What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-09-14 compared with 2022-09-15 · 147 added, 172 removed, 281 unchanged (53% of the section changed)

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thus, regardless of the stay-at-home orders, our workforce was permitted to work from our facilities and our business operations have generally continued to operate as normal.

Nonetheless, despite the lifting of these stay-at-home orders, out of concern for our workforce, our U.S.- and Latvia-based non-manufacturing employees have continued to work remotely to some extent.

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

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

Management is actively monitoring this situation and any impact on our financial condition, liquidity, and results of operations.

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

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 have had travel restrictions in place, including China until recently.

Even though China’s travel restrictions are no longer in place, we are required to re-apply for travel visas and approvals which will continue to affect our ability to travel in China.

As a result, 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 have been, and will continue to be, adversely impacted.

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

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 in fiscal 2024 and beyond.

Effect of Certain Events Occurring at Our Chinese Subsidiaries

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During the year ended June 30, 2022, approximately $400,000 of related expenses were incurred.

During the year ended June 30, 2023, expenses incurred related to the legal proceedings were immaterial.

Such expenses were recorded as “Selling, general and administrative” expenses in the accompanying Consolidated Statements of Comprehensive Income (Loss).

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As such, this accrual was reversed and is included in the accompanying Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net” for the year ended June 30, 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.

Knowing that employee transitions in international subsidiaries can lead to lengthy and expensive legal proceedings that can be disruptive to operations, 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.

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However, based on the likelihood that the courts in China will determine that our subsidiaries will ultimately be obligated to pay these amounts, we have accrued for these payments as of June 30, 2021, and such expenses were recorded as “Selling, general and administrative” expenses in the accompanying Consolidated Statement of Comprehensive Income (Loss) in fiscal year 2021.

As of June 30, 2022, approximately $430,000 remains accrued.

The Chinese Labor Court has ruled in favor of the former employees, as expected.

We are continuing litigation and negotiation as an option.

As of June 30, 2022, approximately $430,000 was accrued.

The Chinese Labor Court ruled in favor of the former employees, as expected, and these severance payments were paid out during the first half of fiscal year 2023.

We continue to have litigation pending in the Chinese court system related to these matters, but there has been little activity during fiscal year 2023.

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

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

We 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 additional legal fees and consulting expenses in future periods as we continue to pursue our legal options and remedies;

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Revenue generated by infrared products was approximately $16.7 million in fiscal year 2023, a decrease of 11%, as compared to the prior fiscal year.

The decrease in revenue is primarily driven by sales to customers in the industrial market, particularly for our BD6-based molded infrared products.

Industrial applications, firefighting cameras, and other public safety applications continue to be the primary drivers of demand for infrared products, including thermal imaging assemblies.

During fiscal years 2020 and 2021, we saw an increase in demand for medical and temperature sensing applications, such as fever detection.

Demand for temperature sensing applications were accelerated by COVID-19, and although the demand has leveled off since the initial spike, it remains elevated.

The decrease in revenue is primarily driven by sales of BD6-based molded infrared products, particularly to customers in the China commercial and industrial markets.

The decrease in sales to customers in the China commercial and industrial markets were partially offset by increased revenue from sales of BD6-based products to customers in the defense industry.

Sales of diamond-turned infrared products were nearly flat for fiscal years 2023 and 2022, however there were shifts in the customer mix, with growth from some newer key customers.

Revenue generated by PMO products was approximately $13.4 million for fiscal year 2023, a decrease of 11%, as compared to the prior fiscal year.

The decrease in revenue is primarily attributed to a reduction in orders from a key customer in the telecommunications market, due to a decrease in that customer’s market share.

This decrease was partially offset by an increase in sales through our catalog and distribution channels, as well as increases in sales to customers in the industrial and medical industries.

The decrease in revenue is due to a decrease in sales to customers in the telecommunications industry and a decrease in sales of commercial products, partially offset by increases in sales to defense and industrial customers.

PMO product sales to customers in China continue to be soft across all of the industries we serve due to unfavorable economic conditions in that region.

Revenue generated by specialty products was approximately $2.8 million in fiscal year 2023, an increase of approximately 54% as compared to fiscal year 2022.

This increase is primarily due to higher NRE project revenue in fiscal year 2022.

NRE revenue is project based and the timing of any such projects is wholly dependent on our customers and their project activity.

The increase is primarily due to increase demand for collimator assemblies, and increased sales of a custom visible lens assembly to a medical customer, for which we have and end of life order with backlog going into fiscal 2025.

The first quarter of fiscal 2023 also included a charge for in-process materials billed to a customer upon order cancellation, during the first quarter of fiscal 2023.

Cost of Sales and Gross Margin.

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Total cost of sales was approximately $21.9 million for fiscal year 2023, compared to $23.7 million for fiscal year 2022, a decrease of 8%.

Gross margin as a percentage of revenue was 33% for fiscal year 2022, compared to 35% for the prior fiscal year.

Although the product mix is similar for PMO and infrared products for fiscal year 2022, as compared to the prior fiscal year, the gross margin as a percentage of revenue is unfavorably impacted by the 8% decrease in revenue, which resulted in under-utilized capacity in some areas.

