What changed in this filing

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Item 1. Financial Statements

2022-11-10 compared with 2022-05-12 · 122 added, 143 removed, 468 unchanged (36% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current assets:

18 unchanged sentences

Total current liabilities

Deferred tax liabilities, net

Finance lease obligation, less current portion

23 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of sales

3 unchanged sentences

Amortization of intangibles

Loss on disposal of property and equipment

Total operating expenses

Operating income (loss)

Operating loss

( 1,235,413 )

3 unchanged sentences

Total other income (expense), net

Income (loss) before income taxes

Loss before income taxes

( 1,278,566 )

2 unchanged sentences

$ ( 632,097 )

$ ( 2,182,391 )

$ ( 272,041 )

Foreign currency translation adjustment

Comprehensive income (loss)

$ ( 513,741 )

Comprehensive loss

$ ( 2,298,529 )

7 unchanged sentences

Condensed Consolidated Statements of Changes in Stockholders' Equity

Comphrehensive

Comprehensive

Stockholders’

4 unchanged sentences

Employee Stock Purchase Plan

Stock-based compensation on stock options & RSUs

Foreign currency translation adjustment

Balances at September 30, 2021

$ 231,576,882

$ ( 200,879,274 )

Issuance of common stock for:

Settlement of RSUs, net

Exercise of Stock Options & RSUs, net

Stock-based compensation on stock options & RSUs

2 unchanged sentences

( 1,380,700 )

Balances at December 31, 2021

$ 231,761,146

$ ( 201,934,565 )

Issuance of common stock for:

Employee Stock Purchase Plan

Stock-based compensation on stock options & RSUs

Foreign currency translation adjustment

Balances at March 31, 2022

Balances at September 30, 2022

$ 232,619,220

5 unchanged sentences

Employee Stock Purchase Plan

Exercise of stock options, net

Stock-based compensation on stock options & RSUs

3 unchanged sentences

$ ( 200,879,274 )

Issuance of common stock for:

Exercise of stock options & RSU's, net

Stock-based compensation on stock options & RSUs

Foreign currency translation adjustment

Balances at December 31, 2020

$ 231,014,560

$ ( 197,111,403 )

Issuance of common stock for:

Employee Stock Purchase Plan

Exercise of stock options & RSUs, net

Stock-based compensation on stock options & RSUs

Foreign currency translation adjustment

Balances at March 31, 2021

$ 231,243,062

$ ( 197,333,967 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Nine Months Ended March 31,

Three Months Ended September 30,

Cash flows from operating activities:

1 unchanged sentence

$ ( 632,097 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Interest from amortization of debt costs

Loss on disposal of property and equipment

Stock-based compensation on stock options & RSUs, net

2 unchanged sentences

Inventory write-offs to allowance

Deferred tax benefit

Changes in operating assets and liabilities:

Trade accounts receivable

( 1,283,594 )

Other receivables

1 unchanged sentence

Accounts payable and accrued liabilities

Net cash used in operating activities

( 1,617,682 )

Net cash provided by operating activities

Cash flows from investing activities:

1 unchanged sentence

( 1,199,005 )

( 2,721,567 )

Net cash used in investing activities

( 1,199,005 )

( 2,721,567 )

Cash flows from financing activities:

Proceeds from exercise of stock options

Proceeds from sale of common stock from Employee Stock Purchase Plan

2 unchanged sentences

Repayment of finance lease obligations

Net cash used in financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate on cash and cash equivalents

1 unchanged sentence

( 1,209,022 )

( 2,797,713 )

Cash and cash equivalents, beginning of period

18 unchanged sentences

Our significant accounting policies are provided in Note 2, Summary of Significant Accounting Policies , in the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

There have been no material changes to our significant accounting policies during the nine months ended March 31, 2022, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

There have been no material changes to our significant accounting policies during the three months ended September 30, 2022, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022.

Use of Estimates

14 unchanged sentences

We record deferred revenue when cash payments are received or due in advance of our performance.

Deferred revenue was not significant as of June 30, 2021 and March 31, 2022.

Deferred revenue was not significant as of June 30, 2022 and September 30, 2022, respectively.

