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Item 1. Financial Statements

2023-02-09 compared with 2022-11-10 · 160 added, 128 removed, 462 unchanged (38% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

Current assets:

32 unchanged sentences

44,500,000 shares authorized;

27,071,929 and 27,046,790 shares issued and outstanding

27,275,515 and 27,046,790

shares issued and outstanding

Additional paid-in capital

5 unchanged sentences

Total liabilities and stockholders’ equity

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

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

LIGHTPATH TECHNOLOGIES, INC.

1 unchanged sentence

Three Months Ended

September 30,

Six Months Ended

Cost of sales

3 unchanged sentences

Amortization of intangibles

Loss on disposal of property and equipment

Total operating expenses

1 unchanged sentence

( 1,791,897 )

( 1,385,776 )

Other income (expense):

4 unchanged sentences

( 1,019,895 )

( 1,917,627 )

( 1,522,119 )

Income tax provision

1 unchanged sentence

$ ( 1,055,291 )

$ ( 2,074,761 )

$ ( 1,687,388 )

Foreign currency translation adjustment

2 unchanged sentences

$ ( 2,321,465 )

$ ( 1,831,278 )

Loss per common share (basic)

2 unchanged sentences

Number of shares used in per share calculation (diluted)

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

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

LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Statements of Changes in Stockholders' Equity

Comprehensive

Comphrehensive

Stockholders’

12 unchanged sentences

$ ( 205,170,058 )

Issuance of common stock for:

Exercise of Stock Options, RSUs & RSAs, net

Stock-based compensation on stock options & RSUs

Foreign currency translation adjustment

Balances at December 31, 2022

$ 233,104,731

$ ( 205,864,119 )

Balances at June 30, 2021

3 unchanged sentences

Employee Stock Purchase Plan

Exercise of Stock Options & RSUs, net

Stock-based compensation on stock options & RSUs

3 unchanged sentences

$ ( 200,879,274 )

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

Issuance of common stock for:

Settlement of RSUs, net

Stock-based compensation on stock options & RSUs

Foreign currency translation adjustment

( 1,055,291 )

Balances at December 31, 2021

$ 231,761,146

$ ( 201,934,565 )

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

LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

Three Months Ended September 30,

Six Months Ended December 31,

Cash flows from operating activities:

4 unchanged sentences

Interest from amortization of debt costs

Stock-based compensation on stock options & RSUs, net

Loss on disposal of property and equipment

Stock-based compensation on stock options, RSUs & RSAs, net

Provision for doubtful accounts receivable

4 unchanged sentences

Trade accounts receivable

( 1,283,594 )

Other receivables

1 unchanged sentence

Accounts payable and accrued liabilities

Net cash used in operating activities

( 1,255,961 )

( 1,473,498 )

Net cash used in operating activities

Cash flows from investing activities:

8 unchanged sentences

Repayment of finance lease obligations

Net cash (used in) provided by financing activities

Net cash used in financing activities

Effect of exchange rate on cash and cash equivalents

7 unchanged sentences

Income taxes paid

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

Supplemental disclosure of non-cash investing & financing activities:

Purchase of equipment through capital lease arrangements

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

LIGHTPATH TECHNOLOGIES, INC.

2 unchanged sentences

References in this document to “the Company,” “LightPath,” “we,” “us,” or “our” are intended to mean LightPath Technologies, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the requirements of Article 8 of Regulation S-X promulgated under the Exchange Act and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America.

These unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the requirements of Article 8 of Regulation S-X promulgated under the Exchange Act and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America.

These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and related notes, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022, filed with the SEC.

7 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 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.

There have been no material changes to our significant accounting policies during the six months ended December 31, 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, 2022 and September 30, 2022, respectively.

Deferred revenue was not significant as of June 30, 2022 and December 31, 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 months ended September 30, 2022 and 2021 was as follows:

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

Three Months Ended

September 30,

Six Months Ended

Infrared Products

2 unchanged sentences

The components of inventories include the following:

September 30, 2022

June 30, 2022

Raw materials

4 unchanged sentences

( 1,329,637 )

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.

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 December 31, 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 three months ended September 30, 2022.

There were no changes in the net carrying value of goodwill during the six months ended December 31, 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

10,676,000 10,676,000

Less accumulated amortization

( 6,780,744 )

Total intangible assets, net

( 6,218,202 )

Total intangible assets, net

Future amortization of identifiable intangibles is as follows:

Fiscal year ending:

June 30, 2023 (remaining nine months)

June 30, 2023 (remaining six 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 months ended September 30, 2022 and 2021 is as follows:

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

Three Months Ended

September 30,

(Loss) income before income taxes

Six Months Ended

Loss before income taxes

$ ( 639,061 )

$ ( 1,019,895 )

$ ( 1,917,627 )

$ ( 1,522,119 )

Income tax provision

1 unchanged sentence

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 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.