Infrared product margins also reflect increased costs associated with the completion of the coating department in our Riga Facility, which began to improve in the fourth quarter of fiscal year 2022 and is expected to continue to improve over time, as that facility works through the qualification stages for more products and begins to produce at higher volumes.

In the second half of fiscal year 2022, margins were also negatively impacted by inflationary pressure in the cost of raw materials, and significantly increased energy costs, particularly in Latvia.

Gross margin as a percentage of revenue was 34% for fiscal year 2023 as compared to 33% for fiscal year 2022.

The mix of revenue by product group for fiscal 2023 was similar to that of the prior fiscal year, however the overall revenue was 7% lower.

The lower revenue level for fiscal 2023, as compared to the prior fiscal year, resulted in less contribution toward fixed manufacturing costs.

Improving gross margin to 34% at the lower revenue level reflects the benefit of a number of the operational and cost structure improvements that we implemented in fiscal years 2022 and 2023.

The benefits of those improvements were partially offset by increased costs in the second half of fiscal 2023, as we temporarily outsourced certain production processes during the consolidation and construction of our Orlando manufacturing facility.

Selling, General and Administrative.

For fiscal year 2022, Selling, General and Administrative (“SG&A”) costs were approximately $11.2 million, a decrease of approximately $768,000, or 6%, as compared to the prior fiscal year.

The decrease in SG&A for fiscal year 2022 is primarily due to an approximate $800,000 decrease in expenses associated with the previously described events that occurred at our Chinese subsidiaries, including severance, legal and consulting fees.

This decrease was partially offset by an increase in expenses for travel and tradeshows, with fewer COVID-19 restrictions in place, as well as expenses for certain “value-added taxes” (“VAT”) and related taxes owed by one of our Chinese subsidiaries from prior years, which was identified and settled in fiscal year 2022.

These increases were offset by the absence of the following non-recurring expenses that were incurred in fiscal year 2021:

(i) approximately $400,000 of additional compensation to our former Chief Executive Officer, as previously disclosed in the Current Report on Form 8-K filed with the SEC on November 18, 2020, and (ii) approximately $150,000 of additional stock compensation recorded as certain RSUs vested upon the retirement of two directors.

For fiscal year 2023, Selling, General and Administrative (“SG&A”) costs were approximately $11.4 million, an increase of approximately $215,000, or 2%, as compared to the prior fiscal year.

The increase in SG&A for fiscal year 2023 is primarily due to an increase in stock compensation, partially due to director retirements that occurred during the second quarter of fiscal year 2023, as well as increases in other personnel-related costs.

We also incurred costs of approximately $140,000 associated with the acquisition of Visimid, which closed in July 2023.

In addition, we incurred approximately $129,000 during fiscal year 2023 related to the exit of our secondary facility in Orlando, the lease for which terminated in February 2023.

SG&A costs for fiscal year 2023 also include fees of $53,000 paid to BankUnited under our Amended Loan Agreement as a result of not prepaying the BankUnited Term Loan by certain specified dates.

Please refer to Note 13, Loans Payable, in the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.

These increases were partially offset by the following decreases:

(i) decrease of $248,000 in value-added tax (“VAT”) and related taxes from prior years that were accrued by one of our Chinese subsidiaries in the second quarter of fiscal 2022;

and (ii) decrease of approximately $400,000 of expenses associated with the previously disclosed events that occurred at our Chinese subsidiaries, including legal and consulting fees incurred during fiscal year 2022.

Please refer to Note 14, Contingencies , in the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.

New Product Development.

New product development costs were approximately $2.1 million in fiscal year 2022, a decrease of approximately 4%, as compared to approximately $2.2 million in the prior fiscal year.

This decrease was primarily due to lower spending on internally-funded development projects, while customer- and government-funded NRE projects increased in fiscal year 2022.

New product development costs were approximately $2.1 million in fiscal year 2023, an increase of approximately 3% as compared to the prior fiscal year.

This increase was primarily due to greater spending on internally-funded development projects in fiscal year 2023, such as the MANTIS reference design camera, whereas in fiscal year 2022, new product development consisted of more customer- and government-funded NRE projects.

Other Expense.

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The increase in interest expense is due to rising interest rates, partially offset by a 30% reduction in our total debt, including finance lease obligations, and excluding operating lease liabilities, as of June 30, 2023, as compared to the end of the prior fiscal year.

Other income, net, was approximately $177,000 in for fiscal year 2022, compared to other expense, net, of approximately $194,000 for fiscal year 2021.

Other income, net, was approximately $25,000 for fiscal year 2023, compared to $177,000 for fiscal year 2022.

Other income, net, for fiscal year 2022 includes a benefit of $210,000, which represents the reversal of a potential liability related to the actions of the terminated employees of our subsidiaries in China, as previously discussed.

This potential liability was accrued as of June 30, 2021, pending further investigation, and it was determined in the third quarter of fiscal year 2022 that our Chinese subsidiary would not be responsible for this amount.

Other expense, net, for fiscal year 2021 included an expense of $210,000 associated with this accrual.

Other income (expense), net also includes net foreign currency transaction gains and losses, which were minimal for fiscal years 2022 and 2021.

Other income, net also includes net foreign currency transaction gains and losses.

We execute all foreign sales from our U.S.

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Income Taxes.