Nature of Products

5 unchanged sentences

Revenues from product development agreements are included in specialty products.

Revenue by product group for the three and nine months ended March 31, 2022 and 2021 was as follows:

Revenue by product group for the three months ended September 30, 2022 and 2021 was as follows:

Three Months Ended

Nine Months Ended

September 30,

Infrared Products

2 unchanged sentences

The components of inventories include the following:

March 31, 2022

September 30, 2022

June 30, 2022

5 unchanged sentences

( 1,329,637 )

The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $ 1.7 million and $ 2.0 million as of March 31, 2022 and June 30, 2021, respectively.

The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $ 1.5 million and $ 1.6 million as of September 30, 2022 and June 30, 2022, respectively.

Property and Equipment

1 unchanged sentence

Estimated Lives (Years)

September 30, 2022

June 30, 2022

Manufacturing equipment

9 unchanged sentences

Goodwill and Intangible Assets

There were no changes in the net carrying value of goodwill during the nine months ended March 31, 2022.

There were no changes in the net carrying value of goodwill during the three months ended September 30, 2022.

Identifiable intangible assets were comprised of:

Useful Lives (Years)

September 30, 2022

June 30, 2022

Customer relationships

15 $ 3,590,000 $ 3,590,000

Trade secrets

8 3,272,000 3,272,000

8 3,814,000 3,814,000

Total intangible assets

Less accumulated amortization

10,676,000 10,676,000

Less accumulated amortization

( 6,499,473 ) ( 6,218,202 )

Total intangible assets, net

$ 4,176,527 $ 4,457,798

Future amortization of identifiable intangibles is as follows:

Fiscal year ending:

June 30, 2022 (remaining three months)

June 30, 2023 (remaining nine months)

June 30, 2024

2 unchanged sentences

After June 30, 2026

A summary of our total income tax expense and effective income tax rate for the three and nine months ended March 31, 2022 and 2021 is as follows:

A summary of our total income tax expense and effective income tax rate for the three months ended September 30, 2022 and 2021 is as follows:

Three Months Ended

Nine Months Ended

September 30,

(Loss) income before income taxes

4 unchanged sentences

The difference between our effective tax rates in the periods presented above and the federal statutory rate is due to the mix of taxable income and losses generated in our various tax jurisdictions, which include the United States (the “U.S.”), the People’s Republic of China, and the Republic of Latvia.

For the three and nine months ended March 31, 2022 and 2021, income tax expense was primarily related to income taxes from our operations in China, including accruals for withholding taxes on intercompany dividends declared by LightPath Optical Instrumentation (Zhenjiang) Co., Ltd.

For the three months ended September 30, 2022 and 2021, income tax expense was primarily related to income taxes from our operations in China, including accruals for withholding taxes on intercompany dividends declared by LightPath Optical Instrumentation (Zhenjiang) Co., Ltd.

(“LPOIZ”), which dividend will be paid to us, as its parent company.

2 unchanged sentences

We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

As of March 31, 2022 and June 30, 2021, we have provided for a valuation allowance against our net deferred tax assets to reduce the net deferred tax assets to the amount we estimate is more-likely-than-not to be realized.

As of September 30, 2022 and June 30, 2022, our net deferred tax assets are related to the U.S.

jurisdiction and we have provided for a valuation allowance to reduce the net deferred tax assets to the amount we estimate is more-likely-than-not to be realized.

Our net deferred tax asset consists primarily of federal and state tax credits with indefinite carryover periods.

5 unchanged sentences

(“LPOI”) and LPOIZ, are governed by the Income Tax Law of the People’s Republic of China.

As of March 31, 2022, LPOI and LPOIZ were subject to statutory income tax rates of 25 % and 15 %, respectively.

As of September 30, 2022, LPOI and LPOIZ were subject to statutory income tax rates of 25 % and 15 %, respectively.

The net deferred tax liabilities included in the accompanying unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and June 30, 2022 are related to LPOIZ, and primarily consist of timing differences related to depreciation.

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.

2 unchanged sentences

however, the Company also plans to repatriate a portion of the historical earnings of its subsidiaries.

During fiscal 2020, the Company began to accrue for these taxes on the portion of historical earnings that it intends to repatriate.