For the three and six months ended December 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.

(“LPOIZ”), and paid or payable to LightPath, its parent company.

We record net deferred tax assets to the extent we believe it is more likely than not that some portion or all of these assets will be realized.

1 unchanged sentence

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

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

As of December 31, 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.

6 unchanged sentences

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

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.

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

The net deferred tax liabilities included in these unaudited Condensed Consolidated Balance Sheets as of December 31, 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.

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.

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

Accrued and unpaid withholding taxes were approximately $ 40,000 as of both December 31, 2022 and June 30, 2022.

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

11 unchanged sentences

Stock-Based Compensation

Our directors, officers, and key employees are granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as amended (the “Omnibus Plan”), through October 2018 and after that date, the 2018 Stock and Incentive Compensation Plan (the “SICP”), including incentive stock options, non-qualified stock options, and restricted stock unit (“RSU”) awards.

Our directors, officers, and key employees are granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as amended (the “Omnibus Plan”), through October 2018 and after that date, through our 2018 Stock and Incentive Compensation Plan (the “SICP”).

Such stock-based compensation may include, among other things, incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”).

The SICP is administered by the Compensation Committee of the Board of Directors.

At our 2018 Annual Stockholders Meeting, our stockholders approved the SICP under which an aggregate of 1,650,870 shares of our Class A common stock were authorized for issuance pursuant to awards granted thereunder.

As of December 31, 2022, 1,882,094 shares of Class A common stock are authorized and available for issuance pursuant to awards granted under the SICP.

The Company’s executive officers are eligible to earn incentive compensation consisting of equity-based awards, as well as cash bonuses, based on the achievement of certain individual and/or Company performance goals set by the Compensation Committee.

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 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,

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

Three Months Ended December 31,

Six Months Ended December 31,

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 $ 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.

A discount of $ 1,954 and $ 2,155 for the six months ended December 31, 2022 and 2021, respectively, is included in SG&A expenses in these 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 three months ended September 30, 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 three months ended September 30, 2022 or during the three months ended September 30, 2021.

No stock options were granted during the six months ended December 31, 2022 or during the six months ended December 31, 2021.

Restricted Stock Awards

RSAs are granted primarily to our executive officers, employees and consultants, and typically vest over a one to three year period from the date of grant, although some may vest immediately upon grant.

The stock underlying RSAs is issued upon vesting.

Restricted Stock Units

RSUs are granted primarily to our directors, although RSU awards may also be made to executive officers, employees and consultants.

RSUs typically vest over a one to four year period from the date of grant, although some may vest immediately upon grant.

Information Regarding Current Share-Based Compensation Awards

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

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

Stock Options

Restricted Stock Units (RSUs)

Restricted Stock Awards (RSAs)

June 30, 2022

Cancelled/Forfeited

September 30, 2022

December 31, 2022

Awards exercisable/

September 30, 2022

December 31, 2022

Awards unexercisable/

unvested as of

September 30, 2022

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

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.

December 31, 2022

As of December 31, 2022, there was approximately $ 1.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including stock options, RSAs and RSUs) granted.

We expect to recognize the compensation cost as follows:

1 unchanged sentence

Stock Options

June 30, 2023 (remaining nine months)

June 30, 2023 (remaining six months)

June 30, 2024

June 30, 2025

June 30, 2026

Earnings (Loss) Per Share

Basic earnings per share is computed by dividing net income or loss by the weighted-average number of shares of Class A common stock outstanding, during each period presented.

Diluted earnings per share is computed similarly to basic earnings 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.

Basic earnings (loss) per share is computed by dividing net income or loss by the weighted-average number of shares of Class A common stock outstanding, during each period presented.

Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share, except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue shares of Class A common stock were exercised or converted into shares of Class A common stock.

