What changed in this filing

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Item 1A. Risk Factors

2024-09-19 compared with 2023-09-14 · 130 added, 190 removed, 155 unchanged (67% of the section changed)

5 unchanged sentences

We have a history of losses.

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

We reported net losses of $8.0 million, $4.0 million, $3.5 million and $3.2 million for fiscal years 2024, 2023, 2022 and 2021, respectively.

As of June 30, 2024, we had an accumulated deficit of approximately $215.8 million.

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Any failure to maintain profitability would have a materially adverse effect on our ability to implement our business plan, our results and operations, and our financial condition, and could cause the value of our Class A common stock to decline.

We are dependent on a few key customers, and the loss of any key customer could cause a significant decline in our revenues.

In fiscal year 2023, we had sales to three customers that comprised an aggregate of approximately 24% of our annual revenue, with one customer at 11% of our sales, another customer at 7% of our sales, and the third customer at 6% of our sales.

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

Our current strategy of providing the domain expertise and the extensive “know how” in optical design, fabrication, production and testing technologies will allow our customers to focus on their own development efforts, without needing to develop subject matter expertise in optics.

By providing the bridge into the optical solution world, we partner with our customers on a long term basis, create value to our customers, and capture that value through the long-term supply relationships we develop.

However, the loss of any of these customers, or a significant reduction in sales to any such customer, would adversely affect our revenues.

We may be affected by political and other risks as a result of our sales to international customers and/or our sourcing of materials from international suppliers.

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political, social, economic instability and disruptions.

We depend on single or limited source suppliers for some of the key materials or process steps in our products, making us susceptible to supply shortages, poor performance, or price fluctuations.

We currently purchase several key materials, or have outside vendors perform process steps, such as lens coatings, used in or during the manufacture of our products from single or limited source suppliers.

We may fail to obtain required materials or services in a timely manner in the future, or we could experience delays as a result of evaluating and testing the products or services of potential alternative suppliers.

The decline in demand in the telecommunications equipment industry may have adversely impacted the financial condition of certain of our suppliers, some of whom have limited financial resources.

We have in the past, and may in the future, be required to provide advance payments in order to secure key materials from financially limited suppliers.

Financial or other difficulties faced by these suppliers could limit the availability of key components or materials.

For example, increasing labor costs in China has increased the risk of bankruptcy for suppliers with operations in China, and has led to higher manufacturing costs for us and the need to identify alternate suppliers.

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

Any interruption or delay in the supply of any of these materials or services, or the inability to obtain these materials or services from alternate sources at acceptable prices and within a reasonable amount of time, would impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders, thereby negatively affecting our business, financial condition, and results of operation.

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

Russia’s ongoing conflict with Ukraine may continue to disrupt our supply chain .

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

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

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

Since that announcement, supply of Germanium has been disrupted, though not completely stopped.

As a purchaser of Germanium, we are mostly able to purchase the Germanium we need, though the availability of it and ability to receive export licenses varies between vendors.

From our customers we know that some of them are able to import Germanium from China, while some get refused for a license.

Yet, even those that are able to receive a license experience material lead times that are significantly prolonged because of the process to get a license, and prices that as of August 2024, were 60% higher than the same time last year.

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

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

We depend on single or limited source suppliers for some of the key materials or process steps in our products, making us susceptible to supply shortages, poor performance, or price fluctuations.

We currently purchase several key materials (including Germanium) or have outside vendors perform process steps, such as lens coatings, used in or during the manufacture of our products from single or limited source suppliers.

The economic decline in China may have adversely impacted the financial condition of certain of our suppliers, some of whom have limited financial resources.

We have in the past, and may in the future, be required to provide advance payments in order to secure key materials from financially limited suppliers.

Financial or other difficulties faced by these suppliers could limit the availability of key components or materials.

The economic decline in China has also increased the risk of bankruptcy for suppliers with operations in China and has led to higher manufacturing costs for us and the need to identify alternate suppliers.