The Company accrues withholding taxes on the portion of LPOZ’s earnings that it intends to repatriate.

Accrued and unpaid withholding taxes were approximately $ 40,000 as of both September 30, 2022 and June 30, 2022.

Other than these withholding taxes, these intercompany dividends have no impact on the Consolidated Financial Statements.

Law of Corporate Income Tax of Latvia

4 unchanged sentences

As a transitional measure, distributions of earnings prior to January 1, 2018 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.

ISP Latvia has declared an intercompany dividend to be paid to ISP Optics Corporation (“ISP”), its U.S.

parent company, for the full amount of earnings accumulated prior to January 1, 2018.

5 unchanged sentences

The stock-based compensation expense is based primarily on the fair value of the award as of the grant date, and is recognized as an expense over the requisite service period.

The following table shows total stock-based compensation expense for the three and nine months ended March 31, 2022 and 2021 included in selling, general and administrative (“SG&A”) expenses in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income:

Three Months Ended March 31,

Nine Months Ended March 31,

The following table shows total stock-based compensation expense for the three months ended September 30, 2022 and 2021 included in selling, general and administrative (“SG&A”) expenses in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income:

Three Months Ended September 30,

Stock options

2 unchanged sentences

The 2014 ESPP permits employees to purchase Class A common stock through payroll deductions, subject to certain limitations.

A discount of $ 5,129 and $ 2,978 for the nine months ended March 31, 2022 and 2021, respectively, is included in SG&A expenses in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income, which represents the value of the 10 % discount given to the employees purchasing stock under the 2014 ESPP.

A discount of $ 1,954 and $ 2,155 for the three months ended September 30, 2022 and 2021, respectively, is included in SG&A expenses in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income, which represents the value of the 10 % discount given to the employees purchasing stock under the 2014 ESPP.

Grant Date Fair Values and Underlying Assumptions;

3 unchanged sentences

Most stock options granted vest ratably over two to four years and are generally exercisable for ten years.

The assumed forfeiture rates used in calculating the fair value of RSU grants was 0%, and the assumed forfeiture rates used in calculating the fair value of options for performance and service conditions were 20% for each of the nine months ended March 31, 2022 and 2021.

The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures.

1 unchanged sentence

Treasury interest rate for constant maturities.

No stock options were granted during the nine months ended March 31, 2022.

For stock options granted in the nine-month period ended March 31, 2021, we estimated the fair value of each stock option as of the date of grant using the following assumptions:

Weighted-average expected volatility

Dividend yields

Weighted-average risk-free interest rate

Weighted-average expected term, in years

No stock options were granted during the three months ended September 30, 2022 or during the three months ended September 30, 2021.

Information Regarding Current Share-Based Compensation Awards

A summary of the activity for share-based compensation awards in the nine months ended March 31, 2022 is presented below:

A summary of the activity for share-based compensation awards in the three months ended September 30, 2022 is presented below:

Stock Options

2 unchanged sentences

Cancelled/Forfeited

March 31, 2022

September 30, 2022

Awards exercisable/

March 31, 2022

September 30, 2022

Awards unexercisable/

unvested as of

March 31, 2022

September 30, 2022

RSU awards vest immediately or from one to four years from the date of grant.

As of March 31, 2022, there was approximately $ 1.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including stock options and RSUs) granted.

As of September 30, 2022, there was approximately $ 836,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including stock options and RSUs) granted.

We expect to recognize the compensation cost as follows:

1 unchanged sentence

Stock Options

June 30, 2022 (remaining three months)

June 30, 2023

June 30, 2023 (remaining nine months)

June 30, 2024

5 unchanged sentences

Three Months Ended

Nine Months Ended

$ ( 495,003 )

$ ( 222,564 )

September 30,

$ ( 1,380,700 )

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Options to purchase common stock

5 unchanged sentences

We include options to renew (or terminate) in our lease term, and as part of our right-of-use (“ROU”) assets and lease liabilities, when it is reasonably certain that we will exercise that option.

We currently have obligations under three finance lease agreements, entered into during fiscal 2019, with terms ranging from three to five years.

We currently have obligations under two finance lease agreements, entered into during fiscal 2019, with terms ranging from three to five years.