During fiscal year 2022, we recorded income tax expense of approximately $863,000, compared to approximately $934,000 in fiscal year 2021, primarily related to income taxes from our operations in China.

During fiscal year 2023, we recorded income tax expense of approximately $234,000, compared to approximately $863,000 in fiscal year 2022, primarily related to our operations in China.

Income taxes for fiscal years 2023 and 2022 also included Chinese withholding tax expenses of $235,000 and $230,000, respectively, the majority of which are associated with intercompany dividends declared by LPOIZ, payable to us as the parent company.

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therefore, the total tax on those earnings was still below the normal income tax rate.

The income tax provision for fiscal year 2022 also includes a true-up of deferred tax liabilities for LPOIZ, and the income tax provision for fiscal year 2021 reflects an increase in the valuation allowance on our U.S.

deferred tax assets.

The income tax provision for fiscal year 2022 also includes a true-up of deferred tax liabilities for LPOIZ.

Please refer to Note 8, Income Taxes , in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information related to each of our tax jurisdictions.

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Net loss for fiscal year 2023 was approximately $4.0 million, or $0.13 basic and diluted loss per share, compared to approximately $3.5 million, or $0.13 basic and diluted loss per share, for fiscal year 2022.

The increase in net loss for fiscal year 2022, as compared to fiscal year 2021, is primarily attributable to a $785,000 increase in operating loss resulting from lower gross margin, which was partially offset by lower operating expenses.

Non-operating items include a $420,000 favorable difference for the aforementioned accrual and subsequent reversal of a potential liability associated with the actions of our terminated employees of our Chinese subsidiaries.

In addition, there was a favorable difference of approximately $71,000 in the provision for income taxes.

The increase in net loss for fiscal year 2023, as compared to fiscal year 2022, is attributable to the approximately $927,000 increase in operating loss resulting from lower revenue and gross margin and increased operating expenses.

Other income also decreased approximately $152,000, primarily due to the aforementioned $210,000 accrual reversal in fiscal year 2022, after a potential liability associated with the actions of our terminated employees of our Chinese subsidiaries was favorably resolved.

The increased operating loss and decrease in other income were partially offset by a favorable difference of approximately $629,000 in the provision for income taxes for fiscal year 2023 as compared to fiscal year 2022.

Weighted-average common stock shares outstanding were 31,637,445 for both basic and diluted in fiscal year 2023, compared to 27,019,534 for both basic and diluted in fiscal year 2022.

The increase in the weighted-average basic common shares was due to the issuance of shares of Class A common stock under the 2014 ESPP and underlying vested RSUs.

The increase in the weighted-average basic common shares was due to the sale of an aggregate of 9,090,910 shares of Class A common stock pursuant to a public offering which closed January 17, 2023, as well as the issuance of shares of Class A common stock under the 2014 ESPP and underlying vested RSUs and RSAs.

Potential dilutive common stock equivalents were excluded from the calculation of diluted shares for fiscal years 2023 and 2022, as their effects would have been anti-dilutive due to the net loss in those periods.

Liquidity and Capital Resources

At June 30, 2022, we had working capital of approximately $10.4 million and total cash and cash equivalents of approximately $5.5 million.

Greater than 50% of our total cash and cash equivalents was held by our foreign subsidiaries in China and Latvia.

Cash and cash equivalents held by our foreign subsidiaries in China and Latvia were generated in-country as a result of foreign earnings.

At June 30, 2023, we had working capital of approximately $14.9 million and total cash and cash equivalents and restricted cash of approximately $7.1 million.

Greater than 25% of our total cash, cash equivalents and restricted cash was held by our foreign subsidiaries in China and Latvia.

Cash, cash equivalents and restricted cash held by our foreign subsidiaries in China and Latvia were generated in-country as a result of foreign earnings.

Historically, we considered unremitted earnings held by our foreign subsidiaries to be permanently reinvested.

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Loans payable as of June 30, 2023 consisted of the term loan in the original principal amount of approximately $5.8 million (the “BankUnited Term Loan”) issued in favor of BankUnited, N.A.

(“BankUnited”) and an equipment loan with a third party.

(“BankUnited”) and two third-party equipment loans.

Details of the loans are as follows:

BankUnited Loans.

On February 26, 2019, we entered into the Loan Agreement (the “Loan Agreement”) with BankUnited for the BankUnited Term Loan, a revolving line of credit up to a maximum amount of $2 million (the “BankUnited Revolving Line”), and a non-revolving guidance line of credit up to a maximum amount of $10 million (the “Guidance Line” and together with the BankUnited Revolving Line and BankUnited Term Loan, the “BankUnited Loans”).

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

On September 9, 2021, we entered into a letter agreement with BankUnited (the “Letter Agreement”).

The Letter Agreement:

(i) 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;

(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 events 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.

Based on the waiver, we were no longer in default of the Amended Loan Agreement.

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

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.

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

(i) a maturity date of April 15, 2023 with respect to the Term Loan (as defined in the Amended Loan Agreement);

(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 (4.25% as of June 30, 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.

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.

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

(i) an amended maturity date of April 15, 2024 with respect to the Term Loan (as defined in the Amended Loan Agreement);

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).

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 in order to repay our credit facility and all charges related thereto upon its maturity on April 15, 2024.