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

International tariffs, including tariffs applied to goods traded between the U.S.

and China, could materially and adversely affect our business and results of operations .

In recent years, the U.S.

government took certain actions that led to, and may lead to, further changes to U.S.

and international trade policies, including the imposition of tariffs affecting certain products exported by a number of U.S.

trading partners, including China.

The institution of trade tariffs both globally and between the U.S.

and China specifically carries the risk of negatively impacting China’s overall economic condition, which could have negative repercussions for us.

Furthermore, imposition of tariffs could cause a decrease in the sales of our products to customers located in China or other customers selling to Chinese end users, which would directly impact our business.

It remains unclear how tax or trade policies, tariffs, or trade relations may change or evolve with changes in the U.S.

Presidential Administration.

Perceived or actual changes in U.S.

trade policy could trigger retaliatory actions by affected countries, which could impose restrictions on our ability to do business in or with affected countries or prohibit, reduce, or discourage purchases of our products by foreign customers, leading to increased costs of products that contain our components, increased costs of manufacturing our products, and higher prices of our products in foreign markets.

Changes in, and responses to, U.S.

trade policy could reduce the competitiveness of our products and cause our sales and revenues to drop, which could materially and adversely impact our business and results of operations.

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

However, given the uncertainty regarding the current tariffs, as well as the potential for additional trade actions by the U.S.

or other countries in the future, any future impact on our operations and financial results is uncertain and these impacts could be more significant than those we have experienced in the past.

Further, we can provide no assurance that the strategies we implemented to mitigate the impact of such tariffs or other trade actions will continue to be successful.

To the extent that our supply chain, costs, sales, or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition, and results of operations may be materially adversely affected.

We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.

We execute all foreign sales from our U.S.-based facilities and inter-company transactions in U.S.

dollars in order to partially mitigate the impact of foreign currency fluctuations.

However, a portion of our international revenues and expenses are denominated in foreign currencies.

Accordingly, we experience the risks of fluctuating currencies and corresponding exchange rates.

In fiscal years 2024 and 2023, we recognized net gains of approximately $73,000 and losses of $37,000 on foreign currency transactions, respectively.

Any such fluctuations that result in a less favorable exchange rate could adversely affect a portion of our revenues and expenses, which could negatively impact our results of operations and financial condition.

We also source certain raw materials from outside the U.S.

Some of those materials, priced in non-dollar currencies, fluctuate in price due to the value of the U.S.

dollar against non-dollar-pegged currencies, especially the Euro and Renminbi.

As the dollar strengthens, this increases our margins and helps with our ability to reach positive cash flow and profitability.

If the strength of the U.S.

dollar decreases, the cost of foreign sourced materials could increase, which would adversely affect our financial condition and results of operations.

If the Euro or Renminbi currencies were to trend unfavorably against the U.S.

dollar on a long-term basis, then we would seek to rebalance our strategic materials sourcing.

We are dependent on a few key customers, and the loss of any key customer could cause a significant decline in our revenues.

In fiscal year 2024, we had sales to three customers that comprised an aggregate of approximately 25% of our annual revenue, with one customer at 12% of our sales, another customer at 7% of our sales, and the third customer at 6% of our sales.

By providing the bridge into the optical solution world, we partner with our customers on a long-term basis, create value to our customers, and capture that value through the long-term supply relationships we develop.

However, the loss of any of these customers, or a significant reduction in sales to any such customer, would adversely affect our revenues.

A significant portion of our cash is generated and held outside of the U.S.

The risks of maintaining significant cash abroad could adversely affect our cash flows and financial results.

During fiscal year 2024, greater than 25% of our cash was held abroad.

Historically, we generally considered unremitted earnings of our subsidiaries operating outside of the U.S.

to be indefinitely reinvested.

During fiscal year 2020, we began declaring intercompany dividends to remit a portion of the earnings of our foreign subsidiaries to us.

Remaining cash held outside of the U.S.

is primarily used for the ongoing operations of the business in the locations in which the cash is held.

Certain countries, such as China, have monetary laws that limit our ability to utilize cash resources in China for operations in other countries.

Before any funds can be repatriated, the retained earnings of the legal entity must equal at least 50% of its registered capital.

As of June 30, 2024, LPOIZ had approximately $1.6 million in retained 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 June 30, 2024.

LPOI did not have any earnings available for repatriation as of the date of the merger with LPOIZ.

This limitation may affect our ability to fully utilize our cash resources for needs in the U.S.

or other countries and may adversely affect our liquidity.

Further, since repatriation of such cash is subject to limitations and may be subject to significant taxation, we cannot be certain that we will be able to repatriate such cash on favorable terms or in a timely manner.

If we incur operating losses and/or require cash that is held in international accounts for use in our operations based in the U.S., a failure to repatriate such cash in a timely and cost-effective manner could adversely affect our business and financial results.

We will likely need additional capital to sustain our operations in the future and to repay indebtedness.

We have limited capital resources.

Our operations have historically been largely funded from the proceeds of equity financings and cash flow from operations along with a minimal level of debt financing.

We will likely need to raise additional financing to repay our outstanding indebtedness of approximately $4.2 million, as of August 2024, and to fund our current level of operations as well as our strategic plan.

Additional financing will be required in order for us to take advantage of acquisition opportunities that we may identify.

Such financing, which is not in place at this time, may be from the sale of equity or convertible or other debt securities in a public or private offering, or from an additional credit facility.

We may be unable to raise sufficient additional capital on favorable terms, if at all, to supply the working capital needs of our existing operations or to expand our business.

Our stock price may fluctuate widely.

Many factors, including, but not limited to, future announcements concerning the Company, its competitors or customers, as well as quarterly variations in operating results, announcements of technological innovations, seasonal or other variations in anticipated or actual results of operations, changes in earnings estimates by analysts or reports regarding the Company’s industries in the financial press or investment advisory publications, could cause the market price of the Company’s stock to fluctuate substantially.

In addition, the Company’s stock price may fluctuate widely for reasons which may be unrelated to operating results.

Also, any information concerning the Company, including projections of future operating results could in the future contribute to volatility in the market price of the Company’s common stock.

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

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Under law of the People’s Republic of China, legal documents for corporate transactions, including contracts and leases that our business relies upon, are executed using “corporate chops,” which are instruments that contain either the official seal of the signing entity or the signature of a legal representative whose designation is registered and filed with the State Administration for Industry and Commerce, or SAIC.

Our Chinese subsidiaries, LPOI and LPOIZ, generally execute legal documents with corporate chops.

Our Chinese subsidiary, LPOIZ (and formerly LPOI), generally executes legal documents with corporate chops.

One or more of our corporate chops may be used to, among other things, execute commercial sales or purchase contracts, procurement contracts and office leases, open bank accounts, issue checks and to issue invoices.

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In addition, we may not be able to recover corporate assets that are sold or transferred out of our control in the event of such a misappropriation if a transferee relies on the apparent authority of the representative and acts in good faith.

If a designated employee uses a chop in an effort to obtain control over one or more of our Chinese subsidiaries, we would need to take legal action to seek the return of the applicable chop(s), apply for a new chop(s) with the relevant authorities, or otherwise seek legal redress for the violation of their duties.

During any period where we lose effective control of the corporate activities of one or more of our Chinese subsidiaries as a result of such misuse or misappropriation, the business activities of the affected entity could be disrupted and we could lose the economic benefits of that aspect of our business.

To the extent those chops are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and the operations of those entities could be significantly and adversely impacted.

International tariffs, including tariffs applied to goods traded between the U.S.

and China, could materially and adversely affect our business and results of operations .

In recent years, the U.S.

government took certain actions that led to, and may lead to, further changes to U.S.

and international trade policies, including the imposition of tariffs affecting certain products exported by a number of U.S.

trading partners, including China.

The institution of trade tariffs both globally and between the U.S.

and China specifically carries the risk of negatively impacting China’s overall economic condition, which could have negative repercussions for us.

It remains unclear how tax or trade policies, tariffs, or trade relations may change or evolve with changes in the U.S.

Presidential Administration.

Perceived or actual changes in U.S.

Changes in, and responses to, U.S.

trade policy could reduce the competitiveness of our products and cause our sales and revenues to drop, which could materially and adversely impact our business and results of operations.

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

However, given the uncertainty regarding the current tariffs, as well as the potential for additional trade actions by the U.S.

or other countries in the future, any future impact on our operations and financial results is uncertain and these impacts could be more significant than those we have experienced in the past.

Further, we can provide no assurance that the strategies we implemented to mitigate the impact of such tariffs or other trade actions will continue to be successful.

Our future growth is partially dependent on our market penetration efforts.

Our future growth is partially dependent on our market penetration efforts, which include diversifying our sales and offering to provide complete optical solutions such as assemblies to existing and other markets.

While we believe we are able to provide such engineered solutions, we anticipate the need to gain the customer’s trust in providing more than the optical component, a process that can sometimes take months, if not years.

Expansion of our product lines and sales into new markets will require significant investment in equipment, facilities, and materials.

There can be no assurance that any proposed products will be successfully developed, demonstrate desirable optical performance, be capable of being produced in commercial quantities at reasonable costs, or be successfully marketed.

If a designated employee uses a chop in an effort to obtain control over our Chinese subsidiary, we would need to take legal action to seek the return of the applicable chop(s), apply for a new chop(s) with the relevant authorities, or otherwise seek legal redress for the violation of their duties.

During any period where we lose effective control of the corporate activities of our Chinese subsidiary as a result of such misuse or misappropriation, the business activities of the affected entity could be disrupted, and we could lose the economic benefits of that aspect of our business.

To the extent those chops are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of this entity could be severely and adversely compromised, and the operations of this entity could be significantly and adversely impacted.

We rely, in large part, on key business and sales relationships for the successful commercialization of our products, which, if not developed or maintained, will have an adverse impact on achieving market awareness and acceptance and will result in a loss of business opportunities.

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If we are unable to continue to expand our sales operations globally, we may not be able to continue to increase market awareness or sales of our products, which would adversely affect our revenues, results of operations, and financial condition.

If we are unable to develop and successfully introduce new and enhanced products that meet the needs of our customers, our business may not be successful.

Our future success depends, in part, on our ability to anticipate our customers’ needs and develop products that address those needs.

Introduction of new products and product enhancements will require that we effectively transfer production processes from research and development to manufacturing, and coordinate our efforts with the efforts of our suppliers to rapidly achieve efficient volume production.

If we fail to effectively transfer production processes, develop product enhancements, or introduce new products that meet the needs of our customers as scheduled, our net revenues may decline, which would adversely affect our results of operations and financial condition.

If we are unable to effectively compete, our business and operating results could be negatively affected.

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Because of our limited product offerings, our ability to generate additional revenues may be limited without additional growth .

We organized our business based on three product groups:

PMOs, infrared products, and specialty products.

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

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

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

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.

In fiscal year 2024, sales of infrared components represented approximately 44% of our net revenues, sales of visible components represented approximately 33% of our net revenues, sales of assemblies and modules represented 14% of our revenues, and engineering services represented 6% of our revenues.

In the future, we expect growth primarily from our assemblies and modules and engineering services product groups, the vertical integration of which will be supported by the infrared components product group.

Continued and expanding market acceptance of these products, particularly infrared products based on our proprietary chalcogenide materials (Germanium alternatives), is critical to our future success.

There can be no assurance that our current or new products will achieve market acceptance at the rate at which we expect, or at all, which could adversely affect our results of operations and financial condition.

We may need additional capital to sustain our operations in the future, and may need to seek further financing, which we may not be able to obtain on acceptable terms or at all, which could affect our ability to implement our business strategies.

We have limited capital resources.

Our operations have historically been largely funded from the proceeds of equity financings with some level of debt financing as well as cash flow from operations.

In recent years we have generated sufficient capital to fund our operations and necessary investments.

Accordingly, in future years, we anticipate only requiring additional capital to support acquisitions that would further expand our business and product lines.

We may not be able to obtain additional financing when we need it on terms acceptable to us, or at all.

Our future capital needs will depend on numerous factors including:

(i) profitability;

(ii) the release of competitive products by our competition;

(iii) the level of our investment in research and development;

and (iv) the amount of our capital expenditures, including equipment and acquisitions.

We cannot assure you that we will be able to obtain capital in the future to meet our needs.

If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.

Litigation may adversely affect our business, financial condition, and results of operations.

From time to time in the normal course of business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required.

The cost to defend such litigation may be significant and is subject to inherent uncertainties.

Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters.

There also may be adverse publicity with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable.

An adverse result in any such matter could adversely impact our operating results or financial condition.

Additionally, any litigation to which we are subject could also require significant involvement of our senior management and may divert management’s attention from our business and operations.

We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.

We execute all foreign sales from our U.S.-based facilities and inter-company transactions in U.S.

dollars in order to partially mitigate the impact of foreign currency fluctuations.

However, a portion of our international revenues and expenses are denominated in foreign currencies.

Accordingly, we experience the risks of fluctuating currencies and corresponding exchange rates.

In fiscal years 2023 and 2022, we recognized net losses of approximately $37,000 and $3,000 on foreign currency transactions, respectively.

We also source certain raw materials from outside the U.S.

Some of those materials, priced in non-dollar currencies, fluctuate in price due to the value of the U.S.

dollar against non-dollar-pegged currencies, especially the Euro and Renminbi.

As the dollar strengthens, this increases our margins and helps with our ability to reach positive cash flow and profitability.

If the strength of the U.S.

dollar decreases, the cost of foreign sourced materials could increase, which would adversely affect our financial condition and results of operations.

If the Euro or Renminbi currencies were to trend unfavorably against the U.S.

dollar on a long-term basis, then we would seek to rebalance our strategic materials sourcing.

A significant portion of our cash is generated and held outside of the U.S.

The risks of maintaining significant cash abroad could adversely affect our cash flows and financial results.

During fiscal year 2023, greater than 25% of our cash was held abroad.

Historically, we generally considered unremitted earnings of our subsidiaries operating outside of the U.S.

to be indefinitely reinvested.

During fiscal year 2020, we began declaring intercompany dividends to remit a portion of the earnings of our foreign subsidiaries to us.

Remaining cash held outside of the U.S.

is primarily used for the ongoing operations of the business in the locations in which the cash is held.

Certain countries, such as China, have monetary laws that limit our ability to utilize cash resources in China for operations in other countries.

Before any funds can be repatriated, the retained earnings of the legal entity must equal at least 50% of its registered capital.

As of June 30, 2023, LPOIZ had approximately $2.9 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2022, the end of the most recent statutory tax year, that remained undistributed as of June 30, 2023.

This limitation may affect our ability to fully utilize our cash resources for needs in the U.S.

or other countries and may adversely affect our liquidity.

Our business may be materially affected by changes to fiscal and tax policies.

Potentially negative or unexpected tax consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our results of operations and the price of our Class A common stock.

Tax Cuts and Jobs Act of 2017 (the “TCJA”) was approved by the U.S.

Congress on December 20, 2017 and signed into law on December 22, 2017.

This legislation made significant changes to the U.S.

Internal Revenue Code of 1986, as amended (the “IRC”).

Such changes include a reduction in the corporate tax rate from 35% to 21%, limitation on the deductibility of interest expense and performance-based incentive compensation, and implementation of a modified territorial tax system, including a provision that requires companies to include their global intangible low-taxed income and its effect on our U.S.

taxable income (effectively, non-U.S.

income in excess of a deemed return on tangible assets of non-U.S.

corporations), among other changes.

In addition, the TCJA requires complex computations to be performed that were not previously required in U.S.

tax law, significant judgments to be made in interpretation of the provisions of the TCJA and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.

Implementation of the TCJA required us to calculate a one-time transition tax on certain foreign earnings and profits (“foreign E&P”) that had not been previously repatriated.

During fiscal year 2018, we provisionally determined our foreign E&P inclusion, and anticipated that we would not owe any one-time transition tax due to the utilization of U.S.

net operating loss (“NOL”) carryforward benefits against these earnings.

During fiscal year 2019, we completed our analysis of the TCJA, and although we did not owe any one-time transition tax, the deferred tax asset related to our NOL carryforwards decreased by approximately $202,000.

This amount was offset by our valuation allowance for a net impact of zero to our income tax provision.

The TCJA may also impact our repatriation strategies in the future.

Foreign governments may enact tax laws in response to the TCJA that could result in further changes to global taxation and materially affect our financial position and results of operations.

The uncertainty surrounding the effect of the reforms on our financial results and business could also weaken confidence among investors in our financial condition.

This could, in turn, have a materially adverse effect on the price of our Class A common stock.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, which, among other things, is intended to provide emergency assistance to qualifying businesses and individuals.

The CARES Act also suspends the limitation on the deduction of NOLs arising in taxable years beginning before January 1, 2021, permits a five-year carryback of NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, and generally modifies the limitation on the deduction for net interest expense to 50% of adjusted taxable income for taxable years beginning in 2019 and 2020.

During fiscal year 2020, as a result of the CARES Act, the Company was able to accelerate the recovery of an income tax receivable related to previously paid alternative minimum tax.

The receivable amount of approximately $107,000 as of June 30, 2020 was collected in July 2020.

In addition, the Company elected to utilize the payroll tax deferral under the CARES Act, resulting in cash savings in fiscal 2021 of approximately $325,000, accrued as of June 30, 2021.

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

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

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

The income earned in these various jurisdictions is taxed on differing basis, including net income actually earned, net income deemed earned, and revenue-based tax withholding.

The final determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties, and related authorities in each jurisdiction, as well as the use of estimates and assumptions regarding the scope of future operations and results achieved and the timing and nature of income earned and expenditures incurred.

Changes in or interpretations of tax law and currency/repatriation control could impact the determination of our income tax liabilities for a tax year, which, in turn, could have a materially adverse effect on our financial condition and results of operations.

For example, President Biden has proposed various changes to existing U.S.

tax laws, including increasing the corporate income tax rate and increasing the income tax rate on certain earnings of foreign subsidiaries, which if enacted could have a material impact on our business, results of operations, financial condition, and cash flows.

Our failure to accurately forecast material requirements could cause us to incur additional costs, have excess inventories, or have insufficient materials to manufacture our products.

Our material requirements forecasts are based on actual or anticipated product orders.

It is very important that we accurately predict both the demand for our products and the lead times required to obtain the necessary materials.

Lead times for materials that we order vary significantly and depend on factors, such as specific supplier requirements, the size of the order, contract terms, and the market demand for the materials at any given time.

If we overestimate our material requirements, we may have excess inventory, which would increase our costs.

If we underestimate our material requirements, we may have inadequate inventory, which could interrupt our manufacturing and delay delivery of our products to our customers.

Any of these occurrences would negatively impact our results of operations.

Additionally, in order to avoid excess material inventories, we may incur cancellation charges associated with modifying existing purchase orders with our vendors, which, depending on the magnitude of such cancellation charges, may adversely affect our results of operations.

If we do not achieve acceptable manufacturing yields our operating results could suffer.

The manufacture of our products involves complex and precise processes.

Our manufacturing costs for several products are relatively fixed, and, thus, manufacturing yields are critical to the success of our business and our results of operations.

Changes in our manufacturing processes or those of our suppliers could significantly reduce our manufacturing yields.

In addition, we may experience manufacturing delays and reduced manufacturing yields upon introducing new products to our manufacturing lines.

The occurrence of unacceptable manufacturing yields or product yields could adversely affect our financial condition and results of operations.

If our customers do not qualify our manufacturing lines for volume shipments, our operating results could suffer .

Our manufacturing lines have passed our qualification standards, as well as our technical standards.

However, our customers may also require that our manufacturing lines pass their specific qualification standards, and that we be registered under international quality standards, beyond our ISO 9001:2015 certification.

This customer qualification process determines whether our manufacturing lines meet the customers’ quality, performance, and reliability standards.

Generally, customers do not purchase our products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for volume production.

We may be unable to obtain customer qualification of our manufacturing lines or we may experience delays in obtaining customer qualification of our manufacturing lines.

If there are delays in the qualification of our products or manufacturing lines, our customers may drop the product from a long-term supply program, which would result in significant lost revenue opportunity over the term of each such customer’s supply program, or our customers may purchase from other manufacturers.

The inability to obtain customer qualification of our manufacturing lines, or the delay in obtaining such qualification, could adversely affect our financial condition and results of operations.

Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.

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

We intend to renew the lease for the Zhenjiang Facility for at least a one-year term.

Our operations are vulnerable to interruption by fire, hurricane winds and rain, earthquakes, electric power loss, telecommunications failure, and other events beyond our control.

We do not have detailed disaster recovery plans for our facilities and we do not have a backup facility, other than our other facilities, or contractual arrangements with any other manufacturers in the event of a casualty to or destruction of any facility or if any facility ceases to be available to us for any other reason.

We do have a business continuity and recovery plan for our facilities however, we do not have a backup facility, other than our other facilities, or contractual arrangements with any other manufacturers in the event of a casualty to or destruction of any facility or if any facility ceases to be available to us for any other reason.

If we are required to rebuild or relocate either of our manufacturing facilities, a substantial investment in improvements and equipment would be necessary.

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Any losses or damages incurred by us as a result of blackouts, rebuilding, relocation, or other business interruptions, could result in a significant delay or reduction in manufacturing and production capabilities, impair our reputation, harm our ability to retain existing customers and to obtain new customers, and could result in reduced sales, lost revenue, increased costs and/or loss of market share, any of which could substantially harm our business and our results of operations.

Our business, results of operations, financial condition, cash flows, and the stock price of our Class A common stock can be adversely affected by pandemics, epidemics, or other public health emergencies, such as the 2020 outbreak of COVID-19.

Our business, results of operations financial condition, cash flows, and the stock price of our Class A common stock can be adversely affected by pandemics, epidemics, or other public health emergencies, such as the global outbreak of COVID-19.

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

The COVID-19 pandemic resulted in governments around the world implementing measures to help control the spread of the virus, including “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures.

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

in 2020 and continued into 2021.

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

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

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

however, future pandemics or other public health emergencies and any preventive or protective actions taken by governmental authorities may have a material adverse effect on our operations, supply chain, customers, and transportation networks, including business shutdown or disruptions.

The extent to which future pandemics or other public health emergencies may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, depends upon the severity and duration of the outbreak and the effectiveness of actions taken globally to contain or mitigate its effect.

Any resulting financial impact cannot be estimated reasonably at this time, but may materially adversely affect our business, results of operations, financial condition, and cash flows.

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

Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets, which has and may continue to adversely impact our stock price and our ability to access capital markets.

To the extent the COVID-19 pandemic may adversely affect our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K.