The leases are for computer and manufacturing equipment.

1 unchanged sentence

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.

One such lease ends in November 2022 and we do not plan to renew, and the second such lease was amended in April 2021, and subsequently amended in September 2021, to extend the term to 2032 and increase the leased space from 26,000 square feet to approximately 58,500 square feet.

We have had two leases for premises comprising our primary facility in Orlando, Florida (the “Orlando Facility”).

We assigned one of such leases to a third-party and agreed that we would vacate the premises subject to the assigned lease on November 30,2022.

We are in discussions with the third party to extend our occupancy for a limited period of time after November 30, 2022.

If the third party does not agree to extend our occupancy, and we do not vacate the premises on or before November 30, 2022, we may be subject to claims as a result thereof.

We amended the second such lease in April 2021, and again in September 2021, to extend the term of such lease to 2032 and increase the leased space from 26,000 square feet to approximately 58,500 square feet.

Effective in January 2022, our leases in Zhenjiang, China and Riga, Latvia were extended to December 31, 2024 and 2030, respectively .

7 unchanged sentences

we recognize lease expense for these leases on a straight-line basis over the lease term.

We received tenant improvement allowances for each of our two leases with respect to our facility located in Orlando, Florida (the “Orlando Facility”).

We received tenant improvement allowances for each of our two leases with respect to our Orlando Facility.

These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities.

The balances are being amortized over the corresponding lease terms.

We are constructing additional tenant improvements in the premises subject to our continuing lease for our Orlando Facility, of which the landlord has agreed to provide $ 2.4 million in tenant improvement allowances.

We will fund the balance of the tenant improvement costs, which we estimate will be approximately $ 2.5 million.

The components of lease expense were as follows:

Three Months Ended March 31,

Nine Months Ended March 31,

Three Months Ended September 30,

Operating lease cost

6 unchanged sentences

Classification

March 31, 2022

September 30, 2022

June 30, 2022

13 unchanged sentences

Total lease liabilities

Finance lease assets were recorded net of accumulated depreciation of approximately $ 435,000 and $ 1.2 million as of March 31, 2022 and June 30, 2021, respectively.

In December 2021, we executed a purchase option at the end of one of our finance leases, therefore the related asset and accumulated depreciation were reclassified from finance lease assets.

Finance lease assets were recorded net of accumulated depreciation of approximately $ 451,000 and $ 418,000 as of September 30, 2022 and June 30, 2022, respectively.

Lease term and discount rate information related to leases was as follows:

Lease Term and Discount Rate

March 31, 2022

September 30, 2022

Weighted Average Remaining Lease Term (in years)

5 unchanged sentences

Supplemental cash flow information:

Nine Months Ended March 31,

Three Months Ended September 30,

Cash paid for amounts included in the measurement of lease liabilities:

2 unchanged sentences

Financing cash used for finance leases

Future maturities of lease liabilities were as follows as of March 31, 2022:

Future maturities of lease liabilities were as follows as of September 30, 2022:

Fiscal year ending:

1 unchanged sentence

Operating Leases

June 30, 2022 (remaining three months)

June 30, 2023 (remaining nine months)

June 30, 2024

7 unchanged sentences

Loans Payable

As of March 31, 2022 and June 30, 2021, loans payable primarily consisted of the BankUnited Term Loan (as defined below) payable to BankUnited N.A.

As of September 30, 2022 and June 30, 2022, loans payable primarily consisted of the BankUnited Term Loan (as defined below) payable to BankUnited N.A.

(“BankUnited”).

1 unchanged sentence

Each of the BankUnited Loans is evidenced by a promissory note in favor of BankUnited (the “BankUnited Notes”).

Simultaneously with the execution of the Loan Agreement, we used the proceeds from the BankUnited Term Loan to pay in full, all outstanding amounts owed to Avidbank Corporate Finance, a division of Avidbank (“Avidbank”) pursuant to an acquisition term loan.

On May 6, 2019, we entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the “First Amendment”).

10 unchanged sentences

On November 5, 2021, we entered into a letter agreement with BankUnited (the “Second Letter Agreement”).