For additional information on liquidity, see Note 13, Loans Payable , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

Our obligations under the Amended Loan Agreement are collateralized by a first priority security interest (subject to permitted liens) in all of our assets and the assets of our U.S.

subsidiaries, GelTech, Inc.

(“GelTech”) and ISP, pursuant to a Security Agreement granted by GelTech, ISP, and us in favor of BankUnited.

Our equity interests in, and the assets of, our foreign subsidiaries are excluded from the security interest.

BankUnited Revolving Line

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.

The BankUnited Revolving Line expired on February 26, 2022.

No amounts were outstanding under the BankUnited Revolving Line on June 30, 2021 or 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.

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.

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 (4.25% as of June 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.

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 “Revolving Line”), (ii) a term loan in the amount of up to $5,813,500 (“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 Revolving Line and Term Loan, the “BankUnited Loans”) as evidenced by certain promissory notes we executed in favor of BankUnited (the “BankUnited Notes”).

Since then, we have entered into several amendments to the Loan Agreement and pursuant to those amendments and the associated waivers of compliance with certain financial covenants, we have maintained our compliance with all financial and non-financial covenants under the Loan Agreement.

The Guidance Line was terminated on May 6, 2019.

The Revolving Line expired on February 26, 2022 and was not renewed.

For additional information on the amendments and the terms of the Loan Agreement, see Note 13, Loans Payable , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

Pursuant to that certain Fourth Amendment to Loan Agreement dated February 7, 2023, the Term Loan, the only remaining BankUnited Loan, matures and is due and payable in full on December 31, 2024.

The Term Loan bears interest at BankUnited’s then prime rate of interest, as adjusted from time to time (8.25% as of June 30, 2023).

Monthly payments of $75,000 are due and payable on the first day of each month, and commencing on January 1, 2024 and continuing on the first day of each month thereafter until the maturity date, monthly payments will increase to $100,000, with each such payment applied first to interest, costs and expenses and then to principal.

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

As of June 30, 2022, the applicable interest rate was 4.25% and the outstanding balance on the BankUnited Term Loan was approximately $3.9 million.

Guidance Line

The Amended Loan Agreement provided that BankUnited, in its sole discretion, could make loan advances to us under the Guidance Line up to a maximum aggregate principal amount outstanding not to exceed $10,000,000, which proceeds could have been used for capital expenditures and approved business acquisitions.

The Guidance Line terminated on September 9, 2021 in accordance with the Letter Agreement.

There were no amounts outstanding under the Guidance Line at June 30, 2021 or upon its termination at September 9, 2021.

General Terms

The Amended Loan Agreement contains customary covenants, including, but not limited to certain financial covenants.

Generally, we must maintain a fixed charge coverage ratio of 1.25 to 1.00 and a total leverage ratio of 4.00 to 1.00.

The Letter Agreement granted us a waiver of default arising prior to the Letter Agreement from our failure to comply with the fixed charge coverage ratio measured on June 30, 2021.

The Second Amendment to the Amended Loan Agreement granted us a waiver of compliance for the Financial Covenants (as set forth in the Amended Loan Agreement) through June 30, 2022.

Based on the waivers, we are no longer in default of the Amended Loan Agreement.

As of June 30, 2022, we were in compliance with all other covenants.

Equipment Loan.

In December 2020, ISP Latvia entered into an equipment loan with a third party (the “Equipment Loan”), which party is also a significant customer.

The Equipment Loan is subordinate to the BankUnited Loans and is collateralized by certain equipment.

Pursuant to that certain Fifth Amendment to the Loan Agreement dated May 9, 2023, the security interest in certain collateral securing the Term Loan as of such date terminated and was replaced by a security interest in a cash collateral account maintained at BankUnited, initially in the amount of approximately $2,457,000, with a portion of such cash collateral to be released on a quarterly basis equal to 110% of the principal reductions effected during that quarter.

The cash collateral is reflected as Restricted Cash in the accompanying balance sheet as of June 30, 2023.

An exit fee equal to 1% of the outstanding principal balance will be due on December 31, 2023 and (b) 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).

As of June 30, 2023, the outstanding principal balance on the Term Loan was approximately $2.2 million.

We have commenced discussions with other lenders with the intent of refinancing our credit facility prior to maturity.

There can be no assurance that we will be successful in such refinancing or that we such refinancing will be available under reasonable commercial terms.

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 reduce operating expenses and capital expenditures in order to repay our credit facility and all charges related thereto upon its maturity on December 31, 2024.

For additional information on liquidity, see Note 13, Loans Payable , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

Equipment Loans.

In December 2020, ISP Latvia entered into an equipment loan with a third party (the “2020 Equipment Loan”), which is also a significant customer.

The 2020 Equipment Loan is subordinate to the Term Loan and is collateralized by certain equipment.

The initial advance under the 2020 Equipment Loan was 225,000 EUR (or USD $275,000), payable in equal installments over 60 months, the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date.

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As of June 30, 2023, the outstanding balance on the 2020 Equipment Loan was 237,000 EUR (or USD $259,000).

For additional information regarding the BankUnited Loans and the Equipment Loan, see Note 13, Loans Payable , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

In May 2023, ISP Latvia entered into an equipment loan with a third party (the “2023 Equipment Loan”).

The 2023 Equipment Loan is collateralized by certain equipment.

The initial advance under the 2023 Equipment Loan was 128,815 EUR (or USD $141,245), the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date.

The 2023 Equipment Loan will be payable over 48 months, with monthly installments beginning January 1, 2024.

The 2023 Equipment Loan bears interest at the six-month EURIBOR rate, plus 2.84% (6.75% as of June 30, 2023).

For additional information regarding the BankUnited Loans and the equipment loans, see Note 13, Loans Payable , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

Equity Financing.

In February 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.

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We have not issued any shares of our Class A common stock pursuant to the at-the-market equity program.

We believe we have adequate financial resources to sustain our current and anticipated operations in the coming year.

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.

Based on the capital raise that was completed in January 2023, we do not expect to need additional equity capital for the foreseeable future and we believe we have adequate financial resources to sustain our current and anticipated operations in the coming year.

We have established milestones that will be tracked to ensure that as funds are expended we are achieving results before additional funds are committed.

We anticipate sales growth in future years, primarily from the engineered solutions we plan to focus on.

We generally rely on cash from operations and equity offerings, and commercial debt, to the extent available, to satisfy our liquidity needs and to maintain our ability to meet our payment obligations, including payments due under the BankUnited Term Loan and Equipment Loan.

There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums, and increases in other costs.

We will also continue efforts to keep costs under control as we seek renewed sales growth.

However, there are a number of factors that could result in the need to raise additional funds in the longer term, 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 25% of our cash, cash equivalents and restricted cash is held by our foreign subsidiaries and, although we regularly repatriate cash, it may not be readily available to repay our liabilities in the U.S.

should our cash assets in the U.S.

not be sufficient.

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

Finally, we may need to raise capital through the issuance of our equity securities if we are unable to refinance the Term Loan on acceptable terms prior to its maturity on December 31, 2024.

We intend to continue efforts to keep costs under control as we seek renewed sales growth.

Our efforts are directed toward generating positive cash flow and profitability.

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Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase sales.

These actions may include exploring strategic options for the sale of the Company, the sale of certain product lines, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, the creation of licensing arrangements with respect to our technology, or other alternatives.

These actions may include the sale of certain product lines, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, the creation of licensing arrangements with respect to our technology, or other alternatives.

Cash Flows – Operating.

Cash flow provided by operations was approximately $1.5 million for fiscal year 2022, compared to approximately $4.7 million for fiscal year 2021.

The decrease in cash flows from operations during fiscal year 2022 is primarily due to the increase in net loss, decrease in accounts payable and accrued liabilities, and an increase in accounts receivable, partially offset by a reduction in inventory.

The decrease in accounts payable and accrued liabilities was primarily due to the previously described events that occurred at our Chinese subsidiaries, for which certain expenses were accrued as of June 30, 2021, many of which were paid during fiscal year 2022, as well as payment of certain bonuses paid to our executive officers and other employees which were earned during fiscal year 2021.

During fiscal year 2022 we also made the first installment payment of payroll taxes deferred in fiscal year 2020 under the CARES Act.

We anticipate continued improvement in our cash flows provided by operations in future years, as we continue to focus on managing our receivables, payables and inventory, while continuing to grow our sales and improve gross margins, with moderate increases in general, administrative, sales and marketing and new product development costs.

Cash flow used in operations was approximately $2.8 million for fiscal year 2023, compared to cash provided by operations of approximately $1.5 million for fiscal year 2022.

The decrease in cash flows from operations during fiscal year 2023 is primarily due to an increase in accounts receivable, due to higher revenues in the fourth quarter of fiscal year 2023 as compared to fiscal 2022, and an increase in inventory during the second half of fiscal year 2023.

The cash outflow for accounts payable and accrued liabilities for fiscal years 2022 and 2023 was primarily due to the previously described events that occurred at our Chinese subsidiaries, for which certain expenses were accrued as of June 30, 2021 and paid during fiscal years 2022 and 2023.

Fiscal year 2022 also reflects the payment of certain bonuses paid to our executive officers and other employees which were earned and accrued during fiscal year 2021 and paid during fiscal year 2022.

During fiscal years 2022 and 2023 we also made the installment payments for payroll taxes deferred in fiscal year 2020 under the CARES Act.

We anticipate continued improvement in our cash flows provided by operations in future years, as many of these non-recurring payables are behind us, and as we continue to focus on managing our receivables, payables and inventory, while continuing to grow our sales and improve gross margins, with moderate increases in general, administrative, sales and marketing and new product development costs.

Cash Flows – Investing.

During fiscal year 2023, we expended approximately $3.1 million for capital equipment, as compared to approximately $1.6 million during fiscal year 2022.

Our capital expenditures during fiscal year 2022 were primarily related to the continued expansion of our infrared coating capacity as well as increasing our lens diamond turning capacity to meet current and forecasted demand.

During fiscal year 2021, our capital expenditures were primarily related to the continued expansion of our infrared coating capacity as well as increasing our lens pressing and dicing capacity to meet demand.

During fiscal year 2023, our capital expenditures were primarily related to the expansion of our Orlando Facility.

Our capital expenditures during fiscal year 2022 were primarily related to the continued expansion of our Riga Facility to increase our infrared coating capacity as well as increasing our lens diamond turning capacity to meet current and forecasted demand.

