What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-09-19 compared with 2023-09-14 · 156 added, 188 removed, 240 unchanged (59% of the section changed)

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Other companies may calculate gross margin in a different manner.

Potential Impact of COVID-19

In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure.

COVID-19 has spread throughout world, including the U.S., and continues to spread as additional variants emerge.

As a result of the COVID-19 pandemic, our employees at our facilities in China, Latvia, and the U.S.

were subject to stay-at-home orders during a portion of fiscal year 2021, which restrictions have since been lifted as of the date of this Annual Report on Form 10-K.

In addition to stay-at-home orders, many jurisdictions also implemented social distancing and other restrictions and measures to slow the spread of COVID-19.

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

in 2020 and continued into 2021, 2022 and 2023.

Beginning in the spring of 2021, restrictions began to lift as vaccines became more available.

Despite these stay-at-home orders and other measures and restrictions implemented in the areas in which we operate, as a critical supplier to both the medical and defense industries, we were deemed to be an essential business;

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

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

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

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

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

As a result, some aspects of our operations that depend on travel, such as recruitment of senior positions, and travel of service providers to maintain our production equipment have been, and will continue to be, adversely impacted.

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

However, we are not able to precisely estimate the effects of the continuing COVID-19 pandemic on our future results of operations, financial, or liquidity in fiscal 2024 and beyond.

Effect of Certain Events Occurring at Our Chinese Subsidiaries

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In connection with such terminations, our China subsidiaries have engaged in certain legal proceedings with the terminated employees.

We have incurred various expenses associated with our investigation into these matters prior and subsequent to the termination of the employees and the associated legal proceedings.

These expenses, which included legal, consulting and other transitional management fees, totaled $718,000 during the year ended June 30, 2021.

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

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

We incurred various expenses associated with our investigation into these matters prior and subsequent to the termination of the employees and the associated legal proceedings.

These expenses, which included legal, consulting and other transitional management fees, totaled $718,000 and $400,000 during the years ended June 30, 2021 and 2022, respectively.

During the years ended June 30, 2024 and 2023, expenses incurred related to the legal proceedings were immaterial.

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

We also identified a further liability in the amount of $210,000, which could have been incurred in the future due to the actions of these employees.

This amount was accrued as of June 30, 2021, pending further investigation, and was included in “Other Expense, net” in the Consolidated Statement of Comprehensive Income (Loss) for the year ended June 30, 2021.

During the third quarter of fiscal year 2022, it was determined that our Chinese subsidiary would not be responsible for this amount.

As such, this accrual was reversed and is included in the accompanying Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net” for the year ended June 30, 2022.

Knowing that employee transitions in international subsidiaries can lead to lengthy and expensive legal proceedings that can be disruptive to operations, compounded by the fact that our officers could not travel to China to oversee the transitions because of the travel restrictions imposed by COVID-19, we chose to enter into severance agreements with certain of the employees at the time of termination.

In December 2023, the Company recovered approximately $190,000 in funds that had been recovered by the Chinese authorities, which is included in Other income in the accompanying Consolidated Statements of Comprehensive Income (Loss) for the year ended June 30, 2024.

We do not expect to incur additional legal fees or 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 and expensive legal proceedings that can interrupt the subsidiary’s ability to operate, 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.

After the execution of the severance agreements, we discovered additional wrongdoing by the terminated employees.

As a result, LPOIZ and LPOI have not yet paid the severance payments and have disputed the employees’ rights to such payments.

Currently, there are ongoing civil actions in China in connection with LPOIZ’s and LPOI’s refusal to pay these severance amounts due to the employees’ non-compliance.

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

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

As a result, LPOIZ and LPOI did not immediately pay the severance payments and disputed the employees’ rights to such 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 have accrued for these payments as of June 30, 2021.

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

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

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

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

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

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

however, such future fees are expected to be at lower levels than have been incurred to date.