In accordance with the Second Letter Agreement, the parties agreed to initiate discussions regarding a possible modification, forebearance, or other resolution of the Amended Loan Agreement (as defined below), which resolution would occur on or before December 31, 2021.

In accordance with the Second Letter Agreement, the parties agreed to initiate discussions regarding a possible modification, forbearance, or other resolution of the Amended Loan Agreement (as defined below), which resolution would occur on or before December 31, 2021.

On December 20, 2021, we entered into the Second Amendment to the Loan Agreement dated February 26, 2019 (the “Second Amendment”), which further amended the Loan Agreement with BankUnited.

11 unchanged sentences

and (ii) an amended exit fee equal to (a) 2% of the outstanding principal balance of the Term Loan on September 30, 2022, (b) 1% of the outstanding principal balance on December 31, 2022, (c) 1% of the outstanding principal balance on March 31, 2023, and (d) 4% of the outstanding principal balance on April 15, 2024 (to the extent the Term Loan is still outstanding on the respective dates and has not been refinanced with another lender).

Prior to September 30, 2022, BankUnited agreed to defer the exit fee that would have been due on September 30, 2022 to October 30, 2022, and reduce the amount to 1%.

We have commenced discussions with other lenders, with the intent of refinancing our credit facility prior to maturity with reasonable commercial terms, of which there can be no assurance.

9 unchanged sentences

The Term Loan initially bore interest at a per annum rate equal to 2.75 % above the 30-day LIBOR.

However, pursuant to the Second Amendment, beginning on December 20, 2021, each facility bears interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points ( 3.0 % as of March 31, 2022), as adjusted from time to time.

However, pursuant to the Second Amendment, beginning on December 20, 2021, each facility bears interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points ( 5.0 % as of September 30, 2022), as adjusted from time to time.

Equal monthly principal payments of approximately $ 48,446 , plus accrued interest, are due and payable, in arrears, on the first day of each month during the term.

Pursuant to the Second Amendment, the monthly payment, including principal and interest, will increase to $100,000, commencing November 1, 2022.

Pursuant to the Second Amendment, the monthly payment, including principal and interest, increased to $ 100,000 on November 1, 2022.

Upon maturity, all principal and interest shall be immediately due and payable.

13 unchanged sentences

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 .

Pursuant to the Second Amendment, compliance for both the fixed charge coverage ratio and total leverage ratio was waived for the quarter ended March 31, 2022 , and we were in compliance with all other required covenants, as amended.

We may prepay any or all of the BankUnited Loans in whole or in part at any time, without penalty or premium.

Pursuant to the Third Amendment, compliance for both the fixed charge coverage ratio and total leverage ratio was waived for the quarter ended September 30, 2022, and we were in compliance with all other required covenants, as amended.

We may prepay any or all of the BankUnited Loans in whole or in part at any time, without penalty or premium, other than the exit fees, as discussed above.

Late payments are subject to a late fee equal to five percent (5%) of the unpaid amount.

1 unchanged sentence

Pursuant to the Second Amendment, beginning on December 20, 2021, the default rate was converted to five percent (5%) above BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time.

The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and confidentiality.

The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and others.

Financing costs incurred related to the BankUnited Loans were recorded as a discount on debt and will be amortized over the term.

Amortization of approximately $ 33,400 and $ 13,900 is included in interest expense for the nine-month periods ended March 31, 2022 and 2021, respectively.

Amortization of approximately $ 18,600 and $ 4,600 is included in interest expense for the three-month periods ended September 30, 2022 and 2021, respectively.

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.

3 unchanged sentences

Future maturities of loans payable are as follows:

BankUnited Term Loan

Equipment Loan

Unamortized Debt Costs

Fiscal year ending:

June 30, 2022 (remaining three months)

June 30, 2023 (remaining nine months)

June 30, 2024

4 unchanged sentences

Less current portion

( 1,091,145 )

Non-current portion

4 unchanged sentences

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 $ 2.0 million and $ 2.1 million as of March 31, 2022 and June 30, 2021, respectively.

We also recognized net foreign currency transaction losses of $ 67,000 and $ 17,000 during the three months ended March 31, 2022 and 2021, respectively.