The computations for basic and diluted earnings (loss) per share of Class A common stock are described in the following table:

Three Months Ended

September 30,

Six Months Ended

$ ( 694,061 )

$ ( 1,055,291 )

$ ( 2,074,761 )

$ ( 1,687,388 )

Weighted-average common shares outstanding:

2 unchanged sentences

Options to purchase common stock

RSUs and RSAs

Diluted number of shares

Loss per common share:

The following potential dilutive shares were not included in the computation of diluted earnings per share of Class A common stock, as their effects would be anti-dilutive:

The following potential dilutive shares were not included in the computation of diluted earnings (loss) per share of Class A common stock, as their effects would be anti-dilutive:

Three Months Ended

September 30,

Six Months Ended

Options to purchase common stock

RSUs and RSAs

Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida;

4 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 two finance lease agreements, entered into during fiscal 2019, with terms ranging from three to five years.

We currently have obligations under three finance lease agreements, entered into during fiscal 2019 and fiscal 2023, 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.

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

We previously 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 .

In December 2022, entered into an agreement with the assignee of such lease that extended our right to occupy the subject premises until February 28, 2023, in consideration of payments of rent through February 28, 2023, and other amounts to the assignee.

We amended the second lease for the premises comprising our Orlando Facility in April 2021, and again in September 2021, to extend the term of such lease to a date we anticipate to be in or around December 2032 and to increase the leased space from 26,000 square feet to approximately 58,500 square feet.

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

As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

1 unchanged sentence

We are responsible for payment of certain real estate taxes, insurance and other expenses on certain of our leases.

These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability.

These amounts are generally considered to be variable and are not included in the measurement of the ROU assets and the related lease liabilities.

We generally account for non-lease components, such as maintenance, separately from lease components.

8 unchanged sentences

The components of lease expense were as follows:

Three Months Ended September 30,

Three Months Ended December 31,

Six Months Ended December 31,

Operating lease cost

4 unchanged sentences

Total lease cost

Supplemental balance sheet information related to leases was as follows:

Supplemental balance sheet information related to the leases was as follows:

Classification

September 30, 2022

December 31, 2022

June 30, 2022

13 unchanged sentences

Total lease liabilities

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.

Finance lease assets were recorded net of accumulated depreciation of approximately $ 55,000 and $ 418,000 as of December 31, 2022 and June 30, 2022, respectively.

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

Lease Term and Discount Rate

September 30, 2022

December 31, 2022

Weighted Average Remaining Lease Term (in years)

5 unchanged sentences

Supplemental cash flow information:

Three Months Ended September 30,

Six Months Ended December 31,

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 September 30, 2022:

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

Fiscal year ending:

1 unchanged sentence

Operating Leases

June 30, 2023 (remaining nine months)

June 30, 2023 (remaining six months)

June 30, 2024

7 unchanged sentences

Loans Payable

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.

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

(“BankUnited”).

On February 26, 2019, we entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to 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”), which Guidance Line has since been terminated.

On February 26, 2019, we entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to a maximum amount of $ 2,000,000 (the “BankUnited Revolving Line”), (ii) a term loan in the amount of up to $ 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”), which Guidance Line has since been terminated.

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

3 unchanged sentences

The Letter Agreement:

(i) reduced 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 ;

(i) reduced the fixed charge coverage ratio to 1.0 for the quarter ended September 30, 2021 and to 1.1 for the quarter ended December 31, 2021 ;

(ii) modified 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 employee matters that occurred during fiscal 2021 at LPOI and LPOIZ, which expenses must be approved by BankUnited;

(iii) terminated the Guidance Line;

and (iv) required 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.

1 unchanged sentence

Finally, in connection with the Letter Agreement, we paid BankUnited a fee equal to $10,000.

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, 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.

On November 5, 2021, we entered into a second letter agreement with BankUnited (the “Second Letter Agreement”)and thereafter, in accordance with the Second Letter Agreement, on December 20, 2021, we entered into the Second Amendment to the Loan Agreement dated February 26, 2019 (the “Second Amendment”), which further amended the Loan Agreement with BankUnited.

In accordance with the Second Amendment, the parties agreed to the following terms, among others:

1 unchanged sentence

(ii) an increased monthly payment amount of $ 100,000 commencing on November 1, 2022;

(iii) beginning on December 20, 2021, each facility will bear 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, (iv) the Term Loan will bear a higher interest rate commencing on August 1, 2022;

(v) an exit fee equal to 4 % of the outstanding principal balance of the Term Loan on April 15, 2023 (to the extent the Term Loan is still outstanding on such date and has not been refinanced with another lender);

and (vi) a fee of $ 50,000 payable upon execution of the Second Amendment.

(iii) beginning on December 20, 2021, each facility will bear interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points (7.0% as of December 31, 2022), as adjusted from time to time;

(iv) an exit fee equal to 4 % of the outstanding principal balance of the Term Loan on April 15, 2023 (to the extent the Term Loan is still outstanding on such date and has not been refinanced with another lender);

and (v) a fee of $ 50,000 payable upon execution of the Second Amendment.

The Second Amendment also granted us a waiver of compliance for the Financial Covenants (as set forth in the Amended Loan Agreement) for the periods ended December 31, 2021, March 31, 2022 and June 30, 2022.

On May 11, 2022, we entered into the Third Amendment to the Loan Agreement dated February 26, 2019 (the “Third Amendment”;

and, together with the First Amendment, the Letter Agreement and the Second Letter Agreement, the “Amended Loan Agreement”), which further amended the Loan Agreement with BankUnited.

On May 11, 2022, we entered into the Third Amendment to the Loan Agreement dated February 26, 2019 (the “Third Amendment”), which further amended the Loan Agreement with BankUnited.

In accordance with the Third Amendment, the parties agreed to the following terms, among others:

2 unchanged sentences

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.

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.

For additional information, see Note 14, Liquidity .

On December 31, 2022, BankUnited agreed to reduce the December 31, 2022 penalty to 0.25% of the outstanding principal balance as of that date.

On February 7, 2023, we entered into the Fourth Amendment to the Loan Agreement dated February 26, 2019 (the “Fourth Amendment” and, together with the First Amendment, the Letter Agreement and the Second Letter Agreement, the Second Amendment, and the Third Amendment, the “Amended Loan Agreement”), which further amended the Loan Agreement with BankUnited.

In accordance with the Fourth Amendment, the parties agreed to the following terms, among others:

(i) an amended maturity date of December 31, 2024 with respect to the Term Loan (as defined in the Amended Loan Agreement);

and (ii) an amended exit fee equal to (a) 1 % of the outstanding principal balance on December 31, 2023 and (d) 4% of the outstanding principal balance on December 31, 2024 (to the extent the Term Loan is still outstanding on the respective dates and has not been refinanced with another lender), (iii) a principal reduction payment of $ 1,000,000 on or before February 28, 2023, (iv) commencing on March 1, 2023 and continuing on the first day of each month thereafter until December 31, 2023, monthly payments of $ 75,000 , and commencing on January 1, 2024 and continuing on the first day of each month thereafter until the maturity date, monthly payments of $ 100,000 , with each such payment applied first to interest, costs and expenses and then to principal, (v) commencing on March 1, 2023, each facility will bear interest at BankUnited’s then prime rate of interest ( 7.5 % as of December 31, 2022), and (vi) BankUnited has waived compliance with certain financial covenants until December 31, 2023.

BankUnited Revolving Line

Pursuant to the Amended Loan Agreement, BankUnited agreed to make loan advances under the BankUnited Revolving Line to us up to a maximum aggregate principal amount outstanding not to exceed $2,000,000, which proceeds could have been used for working capital and general corporate purposes.

Pursuant to the BankUnited Loan Agreement, BankUnited agreed to make loan advances under the BankUnited Revolving Line to us up to a maximum aggregate principal amount outstanding not to exceed $2,000,000, which proceeds could have been used for working capital and general corporate purposes.

There were no amounts outstanding on the BankUnited Revolving Line as of June 30, 2021 and no amounts were due upon its expiration on February 26, 2022.

BankUnited Term Loan

Pursuant to the Amended Loan Agreement, BankUnited advanced us $ 5,813,500 to satisfy in full the amounts owed to Avidbank, including the outstanding principal amount and all accrued interest under the acquisition term loan and to pay the fees and expenses incurred in connection with closing of the BankUnited Loans.

Pursuant to the BankUnited Loan Agreement, BankUnited advanced us $ 5,813,500 to satisfy in full the amounts owed to Avidbank, including the outstanding principal amount and all accrued interest under the acquisition term loan and to pay the fees and expenses incurred in connection with the closing of the BankUnited Loans.

The Term Loan was 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.

Pursuant to the Second Amendment, the maturity date of the Term Loan was April 15, 2023, and pursuant to the Third Amendment, the maturity date of the Term Loan is April 15, 2024.

Pursuant to the Second Amendment, the maturity date of the Term Loan was extended to April 15, 2023, and pursuant to the Third Amendment, the maturity date of the Term Loan was extended to April 15, 2024.

Pursuant to the Fourth Amendment, the maturity date of the Term Loan was extended to December 31, 2024.

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

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, increased to $ 100,000 on November 1, 2022.

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 ( 7.0 % as of December 31, 2022), as adjusted from time to time and pursuant to the Fourth Amendment, beginning on March 1, 2023, each facility will bear interest at BankUnited’s then-prime rate of interest ( 7.5 % as of December 31, 2022).

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

provided that, pursuant to the Second Amendment, the monthly payments, including principal and interest, increased to $100,000 on November 1, 2022.

Pursuant to the Fourth Amendment, monthly payments, including principal and interest, shall decrease to $75,000, but shall increase to $100,000 on January 1, 2024 .

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

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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 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.

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

Pursuant to the Fourth Amendment, the financial covenants are waived until December 31, 2023.

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.

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

Amortization of approximately $ 37,100 and $ 14,900 is included in interest expense for the six-month periods ended December 31, 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.

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Future maturities of loans payable are as follows:

BankUnited Term Loan

Equipment Loan

Unamortized Debt Costs

Fiscal year ending:

June 30, 2023 (remaining nine months)

June 30, 2023 (remaining six months)

June 30, 2024

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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 $ 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.

dollar, are reflected as a separate component of equity, which was a cumulative gain of approximately $ 688,000 and $ 935,000 as of December 31, 2022 and June 30, 2022, respectively.

We also recognized net foreign currency transaction losses of $ 29,000 and $ 14,000 during the three months ended December 31, 2022 and 2021, respectively.

During the six months ended December 31, 2022 and 2021, we recognized net foreign currency transaction losses of $ 7,000 and $ 40,000 , 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 $ 3.8 million at December 31, 2022.

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

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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 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.

As of December 31, 2022, LPOIZ had approximately $ 3.9 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2022, the end of the most recent statutory tax year, that remained undistributed as of December 31, 2022.

Assets and net assets in foreign countries are as follows:

September 30, 2022

December 31, 2022

June 30, 2022

September 30, 2022

December 31, 2022

June 30, 2022

$ 18.4 million

$ 19.6 million

Assets $ 17.9 million

$ 19.6 million

1 unchanged sentence

$ 12.7 million

Net assets $ 13.9 million

$ 15.7 million

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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).

During the three and six months ended December 31, 2022, expenses incurred related to the legal proceedings were immaterial.

Such expenses were recorded as SG&A expenses in these unaudited Condensed 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, we chose to enter into severance agreements with certain of the employees at the time of termination.

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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.

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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 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.

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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.

However, we are not able to precisely estimate the effects of the continuing COVID-19 pandemic on our future results of operations, financial, or liquidity for the remainder of fiscal year 2023 or beyond.

Impact of Russian-Ukraine Conflict

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We generally rely on cash from operations and equity and debt offerings, to the extent available, to satisfy our liquidity needs and to maintain our ability to repay the BankUnited Term Loan.

As discussed in in Note 11, Loans Payable , we have commenced discussions with other lenders, and we anticipate refinancing our debt obligations with a new lender prior to the maturity date of the Term Loan, of which there can be no assurances.

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.

As discussed in in Note 11, Loans Payable, on February 7, 2023, we entered into the Fourth Amendment with BankUnited to amend the BankUnited Loan Agreement.

In accordance with the Fourth Amendment, the parties agreed to a further extension of the term, and reduced payments beginning March 1, 2023 through December 31, 2023, among other items.

On February 16, 2022, we filed a shelf registration statement to facilitate the issuance of our Class A common stock, warrants exercisable for shares of our Class A common stock, and/or units up to an aggregate offering price of $ 75.8 million from time to time.

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

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

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.

In addition, greater than 50 % of our cash and cash equivalents is held by our foreign subsidiaries and, although we regularly repatriate cash, it may not be readily available to repay liabilities in the U.S.

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 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.

As of December 31, 2022, we had not issued any shares of its Class A common stock pursuant to the at-the-market equity program.

On January 12, 2023, the Company entered into a securities purchase agreement (“Purchase Agreement”), pursuant to which the Company agreed to issue and sell in a public offering under the shelf registration statement an aggregate of 9,090,910 shares of the Company’s Class A common stock, par value $ 0.01 per share for a purchase price of $ 1.10 per share and filed a prospectus supplement with the SEC related thereto.

The sale of shares pursuant to the Purchase Agreement closed on January 17, 2023, and resulted in net proceeds of approximately $9.2 million after payment of placement agent fees, and certain other costs and expenses of the offering.

Following this equity raise, we do not expect to need additional equity capital for the foreseeable future, however there are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums, and increases in other costs.

In addition, we may identify opportunities for acquisitions and other strategic transactions to expand and further enhance our business that may require that we raise additional capital should be elect to pursue any of such transactions.

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