We anticipate a similar level of capital expenditures during fiscal year 2023;

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Cash Flows – Financings.

Net cash used in financing activities was approximately $636,000 in fiscal year 2022, compared to $843,000 in fiscal year 2021.

Net cash provided by financing activities was approximately $7.5 million in fiscal year 2023, compared to cash used in financing activities of approximately $636,000 in fiscal year 2022.

Cash provided by financing activities for fiscal year 2023 reflects equity proceeds of $9.2 million from a public offering of Class A common stock, which closed in January 2023, offset by approximately $1.9 million in principal payments on our loans and finance leases, offset by proceeds of approximately $141,000 from the 2023 Equipment Loan and approximately $40,000 in proceeds from the sale of Class A common stock under the 2014 ESPP.

Cash used in financing activities for fiscal year 2022 reflects approximately $894,000 in principal payments on our loans and finance leases and $61,000 in loan costs, offset by proceeds of approximately $267,000 from the 2020 Equipment Loan and approximately $52,000 in proceeds from the sale of Class A common stock under the 2014 ESPP.

Cash used in financing activities for fiscal year 2021 reflects approximately $1.3 million in principal payments on our loans and finance leases, offset by proceeds of approximately $275,000 from the Equipment Loan, and approximately $173,000 in proceeds from the exercise of stock options and from the sale of Class A common stock under the 2014 ESPP.

How We Operate

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Change From Prior Quarter End

The increase in our total backlog from the first quarter to the second quarter of both fiscal years 2022 and 2021 was largely due to the renewal of a large annual contract during the second quarter of the respective fiscal year, which we began shipping against during the third quarter of the respective fiscal year.

The timing of this renewal is similar to the prior fiscal year.

The decrease in our total backlog from June 30, 2021 to June 30, 2022 is primarily due to the timing of other annual and multi-year contract renewals.

These renewals may substantially increase backlog levels at the time the orders are received, and backlog will subsequently be drawn down as shipments are made against these orders.

Our annual and multi-year contracts are expected to renew in future quarters.

For example, in August 2022 we announced a $4 million supply agreement for PMO, with a long time European customer of precision motion control systems and OEM assemblies.

The new supply agreement will go into effect in the second half of our fiscal year 2023 and is expected to run for around 12-18 months.

The increase in backlog during fiscal year 2023 was due to several large customer orders.

One such order is a $4 million supply agreement with a long time European customer of precision motion control systems and OEM assemblies.

The new supply agreement went into effect in the fourth quarter of our fiscal year 2023 and is expected to run for approximately 12 to18 months.

During the second quarter of fiscal year 2023 we also received the renewal of a large annual contract for infrared products, for an amount 20% greater than the previous renewal.

We began to ship against the new contract in the third quarter of fiscal year 2023, after shipments against the previous contract were completed.

Also, during the second quarter of fiscal year 2023, we were qualified to provide advanced infrared optics for a critical international military program, and received an initial order valued at $2.5 million from the related customer.

This order represents a significant increase in this customer's business with us.

In addition, we received orders from existing customers in the U.S.

and Europe related to several other significant long-term projects.

The timing of multi-year contract renewals are not always consistent and, thus, backlog levels may increase substantially when annual and multi-year orders are received, and decrease as shipments are made against these orders.

We anticipate that our existing annual and multi-year contracts will be renewed in future quarters.

Markets continue to experience growing demand for infrared products used in the industrial, defense and first responder sectors.

Demand for infrared products continues to be fueled by interest in lenses made with our new BD6 material.

With the global supply of germanium currently sourced from Russia and China, recent global events are generating renewed interest in BD6 as an alternative to germanium.

We expect to maintain moderate growth in our visible PMO product group by continuing to diversify and offer new applications, with a cost competitive structure;

however, we believe that, although necessary, the terminations of certain of our management employees in our China subsidiaries, LPOIZ and LPOI, and transition to new management personnel has adversely impacted the domestic sales in China of these subsidiaries through fiscal year 2022.

Our former employees, including management personnel, maintained relationships with certain of our customers in China and we expect that until our new sales and management personnel establish relationships with these customers, of which there can be no assurance, domestic sales in China may be adversely impacted.

Although the recovery has taken longer than initially expected, we have begun to recapture some customers.

Our sales and management team in China was enhanced in October 2021 with two key new hires, and we are beginning to see more progress in this area.

Demand for infrared products continues to be fueled by interest in lenses made with our proprietary BD6 and our new BDNL4 materials.

With the global supply of germanium currently concentrated in Russia and China, recent global events are generating renewed interest in germanium alternatives such as our proprietary BD6 material, and other materials we are currently developing under an exclusive license with the Naval Research Lab.

As we have outlined in our Strategic direction, we do not expect to see significant growth in our visible PMO product group in the near future.

Competition in that product line has grown substantially over the last few years, and some of our new molding capabilities and technologies such as free-form molded optics, might take longer than anticipated to reach full commercialization, depending on economic conditions and technology trends in the area of AR\VR.

However, order bookings for both PMO and infrared products continue to be slow in China.

We believe the terminations of certain of our management employees in our China subsidiaries, LPOIZ and LPOI, and transition to new management personnel in fiscal year 2021, adversely impacted the domestic sales in China of these subsidiaries during fiscal year 2022 and fiscal year 2023.

Although our new sales and management personnel have now established relationships with customers, domestic sales in China have also been adversely impacted by the economic downturn in China, which negatively impacted fiscal year 2023 revenue and bookings in that region.

Revenue Dollars and Units by Product Group.

The following table sets forth revenue dollars and units by our three product groups for the three and twelve months ended June 30, 2023 and 2022:

Three Months Ended

Three Months Ended June 30,

Year Ended June 30,

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Three months ended June 30, 2023 compared to three months ended June 30, 2022.

Our revenue increased by 7% in the fourth quarter of fiscal year 2022, as compared to the same quarter of the prior fiscal year, primarily as a result of an increase in demand for PMO products.

Revenue from the PMO product group for the fourth quarter of fiscal year 2022 was $3.4 million, an increase of 16%, as compared to the same quarter of the prior fiscal year.

The increase in revenue is primarily attributed to increases in sales to customers in the industrial and telecommunications markets, partially offset by a decrease in sales through our catalog and distribution channels.

The decrease in sales through our catalog and distribution channels is primarily due to the termination of our distribution agreement in Europe.

European customers now order directly from our enhanced direct sales force in the region.

This transition will continue through the third quarter of fiscal year 2023.

Sales of PMO units increased by 23%, as compared to the prior year period, and average selling prices decreased 6%.

The slight decrease in average selling prices is due to a higher mix of telecommunications products unit sales, which typically have higher volumes and lower average selling prices.

Revenue generated by the infrared product group for the fourth quarter of fiscal year 2022 was $5.0 million, an increase of 1%, as compared to same quarter of the prior fiscal year.

The increase in revenue is primarily driven by sales diamond-turned infrared products, while sales of BD6-based molded infrared products decreased.

The increase in sales of diamond-turned infrared products was primarily driven by a new annual contract for a customer in the industrial market, for which we shipped full production volume in the fourth quarter of fiscal 2022.

Demand for BD6-based infrared products has leveled off, particularly for temperature sensing applications, demand for which was previously accelerated by COVID-19.

Demand for industrial applications, firefighting and other public safety applications continues to be strong.

Our revenue increased by 9% in the fourth quarter of fiscal year 2023, as compared to the same quarter of the prior fiscal year, driven by increases in infrared and specialty products.

Revenue from the PMO product group for the fourth quarter of fiscal year 2023 was $3.2 million, a decrease of 7%, as compared to the same quarter of the prior fiscal year.

PMO product sales to customers in China continue to be soft across all of the industries we serve due to unfavorable economic conditions in that region.

Revenue generated by the infrared product group for the fourth quarter of fiscal year 2023 was $5.5 million, an increase of 8%, as compared to the same quarter of the prior fiscal year.

The increase in revenue is primarily driven by sales of diamond-turned infrared products and is primarily attributable to customers in the defense and industrial markets.

Sales of BD6-based molded infrared products decreased, particularly to customers in the China industrial and commercial markets.

These decreases were partially offset by increased revenue from BD6-based products driven by customers in the defense industry.

Molded infrared products are higher in volume and lower in average selling prices than diamond-turned infrared products.

Our specialty products revenue increased by 8%, as compared to the same period of the prior fiscal year, and represented 5% of total revenue for both the fourth quarters of fiscal years 2022 and 2021.

The increase was primarily driven by NRE project revenue in the fourth quarter of fiscal year 2022.

Our specialty products revenue increased by 134% for the fourth quarter of fiscal year 2023, as compared to the same period of the prior fiscal year.

The increase is due to increased sales of a custom visible lens assembly to a medical customer, for which we have an end of life order in backlog going into fiscal 2025.

Year ended June 30, 2023 compared to year ended June 30, 2022.

Our revenue decreased by approximately $2.9 million, or 8%, for fiscal year 2022, as compared to fiscal year 2021, with decreases in both infrared and PMO product sales.

Our revenue decreased by approximately 7%, for fiscal year 2023, as compared to fiscal year 2022, with decreases in both infrared and PMO product sales.

Revenue from the PMO product group for fiscal year 2023 was $13.4 million, a decrease of 11%, as compared to fiscal year 2022.

The decrease in revenue is primarily attributed to a reduction in orders from a key customer in the telecommunications market, in China, due to a decrease in that customer’s market share.

This decrease was partially offset by an increase in sales through our catalog and distribution channels, as well as increases in sales to customers in the industrial and medical industries.

PMO product sales to customers in China continue to be soft across all of the industries we serve due to unfavorable economic conditions in that region.

Sales of PMO units decreased by 27%, as compared to the same period of the prior fiscal year, and average selling prices increased by 22%.

The volume decrease was largely driven by a lower mix of telecommunications products, which typically have lower average selling prices.

The unit volume for telecommunications products decreased by approximately 62% for fiscal year 2022, as compared to the same period of the prior fiscal year.

Revenue generated by the infrared product group for fiscal year 2023 was $16.7 million, a decrease of approximately 11%, as compared to the prior fiscal year.

The decrease in revenue is primarily driven by sales to customers in the industrial market, particularly for our BD6-based molded infrared products.

During fiscal year 2022, sales of infrared units decreased by 24%, as compared to the prior year period.

The decrease in units is due primarily due to the mix of products shipped, as the prior year period included more molded infrared lenses which are lower in volume and higher in price than the larger diamond-turned lenses.

Industrial applications, firefighting cameras, and other public safety applications continue to be the primary drivers of demand for infrared products, including thermal imaging assemblies.

During fiscal years 2020 and 2021, we saw an increase in demand for medical and temperature sensing applications, such as fever detection.

Demand for temperature sensing applications were accelerated by COVID-19, and although the demand has leveled off since the initial spike, it remains elevated.

In fiscal year 2022, our specialty products revenue increased by $192,000, or 12%, as compared to prior fiscal year, primarily due to higher NRE project revenue in fiscal year 2022.

NRE revenue is project based and the timing of any such projects is wholly dependent on our customers and their project activity.

The decrease in revenue is primarily driven by sales of BD6-based molded infrared products, particularly to customers in the China commercial and industrial markets.

These decreases were partially offset by increased revenue from BD6-based products driven by customers in the defense industry.

Sales of diamond-turned infrared products were nearly flat for fiscal years 2023 and 2022, however, there were shifts in revenue from key customers.

The timing of shipments against a large annual contract, which has renewed each November for several years, was such that revenues from this contract were lower in fiscal year 2023 than in fiscal year 2022.

The most recent contract renewal in November 2022 represented an increase of 20% over the previous contract.

As such, the decrease from fiscal year 2023 as compared to fiscal year 2022 is not expected to re-occur.

The decrease in revenues from this contract in fiscal year 2023 was offset by increases in revenues from two other key customers, in the defense and industrial markets.

In fiscal year 2023, our specialty products revenue increased by $969,000, or 54%, as compared to prior fiscal year.

The first quarter of fiscal 2023 also included a charge for in-process materials billed to a customer upon order cancellation, during the first quarter of fiscal 2023.

Inventory Levels.

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The table below shows our DCSI for the immediately preceding eight fiscal quarters:

Fiscal Quarter

Fiscal Year 2023 Average

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Our average DCSI for fiscal year 2023 was 126, compared to 118 for fiscal year 2022.

The decrease in DCSI is driven by the decrease in inventory levels, due to an increased focus on inventory management.

Despite these efforts, we have experienced inventory increases at times driven by shifts in customer activity due to COVID-19, where we are sometimes given short notice to delay shipments of some products and accelerate the manufacturing and shipment of other products.

As the COVID-19 impacts begin to level off, and with increasing demand for both infrared and PMO products, we expect DCSI to maintain an average of between 110 to 120.

The increase in average DCSI is driven by the increase in inventory levels, particularly in the second half of fiscal year 2023 where shipments were disrupted by the Orlando Facility construction and other factors.

Our DCSI did improve during the most recent quarter, and we expect DCSI to maintain an average of between 110 to 120.

Accounts Receivable Levels and Quality.

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The table below shows our DSO for the preceding eight fiscal quarters:

Fiscal Quarter

Fiscal Year 2023 Average

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Our average DSO for fiscal year 2023 was 58, compared to 54 for fiscal year 2022.

The improvement in fiscal year 2022 reflects our increased focus on collections, and tightening of payment terms policies.

The increase in average DSO for fiscal year 2023 is driven by some key accounts with longer payment cycles that have increased in revenue.

We strive to maintain a DSO of less than 60.

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$ (3,542,181 )

$ (3,185,251 )

Depreciation and amortization

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Interest expense

$ (2,013,054 )

Our EBITDA for the quarter ended June 30, 2022 was approximately $107,000, compared a loss of $2.0 million for the same period of the prior fiscal year.

The increase in EBITDA in the fourth quarter of fiscal year 2022 was primarily attributable to the increase in revenue and gross margin, coupled with the decreases in SG&A and Other expenses incurred related to the previously described events that occurred in our Chinese subsidiaries, as well as certain director and personnel matters that occurred during fiscal year 2021.

In addition, there was a favorable difference of approximately $68,000 in foreign exchange gains and losses.

Our EBITDA for fiscal year 2022 was approximately $1.2 million, compared to approximately $1.5 million for fiscal year 2021.

The decrease in EBITDA for fiscal year 2022 is primarily attributable to lower revenue and gross margin, partially offset by decreased SG&A and Other expenses, due to the decreases in expenses incurred related to the previously described events that occurred in our Chinese subsidiaries, as well as certain officer, director, and personnel matters that occurred during fiscal year 2021, as discussed above.

Our EBITDA for the quarter ended June 30, 2023 was approximately $72,000, compared to $107,000 for the same period of the prior fiscal year.

The decrease in EBITDA in the fourth quarter of fiscal year 2023 was primarily attributable to the increase in operating expenses, including SG&A and new product development, which were partially offset by higher revenue and gross margin.

Our EBITDA for fiscal year 2023 was a loss of approximately $355,000, compared to income of $1.2 million for fiscal year 2022.

The decrease in EBITDA for fiscal year 2023 is primarily attributable to lower revenue and gross margin, coupled with increased SG&A expenses and a decrease in Other income.

Off Balance Sheet Arrangements

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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 7. Management’s Discussion and Analysis