During the nine months ended March 31, 2022 and 2021, we recognized net foreign currency transaction losses of approximately $ 107,000 and $ 38,000 , respectively, included in the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net.”

Our cash and cash equivalents totaled approximately $ 5.2 million at March 31, 2022.

dollar, are reflected as a separate component of equity, which was a cumulative gain of approximately $ 17,300 and $ 935,000 as of September 30, 2022 and June 30, 2022, respectively.

We also recognized net foreign currency transaction gains of $ 23,000 and losses of $ 26,000 during the three months ended September 30, 2022 and 2021, respectively, included in the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net.”

Our cash and cash equivalents totaled approximately $ 4.3 million at September 30, 2022.

Of this amount, greater than 50% was held by our foreign subsidiaries in China and Latvia.

1 unchanged sentence

With respect to the funds generated by our foreign subsidiaries in China, the retained earnings of the respective subsidiary must equal at least 50 % of its registered capital before any funds can be repatriated through dividends.

As of March 31, 2022, LPOIZ had approximately $ 4.8 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2021, the end of the most recent statutory tax year, that remained undistributed as of March 31, 2022.

As of September 30, 2022, LPOIZ had approximately $ 3.3 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2021, the end of the most recent statutory tax year, that remained undistributed as of September 30, 2022.

Assets and net assets in foreign countries are as follows:

March 31, 2022

September 30, 2022

June 30, 2022

March 31, 2022

September 30, 2022

June 30, 2022

Assets $ 20.5 million

$ 18.4 million

1 unchanged sentence

$ 11.9 million

Net assets $ 16.4 million

$ 12.7 million

1 unchanged sentence

$ 15.7 million

$ 9.3 million

$ 10.0 million

Contingencies

4 unchanged sentences

We have incurred various expenses associated with its investigation into these matters prior and subsequent to the termination of the employees and the associated legal proceedings.

These expenses, which included legal, consulting and other transitional management fees, totaled $ 718,000 during the year ended June 30, 2021.

During the three and nine months ended March 31, 2022, we incurred an additional $ 45,000 and $ 526,000 , respectively.

These expenses, which included legal, consulting and other transitional management fees, totaled $ 718,000 and $ 400,000 during the years ended June 30, 2021 and 2022, respectively.

During the three months ended September, 2022, we incurred an additional $ 27,000 .

Such expenses were recorded as SG&A expenses in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income (Loss).

We also identified a further liability in the amount of $ 210,000 , which could have been incurred in the future due to the actions of these employees.

This amount was accrued as of June 30, 2021, pending further investigation, and was included in “Other Expense, net” in the Consolidated Statement of Comprehensive Income (Loss) for the year ended June 30, 2021.

During the third quarter of fiscal 2022, it was determined that our Chinese subsidiary would not be responsible for this amount.

As such, this accrual was reversed and is included in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net” for the three and nine months ended March 31, 2022.

Knowing that employee transitions in international subsidiaries can lead to lengthy legal proceedings that can interrupt the subsidiary’s ability to operate, compounded by the fact that our officers could not travel to China to oversee the transitions because of the travel restrictions imposed by COVID-19, we chose to enter into severance agreements with certain of the employees at the time of termination.

Pursuant to the severance agreements, LPOIZ and LPOI agreed to pay such employees severance of approximately $ 485,000 in the aggregate, to be paid over a six-month period.

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 following the terminations in April 2021.

After the execution of the severance agreements, we discovered additional wrongdoing by the terminated employees.

As a result, LPOIZ and LPOI have not yet paid the severance payments and have disputed the employees’ rights to such payments.

However, based on the likelihood that the courts in China will determine that our subsidiaries will ultimately be obligated to pay these amounts, we accrued for these payments as of June 30, 2021.

As a result, LPOIZ and LPOI have disputed the employees’ rights to such payments and did not immediately begin making the severance payments.

However, based on the likelihood that the courts in China would determine that our subsidiaries would ultimately be obligated to pay these amounts, we accrued for these payments as of June 30, 2021 and they remained accrued as of June 30, 2022 and September 30, 2022.

Such expenses were recorded as SG&A expenses in the Consolidated Statement of Comprehensive Income (Loss) for the year ended June 30, 2021.