Although we have taken steps to minimize the business impacts from the termination of the local 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, which continued through fiscal year 2022.

We have not experienced, nor do we anticipate, any material adverse impact on LPOIZ’s or LPOI’s production and supply of products to LightPath for LightPath’s customers.

Results of Operations

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Revenue for fiscal year 2024 was approximately $31.7 million, a decrease of 4%, as compared to $32.9 million in fiscal year 2023.

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

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

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

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

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

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

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

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

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

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

Revenue generated by the infrared components product group was approximately $14.1 million in fiscal year 2024, a decrease of 2%, as compared to the prior fiscal year.

The decrease in revenue is related to a decrease in shipments against a germanium-based annual contract that was not renewed, which decrease was mostly offset by an increase in shipments against an annual contract for an international military program.

Revenue generated by the visible components product group was approximately $11.2 million for fiscal year 2024, a decrease of 16%, as compared to the prior fiscal year.

The decrease in revenue is primarily due to a decrease in sales to customers in the defense industry, as well as a decrease in sales through catalog and distribution channels in the U.S.

and in Europe.

Sales to customers in the telecommunications industry in China also decreased by approximately 40%.

Revenue from the assemblies and modules product group was approximately $4.5 million in fiscal year 2024, a decrease of approximately 5% as compared to fiscal year 2023, primarily due to a decrease in shipments against a multi-year contract with a defense customer due to timing, as well as decreases in sales to certain industrial customers, particularly in China.

These decreases were partially offset by the addition of Visimid revenue of approximately $900,000.

Revenue from engineering services increased by $1.5 million for fiscal 2024, as compared to the same period of the prior fiscal year.

Approximately $1.4 million of this increase is due to the addition of Visimid revenue, primarily driven by Visimid’s contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones.

The remaining increase is driven by revenue from one of our space-related funded research contracts.

Cost of Sales and Gross Margin.

Gross margin for fiscal year 2024 was approximately $8.6 million, a decrease of 22%, as compared to approximately $11.1 million in fiscal year 2023.

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

Total cost of sales was approximately $23.1 million for fiscal year 2024, compared to $21.9 million for fiscal year 2023, an increase of 6%.

Gross margin as a percentage of revenue was 27% for fiscal year 2024 as compared to 34% for fiscal year 2023.

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

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

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

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

The decrease in gross margin as a percentage of revenue is primarily due to the decrease in visible components sales, which typically have higher margins than our infrared components product group.

Our infrared components product group comprised a greater portion of our sales for fiscal year 2024.

In addition, gross margin as a percentage of revenue for the fiscal year 2024 was unfavorably impacted by the revaluation of inventory during the third quarter of fiscal 2024.

The revaluation resulted in a net write-down of inventory.

Selling, General and Administrative.

For fiscal year 2024, Selling, General and Administrative (“SG&A”) costs were approximately $12.3 million, an increase of approximately $860,000, or 8%, as compared to the prior fiscal year.

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

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

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

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

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

These increases were partially offset by the following decreases:

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

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

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

The increase in SG&A for fiscal year 2024 is primarily due to an increase in wages, including non-recurring executive severance costs of $136,000, and an increase in legal and consulting fees related to business development initiatives.

These increases are partially offset by a decrease in stock-based compensation, whereas fiscal year 2023 included increased stock compensation costs associated with two director retirements.

We also incurred additional legal and professional fees in the fiscal year 2024 associated with our rescheduled annual stockholder meeting and previously disclosed Delaware chancery court proceedings.

We expect SG&A costs to remain elevated for the next several quarters as we continue with certain business development initiatives.

New Product Development.

New product development costs were approximately $2.4 million in fiscal year 2024, an increase of approximately 12% as compared to the prior fiscal year.

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

These increases are primarily due to the addition of engineering personnel as a result of the Visimid acquisition, as well as an increase in materials and outside services utilized for development projects, including additional product offerings following the MANTIS reference design camera which we began developing in fiscal year 2023.

Amortization of Intangibles.

Amortization of intangibles increased by $510,000 for fiscal year 2024, as compared to the prior fiscal year, due to the amortization of identifiable intangible assets associated with the Visimid acquisition.

See Note 3, Acquisition of Visimid , in the Consolidated Financial Statements included in this Annual Report on Form 10-K, for further information.

Other Expense.

Interest expense was approximately $192,000 for fiscal year 2024, compared to approximately $283,000 in the prior fiscal year.

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

The decrease in interest expense is due to the 59% reduction in our total debt, including finance lease obligations, and excluding operating lease liabilities, as of June 30, 2024, as compared to the end of the prior fiscal year.

Other income, net, was approximately $79,000 for fiscal year 2024, compared to $25,000 for fiscal year 2023.

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

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

Other income, net, for fiscal year 2024 includes a gain of $190,000 for the return of funds previously misappropriated by our former Chinese management team, as a result of the ongoing legal proceedings described in Note 15, Contingencies , in the Consolidated Financial Statements included in this Annual Report on Form 10-K.

This gain was largely offset by expenses of $183,000 associated with an event of default by a sub-tenant of a portion of our Orlando Facility lease.

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

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Assets and liabilities denominated in non-United States currencies, primarily the Chinese Yuan and Euro, 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 year.

During fiscal year 2023, we incurred net foreign currency transaction losses of approximately $37,000, compared to $3,000 for fiscal year 2022.

During fiscal year 2024, we incurred net foreign currency transaction gains of approximately $73,000, compared to net foreign currency transaction losses of $37,000 for fiscal year 2023.

Income Taxes.

During fiscal year 2024, we recorded income tax expense of approximately $67,000, compared to approximately $234,000 in fiscal year 2023, primarily related to our operations in China.

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

While this repatriation transaction resulted in some additional Chinese withholding taxes, LPOIZ currently qualifies for a reduced Chinese income tax rate;

Income taxes for fiscal years 2024 and 2023 include Chinese withholding tax expenses of $170,000 and $235,000, respectively, the majority of which are associated with intercompany dividends declared by LPOIZ, payable to us as the parent company.

While these repatriation transactions result in some additional Chinese withholding taxes, LPOIZ currently qualifies for a reduced Chinese income tax rate;

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

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

Income tax expense for fiscal years 2024 and 2023 are also offset by deferred income tax benefits from the turnaround of temporary differences, and increased by deferred income tax expense related to certain indefinite lived temporary differences.

Please refer to Note 9, Income Taxes , in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information related to each of our tax jurisdictions.

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Net loss for fiscal year 2024 was approximately $8.0 million, or $0.21 basic and diluted loss per share, compared to approximately $4.0 million, or $0.13 basic and diluted loss per share, for fiscal year 2023.

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

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

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

The increase in net loss for fiscal year 2024, as compared to fiscal year 2023, is attributable to the approximately $4.3 million increase in operating loss resulting from lower revenue and gross margin and increased operating expenses.

This loss increase was partially offset by a decrease in other expense, net, of approximately $145,000, primarily due to the decrease in interest expense.

In addition, there was a favorable difference of approximately $167,000 in the provision for income taxes for fiscal year 2024 as compared to fiscal year 2023.

Weighted-average common stock shares outstanding were 37,944,935 for both basic and diluted in fiscal year 2024, compared to 31,637,445 for both basic and diluted in fiscal year 2023.

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

The increase in the weighted-average basic common shares was primarily due to the sale of an aggregate of 9,090,910 shares of Class A common stock pursuant to a public offering which closed January 17, 2023, as well as the 585,483 shares issued during the second half of fiscal year 2024 pursuant to the at-the-market equity program.

The increase is also attributable to the shares of Class A common stock issued in conjunction with the acquisition of Visimid, as well as the issuance of shares of Class A common stock under the 2014 ESPP and underlying vested RSUs and RSAs.

Potential dilutive common stock equivalents were excluded from the calculation of diluted shares for fiscal years 2024 and 2023, as their effects would have been anti-dilutive due to the net loss in those periods.

Liquidity and Capital Resources

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

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

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

At June 30, 2024, we had working capital of approximately $7.5 million and total cash and cash equivalents of approximately $3.5 million.

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

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

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

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However, during fiscal year 2020 we began to accrue for these taxes on the portion of earnings that we intend to repatriate.

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

Loans payable as of June 30, 2024 consisted of two equipment loans (as defined below).

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

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

Details of the loans are as follows:

BankUnited Loans.

On February 26, 2019, we entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to a maximum amount of $2,000,000 (the “Revolving Line”), (ii) a term loan in the amount of up to $5,813,500 (“Term Loan”), and (iii) a non-revolving guidance line of credit up to a maximum amount of $10,000,000 (the “Guidance Line” and, together with the Revolving Line and Term Loan, the “BankUnited Loans”) as evidenced by certain promissory notes we executed in favor of BankUnited (the “BankUnited Notes”).

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

The Guidance Line was terminated on May 6, 2019.

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

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

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

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

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

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

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

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

An exit fee equal to 1% of the outstanding principal balance will be due on December 31, 2023 and (b) 4% of the outstanding principal balance on December 31, 2024 (to the extent the Term Loan is still outstanding on the respective dates and has not been refinanced with another lender).

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

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

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

If we are unable to refinance the credit facility with other commercial lenders prior to maturity, we may need to raise additional equity financing, source financing through non-commercial lenders or reduce operating expenses and capital expenditures in order to repay our credit facility and all charges related thereto upon its maturity on December 31, 2024.

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

Equipment Loans.

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

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

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

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As of June 30, 2024, the outstanding balance on the 2020 Equipment Loan was 138,750 EUR (or USD $148,532).

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

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

The 2023 Equipment Loan is collateralized by certain equipment.

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

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

The final advance for the final payment to the equipment vendor was 132,674 EUR (or USD $141,815).

The 2023 Equipment Loan is 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% (6.39% as of June 30, 2024).

BankUnited Loans.

Pursuant to that certain Fifth Amendment to the Loan Agreement dated May 9, 2023, the Term Loan, the only remaining BankUnited Loan, was paid in full in February 2024, prior to its maturity date of December 31, 2024.

For additional information regarding the BankUnited Loans and the equipment loans, see Note 14, Loans Payable , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

Bridge Promissory Note

On August 6, 2024, we entered into a bridge promissory note (the “Note") with Lytton-Kambara Foundation (the “Lender”) pursuant to which the Lender extended a loan to us in the principal amount of $3,000,000 (the “Loan”).

The Loan is subject to an original issue discount of 7% and bears interest at the rate of 12.5% per annum.

The Loan has a 1-year term, maturing on August 6, 2025, at which time the entire principal amount of the Loan and all accrued but unpaid interest is due and payable in full.

After deducting the original issue discount, fees paid to the Company’s placement agent, and certain expenses, the Company received net proceeds of $2,700,000.

For additional information regarding this note, see Note 19, Subsequent Events , in the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.

Equity Financing.

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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.

During the year ended June 30, 2024, we issued 585,483 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.

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

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

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

In addition, greater than 25% of our cash, cash equivalents and restricted cash is held by our foreign subsidiaries and, although we regularly repatriate cash, it may not be readily available to repay our liabilities in the U.S.

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

In addition, greater than 25% of our cash and cash equivalents was held by our foreign subsidiaries as of June 30, 2024 and, although we regularly repatriate cash, it may not be readily available to repay our liabilities in the U.S.

should our cash assets in the U.S.

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

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

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

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Cash Flows – Operating.

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

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

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

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

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

Cash provided by operations was approximately $0.5 million for fiscal year 2024, compared to cash used in operations of approximately $2.8 million for fiscal year 2023.

The increase in cash flows from operations during fiscal year 2024 is primarily due decreases in accounts receivable and inventory, due to lower sales in fiscal year 2024, as compared to fiscal year 2023.

Cash used in operations for fiscal year 2023 was primarily due to an increase in accounts receivable, due to higher sales in the fourth quarter of fiscal year 2023 as compared to fiscal 2022, and an increase in inventory during the second half of fiscal year 2023.

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

During fiscal year 2023 we also made the final installment payment for payroll taxes deferred in fiscal year 2020 under the CARES Act.

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

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During fiscal year 2024, we expended approximately $2.2 million for capital equipment, as compared to approximately $3.1 million during fiscal year 2023.

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

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

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

We also expended approximately $847,000, net of cash acquired, to acquire Visimid during fiscal year 2024, as disclosed in Note 3, Acquisition of Visimid Technologies , in the Consolidated Financial Statements in this Annual Report on Form 10-K.

Fiscal year 2024 also reflects proceeds of approximately $365,000 from sale-leasebacks of equipment.

During fiscal years 2024 and 2023, our capital expenditures were primarily related to the expansion of our Orlando Facility.

In August 2023, we completed the construction of certain tenant improvements subject to our continuing lease for our Orlando Facility, of which the landlord provided $2.4 million in tenant improvement allowances.

We funded the balance of the tenant improvement costs of approximately $3.7 million over fiscal years 2023 and 2024.

We anticipate a moderate level of capital expenditures during fiscal year 2025;

however, the total amount expended will depend on sales growth opportunities and other circumstances.

Cash Flows – Financings.

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

Cash Flows – Financing.

Net cash used in financing activities was approximately $1.5 million, compared to cash provided by financing activities of approximately $7.5 million in fiscal year 2023.

Cash used in financing activities for fiscal year 2024 reflects approximately $2.6 million in principal payments on our loans and finance leases, offset by $279,000 in proceeds from the 2023 Equipment Loan, $806,000 in proceeds from the sale of Class A common stock pursuant to the at-the-market equity program and $40,000 in proceeds from the sale of Class A common stock under the 2014 ESPP.

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

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

How We Operate

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sales via ad-hoc purchase orders of mostly standard product configurations (our “turns” business) and the more challenging and potentially more rewarding business of customer product development.

In this latter type of business, we work with customers to help them determine optical specifications and even create certain optical designs for them, including complex multi-component designs that we call “engineered solutions.” This is followed by “sampling” small numbers of the product for the customers’ test and evaluation.

In this latter type of business, we work with customers to help them determine optical specifications and even create certain optical designs for them, including complex multi-component, optical system or sub-system designs that we call “engineered solutions.” This is followed by “sampling” or prototyping small numbers of the product for the customers’ test and evaluation.

Thereafter, should a customer conclude that our specification or design is the best solution to their product need;

we negotiate and “win” a contract (sometimes called a “design win”) – whether of a “blanket purchase order” type or a supply agreement.

The strategy is to create an annuity revenue stream that makes the best use of our production capacity, as compared to the turns business, which is unpredictable and uneven.

This annuity revenue stream can also generate low-cost, high-volume type orders.

The strategy is to create an annuity revenue stream that makes the best use of our production capacity and longer-term revenue planning, as compared to the turns business, which is unpredictable and uneven.

A key business objective is to convert as much of our business to the design win and annuity model as is possible.

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Maintaining an optical design and new product sampling capability, including a high-quality and responsive optical design engineering staff;

The fact that as our customers take products of this nature into higher volume, commercial production (for example, in the case of molded optics, this may be volumes over one million pieces per year) they begin to work seriously to reduce costs – which often leads them to turn to larger or overseas producers, even if sacrificing quality;

The fact that as our customers take products of this nature into higher volume, commercial production they begin to work seriously to reduce costs – which may lead them to turn to larger producers, domestic or overseas, even if sacrificing quality;

Our small business mass means that we can only offer a moderate amount of total productive capacity before we reach financial constraints imposed by the need to make additional capital expenditures – in other words, because of our limited cash resources and cash flow, we may not be able to service every opportunity that presents itself in our markets without arranging for such additional capital expenditures.

Despite these challenges to winning more “annuity” business, we nevertheless believe we can be successful in procuring this business because of our unique capabilities in optical design engineering that we make available on the merchant market, a market that we believe is underserved in this area of service offering.

Despite these challenges to winning more “annuity” business, we nevertheless believe we can be successful in procuring this business because of our unique capabilities in optical design engineering that we make available on the market to our current and potential customers looking for specific solutions to their needs.

Additionally, we believe that we offer value to some customers as a source of supply in the U.S.

should they be unwilling to commit to purchase their supply of a critical component from foreign merchant production sources.

should they be unwilling to commit to purchase their supply of critical component(s) from foreign sources.

For information regarding revenue recognition related to our various revenue streams, refer to Critical Accounting Policies and Estimates in this Annual Report on Form 10-K.

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sales backlog;

revenue dollars and units by product group;

revenue by product group;

inventory levels;

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quantitatively, our backlog’s prospective dollar value and qualitatively, what percent of the backlog is scheduled by the customer for date-certain delivery.

Historically, we evaluated our backlog on a 12-month basis, which examined orders required by a customer for delivery within a one-year period.

To better align with our strategic focus on longer-term customer orders and relationships, beginning in fiscal year 2021, management began evaluating our total backlog, which includes all firm orders requested by a customer that are reasonably believed to remain in the backlog and be converted into revenues.

We evaluate our total backlog, which includes all firm orders requested by a customer that are reasonably believed to remain in the backlog and be converted into revenues.

This includes customer purchase orders and may include amounts under supply contracts if they meet the aforementioned criteria.

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Change From Prior Quarter End

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

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

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

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

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

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

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

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

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

The decrease in backlog during fiscal year 2024 as compared fiscal year 2023 is primarily due to shipments against the prior period backlog under several annual and multi-year contract renewals.

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

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

The reduction in backlog as a result of these shipments during fiscal year 2024 were partially offset by the following:

(i) a significant contract renewal for advanced infrared optics for a critical international military program, which renewal represented a 40% increase in dollar value as compared to the previous order;

and (ii) a significant contract awarded to Visimid by Lockheed Martin in December 2023.

In previous years we have typically received a significant contract renewal from a key customer for infrared products made of Germanium during the second fiscal quarter.

However, as previously disclosed we have decided to reduce the amount of optics we produce from Germanium, both to reduce our risk of supply chain disruption, and more importantly, to work with customers to convert their systems to use optics made of our own BlackDiamond materials.

As such, in the second quarter of fiscal 2024 we did not book our typical annual renewal order for Germanium optics with this customer.

Instead, we continue to work with this customer, as well as other customers, to convert their systems to use BlackDiamond optics.

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

Demand for infrared products continues to be fueled by interest in lenses made with our proprietary BD6 and our new BDNL-4 materials.

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

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

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

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

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

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

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

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

Revenue Dollars and Units by Product Group.

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

Three Months Ended June 30,

Year Ended June 30,

Infrared Products

Specialty Products

In addition, order bookings for both visible and infrared components and assemblies continue to be slow in China.

Domestic sales in China have also been adversely impacted by the economic downturn in China, which continues to negatively impact revenue and bookings in that region.

Revenue by Product Group.

The following table sets forth revenue dollars and units by our three product groups for the three months and year ended June 30, 2024 and 2023:

Three Months Ended

Infrared components

Visible components

Assemblies and modules

Engineering services

Total revenue

Infrared Products

Specialty Products

Three months ended June 30, 2024 compared to three months ended June 30, 2023.

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

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

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

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

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

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

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

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

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

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

Our revenue decreased by 11% in the fourth quarter of fiscal year 2024, as compared to the same quarter of the prior fiscal year, driven by decreases in infrared components and assemblies and modules, partially offset by an increase in engineering services.

Revenue generated by the infrared components product group for the fourth quarter of fiscal year 2024 was $3.0 million, a decrease of 36%, as compared to the same quarter of the prior fiscal year.

The decrease in revenue is primarily due to a decrease in sales against a large annual contract for Germanium-based products, which was not renewed in the second quarter of fiscal year 2024, as we have decided to reduce the amount of optics we produce from Germanium, both to reduce our risk of supply chain disruption, and more importantly, to work with customers to convert their systems to use optics made of our own BlackDiamond materials.

We continue to work with this customer, as well as other customers to convert their systems to use BlackDiamond optics.

In addition, several other customers had timing differences with larger shipments in the fourth quarter of fiscal year 2023.

These decreases were partially offset by an increase in shipments against an annual contract for an international military program.

Revenue from the visible components product group for the fourth quarter of fiscal year 2024 was $3.2 million, or flat in comparison to the same quarter of the prior fiscal year.

By industry, there was a decrease in sales to defense customers due to timing of orders, and an increase in sales through U.S.

catalog and distribution channels.

Revenue from assemblies and modules decreased by 14% for the fourth quarter of fiscal 2024, as compared to the same quarter of the prior fiscal year.

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

In the fourth quarter of fiscal year 2023, this customer requested a greater number of units shipped, whereas in fiscal year 2024 we have shipped a lower but more consistent amount each quarter.

Another portion of the decrease is due to timing of shipments against a multi-year contract with a defense customer.

These decreases were partially offset by the addition of Visimid revenue of approximately $397,000.

Revenue from engineering services increased $0.9 million, for the fourth quarter of fiscal 2024, as compared to the same quarter of the prior fiscal year.

This increase was primarily driven by Visimid’s contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones.

Year ended June 30, 2024 compared to year ended June 30, 2023.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our revenue decreased by approximately 4%, for fiscal year 2024, as compared to fiscal year 2023, primarily driven by a decrease in sales of visible components, partially offset by an increase in engineering services.

Revenue generated by the infrared components product group for fiscal year 2024 was $14.1 million, a decrease of approximately 2%, as compared to the prior fiscal year.

The decrease in revenue related to the germanium-based annual contract that was not renewed was mostly offset by an increase in shipments against an annual contract for an international military program.

This contract was renewed during the first quarter of fiscal 2024 for a higher dollar value than the previous contract.

Revenue from the visible components product group for fiscal year 2024 was $11.2 million, a decrease of 16%, as compared to fiscal year 2023.

The decrease in revenue is primarily due to a decrease in sales to customers in the defense industry, as well as a decrease in sales through catalog and distribution channels in the U.S.

and in Europe.

Sales to customers in the telecommunications industry in China also decreased by approximately 40%.

Revenue from assemblies and modules for fiscal year 2024 was $4.5 million, a decrease of 5%, as compared to the same period of the prior fiscal year, primarily due to a decrease in shipments against a multi-year contract with a defense customer due to timing, as well as decreases in sales of infrared assemblies to industrial customers in China and the U.S.

Customers in both regions have been steadily decreasing orders since the peak of COVID-19.

These decreases were partially offset by the addition of Visimid revenue of approximately $900,000.

Revenue from engineering services increased by $1.5 million for fiscal year 2024, as compared to the same period of the prior fiscal year.

The remaining increase is driven by revenue from one of our space-related funded research contracts.

Inventory Levels.

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

Fiscal Quarter

Fiscal Year 2024 Average

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Our average DCSI for fiscal year 2024 was 112, compared to 125 for fiscal year 2023.

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

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

The decrease in average DCSI is driven by the decrease in inventory levels, which aligns with the decrease in sales.

We expect DCSI to maintain an average of between 110 to 120.

Accounts Receivable Levels and Quality.

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

Fiscal Quarter

Fiscal Year 2024 Average

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Our average DSO for fiscal year 2024 was 56, compared to 58 for fiscal year 2023.

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

The decrease in average DSO for fiscal year 2024 is driven by decreases in revenue from some key accounts with longer payment cycles, which revenue has been largely replaced by customer accounts with shorter payment cycles.

In addition, we continue to focus on collections.

We strive to maintain a DSO of less than 60.

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We calculate EBITDA by adjusting net income to exclude net interest expense, income tax expense or benefit, depreciation, and amortization, thus the term “Earnings Before Interest, Taxes, Depreciation and Amortization” and the acronym “EBITDA.”

The following table adjusts net income to EBITDA for the three and twelve months ended June 30, 2023 and 2022:

Quarter Ended June 30,

The following table adjusts net income to EBITDA for the three months and year ended June 30, 2024 and 2023:

Three Months Ended June 30,

Year Ended June 30,

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Interest expense

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

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

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

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

$ (1,302,312 )

$ (3,699,585 )

Our EBITDA for the quarter ended June 30, 2024 was a loss of approximately $1.3 million, compared to income of $0.1million for the same period of the prior fiscal year.

The decrease in EBITDA in the fourth quarter of fiscal year 2024 was primarily attributable to the decrease in revenue and gross margin, coupled with increases in SG&A and Other expenses, net, which expense increases primarily related to non-recurring items, including certain business development initiatives.

Our EBITDA for fiscal year 2024 was a loss of approximately $3.7 million, compared to $0.4 million for fiscal year 2023.

The decrease in EBITDA for fiscal year 2024 is primarily attributable to lower revenue and gross margin, coupled with increased operating expenses, including SG&A and new product development.

SG&A for fiscal year 2024 includes a number of non-recurring items, particularly as related to certain business development initiatives.

Off Balance Sheet Arrangements

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The critical accounting policies used by management and the methodology for its estimates and assumptions are as follows:

Allowance for accounts receivable is calculated by taking 100% of the total of invoices that are over 90 days past due from the due date and 10% of the total of invoices that are over 60 days past due from the due date for U.S.- and Latvia-based accounts and 100% on invoices that are over 120 days past due for China-based accounts without an agreed upon payment plan.

Allowance for credit losses is based on the best estimate of the amount of probable credit losses in existing accounts receivable.

We determine the allowance based on historical write-off experience and expected future default probabilities based on our ongoing evaluations of our customers’ financial condition.

The allowance consists of an amount identified for specific customers and an amount based on overall estimated exposure.

Accounts receivable are customer obligations due under normal trade terms.

We perform continuing credit evaluations of our customers’ financial condition.

Recovery of bad debt amounts which were previously written off is recorded as a reduction of bad debt expense in the period the payment is collected.

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If it is determined that meeting the targets is probable, then the compensation expense will be amortized over the remaining vesting period.

Goodwill and intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods appropriate for the type of intangible asset and reported separately from goodwill.

Goodwill and amortizable intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods.

Purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite.

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We periodically reassess the useful lives of intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate.

Definite-lived intangible assets consist primarily of customer relationships, know-how/trade secrets and trademarks.

Amortizable intangible assets consist primarily of customer relationships, know-how/trade secrets and trademarks.

They are generally valued as the present value of estimated cash flows expected to be generated from the asset using a risk-adjusted discount rate.

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Impact of recently issued accounting pronouncements that have recently been issued but have not yet been implemented by us are described in Note 2, Summary of Significant Accounting Policies , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K, which describes the potential impact that these pronouncements are expected to have on our financial condition, results of operations and cash flows.

Quantitative and Qualitative Disclosures About Market Risk.

As a Smaller Reporting Company as defined in Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations with respect to this item and therefore are not required to provide the information requested by this Item 7A.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis