LIGHTPATH TECHNOLOGIES INC 10-Q

Item 1. Financial Statements LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets (unaudited) December 31, June 30, Assets 2023 2023 Current assets: Cash and cash equivalents $ 3,536,558 $ 4,687,004 Restricted cash 2,345,644 2,457,486 Trade accounts receivable, net of allowance of $ 23,853 and $ 18,502 4,708,156 6,634,574 Inventories, net 7,520,444 7,410,734 Prepaid expenses and deposits 478,686 570,293 Other current assets 191,381 — Total current assets 18,780,869 21,760,091 Property and equipment, net 16,361,049 12,810,930 Operating lease right-of-use assets 7,432,993 9,571,604 Intangible assets, net 4,519,544 3,332,715 Goodwill 6,764,127 5,854,905 Deferred tax assets, net 140,000 140,000 Other assets 66,007 65,939 Total assets $ 54,064,589 $ 53,536,184 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 2,899,032 $ 2,574,135 Accrued liabilities 1,990,114 662,242 Accrued payroll and benefits 1,456,777 1,499,896 Operating lease liabilities, current 1,123,276 969,890 Loans payable, current portion 2,138,775 1,023,814 Finance lease obligation, current portion 118,070 103,646 Total current liabilities 9,726,044 6,833,623 Deferred tax liabilities, net 474,395 465,000 Accrued liabilities, noncurrent 919,623 — Finance lease obligation, less current portion 334,654 341,201 Operating lease liabilities, noncurrent 8,583,630 8,393,248 Loans payable, less current portion 326,507 1,550,587 Total liabilities 20,364,853 17,583,659 Commitments and Contingencies Stockholders’ equity: Preferred stock: Series D, $ 0.01 par value, voting; 500,000 shares authorized; none issued and outstanding — — Common stock: Class A, $ 0.01 par value, voting; 44,500,000 shares authorized as of December 31, 2023 and June 30, 2023; 37,549,378 and 34,344,739 shares issued and outstanding 375,494 373,447 Additional paid-in capital 243,475,209 242,808,771 Accumulated other comprehensive income 741,301 606,536 Accumulated deficit ( 210,892,268 ) ( 207,836,229 ) Total stockholders’ equity 33,699,736 35,952,525 Total liabilities and stockholders’ equity $ 54,064,589 $ 53,536,184 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended Six Months Ended December 31, December 31, 2023 2022 2023 2022 Revenue, net $ 7,315,637 $ 8,472,679 $ 15,392,885 $ 15,839,580 Cost of sales 5,147,316 5,248,334 10,892,858 10,381,323 Gross margin 2,168,321 3,224,345 4,500,027 5,458,257 Operating expenses: Selling, general and administrative 2,858,457 3,030,653 5,519,625 5,668,826 New product development 607,747 466,163 1,247,636 1,016,044 Amortization of intangibles 485,446 281,271 766,717 562,542 Loss on disposal of property and equipment — 2,742 — 2,742 Total operating expenses 3,951,650 3,780,829 7,533,978 7,250,154 Operating loss ( 1,783,329 ) ( 556,484 ) ( 3,033,951 ) ( 1,791,897 ) Other income (expense): Interest expense, net ( 53,788 ) ( 81,241 ) ( 111,399 ) ( 151,611 ) Other income (expense), net 199,512 ( 1,336 ) 204,915 25,881 Total other income (expense), net 145,724 ( 82,577 ) 93,516 ( 125,730 ) Loss before income taxes ( 1,637,605 ) ( 639,061 ) ( 2,940,435 ) ( 1,917,627 ) Income tax provision 76,058 55,000 115,604 157,134 Net loss $ ( 1,713,663 ) $ ( 694,061 ) $ ( 3,056,039 ) $ ( 2,074,761 ) Foreign currency translation adjustment 259,973 671,125 134,765 ( 246,704 ) Comprehensive loss $ ( 1,453,690 ) $ ( 22,936 ) $ ( 2,921,274 ) $ ( 2,321,465 ) Loss per common share (basic) $ ( 0.05 ) $ ( 0.03 ) $ ( 0.08 ) $ ( 0.08 ) Number of shares used in per share calculation (basic) 37,501,683 27,172,226 37,466,714 27,121,583 Loss per common share (diluted) $ ( 0.05 ) $ ( 0.03 ) $ ( 0.08 ) $ ( 0.08 ) Number of shares used in per share calculation (diluted) 37,501,683 27,172,226 37,466,714 27,121,583 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited) Accumulated Class A Additional Other Total Common Stock Paid-in Comprehensive Accumulated Stockholders’ Shares Amount Capital Income Deficit Equity Balances at June 30, 2023 37,344,739 $ 373,447 $ 242,808,771 $ 606,536 $ ( 207,836,229 ) $ 35,952,525 Issuance of common stock for: Employee Stock Purchase Plan 14,607 146 19,573 — — 19,719 Exercise of Stock Options, RSUs & RSAs, net 14,482 145 ( 145 ) — — — Issuance of common stock for acquisition of Visimid 81,610 816 149,184 — — 150,000 Stock-based compensation on stock options, RSUs & RSAs — — 240,075 — — 240,075 Foreign currency translation adjustment — — — ( 125,208 ) — ( 125,208 ) Net loss — — — — ( 1,342,376 ) ( 1,342,376 ) Balances at September 30, 2023 37,455,438 $ 374,554 $ 243,217,458 $ 481,328 $ ( 209,178,605 ) $ 34,894,735 Issuance of common stock for: Exercise of Stock Options, RSUs & RSAs, net 93,940 940 ( 940 ) — — — Stock-based compensation on stock options, RSUs & RSAs — — 258,691 — — 258,691 Foreign currency translation adjustment — — — 259,973 — 259,973 Net loss — — — — ( 1,713,663 ) ( 1,713,663 ) Balances at December 31, 2023 37,549,378 $ 375,494 $ 243,475,209 $ 741,301 $ ( 210,892,268 ) $ 33,699,736 Balances at June 30, 2022 27,046,790 $ 270,468 $ 232,315,003 $ 935,125 $ ( 203,789,358 ) $ 29,731,238 Issuance of common stock for: Employee Stock Purchase Plan 16,287 163 19,707 — — 19,870 Exercise of Stock Options & RSUs, net 8,852 88 ( 88 ) — — — Stock-based compensation on stock options & RSUs — — 284,598 — — 284,598 Foreign currency translation adjustment — — — ( 917,829 ) — ( 917,829 ) Net loss — — — — ( 1,380,700 ) ( 1,380,700 ) Balances at September 30, 2022 27,071,929 $ 270,719 $ 232,619,220 $ 17,296 $ ( 205,170,058 ) $ 27,737,177 Issuance of common stock for: Exercise of Stock Options, RSUs & RSAs, net 203,586 2,036 ( 2,036 ) — — — Stock-based compensation on stock options, RSUs & RSAs — — 487,547 — — 487,547 Foreign currency translation adjustment — — — 671,125 — 671,125 Net loss — — — — ( 694,061 ) ( 694,061 ) Balances at December 31, 2022 27,275,515 $ 272,755 $ 233,104,731 $ 688,421 $ ( 205,864,119 ) $ 28,201,788 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 3,056,039 ) $ ( 2,074,761 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,943,000 1,580,882 Interest from amortization of debt costs — 37,120 Loss on disposal of property and equipment — 2,742 Stock-based compensation on stock options, RSUs & RSAs, net 551,853 772,145 Provision for doubtful accounts receivable ( 2,236 ) ( 11,421 ) Change in operating lease assets and liabilities 80,355 ( 70,153 ) Inventory write-offs to allowance 73,569 2,233 Deferred taxes 9,395 ( 19,669 ) Changes in operating assets and liabilities: Trade accounts receivable 1,717,283 364,987 Other current assets ( 191,381 ) ( 149,775 ) Inventories 54,461 68,918 Prepaid expenses and deposits 94,619 987 Accounts payable and accrued liabilities ( 424,310 ) ( 1,255,961 ) Net cash provided by (used in) operating activities 850,569 ( 751,726 ) Cash flows from investing activities: Purchase of property and equipment ( 1,484,401 ) ( 411,551 ) Acquisition of Visimid Technologies, net of cash acquired ( 722,141 ) — Proceeds from sale-leaseback of equipment 364,710 — Net cash used in investing activities ( 1,841,832 ) ( 411,551 ) Cash flows from financing activities: Proceeds from sale of common stock from Employee Stock Purchase Plan 19,719 19,870 Borrowings on loans payable 142,853 — Payments on loans payable ( 407,510 ) ( 405,498 ) Repayment of finance lease obligations ( 58,785 ) ( 57,140 ) Net cash used in financing activities ( 303,723 ) ( 442,768 ) Effect of exchange rate on cash and cash equivalents 32,698 ( 107,994 ) Change in cash, cash equivalents and restricted cash ( 1,262,288 ) ( 1,714,039 ) Cash, cash equivalents and restricted cash, beginning of period 7,144,490 5,507,891 Cash, cash equivalents and restricted cash, end of period $ 5,882,202 $ 3,793,852 Supplemental disclosure of cash flow information: Interest paid in cash $ 110,774 $ 106,394 Income taxes paid $ 114,953 $ 218,367 Supplemental disclosure of non-cash investing & financing activities: Purchase of equipment through finance lease arrangements $ 61,654 $ 83,921 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Notes to Unaudited Condensed Consolidated Financial Statements 1. Basis of Presentation 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. 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, 2023, filed with the SEC. Unless otherwise stated, references to particular years or quarters refer to our fiscal years ended June 30 and the associated quarters of those fiscal years. These Condensed Consolidated Financial Statements are unaudited, but include all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. The Consolidated Balance Sheet as of June 30, 2023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year as a whole. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 2. Significant Accounting Policies 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, 2023. There have been no material changes to our significant accounting policies during the six months ended December 31, 2023, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023. Use of Estimates Management makes estimates and assumptions during the preparation of our unaudited Condensed Consolidated Financial Statements that affect amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes available, which, in turn, could impact the amounts reported and disclosed herein. 3. Acquisition of Visimid Technologies In July 2023, the Company acquired Liebert Consulting LLC, dba Visimid Technologies (“Visimid”), pursuant to a Membership Interest Purchase Agreement dated as of July 25, 2023 (the “Acquisition Date”). Part of the Company’s growth strategy is to identify appropriate opportunities that would enhance our profitable growth through acquisition. Visimid is an engineering and design firm specializing in thermal imaging, night vision and internet of things (“IOT”) applications. Visimid provides design and consulting services for Department of Defense (“DoD”) contractors, commercial and industrial customers, and original equipment manufacturers (“OEMs”) for original new products. Visimid’s core competency is developing and producing custom thermal and night vision cores. We believe that Visimid’s capabilities are aligned with our strategy to focus on engineered solutions. The Company’s unaudited condensed consolidated financial statements reflect the financial results of Visimid beginning on the Acquisition Date. The purchase price included $ 1 million in cash, $ 1,550,000 of restricted stock, $ 150,000 of assumed bank debt, and an earnout which is contingent upon the award and completion of a specific customer contract. Of the restricted stock payable as part of the purchase price, $150,000 (81,610 shares) was issued at closing, with the balance to be issued in four equal installments of $350,000 each, on January 1, 2024, July 1, 2024, January 1, 2025 and July 1, 2025 . The number of shares is based on the average closing price of the Company’s Class A common stock, as reported by Bloomberg, for the five trading days prior to each stock issuance. 8 Table of Contents The total purchase price, net of cash acquired and including the estimated potential earnout, is approximately $ 2.7 million, based on present values as of the Acquisition Date. Of this amount, $ 600,000 was paid at closing, $ 150,000 cash was paid in October 2023 per the terms of the purchase agreement, and the remaining cash and stock payments, including the estimated potential earnout, have been accrued and are included in Accrued liabilities and Accrued liabilities, noncurrent in the accompanying unaudited Condensed Consolidated Balance Sheet as of December 31, 2023. The estimated fair values of the assets acquired and liabilities assumed were recorded as of the Acquisition Date. The Company is in the process of finalizing third-party valuations of certain intangible assets; thus, the provisional measurements of intangible assets and goodwill are subject to change. As part of the preliminary valuation analysis, the Company identified intangible assets, including customer relationships, customer backlog, trade secrets and trademarks. The customer backlog, customer relationships, trade secrets and trademarks were determined to have estimated values of approximately $ 464,000 , $ 122,000 , $ 925,000 and $ 442,000 , respectively, and estimated useful lives of 1 year for customer backlog, and 10 years for customer relationships, trade secrets and trademarks. The estimated fair value of identifiable intangible assets is determined primarily using the “income approach”, which requires a forecast of all future cash flows. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Visimid. The goodwill is expected to be deductible for income tax purposes. As of December 31, 2023, an adjustment of $ 2.2 million was made to decrease the initially recognized amount of goodwill to reflect changes in the estimated fair value of the identifiable intangible assets purchased in the acquisition. For the three and six months ended December 31, 2023, the Company incurred approximately $ 13,000 and $ 97,000 , respectively, in acquisition costs which are included in the unaudited Condensed Consolidated Statements of Comprehensive Income in the line item entitled “Selling, general and administrative.” This is in addition to the previously disclosed $ 140,000 in acquisition costs which were recorded during the three months ended June 30, 2023. Prior to the Acquisition, the Company had a preexisting relationship with Visimid. The Company contracted Visimid for engineering services and purchased infrared camera cores from Visimid on an arms’ length basis. The Company had also partnered with Visimid for the development of the Mantis camera. 4. Revenue Product Revenue We are a manufacturer of optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared optical components, and other optical materials used to produce products that manipulate light. We design, develop, manufacture, and distribute optical components and assemblies utilizing advanced optical manufacturing processes. We also provide engineering services and perform research and development for optical solutions for a wide range of optics markets. Revenue is derived primarily from the sale of optical components and assemblies. Revenue Recognition Revenue is generally recognized upon transfer of control, including the risks and rewards of ownership, of products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We generally bear all costs, risk of loss, or damage and retain title to the goods up to the point of transfer of control of products to customers. Shipping and handling costs are included in the cost of goods sold. We present revenue net of sales taxes and any similar assessments. Customary payment terms are granted to customers, based on credit evaluations. We currently do not have any contracts where revenue is recognized, but the customer payment is contingent on a future event. We record deferred revenue when cash payments are received or due in advance of revenue recognition. Deferred revenue was $ 759,000 and $ 314,000 as of December 31, 2023 and June 30, 2023, respectively, and is included in accrued liabilities in the accompanying condensed consolidated balance sheets. 9 Table of Contents Nature of Products Revenue from the sale of optical components and assemblies is recognized upon transfer of control, including the risks and rewards of ownership, to the customer. The performance obligations for the sale of optical components and assemblies are satisfied at a point in time. Product development agreements for engineering services are generally short-term in nature, with revenue recognized upon satisfaction of the performance obligation, and transfer of control of the agreed-upon deliverable. Visimid has one longer-term order with a customer which includes both product development and hardware deliverables where similar revenue recognition criteria will be applied. We previously organized our products in three groups: precision molded optics (“PMO”), infrared, and specialty products. Revenues from product development agreements for engineering services were included in specialty products. With our strategic transition into more value-added solutions, and the addition of Visimid in July 2023, we reorganized our products into four product groups: infrared components, visible components, assemblies and modules, and engineering services. Assemblies and modules were previously included in PMO, infrared or specialty products, depending on the lens type. Revenue by product group for the three and six months ended December 31, 2023 and 2022 was as follows, with 2022 amounts reclassified from those previously reported to conform to current classification: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Infrared components $ 3,572,853 $ 3,290,328 $ 7,407,455 $ 6,479,879 Visible components 2,678,904 3,876,627 5,367,239 7,144,285 Assemblies and modules 986,683 1,227,873 2,248,722 2,098,605 Engineering services 77,197 77,851 369,469 116,811 Total revenue $ 7,315,637 $ 8,472,679 $ 15,392,885 $ 15,839,580 5. Inventories The components of inventories include the following: December 31, 2023 June 30, 2023 Raw materials $ 3,214,087 $ 2,999,879 Work in process 2,954,299 2,909,439 Finished goods 2,495,167 2,626,106 Allowance for obsolescence ( 1,143,109 ) ( 1,124,690 ) $ 7,520,444 $ 7,410,734 The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $ 1.4 million and $ 1.5 million as of December 31, 2023 and June 30, 2023, respectively. 6. Property and Equipment Property and equipment are summarized as follows: Estimated Lives (Years) December 31, 2023 June 30, 2023 Manufacturing equipment 5 - 10 $ 22,721,329 $ 22,296,320 Computer equipment and software 3 - 5 1,009,206 973,549 Furniture and fixtures 5 363,284 350,289 Leasehold improvements 5 - 7 8,818,074 2,742,344 Construction in progress 1,399,078 3,067,896 Total property and equipment 34,310,971 29,430,398 Less accumulated depreciation and amortization ( 17,949,922 ) ( 16,619,468 ) Total property and equipment, net $ 16,361,049 $ 12,810,930 10 Table of Contents 7. Goodwill and Intangible Assets The change in the net carrying amount of goodwill during the six months ended December 31, 2023 was as follows: Goodwill at June 30, 2023 $ 5,854,905 Acquisition of Visimid 909,222 Goodwill at December 31, 2023 $ 6,764,127 The increase in goodwill during the six months ended December 31, 2023 was due to the acquisition of Visimid. The Company is in the process of finalizing third-party valuations of certain intangible assets; thus, the provisional measurement of goodwill and intangible assets are subject to change. See Note 3, Acquisition of Visimid Technologies , to these unaudited condensed consolidated financial statements, for more information. Identifiable intangible assets were comprised of: Useful Lives (Years) December 31, 2023 June 30, 2023 Customer relationships 10 - 15 $ 3,712,300 $ 3,590,000 Trade secrets 8 - 10 4,197,304 3,272,000 Trademarks 8 - 10 4,256,418 3,814,000 Backlog 1 463,525 — Total intangible assets 12,629,547 10,676,000 Less accumulated amortization ( 8,110,003 ) ( 7,343,285 ) Total intangible assets, net $ 4,519,544 $ 3,332,715 Future amortization of identifiable intangibles is as follows: Fiscal year ending: June 30, 2024 (remaining six months) $ 868,805 June 30, 2025 884,654 June 30, 2026 388,336 June 30, 2027 388,336 After June 30, 2027 1,989,413 $ 4,519,544 8. Income Taxes A summary of our total income tax expense and effective income tax rate for the three and six months ended December 31, 2023 and 2022 is as follows: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Loss before income taxes $ ( 1,637,605 ) $ ( 639,061 ) $ ( 2,940,435 ) $ ( 1,917,627 ) Income tax provision $ 76,058 $ 55,000 $ 115,604 $ 157,134 Effective income tax rate - 5 % - 9 % - 4 % - 8 % The difference between our effective tax rates in the periods presented above and the federal statutory rate is due to the mix of taxable income and losses generated in our various tax jurisdictions, which include the United States (the “U.S.”), the People’s Republic of China, and the Republic of Latvia. For the three and six months ended December 31, 2023 and 2022, 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. 11 Table of Contents 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. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2023 and June 30, 2023, our net deferred tax assets are related to the U.S. jurisdiction and we have provided for a valuation allowance to reduce the net deferred tax assets to the amount we estimate is more-likely-than-not to be realized. Our net deferred tax assets as of December 31, 2023 and June 30, 2023 consist primarily of federal and state tax credits with indefinite carryover periods. U.S. Federal and State Income Taxes Our U.S. federal and state statutory income tax rate is estimated to be 25.5 %. Based on our current assessment of the valuation allowance position on our net deferred tax assets, no additional tax expense or benefit is expected to be recorded on pre-tax income or losses generated in the U.S. Income Tax Law of the People’s Republic of China Our Chinese subsidiaries, LightPath Optical Instrumentation (Shanghai) Co., Ltd. (“LPOI”) and LPOIZ, are governed by the Income Tax Law of the People’s Republic of China. As of December 31, 2023, 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, 2023 and June 30, 2023 are related to LPOIZ, and primarily consist of timing differences related to depreciation. The Company routinely declares intercompany dividends to remit a portion of the earnings of its foreign subsidiaries to the U.S. parent company. The Company also intends to reinvest a portion of the earnings generated by its foreign subsidiaries. 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, 2023 and June 30, 2023. Other than these withholding taxes, these intercompany dividends have no impact on the unaudited condensed consolidated financial statements. Law of Corporate Income Tax of Latvia Our Latvian subsidiary, ISP Optics Latvia, SIA (“ISP Latvia”), is governed by the Law of Corporate Income Tax of Latvia. Effective January 1, 2018, the Republic of Latvia enacted tax reform with the following key provisions: (i) corporations are no longer subject to income tax, but are instead subject to a distribution tax on distributed profits (or deemed distributions, as defined) and (ii) the rate of tax was changed to 20 %; however, distribution amounts are first divided by 0.8 to arrive at the profit before tax amount, resulting in an effective tax rate of 25 %. As a transitional measure, distributions of earnings prior to January 1, 2018 are not subject to tax if declared prior to December 31, 2019. ISP Latvia has declared an intercompany dividend to be paid to ISP Optics Corporation (“ISP”), its U.S. parent company, for the full amount of earnings accumulated prior to January 1, 2018. Distributions of this dividend will be from earnings prior to January 1, 2018 and, therefore, will not be subject to tax. We currently do not intend to distribute any earnings generated after January 1, 2018. If, in the future, we change such intention, we will accrue distribution taxes, if any, as profits are generated. 9. 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, 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. At our 2022 Annual Stockholders Meeting, our stockholders authorized an additional 2,100,000 shares of our Class A common stock for issuance pursuant to awards granted thereunder. As of December 31, 2023, 1,488,881 shares of Class A common stock were 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. 12 Table of Contents Stock-based compensation expense is based primarily on the fair value of the award as of the grant date, and is recognized as an expense over the requisite service period. The following table shows total stock-based compensation expense for the three and six months ended December 31, 2023 and 2022, the majority of which is included in selling, general and administrative (“SG&A”) expenses in these unaudited Condensed Consolidated Statements of Comprehensive Income (Loss): Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Stock options $ 30,037 $ 59,284 $ 61,515 $ 118,049 RSAs 108,922 66,850 131,309 66,850 RSUs 172,820 361,413 359,030 587,246 Total $ 311,779 $ 487,547 $ 551,854 $ 772,145 We also adopted the LightPath Technologies, Inc. Employee Stock Purchase Plan (the “2014 ESPP”). The 2014 ESPP permits employees to purchase Class A common stock through payroll deductions, subject to certain limitations. A discount of approximately $ 2,000 for each of the six months ended December 31, 2023 and 2022, respectively, is included in SG&A expenses in these unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), 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; Contractual Terms We estimate the fair value of each stock option as of the date of grant, using the Black-Scholes-Merton pricing model. The fair value of 2014 ESPP shares is the amount of the discount the employee obtains at the date of the purchase transaction. 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 RSA and 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 six months December 31, 2023 and 2022. The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures. The interest rate used is the U.S. Treasury interest rate for constant maturities. No stock options were granted during either of the six-month periods ended December 31, 2023 or December 31, 2022. 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. 13 Table of Contents Information Regarding Current Share-Based Compensation Awards A summary of the activity for share-based compensation awards in the six months ended December 31, 2023 is presented below: Stock Options Restricted Stock Units (RSUs) Restricted Stock Awards (RSAs) Weighted- Weighted- Weighted- Weighted- Average Average Average Average Exercise Remaining Remaining Remaining Shares Price Contract Shares Contract Shares Contract June 30, 2023 534,462 $ 2.03 6.1 1,596,222 1.1 101,733 0.7 Granted — — 15,448 134,674 Exercised — — ( 15,448 ) ( 111,666 ) Cancelled/Forfeited — — — ( 5,465 ) December 31, 2023 534,462 $ 2.03 5.6 1,596,222 1.1 119,276 0.4 Awards exercisable/ vested as of December 31, 2023 401,316 $ 1.97 5.3 1,309,249 — — Awards unexercisable/ unvested as of December 31, 2023 133,146 $ 2.19 6.6 286,973 1.1 119,276 0.4 534,462 1,596,222 119,276 As of December 31, 2023, there was approximately $ 483,000 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: Fiscal Year Ending: Stock Options RSAs RSUs Total June 30, 2024 (remaining six months) $ 31,923 $ 43,392 $ 121,663 $ 196,978 June 30, 2025 33,885 66,219 130,589 230,693 June 30, 2026 — 27,777 19,829 47,606 June 30, 2027 — 7,500 — 7,500 $ 65,808 $ 144,888 $ 272,081 $ 482,777 14 Table of Contents 10. Earnings (Loss) Per Share 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 December 31, Six Months Ended December 31, 2023 2022 2023 2022 Net loss $ ( 1,713,663 ) $ ( 694,061 ) $ ( 3,056,039 ) $ ( 2,074,761 ) Weighted-average common shares outstanding: Basic number of shares 37,501,683 27,172,226 37,466,714 27,121,583 Effect of dilutive securities: Options to purchase common stock - - - - RSUs and RSAs - - - - Diluted number of shares 37,501,683 27,172,226 37,466,714 27,121,583 Loss per common share: Basic $ ( 0.05 ) $ ( 0.03 ) $ ( 0.08 ) $ ( 0.08 ) Diluted $ ( 0.05 ) $ ( 0.03 ) $ ( 0.08 ) $ ( 0.08 ) 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 December 31, Six Months Ended December 31, 2023 2022 2023 2022 Options to purchase common stock 534,462 534,462 534,462 534,462 RSUs and RSAs 1,704,638 2,248,789 1,695,723 2,154,939 2,239,100 2,783,251 2,230,185 2,689,401 11. Leases Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida; Riga, Latvia; Shanghai, China; and Zhenjiang, China, and finance leases related to certain equipment located in Orlando, Florida and Riga, Latvia. The operating leases for facilities are non-cancelable operating leases, with terms at various times through 2034 . We typically 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 such options. We currently have obligations under nine finance lease agreements, entered into during fiscal years 2019, 2023 and 2024, with terms ranging from three to five years. The leases are for computer and manufacturing equipment. Our operating lease ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. Two of our operating leases include renewal options, which were not included in the measurement of the operating lease ROU assets and related lease liabilities. We previously had two leases on the premises comprising our primary facility in Orlando, Florida (the “Orlando Facility”). The first lease on the premises comprising our Orlando Facility was amended in April 2021, and again in September 2021, to expand the space from approximately 26,000 square feet to approximately 58,500 square feet. The lease term was extended from April 30, 2022, to that certain date that is one hundred twenty-seven (127) months after the date the landlord completes certain work to be done at the leased premises. The landlord’s work was completed in August 2023, and accordingly the lease expires on March 31, 2034. In April 2023, we entered into a sublease for 11,156 square feet of this space, as we do not have a current need for the full 58,500 square feet of space. The sublease is for an initial term of five years, ending in April 2029. The second lease on the premises comprising our Orlando Facility was assigned to a third-party and it was agreed that we would vacate the premises, subject to the assigned lease, on November 30, 2022. In December 2022, we 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. In February 2023, the space was vacated and we have no further obligations related to this lease. Effective in January 2022, the terms of our leases in Zhenjiang, China and Riga, Latvia were extended to December 31, 2024 and 2030, respectively . 15 Table of Contents 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. Currently, none of our leases include variable lease payments that are dependent on an index or rate. 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 assets and the related lease liabilities. We generally account for non-lease components, such as maintenance, separately from lease components. Our lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. We received tenant improvement allowances for each of our two leases with respect to our Orlando Facility. These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities. The balances are being amortized over the corresponding lease terms. In August 2023, we completed the construction of additional tenant improvements within the premises subject to our continuing lease for our Orlando Facility, of which the landlord provided $ 2.4 million in tenant improvement allowances. We are funding the balance of the tenant improvement costs, which we estimate will be approximately $ 3.7 million, pending final construction invoices. The components of lease expense were as follows: Three Months Ended December 31, Six Months Ended December 31, 2023 2022 2023 2022 Operating lease cost $ 238,652 $ 184,424 $ 443,675 $ 415,925 Finance lease cost: Depreciation of lease assets 13,982 34,111 33,897 68,222 Interest on lease liabilities 7,856 1,187 15,392 3,870 Total finance lease cost 21,838 35,298 49,289 72,092 Total lease cost $ 260,490 $ 219,722 $ 492,964 $ 488,017 Supplemental balance sheet information related to the leases was as follows: Classification December 31, 2023 June 30, 2023 Assets: Operating lease assets Operating lease assets $ 7,432,993 $ 9,571,604 Finance lease assets Property and equipment, net (1) 671,679 542,105 Total lease assets $ 8,104,672 $ 10,113,709 Liabilities: Current: Operating leases Operating lease liabilities, current $ 1,123,276 $ 969,890 Finance leases Finance lease liabilities, current 118,070 103,646 Noncurrent: Operating leases Operating lease liabilities, less current portion 8,583,630 8,393,248 Finance leases Finance lease liabilities, less current portion 334,654 341,201 Total lease liabilities $ 10,159,630 $ 9,807,985 (1) Finance lease assets were recorded net of accumulated depreciation of approximately $ 106,000 and $ 72,000 as of December 31, 2023 and June 30, 2023, respectively. 16 Table of Contents Lease term and discount rate information related to leases was as follows: Lease Term and Discount Rate December 31, 2023 Weighted Average Remaining Lease Term (in years) Operating leases 9.8 Finance leases 3.9 Weighted Average Discount Rate Operating leases 2.9 % Finance leases 6.7 % Supplemental cash flow information: Six Months Ended December 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash used for operating leases $ 363,320 $ 523,157 Operating cash used for finance leases $ 15,393 $ 2,286 Financing cash used for finance leases $ 58,785 $ 57,140 Future maturities of lease liabilities were as follows as of December 31, 2023: Fiscal year ending: Finance Leases Operating Leases June 30, 2024 (remaining six months) $ 75,499 $ 599,048 June 30, 2025 139,856 1,164,329 June 30, 2026 117,541 1,135,793 June 30, 2027 95,212 1,143,026 June 30, 2028 86,016 1,161,442 Thereafter — 6,768,359 Total future minimum payments 514,124 11,971,997 Less imputed interest ( 61,400 ) ( 2,265,091 ) Present value of lease liabilities $ 452,724 $ 9,706,906 12. Loans Payable As of December 31, 2023 and June 30, 2023, 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 a maximum amount of $ 2,000,000 (the “ 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 Revolving Line and BankUnited Term Loan, the “BankUnited Loans”), which the Revolving Line and Guidance Line have since been terminated. Each of the BankUnited Loans is evidenced by a promissory note in favor of BankUnited (the “BankUnited Notes”). On May 6, 2019, we entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the “First Amendment”). The First Amendment amended the definition of the fixed charge coverage ratio to more accurately reflect the parties’ understandings at the time the Loan Agreement was executed. On September 9, 2021, we entered into a letter agreement with BankUnited (the “Letter Agreement”). In accordance with the Letter Agreement, the parties agreed to the following terms, among others: (i) we were granted a waiver of default for our failure to comply with the fixed charge coverage ratio measured on June 30, 2021; (ii) certain financial covenant requirements were modified; and (iii) the Guidance Line was terminated. 17 Table of Contents 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 would bear interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time; (iv) the Term Loan would 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 would still be outstanding on such date); 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. Based on the waiver, we were no longer in default of the Amended Loan Agreement. 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) . 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); (ii) an amended exit fee equal to (a) 1 % of the outstanding principal balance 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); (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, and (vi) BankUnited waived compliance with certain financial covenants until December 31, 2023. On May 9, 2023, we entered into the Fifth Amendment to the Loan Agreement dated February 26, 2019 (the “Fifth Amendment”), which further amended the Loan Agreement with BankUnited. In accordance with the Fifth Amendment, the parties agreed to the following terms, among others: (i) BankUnited agreed to release its security interest in the collateral securing the BankUnited Loans other than 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, and (ii) certain other requirements and restrictions of the Loan Agreement were removed, including, among others, financial covenants, restrictions on acquisitions, and limitations on other financing sources. The cash collateral is reflected as Restricted Cash in the accompanying unaudited condensed consolidated balance sheets as of December 31, 2023 and June 30, 2023. BankUnited Term Loan Pursuant to the Amended Loan Agreement, BankUnited advanced the Company $ 5,813,500 to satisfy in full the amounts owed to Avidbank and to pay the fees and expenses incurred in connection with the closing of the BankUnited Loan. The Term Loan is for a 5 -year term, but co-terminus with the Revolving Line should the Revolving Line not be renewed beyond February 26, 2022. Pursuant to the Fourth Amendment, the maturity date of the Term Loan is December 31, 2024 . 18 Table of Contents The Term Loan initially bore interest at a per annum rate equal to 2.75 % above the 30-day LIBOR. Pursuant to the Second Amendment, beginning on December 20, 2021, each facility bore interest at BankUnited’s then-prime rate of interest minus fifty (50) basis points, as adjusted from time to time. Pursuant to the Fourth Amendment, commencing on March 1, 2023, each facility bears interest at BankUnited’s then prime rate of interest, as adjusted from time to time ( 8.5 % as of December 31, 2023). 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. Pursuant to the Second Amendment, the monthly payment, including principal and interest, increased to $ 100,000 , commencing November 1, 2022. Pursuant to the Fourth Amendment, commencing on March 1, 2023 and continuing on the first day of each month thereafter until December 31, 2023, monthly payments were reduced to $ 75,000 , 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. Security and Guarantees Our obligations under the Amended Loan Agreement were previously collateralized by a first priority security interest (subject to permitted liens) in all of our assets and the assets of the Company’s U.S. subsidiaries, GelTech, Inc. (“GelTech”), and ISP, pursuant to a Security Agreement granted by GelTech, ISP, and the Company in favor of BankUnited. The Company’s equity interests in, and the assets of, its foreign subsidiaries were excluded from the security interest. Pursuant to the Fifth Amendment, the security interest in certain of the collateral then securing the BankUnited Loans 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. In addition, all of the Company’s subsidiaries have guaranteed the Company’s obligations under the Amended Loan Agreement and related documents, pursuant to Guaranty Agreements executed by the Company and its subsidiaries in favor of BankUnited. General Terms The Amended Loan Agreement initially contained customary covenants, including, but not limited to: (i) limitations on the disposition of property; (ii) limitations on changing the Company’s business or permitting a change in control; (iii) limitations on additional indebtedness or encumbrances; (iv) restrictions on distributions; and (v) limitations on certain investments. The Amended Loan Agreement also contains certain financial covenants, including obligations to maintain a fixed charge coverage ratio of 1.25 to 1.00 and a total leverage ratio of 4.00 to 1.00 . The Letter Agreement granted us a waiver of default arising prior to the Letter Agreement from its failure to comply with the fixed charge coverage ratio measured on June 30, 2021. 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 were no longer in default of the Amended Loan Agreement. Pursuant to the Fifth Amendment, certain other requirements and restrictions of the Loan Agreement were removed, including, among others, financial covenants, restrictions on acquisitions, and limitations on other financing sources. As of December 31, 2023, we were in compliance with all required covenants. We may prepay any or all of the BankUnited Loans in whole or in part at any time, without penalty or premium, other than the exit fees, as discussed above. Late payments are subject to a late fee equal to five percent (5%) of the unpaid amount. Amounts outstanding during an event of default accrue interest at a rate of five percent (5%) above BankUnited’s then prime rate of interest, as adjusted from time to time, applicable immediately prior to the occurrence of the event of default. The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and confidentiality. Financing costs incurred related to the BankUnited Loans were recorded as a discount on debt and amortized over the term. Amortization of approximately $ 19,000 and $ 37,100 is included in interest expense for the three and six months ended December 31, 2022, respectively. There was no amortization for the three and six-month periods ended December 31, 2023, as all costs have been fully amortized in prior periods. 19 Table of Contents In December 2020, ISP Latvia entered into an equipment loan with a third party (the “2020 Equipment Loan”), which party is also a significant customer, and which the 2020 Equipment Loan is subordinate to the BankUnited Loans, and 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. An additional 225,000 EUR (or USD $ 267,000 ) was drawn in September 2021, which proceeds were paid to the vendor for the equipment, payable in equal installments over 52 months. The 2020 Equipment Loan bears interest at a fixed rate of 3.3 %. 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. Through December 31, 2023, ISP Latvia has received two advances under the 2023 Equipment Loan totaling 260,258 EUR (or USD $ 284,000 ), the proceeds of which were used to make installment payments 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% ( 6.98 % as of December 31, 2023). In July 2023, the acquisition of Visimid included a promissory note of $ 150,000 in favor of The American National Bank of Texas (the “ANBTX Note”). In conjunction with the acquisition, Visimid and LightPath agreed to collateralize the ANBTX Note with a certificate of deposit for the same amount. The cash collateral is reflected as Restricted Cash in the accompanying unaudited Condensed Consolidated Balance Sheet as of December 31, 2023. The ANBTX Note bears interest at a fixed rate of 6.15 % and has a maturity date of April 14, 2024 . Future maturities of loans payable are as follows: Bank United Term Loan Equipment Loans ANBTX Note Total Fiscal year ending: June 30, 2024 (remaining six months) $ 532,372 $ 98,346 $ 150,000 $ 780,718 June 30, 2025 1,278,875 178,654 — 1,457,529 June 30, 2026 — 115,523 — 115,523 June 30, 2027 — 70,429 — 70,429 After June 30, 2027 — 41,083 — 41,083 Total payments $ 1,811,247 $ 504,035 $ 150,000 2,465,282 Less current portion ( 2,138,775 ) Non-current portion $ 326,507 13 . Foreign Operations Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the balance sheet date, and revenues and expenses are translated at average rates of exchange for the period. Gains or losses on the translation of the financial statements of a non-U.S. operation, where the functional currency is other than the U.S. dollar, are reflected as a separate component of equity, which was a cumulative gain of approximately $ 741,000 and $ 607,000 as of December 31, 2023 and June 30, 2023, respectively. We also recognized net foreign currency transaction gains of $ 4,000 and losses of $ 29,000 during the three months ended December 31, 2023 and 2022, respectively. During the six months ended December 31, 2023 and 2022, we recognized net foreign currency transaction gains of $ 29,000 and losses of $ 7,000 , respectively, included in the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net.” Our cash, cash equivalents and restricted cash totaled approximately $ 5.9 million at December 31, 2023. Of this amount, greater than 25% was held by our foreign subsidiaries in China and Latvia. These foreign funds were generated in China and Latvia as a result of foreign earnings. 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 December 31, 2023, LPOIZ had approximately $ 2.0 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2023, the end of the most recent statutory tax year, that remained undistributed as of December 31, 2023. 20 Table of Contents Revenues from and long-lived assets located in foreign countries are as follows: Six Months Ended December 31, 2023 2022 Revenues: United States $ 8,640,498 $ 7,527,088 Latvia — 1,081,640 China 1,217,955 1,502,252 Other European countries 4,521,846 4,360,090 Other Asian countries 614,037 829,717 Rest of world 398,549 538,793 $ 15,392,885 $ 15,839,580 December 31, 2023 June 30, 2023 Long-lived assets: United States $ 27,009,505 $ 23,336,063 Latvia 5,257,960 5,282,596 China 3,016,255 3,157,434 $ 35,283,720 $ 31,776,093 14. Contingencies Legal The Company, from time to time, is involved in various legal actions arising in the normal course of business. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company’s financial position or results of operations. In April 2021, we terminated several employees of our China subsidiaries, LPOIZ and LPOI, including the General Manager, the Sales Manager, and the Engineering Manager, after determining that they had engaged in malfeasance and conduct adverse to our interests, including efforts to misappropriate certain of our proprietary technology, diverting sales to entities owned or controlled by these former employees and other suspected acts of fraud, theft and embezzlement. In connection with such terminations, our China subsidiaries have engaged in certain legal proceedings with the terminated employees. We incurred various expenses associated with the investigation into these matters prior and subsequent to the termination of the employees and the associated legal proceedings. These expenses, which include 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 and six months ended December 31, 2023 and 2022, respectively, expenses incurred related to the legal proceedings were immaterial. In December 2023, we recovered approximately $ 190,000 in funds that had been recovered by the Chinese authorities, which is included in Other income in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended December 31, 2023. We expect to incur minimal additional legal fees and consulting expenses in future periods as we have exhausted nearly all of our legal options and remedies. Knowing that employee transitions in international subsidiaries can lead to lengthy legal proceedings that can interrupt the subsidiary’s ability to operate, compounded by the fact that our officers could not travel to China to oversee the transitions because of the travel restrictions imposed by COVID-19, we chose to enter into severance agreements with certain of the employees at the time of termination. Pursuant to the severance agreements, LPOIZ and LPOI agreed to pay such employees severance of approximately $ 485,000 in the aggregate, to be paid over a six-month period following the terminations in April 2021. After the execution of the severance agreements, we discovered additional wrongdoing by the terminated employees. As a result, LPOIZ and LPOI have 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 will 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. Such expenses were recorded as SG&A expenses in the Consolidated Statement of Comprehensive Income (Loss) for the year ended June 30, 2021. In October 2022, the severance amounts were paid to the court in accordance with a court order. 21 Table of Contents We have transitioned the management of LPOI and LPOIZ to a new management team without any significant detrimental effects on the ability of those subsidiaries to operate. We have not experienced any material adverse impact to the business operations of LPOI or LPOIZ as a result of the transition. Although we took steps to minimize the business impacts from the termination of the management employees and transition to new management personnel, we experienced some short-term adverse impacts on LPOIZ’s and LPOI’s domestic sales in China and results of operations in the three-month period ended June 30, 2021 and the fiscal year ended June 30, 2022. 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. Potential Impact of Economic Conditions in China Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline. Deteriorating economic conditions in China generally have led to lower demand for our products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall. A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a material adverse effect on our business and results of operations in future quarters. Impact of Recent Wars In February 2022, Russian military forces invaded Ukraine. This war has led to sanctions on Russia, which have had some impacts, though temporary, on our supply chain of raw materials. Separately, in October 2023 Israel has declared war on Hamas. Initially, this resulted in a temporary increase in our sales, as Israel works to replace electro-optical systems that in some cases use our materials. However, it is possible that at some point this war will also have a negative impact on our business as a result of the economic impact in Israel. In addition to the significant defense related market in Israel, we also serve many commercial related applications and work with commercial companies in Israel, and the business of those customers may be negatively impacted by the war over time. Given the dynamic nature of this situation, we cannot reasonably estimate the impact of either the Russian-Ukraine conflict or the Israel-Hamas war on our financial condition, results of operations or cash flows into the foreseeable future. 15. Liquidity 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. We have commenced discussions with prospective lenders regarding the refinancing of our debt obligations prior to the maturity date of the BankUnited Term Loan on December 31, 2024. There can be no assurance that we will be successful in such refinancing or that 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, it may need to raise additional equity financing, source financing through non-commercial lenders or reduce operating expenses and capital expenditures in order to repay the credit facility and all charges related thereto upon its maturity on December 31, 2024. 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. We have not issued any shares of our 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 . 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 we elect to pursue any of such transactions. 22 Table of Contents