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Item 1A. Risk Factors

2023-09-14 compared with 2022-09-15 · 41 added, 51 removed, 304 unchanged (23% of the section changed)

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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 net losses of $3.5 million and $3.2 million for fiscal years 2022 and 2021, respectively, and although we reported net income of $0.9 million for fiscal year 2020, we incurred a net loss of $2.7 million for fiscal year 2019.

We reported net losses of $4.0 million, $3.5 million and $3.2 million for fiscal years 2023, 2022 and 2021, respectively, and although we reported net income of $0.9 million for fiscal year 2020, we incurred a net loss of $2.7 million for fiscal year 2019.

As of June 30, 2023, we had an accumulated deficit of approximately $207.8 million.

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In fiscal year 2022, we had sales to three customers that comprised an aggregate of approximately 35% of our annual revenue, with one customer at 19% of our sales, another customer at 9% of our sales, and the third customer at 7% of our sales.

The third customer lost a significant bid in 2021 which adversely affected our sales in fiscal year 2022.

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.

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political, social, economic instability and disruptions.

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 we 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.

Russia’s ongoing conflict with Ukraine has disrupted the global economy.

Our business, financial condition, and results of operations could be adversely affected by continued disruption and global consequences stemming from the conflict.

Although we have no direct operations in Russia or Ukraine, the broader consequences of this conflict have negatively affected, and are expected to continue to negatively affect, the global economy, including the imposition of sanctions, cyber incidents or information technology failures, supply disruptions, increases in inflation rates, increase in energy costs, changes to foreign currency exchange rates, constraints, volatility, or disruption in financial markets, the availability of raw materials, supplies, freight, and labor, and uncertainty about economic and global stability.

Historically, we have sourced germanium from suppliers located in Russia and China.

At the start of the Russia\Ukraine conflict we had ceased all purchases of Germanium from vendors in Russia and instead have been purchasing Germanium from vendors in China.

On July 4, 2023 China announced its intentions to impose some export restrictions on Germanium, requiring all international customers to provide an end user statement for approval before receiving an export license.

As of the time of preparing this Annual Report, our vendors have applied for export licenses for shipments of Germanium to us, and have not yet received them.

We cannot provide any assurances that we will be able to obtain adequate supplies in the future or, if adequate supplies are available, that the timing or costs of obtaining such raw materials will be acceptable to us.

Further, some of our major customers in Europe may be directly impacted by the Russian-Ukraine conflict, which could impact the amount and frequency of orders they place with us, as well as impact the timing and ability to pay for products ordered from us.

Any material impacts to our customers could have a material adverse effect on our business and operating results.

corporation with international operations, we are subject to the U.S.

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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 year 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 year 2020 and continued through fiscal years 2021 and 2022.

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 year 2020.

We utilize a number of strategies to mitigate the current and, hopefully, future impact of tariffs.

However, given the uncertainty regarding the current 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 have experienced in the past.

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.

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In fiscal year 2023, sales of PMO products represented approximately 41% of our net revenues, sales of infrared products represented approximately 51% of our net revenues, and sales of specialty products represented 8% of our revenues.

In the future, we expect growth in both our PMO and infrared product groups.

In the future, we expect growth primarily from our infrared product groups, including engineered solutions and assemblies.

Continued and expanding market acceptance of these products, particularly our BD6-based infrared products, is critical to our future success.

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Half of this amount was remitted on December 31, 2021, with the remainder deferred until December 31, 2022.

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.

As of June 30, 2023, all deferred payroll taxes have been remitted.

Further, our worldwide operations subject us to the jurisdiction of a number of taxing authorities.

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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 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.

Additionally, financial difficulties could impair our ability to recover advances made to these suppliers.

We face product liability risks, which could adversely affect our business .

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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 Orlando Facility is subject to a lease that expires March 31, 2034.

The Riga Facility is subject to two leases which expire in December 2030, and the Zhenjiang Facility is subject to one lease that expires in December 2024.

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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.

In March 2020, the World Health Organization (the “WHO”) declared COVID-19 as a pandemic.

These restrictions significantly impacted economic conditions in the U.S.

in 2020 and continued into 2021.

Beginning in the spring of 2021, we saw restrictions begin to lift as vaccines have become more available, and as if June 30, 2023 there are no remaining restrictions impacting our operations.

We are considered an “essential business,” as a critical supplier to both the medical and defense industries.

Throughout the COVID-19 pandemic, we continued to operate our manufacturing facilities consistent with government guidelines and state and local orders;

however, future pandemics or other public health emergencies 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 future pandemics or other public health emergencies 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.

Now that the COVID-19 pandemic has subsided, we may experience materially adverse impacts to our business due to any resulting economic recession or depression.

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.

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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.

Russia’s ongoing conflict with Ukraine has disrupted the global economy.

Our business, financial condition, and results of operations could be adversely affected by continued disruption and global consequences stemming from the conflict.

Historically, we have sourced germanium from suppliers located in Russia and China.

We have, and intend to continue, sourcing germanium from suppliers located in China through the continuation of the Russian-Ukraine conflict and the Russian trade embargo.

Though we do not anticipate any challenges from sourcing germanium solely from suppliers in China, we cannot provide any assurances that we will be able to obtain adequate supplies in the future or, if adequate supplies are available, that the timing or costs of obtaining such raw materials will be acceptable to us.

Any material impacts to our customers could have a material adverse effect on our business and operating results.

Risks Related To Our Intellectual Property

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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-K

Item 1A. Risk Factors