finance lease cost
|
252,179
|
401,598
|
|
Total
lease cost
|
$935,159
|
$1,048,443
|
Supplemental
balance sheet information related to leases was as
follows:
|
|
Classification
|
June 30,
2021
|
June 30,
2020
|
|
Assets:
|
|
|
|
|
Operating
lease assets
|
Operating
lease assets
|
$9,015,498
|
$1,220,430
|
|
Finance
lease assets
|
Property and equipment, net(1)
|
477,102
|
666,519
|
|
Total
lease assets
|
|
$9,492,600
|
$1,886,949
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Current:
|
|
|
|
|
Operating
leases
|
Operating
lease liabilities, current
|
$799,507
|
$765,422
|
|
Short-term
leases
|
Accrued liabilities(2)
|
-
|
97,665
|
|
Finance
leases
|
Finance
lease liabilities, current
|
212,212
|
278,040
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
Operating
leases
|
Operating
lease liabilities, less current portion
|
8,461,133
|
887,766
|
|
Finance
leases
|
Finance
lease liabilities, less current portion
|
66,801
|
279,435
|
|
Total
lease liabilities
|
|
$9,539,653
|
$2,308,328
|
(1)
Finance lease
assets are recorded net of accumulated depreciation of
approximately $477,000 million as of June 30, 2021.
(2)
Represents accrual
related to the ISP Lease, which we ceased use of as of June 30,
2019. All remaining lease payments were accrued as of that date,
through the ISP Lease expiration in August 2020.
F-22
Lease
term and discount rate information related to leases was as
follows:
|
Lease
Term and Discount Rate
|
June 30,
2021
|
|
Weighted
Average Remaining Lease Term (in years)
|
|
|
Operating
leases
|
10.9
|
|
Finance
leases
|
1.4
|
|
|
|
|
Weighted
Average Discount Rate
|
|
|
Operating
leases
|
3.0%
|
|
Finance
leases
|
7.8%
|
Supplemental
cash flow information:
|
|
Year
Ended June 30,
|
|
|
|
2021
|
2020
|
|
Cash paid for amounts included in the measurement of lease
liabilities:
|
|
|
|
Operating
cash used for operating leases
|
$869,668
|
$790,199
|
|
Operating
cash used for finance leases
|
$44,247
|
$77,553
|
|
Financing
cash used for finance leases
|
$278,462
|
$487,233
|
Future
maturities of lease liabilities were as follows as of June 30,
2021:
|
Fiscal
year ending:
|
Finance
Leases
|
Operating
Leases
|
|
June 30,
2022
|
231,783
|
832,120
|
|
June 30,
2023
|
59,647
|
1,039,572
|
|
June 30,
2024
|
11,811
|
943,624
|
|
June 30,
2025
|
—
|
968,324
|
|
June 30,
2026
|
—
|
874,256
|
|
Thereafter
|
—
|
6,219,941
|
|
Total future
minimum payments
|
303,241
|
10,877,837
|
|
Less
imputed interest
|
(24,228)
|
(1,617,197)
|
|
Present value of
lease liabilities
|
$279,013
|
$9,260,640
|
F-23
14.
Contingencies
The
Company from time to time is involved in various legal actions
arising in the normal course of business. Management, after
reviewing with legal counsel all of these actions and proceedings,
believes that the aggregate losses, if any, will not have a
material adverse effect on the Company’s financial position
or results of operations.
In
April 2021, the Company terminated several employees of its China
subsidiaries, LPOIZ and LPOI, including the General Manager, the
Sales Manager, and the Engineering Manager, after determining that
they had engaged in malfeasance and conduct adverse to our
interests, including efforts to misappropriate certain of our
proprietary technology, diverting sales to entities owned or
controlled by these former employees and other suspected acts of
fraud, theft and embezzlement. In connection with such
terminations, the Company’s China subsidiaries have engaged
in certain legal proceedings with the terminated
employees.
The
Company has incurred various expenses associated with its
investigation into these matters prior and subsequent to the
termination of the employees and the associated legal proceedings.
These expenses, which included legal, consulting and other business
management fees, totaled $718,000 during the year ended June 30,
2021. Such expenses were recorded as “Selling, general and
administrative” expenses in the accompanying Consolidated
Statement of Comprehensive Income (Loss).
The
Company also identified a further liability in the amount of
$210,000, which may be incurred in the future due to the actions of
these employees. This amount has been accrued as of June 30, 2021,
pending further investigation, and included in “Other
Expense, net” in the accompanying Consolidated Statement of
Comprehensive Income (Loss).
Knowing
that employee transitions in international subsidiaries can lead to
lengthy legal proceedings that can interrupt the subsidiary’s
ability to operate, compounded by the fact that our officers could
not travel to China to oversee the transitions because of the
travel restrictions imposed by COVID-19, the Company chose to enter
into severance agreements with certain of the employees at the time
of termination. Pursuant to the severance agreements, LPOIZ and
LPOI agreed to pay such employees severance of approximately
$485,000 in the aggregate, to be paid over a six-month
period. After the execution of the severance agreements, we
discovered additional wrongdoing by the terminated employees.
As a result, LPOIZ and LPOI have not yet paid the severance
payments and have disputed the employees' rights to such
payments. However, based on the likelihood that the courts
will determine that the Company’s subsidiaries will
ultimately be obligated to pay these amounts, we have accrued for
these payments as of June 30, 2021. Such expenses were
recorded as “Selling, general and administrative”
expenses in the accompanying Consolidated Statement of
Comprehensive Income (Loss).
The
Company has transitioned the management of LPOI and LPOIZ to a new
management team without any significant detrimental effects on the
ability of those subsidiaries to operate. Management does not
expect any material adverse impact to the business operations of
LPOI or LPOIZ as result of the transition.
The
Company expects to incur additional legal fees and consulting
expenses in future periods as all legal options and remedies are
pursued; however, such future fees are expected to be at lower
levels than have been incurred to date.
Although
the Company has taken steps to minimize the business impacts from
the termination of the management employees and transition to new
management personnel, the Company experienced some short-term
adverse impacts on LPOIZ’s and LPOI’s domestic sales in
China and results of operations in the three-month period ended
June 30, 2021, which management anticipates may continue for the
next one to two quarters. The Company has not experienced, nor does
management anticipate, any material adverse impact on LPOIZ’s
or LPOI’s production and supply of products to its other
subsidiaries for their customers.
The
Company’s business, results of operations financial
condition, cash flows, and the stock price of its Class A common
stock can be adversely affected by pandemics, epidemics, or other
public health emergencies, such as the recent outbreak of the
coronavirus (“COVID-19”), which has spread from China
to many other countries across the world, including the United
States. In March 2020, the World Health Organization (the
“WHO”) declared COVID-19 as a pandemic. The COVID-19
pandemic has resulted in governments around the world implementing
increasingly stringent measures to help control the spread of the
virus, including “stay at home” orders, travel
restrictions, business curtailments, school closures, and other
measures.
F-24
To
date, the Company has not experienced any significant direct
financial impact of COVID-19 to its business. However, the COVID-19
pandemic continues to impact economic conditions, which could
impact the short-term and long-term demand from customers and,
therefore, has the potential to negatively impact the
Company’s results of operations, cash flows, and financial
position in the future. Management is actively monitoring this
situation and any impact on our financial condition, liquidity, and
results of operations. However, given the daily evolution of the
COVID-19 pandemic and the global responses to curb its spread, we
are not presently able to estimate the effects of the COVID-19
pandemic on our future results of operations, financial, or
liquidity in fiscal year 2022 or beyond.
15.
Foreign
Operations
Assets
and liabilities denominated in non-U.S. currencies are translated
at rates of exchange prevailing on the balance sheet date, and
revenues and expenses are translated at average rates of exchange
for the period. Gains or losses on the translation of the financial
statements of a non-U.S. operation, where the functional currency
is other than the U.S. dollar, are reflected as a separate
component of equity, which was a cumulative gain of approximately
$2.1 million and $736,000 as of June 30, 2021 and 2020,
respectively. During the years ended June 30, 2021 and 2020, we
also recognized net foreign currency transaction losses of
approximately $1,000 and $214,000, respectively, included in the
Consolidated Statements of Comprehensive Income (Loss) in the line
item entitled “Other income (expense),
net.”
Assets
and net assets in foreign countries are as follows:
|
|
|
China
|
|
Latvia
|
||||
|
|
|
June 30,
2021
|
|
June 30,
2020
|
|
June 30,
2021
|
|
June 30,
2020
|
|
Assets
|
|
$20.1
million
|
|
$19.0
million
|
|
$11.3
million
|
|
$9.8
million
|
|
Net
assets
|
|
$16.6
million
|
|
$16.2
million
|
|
$9.0
million
|
|
$8.2
million
|
16.
Supplier
and Customer Concentrations
The
Company utilizes a number of glass compositions in manufacturing
its molded glass aspheres and lens array products. These glasses or
equivalents are available from a large number of suppliers,
including CDGM Glass Company Ltd.,
Ohara Corporation, and Sumita Optical Glass, Inc. Base
optical materials, used in certain of the Company’s specialty
products, are manufactured and supplied by a number of optical and
glass manufacturers. The Company also utilizes major infrared
material suppliers located around the globe for a broad spectrum of
infrared crystal and glass. The Company believes that a
satisfactory supply of such production materials will continue to
be available, at reasonable prices or, in some cases, at increased
prices, although there can be no assurance in this
regard.
In
fiscal 2021, the Company had sales to three customers that
comprised an aggregate of approximately 38% of its annual revenue,
and 31% of its June 30, 2021 accounts receivable. Sales to these
customers as a percentage of our fiscal 2021 revenue include one
customer at 18%, another customer at 10%, and the third customer at
10%. One of these customers comprised 21% of accounts receivable, a
second customer comprised 10% of accounts receivable and the other
customer had no accounts receivable balance as of June 30, 2021. In
fiscal 2020, the Company had sales to three customers that
comprised an aggregate of approximately 31% of its annual revenue,
and 30% of its accounts receivable. Sales to these customers as a
percentage of our fiscal 2020 revenue include one customer at 15%,
another customer at 10%, and the third customer at 6%. One of these
customers comprised 18% of accounts receivable, and the other two
customers were each less than 10% of accounts receivable as of June
30, 2020. The loss of any of these customers, or a significant
reduction in sales to any such customer, would adversely affect the
Company’s revenues.
In
fiscal 2021, 68% of the Company’s net revenue was derived
from sales outside of the U.S., with 95% of foreign sales derived
from customers in Europe and Asia. In fiscal 2020, 66% of the
Company’s net revenue was derived from sales outside of the
U.S., with 96% of foreign sales derived from customers in Europe
and Asia.
F-25
17.
Loans Payable
BankUnited Loans
On
February 26, 2019, the Company entered into a Loan Agreement (the
“Loan Agreement”) with BankUnited for (i) a
revolving line of credit up to maximum amount of $2,000,000 (the
“BankUnited Revolving Line”), (ii) a term loan in the
amount of up to $5,813,500 (“BankUnited Term Loan”),
and (iii) a non-revolving guidance line of credit up to a maximum
amount of $10,000,000 (the “Guidance Line” and,
together with the BankUnited Revolving Line and BankUnited Term
Loan, the “BankUnited Loans”). Each of the BankUnited
Loans is evidenced by a promissory note in favor of BankUnited (the
“BankUnited Notes”).
On May
6, 2019, the Company entered into that certain First Amendment to
Loan Agreement, effective February 26, 2019, with BankUnited (the
“Amendment” and, together with the Loan Agreement, the
“Amended Loan Agreement”). The Amendment amended the
definition of the fixed charge coverage ratio to more accurately
reflect the parties’ understandings at the time the Loan
Agreement was executed. On September 9,
2021, the Company entered into a letter agreement with BankUnited
(the “Letter Agreement”). The Letter Agreement: (i)
reduces the fixed charge coverage ratio to 1.0 for the quarter
ending September 30, 2021 and to 1.1 for the quarter ended December
31, 2021; (ii) modifies the calculation for both the fixed charge
coverage ratio and the total leverage ratio to provide for
adjustments related to expenses incurred in connection with the
events at LPOI and LPOIZ, which expenses must be approved by
BankUnited; (iii) terminates the Guidance Line; and (iv) requires
approval from BankUnited prior to our being able to draw upon the
Revolving Line, subject to our compliance with the fixed charge
coverage ratio for the quarters ending September 30, 2021 and
December 31, 2021. The Letter Agreement also granted the Company a
waiver of default arising prior to the Letter Agreement for its
failure to comply with the fixed charge coverage ratio measured on
June 30, 2021. Based on the waiver, the Company no longer in
default of the Amended Loan Agreement. Finally, in connection with
the Letter Agreement, the Company paid BankUnited a fee equal to
$10,000.
BankUnited Revolving Line
Pursuant
to the Amended Loan Agreement, BankUnited will make loan advances
under the BankUnited Revolving Line to the Company up to a maximum
aggregate principal amount outstanding not to exceed $2,000,000,
which proceeds will be used for working capital and general
corporate purposes. Pursuant to the
Letter Agreement, advances from the BankUnited Revolving Line will
require specific lender approval, which will not be granted in the
absence of compliance with all applicable covenants, as
amended. Amounts borrowed under the BankUnited
Revolving Line may be repaid and re-borrowed at any time prior to
February 26, 2022, at which time all amounts will be immediately
due and payable. The advances under the BankUnited Revolving
Line bear interest, on the outstanding daily balance, at a per
annum rate equal to 2.75% above the 30-day LIBOR. Interest
payments are due and payable, in arrears, on the first day of each
month. As of June 30, 2021, the applicable interest rate was 2.84%
and there were no amounts outstanding under the BankUnited
Revolving Line.
BankUnited Term Loan
Pursuant
to the Amended Loan Agreement, BankUnited advanced the Company
$5,813,500 to satisfy in full the amounts owed to Avidbank and to
pay the fees and expenses incurred in connection with closing of
the BankUnited Loans. The BankUnited Term Loan is for a 5-year
term, but co-terminus with the BankUnited Revolving Line should the
BankUnited Revolving Line not be renewed beyond February 26, 2022.
Management expects the BankUnited Revolving Line to be renewed. The
BankUnited Term Loan bears interest at a per annum rate equal to
2.75% above the 30-day LIBOR. Equal monthly principal payments of
$48,445.83, plus accrued interest, are due and payable, in arrears,
on the first day of each month during the term. Upon maturity, all
principal and interest shall be immediately due and payable. As of
June 30, 2021, the applicable interest rate was 2.84% and the
outstanding balance on the BankUnited Term Loan was approximately
$4.5 million.
Guidance Line
Prior
to the Letter Agreement, the Amended Loan Agreement provided that
BankUnited, in its sole discretion, could make loan advances to the
Company under the Guidance Line up to a maximum aggregate principal
amount outstanding not to exceed $10,000,000, which proceeds could
have been used for capital expenditures and approved business
acquisitions. Such advances were required to be in minimum amounts
of $1,000,000 for acquisitions and $500,000 for capital
expenditures, and would be limited to 80% of cost or as otherwise
determined by BankUnited. Amounts borrowed under the Guidance Line
could not be re-borrowed. The advances under the Guidance Line
would bear interest, on the outstanding daily balance, at a per
annum rate equal to 2.75% above the 30-day LIBOR. Interest
payments would be due and payable, in arrears, on the first day of
each month. On each anniversary of the Amended Loan Agreement,
monthly principal payments would become payable, amortized based on
a ten-year term. There were no amounts outstanding under the
Guidance Line at June 30, 2021. The Guidance Line
was terminated after the end of fiscal 2021 in accordance with the
Letter Agreement.
F-26
Security and Guarantees
The
Company’s obligations under the Amended Loan Agreement are
collateralized by a first priority security interest (subject to
permitted liens) in all of its assets and the assets of the
Company’s U.S. subsidiaries, GelTech, and ISP, pursuant to a
Security Agreement granted by GelTech, ISP, and the Company in
favor of BankUnited. The Company’s equity interests in, and
the assets of, its foreign subsidiaries are excluded from the
security interest. In addition, all of the Company’s
subsidiaries have guaranteed the Company’s obligations under
the Amended Loan Agreement and related documents, pursuant to
Guaranty Agreements executed by the Company and its subsidiaries in
favor of BankUnited.
General Terms
The
Amended Loan Agreement contains customary covenants, including, but
not limited to: (i) limitations on the disposition of property;
(ii) limitations on changing the Company’s business or
permitting a change in control; (iii) limitations on additional
indebtedness or encumbrances; (iv) restrictions on distributions;
and (v) limitations on certain investments. The Amended Loan
Agreement also contains certain financial covenants, including
obligations to maintain a fixed charge coverage ratio of 1.25 to
1.00 and a total leverage ratio of 4.00 to 1.00. The Letter
Agreement granted the Company a waiver of default arising prior to
the Letter Agreement from its failure to comply with the fixed
charge coverage ratio measured on June 30, 2021. Based on the
waiver, the Company is no longer in default of the Amended Loan
Agreement. As of June 30, 2021, the Company was in
compliance with all other covenants.
We may
prepay any or all of the BankUnited Loans in whole or in part at
any time, without penalty or premium. Late payments are subject to
a late fee equal to five percent (5%) of the unpaid amount. Amounts
outstanding during an event of default accrue interest at a rate of
five percent (5%) above the 30-day LIBOR applicable
immediately prior to the occurrence of the event of default.
The Amended Loan Agreement contains other customary
provisions with respect to events of default, expense
reimbursement, and confidentiality.
Financing
costs related to the BankUnited Loans were recorded as a discount
on debt and are being amortized over the term. Amortization of
approximately $19,000 is included in interest expense for each the
years ended June 30, 2021 and 2020.
In
December 2020, ISP Latvia entered into an equipment loan with a
third party (the “Equipment Loan”), which party is also
a significant customer, and which the Equipment Loan is subordinate
to the BankUnited Loans, and collateralized by certain equipment.
The initial advance under the Equipment Loan was 225,000 EUR (or
USD $275,000), payable in equal installments over 60 months, the
proceeds of which were used to make a prepayment to a vendor for
equipment to be delivered at a future date. The Equipment Loan
bears interest at a fixed rate of 3.3%. An additional 225,000 EUR
(or USD $275,000) is expected to be drawn when the final payment is
due to the vendor for the equipment.
Future
maturities of loans payable are as follows:
|
|
BankUnited Term
Loan
|
Equipment
Loan
|
Unamortized Debt
Costs
|
Total
|
|
Fiscal
year ending:
|
|
|
|
|
|
June 30,
2022
|
$581,350
|
$55,075
|
(18,572)
|
$617,853
|
|
June 30,
2023
|
581,350
|
55,075
|
(18,572)
|
617,853
|
|
June 30,
2024
|
3,342,763
|
55,075
|
(12,382)
|
3,385,456
|
|
June 30,
2025
|
|
55,075
|
-
|
55,075
|
|
After June 30,
2025
|
|
15,974
|
-
|
15,974
|
|
Total
payments
|
$4,505,463
|
$236,274
|
$(49,526)
|
4,692,211
|
|
Less current
portion
|
|
|
|
(634,846)
|
|
Non-current
portion
|
|
|
|
$4,057,365
|
End of
Consolidated Financial Statements
F-27
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
LIGHTPATH
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
Date: September 13,
2021
|
By:
|
/s/ Shmuel Rubin
|
|
|
|
|
Shmuel
Rubin
|
|
|
|
|
President &
Chief Executive Officer |
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
/s/ SHMUEL
RUBIN
|
|
/s/
ALBERT MIRANDA
|
|
|||
|
Shmuel
Rubin
President
& Chief Executive Officer (Principal Executive
Officer)
|
|
September 13,
2021
|
|
Albert
Miranda
Chief
Financial Officer
(Principal
Financial Officer)
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September
13, 2021
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/s/ LOUIS LEEBURG
|
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/s/ SOHAIL
KHAN
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Louis
Leeburg
Director
(Chairman of the Board)
|
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September 8,
2021
|
|
Sohail
Khan
Director
|
|
September
9, 2021
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/s/ M.
SCOTT FARIS
|
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/s/ JOSEPH MENAKER
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|
M.
Scott Faris
Director
|
|
September 10,
2021
|
|
Joseph
Menaker
Director
|
|
September
8, 2021
|
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/s/ CRAIG DUNHAM
|
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/s/ DARCIE
PECK
|
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|
Craig
Dunham
Director
|
|
September 8,
2021
|
|
Darcie
Peck
Director
|
|
September
8, 2021
|
|
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/s/
S. ERIC CREVISTON
|
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S.
Eric Creviston
Director
|
|
September 9,
2021
|
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