This amount remains accrued as of March 31, 2022.

In October 2022, the severance amounts were paid to the court in accordance with a court order.

We have transitioned the management of LPOI and LPOIZ to a new management team without any significant detrimental effects on the ability of those subsidiaries to operate.

Management does 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 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 we have taken steps to minimize the business impacts from the termination of the management employees and transition to new management personnel, we have experienced some short-term adverse impacts on LPOIZ’s and LPOI’s domestic sales in China and results of operations in the three-month period ended June 30, 2021 and the nine-month period ended March 31, 2022, which management anticipates may continue for the next few quarters.

We have not experienced any material adverse impact to the business operations of LPOI or LPOIZ as a result of the transition.

We expect to incur minimal additional legal fees and consulting expenses in future periods as we have exhausted nearly all of our legal options and remedies.

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.

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, which spread from China to countries across the world, including the United States.

The duration of the COVID-19 pandemic continues to impact global economic conditions, even as restrictions have lifted in many places throughout the world.

Currently, China continues to experience rolling COVID-19 lockdowns in efforts to mitigate the spread of COVID-19.

These lockdowns are resulting in global supply chain issues.

To date, our facilities have not been directly impacted by these lockdowns;

however, many of our customers located in China have delayed receipt of orders while the customers are closed for business.

Even though these customers have not cancelled any orders with us, the delayed receipt of orders has impacted our revenue and we expect it to continue to impact our revenue in future periods while China has these rolling lockdowns.

Additionally, some areas have imposed travel restrictions, which may impact some aspects of our operations that depend on travel, such as recruitment of senior positions, and travel of service providers to maintain our production equipment.

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 for the remainder of fiscal year 2022 or beyond.

Our business, results of operations financial condition, cash flows, and the stock price of our Class A common stock can be adversely affected by pandemics, epidemics, or other public health emergencies, such as the COVID-19 pandemic, which spread from China to countries across the world, including the United States.

To date, we have not experienced any significant direct financial impact of COVID-19 to our business.

However, the COVID-19 pandemic continues to impact economic conditions, particularly in China, which has impacted the short-term and long-term demand from customers and, therefore, has negatively impacted our results of operations, cash flows, and financial position in that region.

Additionally, some areas still have travel restrictions in place, which has impacted some aspects of our operations that depend on travel, such as recruitment of senior positions, and travel of service providers to maintain our production equipment.

Management is actively monitoring this situation and taking steps to mitigate the impact on our financial condition, liquidity, and results of operations globally.

However, given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not able to precisely estimate the effects of the COVID-19 pandemic on our future results of operations, financial, or liquidity for the remainder of fiscal year 2023 or beyond.

Impact of Russian-Ukraine Conflict

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Given the dynamic nature of this situation, we cannot reasonably estimate the impact of the Russian-Ukraine conflict on our financial condition, results of operations or cash flows into the foreseeable future.

Potential Impact of Economic Conditions in China

Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China.

China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources.

While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline.

Deteriorating economic conditions in China generally and as a result of China’s zero-COVID strategy, have led to lower demand for our products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall.

A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a material adverse effect on our business and results of operations in future quarters.

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.

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If we are unable to refinance the credit facility with other commercial lenders prior to maturity, we may need to raise additional equity financing, source financing through non-commercial lenders or further reduce certain operating expenses and capital expenditures.

We filed a shelf registration statement, effective March 1, 2022, which is available for equity offerings.

We filed a shelf registration statement to facilitate the issuance of our Class A common stock, warrants exercisable for shares of our Class A common stock, and/or units up to an aggregate offering price of $ 75.8 million from time to time.

In connection with the filing of the shelf registration statement, we also included a prospectus supplement relating to an at-the-market equity program under which we may issue and sell shares of our Class A common stock up to an aggregate offering price of $ 25.2 million from time to time, decreasing the aggregate offering price available under its shelf registration statement to $ 50.6 million.

The shelf registration statement was declared effective by the SEC on March 1, 2022.

As of September 30, 2022, we have not issued any shares of its Class A common stock pursuant to the at-the-market equity program.

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.

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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.

Should capital not be available to us at reasonable terms or rates, 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements