LIGHTPATH TECHNOLOGIES INC 10-Q

Item 1. Financial Statements LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Balance Sheets (unaudited) December 31, June 30, Assets 2024 2024 Current assets: Cash and cash equivalents $ 3,201,066 $ 3,480,268 Trade accounts receivable, net of allowance of $ 20,172 and $ 25,676 5,279,634 4,928,931 Inventories, net 6,428,439 6,551,059 Prepaid expenses and deposits 649,270 445,900 Other current assets 89,891 131,177 Total current assets 15,648,300 15,537,335 Property and equipment, net 14,054,829 15,210,612 Operating lease right-of-use assets 6,218,147 6,741,549 Intangible assets, net 2,960,252 3,650,739 Goodwill 6,764,127 6,764,127 Deferred tax assets, net 123,000 123,000 Other assets 59,536 59,602 Total assets $ 45,828,191 $ 48,086,964 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 3,114,382 $ 3,231,713 Accrued liabilities 1,448,584 1,911,867 Accrued payroll and benefits 1,445,924 1,446,452 Operating lease liabilities, current 997,957 1,059,998 Loans payable, current portion 3,017,443 209,170 Finance lease obligation, current portion 203,739 177,148 Total current liabilities 10,228,029 8,036,348 Deferred tax liabilities, net 323,402 326,197 Accrued liabilities, noncurrent 315,480 611,619 Finance lease obligation, less current portion 496,025 528,753 Operating lease liabilities, noncurrent 7,539,488 8,058,502 Loans payable, less current portion 222,829 325,880 Total liabilities 19,125,253 17,887,299 Commitments and Contingencies Stockholders’ equity: Preferred stock: Series D, $ 0.01 par value, voting; 500,000 shares authorized; none issued and outstanding — — Common stock: Class A, $ 0.01 par value, voting; 94,500,000 shares authorized; 39,890,834 and 39,254,643 shares issued and outstanding 398,908 392,546 Additional paid-in capital 246,051,852 245,140,758 Accumulated other comprehensive income 330,495 509,936 Accumulated deficit ( 220,078,317 ) ( 215,843,575 ) Total stockholders’ equity 26,702,938 30,199,665 Total liabilities and stockholders’ equity $ 45,828,191 $ 48,086,964 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) Three Months Ended Six Months Ended December 31, December 31, 2024 2023 2024 2023 Revenue, net $ 7,424,829 $ 7,315,637 $ 15,825,210 $ 15,392,885 Cost of sales 5,493,998 5,147,316 11,049,950 10,892,858 Gross profit 1,930,831 2,168,321 4,775,260 4,500,027 Operating expenses: Selling, general and administrative 3,356,063 2,858,457 6,626,646 5,519,625 New product development 764,396 607,747 1,240,837 1,247,636 Amortization of intangible assets 294,711 485,446 690,487 766,717 Loss on disposal of property and equipment — — 78,437 — Total operating expenses 4,415,170 3,951,650 8,636,407 7,533,978 Operating loss ( 2,484,339 ) ( 1,783,329 ) ( 3,861,147 ) ( 3,033,951 ) Other income (expense): Interest expense, net ( 169,053 ) ( 53,788 ) ( 318,413 ) ( 111,399 ) Other income, net 85,920 199,512 4,979 204,915 Total other expense, net ( 83,133 ) 145,724 ( 313,434 ) 93,516 Loss before income taxes ( 2,567,472 ) ( 1,637,605 ) ( 4,174,581 ) ( 2,940,435 ) Income tax provision 44,525 76,058 60,161 115,604 Net loss $ ( 2,611,997 ) $ ( 1,713,663 ) $ ( 4,234,742 ) $ ( 3,056,039 ) Foreign currency translation adjustment ( 451,035 ) 259,973 ( 179,441 ) 134,765 Comprehensive loss $ ( 3,063,032 ) $ ( 1,453,690 ) $ ( 4,414,183 ) $ ( 2,921,274 ) Loss per common share (basic) $ ( 0.07 ) $ ( 0.05 ) $ ( 0.11 ) $ ( 0.08 ) Number of shares used in per share calculation (basic) 39,728,933 37,501,683 39,645,206 37,466,714 Loss per common share (diluted) $ ( 0.07 ) $ ( 0.05 ) $ ( 0.11 ) $ ( 0.08 ) Number of shares used in per share calculation (diluted) 39,728,933 37,501,683 39,645,206 37,466,714 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited) Accumulated Class A Additional Other Total Common Stock Paid-in Comphrehensive Accumulated Stockholders’ Shares Amount Capital Income Deficit Equity Balances at June 30, 2024 39,254,643 $ 392,546 $ 245,140,758 $ 509,936 $ ( 215,843,575 ) $ 30,199,665 Issuance of common stock for: Employee Stock Purchase Plan 8,232 82 10,290 — — 10,372 Exercise of Stock Options, RSUs & RSAs, net 70,309 703 ( 703 ) — — — Issuance of common stock for acquisition of Visimid 279,553 2,796 318,562 — — 321,358 Stock-based compensation on stock options, RSUs & RSAs — — 264,475 — — 264,475 Foreign currency translation adjustment — — — 271,594 — 271,594 Net loss — — — — ( 1,622,745 ) ( 1,622,745 ) Balances at September 30, 2024 39,612,737 $ 396,127 $ 245,733,382 $ 781,530 $ ( 217,466,320 ) $ 29,444,719 Issuance of common stock for: Exercise of Stock Options, RSUs & RSAs, net 229,097 2,291 ( 2,291 ) — — — Shares issued as compensation 49,000 490 89,180 — — 89,670 Stock-based compensation on stock options, RSUs & RSAs — — 231,581 — — 231,581 Foreign currency translation adjustment — — — ( 451,035 ) — ( 451,035 ) Net loss — — — — ( 2,611,997 ) ( 2,611,997 ) Balances at December 31, 2024 39,890,834 $ 398,908 $ 246,051,852 $ 330,495 $ ( 220,078,317 ) $ 26,702,938 Balances at June 30, 2023 37,344,739 $ 373,447 $ 242,808,771 $ 606,536 $ ( 207,836,229 ) $ 35,952,525 Issuance of common stock for: Employee Stock Purchase Plan 14,607 146 19,573 — — 19,719 Exercise of Stock Options, RSUs & RSAs, net 14,482 145 ( 145 ) — — — Issuance of common stock for acquisition of Visimid 81,610 816 149,184 — — 150,000 Stock-based compensation on stock options, RSUs & RSAs — — 240,075 — — 240,075 Foreign currency translation adjustment — — — ( 125,208 ) — ( 125,208 ) Net loss — — — — ( 1,342,376 ) ( 1,342,376 ) Balances at September 30, 2023 37,455,438 $ 374,554 $ 243,217,458 $ 481,328 $ ( 209,178,605 ) $ 34,894,735 Issuance of common stock for: Exercise of Stock Options, RSUs & RSAs, net 93,940 940 ( 940 ) — — — Stock-based compensation on stock options, RSUs & RSAs — — 258,691 — — 258,691 Foreign currency translation adjustment — — — 259,973 — 259,973 Net loss — — — — ( 1,713,663 ) ( 1,713,663 ) Balances at December 31, 2023 37,549,378 $ 375,494 $ 243,475,209 $ 741,301 $ ( 210,892,268 ) $ 33,699,736 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 6 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Condensed Consolidated Statements of Cash Flows (unaudited) Six Months Ended December 31, 2024 2023 Cash flows from operating activities: Net loss $ ( 4,234,742 ) $ ( 3,056,039 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 1,893,602 1,943,000 Interest from amortization of loan issuance costs 120,833 — Loss on disposal of property and equipment 78,437 — Stock-based compensation on stock options, RSUs & RSAs, net 506,020 551,853 Provision for credit losses — ( 2,236 ) Change in operating lease assets and liabilities ( 57,653 ) 80,355 Inventory write-offs to allowance 135,625 73,569 Deferred taxes ( 2,795 ) 9,395 Changes in operating assets and liabilities: Trade accounts receivable ( 350,703 ) 1,717,283 Other current assets 41,286 ( 191,381 ) Inventories ( 13,005 ) 54,461 Prepaid expenses and deposits ( 123,598 ) 94,619 Accounts payable and accrued liabilities ( 430,923 ) ( 424,310 ) Net cash (used in) provided by operating activities ( 2,437,616 ) 850,569 Cash flows from investing activities: Purchase of property and equipment ( 160,155 ) ( 1,484,401 ) Proceeds from sale of equipment 10,648 — Proceeds from sale-leaseback of equipment — 364,710 Acquisition of Visimid, net of cash acquired — ( 722,141 ) Net cash used in investing activities ( 149,507 ) ( 1,841,832 ) Cash flows from financing activities: Proceeds from sale of common stock from Employee Stock Purchase Plan 10,372 19,719 Deferred payment for acquisition of Visimid ( 125,000 ) — Loan issuance costs ( 300,000 ) — Borrowings on loans payable 3,000,000 142,853 Payments on loans payable ( 106,486 ) ( 407,510 ) Repayment of finance lease obligations ( 89,705 ) ( 58,785 ) Net cash provided by (used in) financing activities 2,389,181 ( 303,723 ) Effect of exchange rate on cash and cash equivalents ( 81,260 ) 32,698 Change in cash, cash equivalents and restricted cash ( 279,202 ) ( 1,262,288 ) Cash, cash equivalents and restricted cash, beginning of period 3,480,268 7,144,490 Cash, cash equivalents and restricted cash, end of period $ 3,201,066 $ 5,882,202 Supplemental disclosure of cash flow information: Interest paid in cash $ 40,838 $ 110,774 Income taxes paid $ 61,427 $ 114,953 Supplemental disclosure of non-cash investing & financing activities: Purchase of equipment through finance lease arrangements $ 93,048 $ 61,654 Issuance of common stock for acquisition of Visimid $ 321,358 $ 150,000 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 7 Table of Contents LIGHTPATH TECHNOLOGIES, INC. Notes to Unaudited Condensed Consolidated Financial Statements 1. Basis of Presentation References in this document to “the Company,” “LightPath,” “we,” “us,” or “our” are intended to mean LightPath Technologies, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis. These unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the requirements of Article 8 of Regulation S-X promulgated under the Exchange Act and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and related notes, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024, filed with the SEC. Unless otherwise stated, references to particular years or quarters refer to our fiscal years ended June 30 and the associated quarters of those fiscal years. These Condensed Consolidated Financial Statements are unaudited, but include all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. The Consolidated Balance Sheet as of June 30, 2024 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year as a whole. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 2. Significant Accounting Policies Our significant accounting policies are provided in Note 2, Summary of Significant Accounting Policies , in the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. There have been no material changes to our significant accounting policies during the six months ended December 31, 2024, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024. Use of Estimates Management makes estimates and assumptions during the preparation of our unaudited Condensed Consolidated Financial Statements that affect amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes available, which, in turn, could impact the amounts reported and disclosed herein. Fair Value of Financial Instruments We account for financial instruments in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), which provides a framework for measuring fair value and disclosure requirements for fair value measurements of assets and liabilities. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable. Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management. 8 Table of Contents The respective carrying value of financial instruments recorded on the consolidated balance sheets approximated their fair values. These financial instruments include accounts receivable, accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the our finance lease obligations and loans payable approximate their carrying values, based upon current rates available to us. See Note 11, Leases and Note 12, Loans Payable, to these unaudited Condensed Consolidated Financial Statements for additional information. Management considers these fair value estimates to be level 2 fair value measurements. We do not have any other financial or non-financial assets or liabilities that would be characterized as Level 1, Level 2 or Level 3 instruments. 3. Acquisition of Visimid Technologies In July 2023, the Company acquired Liebert Consulting LLC, dba Visimid Technologies (“Visimid”), pursuant to a Membership Interest Purchase Agreement dated as of July 25, 2023 (the “Acquisition Date”). Part of the Company’s growth strategy is to identify appropriate opportunities that would enhance our profitable growth through acquisition. Visimid is an engineering and design firm specializing in thermal imaging, night vision and internet of things (“IOT”) applications. Visimid provides design and consulting services for Department of Defense (“DoD”) contractors, commercial and industrial customers, and original equipment manufacturers (“OEMs”) for original new products. Visimid’s core competency is developing and producing custom thermal and night vision cores. We believe that Visimid’s capabilities are aligned with our strategy to focus on engineered solutions. The Company’s unaudited condensed consolidated financial statements reflect the financial results of Visimid beginning on the Acquisition Date. The purchase price included $ 1 million in cash, $ 1,550,000 of restricted stock, $ 150,000 of assumed bank debt, and an earnout which is contingent upon the award and completion of a specific customer contract. Of the restricted stock payable as part of the purchase price, $150,000 (81,610 shares) was issued at closing, with the balance to be issued in four equal installments of $350,000 each, on January 1, 2024, July 1, 2024, January 1, 2025 and July 1, 2025 . The number of shares is based on the average closing price of the Company’s Class A common stock, as reported by Bloomberg, for the five trading days prior to each stock issuance. For the January 1, 2024 installment, 267,176 shares were issued, and for the July 1, 2024 installment, 279,553 shares were issued. The total purchase price, net of cash acquired and including the estimated potential earnout, is approximately $ 2.7 million, based on present values as of the Acquisition Date. Of this amount, $ 600,000 was paid at closing, cash installments of $ 150,000 , $ 125,000 and $ 125,000 were paid in October 2023, January 2024 and September 2024, respectively, per the terms of the purchase agreement, and the remaining cash and stock payments, including the balance of the estimated potential earnout, have been accrued and are included in Accrued liabilities and Accrued liabilities, noncurrent in the unaudited Condensed Consolidated Balance Sheet as of December 31, 2024. The estimated fair values of the assets acquired and liabilities assumed were recorded as of the Acquisition Date. As part of the valuation analysis, the Company identified intangible assets, including customer relationships, customer backlog, trade secrets and trademarks. The customer backlog, customer relationships, trade secrets and trademarks were determined to have estimated values of approximately $ 464,000 , $ 122,000 , $ 925,000 and $ 442,000 , respectively, and estimated useful lives of 1 year for customer backlog, and 10 years for customer relationships, trade secrets and trademarks. The estimated fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all future cash flows. The goodwill recognized is attributable primarily to expected synergies and the assembled workforce of Visimid. The goodwill is expected to be deductible for income tax purposes. The Company incurred a total of approximately $ 238,000 , in acquisition costs, of which $ 97,000 was incurred during the six months ended December 31, 2023. These costs are included in the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Selling, general and administrative.” No further acquisition costs were incurred during the six months ended December 31, 2024. Prior to the Acquisition, the Company had a preexisting relationship with Visimid. The Company contracted Visimid for engineering services and purchased infrared camera cores from Visimid on an arms’ length basis. The Company had also partnered with Visimid for the development of the Mantis camera. 9 Table of Contents 4. Revenue Product Revenue We are a manufacturer of optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared optical components, and other optical materials used to produce products that manipulate light. We design, develop, manufacture, and distribute optical components and assemblies utilizing advanced optical manufacturing processes. We also provide engineering services and perform research and development for optical solutions for a wide range of optics markets. Revenue is derived primarily from the sale of optical components and assemblies. Revenue Recognition Revenue is generally recognized upon transfer of control, including the risks and rewards of ownership, of products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We generally bear all costs, risk of loss, or damage and retain title to the goods up to the point of transfer of control of products to customers. Shipping and handling costs are included in the cost of goods sold. We present revenue net of sales taxes and any similar assessments. Customary payment terms are granted to customers, based on credit evaluations. We currently do not have any contracts where revenue is recognized, but the customer payment is contingent on a future event. We record deferred revenue when cash payments are received or due in advance of revenue recognition. Deferred revenue was $ 335,000 and $ 725,000 as of December 31, 2024 and June 30, 2024, respectively, and is included in accrued liabilities in the condensed consolidated balance sheets. Nature of Products Revenue from the sale of optical components and assemblies is recognized upon transfer of control, including the risks and rewards of ownership, to the customer. The performance obligations for the sale of optical components and assemblies are satisfied at a point in time, generally upon shipment. Product development agreements for engineering services are generally short-term in nature, with revenue recognized upon satisfaction of the performance obligation, and transfer of control of the agreed-upon deliverable. Visimid has one longer-term order with a defense customer which includes both product development and hardware deliverables where similar revenue recognition criteria will be applied. We categorize our products into four product groups: infrared components, visible components, assemblies and modules, and engineering services. Revenue by product group for the three and six months ended December 31, 2024 and 2023 was as follows: Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Infrared components $ 3,112,076 $ 3,572,853 $ 5,722,960 $ 7,407,455 Visible components 2,762,852 2,678,904 6,062,730 5,367,239 Assemblies and modules 857,214 986,683 1,950,882 2,248,722 Engineering services 692,687 77,197 2,088,638 369,469 Total revenue $ 7,424,829 $ 7,315,637 $ 15,825,210 $ 15,392,885 10 Table of Contents 5. Inventories The components of inventories include the following: December 31, 2024 June 30, 2024 Raw materials $ 2,653,677 $ 3,112,428 Work in process 2,482,370 2,333,240 Finished goods 2,498,260 2,330,287 Allowance for obsolescence ( 1,205,868 ) ( 1,224,896 ) $ 6,428,439 $ 6,551,059 The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $ 1.3 million and $ 1.4 million as of December 31, 2024 and June 30, 2024, respectively. 6. Property and Equipment Property and equipment are summarized as follows: Estimated Lives (Years) December 31, 2024 June 30, 2024 Manufacturing equipment 5 - 10 $ 22,342,184 $ 22,582,429 Computer equipment and software 3 - 5 968,708 970,494 Furniture and fixtures 5 347,911 349,932 Leasehold improvements 5 - 10 8,948,365 8,964,714 Construction in progress 626,363 646,217 Total property and equipment 33,233,531 33,513,786 Less accumulated depreciation and amortization ( 19,178,702 ) ( 18,303,174 ) Total property and equipment, net $ 14,054,829 $ 15,210,612 Depreciation expense was $ 1.2 million for both the six months ended December 31, 2024 and 2023. 7. Goodwill and Intangible Assets There were no changes in the net carrying value of goodwill during the six months ended December 31, 2024. Amortizable intangible assets were comprised of: Useful Lives (Years) December 31, 2024 June 30, 2024 Customer relationships 10 - 15 $ 3,712,300 $ 3,712,300 Trade secrets 8 - 10 4,197,304 4,197,304 Trademarks 8 - 10 4,256,418 4,256,418 Backlog 1 463,525 463,525 Total intangible assets 12,629,547 12,629,547 Less accumulated amortization ( 9,669,295 ) ( 8,978,808 ) Total intangible assets, net $ 2,960,252 $ 3,650,739 11 Table of Contents Future amortization of intangibles is as follows: Fiscal year ending: June 30, 2025 (six months remaining) $ 194,167 June 30, 2026 388,336 June 30, 2027 388,336 June 30, 2028 388,336 June 30, 2029 388,336 After June 30, 2029 1,212,741 $ 2,960,252 8. Income Taxes A summary of our total income tax expense and effective income tax rate for the three and six months ended December 31, 2024 and 2023 is as follows: Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Loss before income taxes $ ( 2,567,472 ) $ ( 1,637,605 ) $ ( 4,174,581 ) $ ( 2,940,435 ) Income tax provision $ 44,525 $ 76,058 $ 60,161 $ 115,604 Effective income tax rate - 2 % - 5 % - 1 % - 4 % The difference between our effective tax rates in the periods presented above and the federal statutory rate is due to the mix of taxable income and losses generated in our various tax jurisdictions, which include the United States (the “U.S.”), the People’s Republic of China, and the Republic of Latvia. Effective February 28, 2023, the legal entities of LightPath Optical Instrumentation (Shanghai) Co., Ltd. (“LPOI”) and LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”) were merged, with LPOIZ as the surviving company and the operations of the two companies were merged. For the three and six months ended December 31, 2024 and 2023, income tax expense was primarily related to income taxes from our operations in China, including accruals for withholding taxes on intercompany dividends declared by LPOIZ, and paid or payable to LightPath, its parent company, as well as withholding taxes on payments from LPOIZ to LightPath for administrative services rendered. We record net deferred tax assets to the extent we believe it is more likely than not that some portion or all of these assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2024 and June 30, 2024, our net deferred tax assets are related to the U.S. jurisdiction and we have provided a valuation allowance to reduce the deferred tax assets to the net amount we estimate is more-likely-than-not to be realized. Our net deferred tax assets as of December 31, 2024 and June 30, 2024 consist primarily of federal and state tax credits with indefinite carryover periods. U.S. Federal and State Income Taxes Our U.S. federal and state statutory income tax rate is estimated to be 25.5 %. Based on our current assessment of the valuation allowance position on our net deferred tax assets, no additional tax expense or benefit is expected to be recorded on pre-tax income or losses generated in the U.S. Income Tax Law of the People’s Republic of China Our Chinese subsidiary, LPOIZ, is governed by the Income Tax Law of the People’s Republic of China. As of December 31, 2024, LPOIZ was subject to a statutory income tax rate of 15 %. The net deferred tax liabilities included in these unaudited Condensed Consolidated Balance Sheets as of December 31, 2024 and June 30, 2024 are related to LPOIZ, and primarily consist of timing differences related to depreciation. 12 Table of Contents The Company routinely declares intercompany dividends to remit a portion of the earnings of its foreign subsidiaries to the U.S. parent company. The Company also intends to reinvest a portion of the earnings generated by its foreign subsidiaries. The Company accrues withholding taxes on the portion of LPOIZ’s earnings that it intends to repatriate. Accrued and unpaid withholding taxes were approximately $ 32,000 as of both December 31, 2024 and June 30, 2024. Other than these withholding taxes, these intercompany dividends have no impact on the unaudited condensed consolidated financial statements. Law of Corporate Income Tax of Latvia Our Latvian subsidiary, ISP Optics Latvia, SIA (“ISP Latvia”), is governed by the Law of Corporate Income Tax of Latvia. Effective January 1, 2018, the Republic of Latvia enacted tax reform with the following key provisions: (i) corporations are not subject to income tax, but are instead subject to a distribution tax on distributed profits (or deemed distributions, as defined) and (ii) the rate of tax was changed to 20 %; however, distribution amounts are first divided by 0.8 to arrive at the profit before tax amount, resulting in an effective tax rate of 25 %. As a transitional measure, distributions of earnings prior to January 1, 2018 were not subject to tax if declared prior to December 31, 2019. ISP Latvia declared an intercompany dividend to be paid to ISP Optics Corporation (“ISP”), its U.S. parent company, for the full amount of earnings accumulated prior to January 1, 2018. Distributions of this dividend have been fully settled as of June 30, 2024 and we currently do not intend to distribute any earnings generated after January 1, 2018. If, in the future, we change such intention, we will accrue distribution taxes, if any, as profits are generated. 9. Stock-Based Compensation Our directors, officers, and key employees are granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as amended (the “Omnibus Plan”), through October 2018 and after that date, through our 2018 Stock and Incentive Compensation Plan (the “SICP”). Such stock-based compensation may include, among other things, incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). The SICP is administered by the Compensation Committee of the Board of Directors. To date, our stockholders approved an aggregate of 7,215,625 shares of our Class A common stock for issuance pursuant to awards granted under the Omnibus Plan or SICP. As of December 31, 2024, 775,126 shares of Class A common stock were authorized and available for issuance pursuant to awards granted under the SICP. The Company’s executive officers are eligible to earn incentive compensation consisting of equity-based awards, as well as cash bonuses, based on the achievement of certain individual and/or Company performance goals set by the Compensation Committee. Stock-based compensation expense is based primarily on the fair value of the award as of the grant date and is recognized as an expense over the requisite service period. The following table shows total stock-based compensation expense for the three and six months ended December 31, 2024 and 2023, the majority of which is included in selling, general and administrative (“SG&A”) expenses in these unaudited Condensed Consolidated Statements of Comprehensive Income (Loss): Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Stock options $ 10,809 $ 30,037 $ 21,618 $ 61,515 RSAs 59,531 108,922 166,218 131,309 RSUs 171,206 172,820 318,185 359,030 Total $ 241,546 $ 311,779 $ 506,021 $ 551,854 We also adopted the LightPath Technologies, Inc. Employee Stock Purchase Plan (the “2014 ESPP”). The 2014 ESPP permits employees to purchase Class A common stock through payroll deductions, subject to certain limitations. A discount of approximately $ 1,100 and $ 2,000 for the six months ended December 31, 2024 and 2023, respectively, is included in SG&A expenses in these unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), which represents the value of the 10% discount given to the employees purchasing stock under the 2014 ESPP. The 2014 ESPP expired in January 2025. 13 Table of Contents Grant Date Fair Values and Underlying Assumptions; Contractual Terms We estimate the fair value of each stock option as of the date of grant, using the Black-Scholes-Merton pricing model. The fair value of 2014 ESPP shares is the amount of the discount the employee obtains at the date of the purchase transaction. Most stock options granted vest ratably over two to four years and are generally exercisable for ten years. The assumed forfeiture rates used in calculating the fair value of RSA and RSU grants was 0%, and the assumed forfeiture rates used in calculating the fair value of options for performance and service conditions were 20% for each of the six months ended December 31, 2024 and 2023. The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures . The interest rate used is the U.S. Treasury interest rate for constant maturities. No stock options were granted during either of the six-month periods ended December 31, 2024 or 2023. Restricted Stock Awards RSAs are granted primarily to our executive officers, employees and consultants, and typically vest over a one to three year period from the date of grant, although some may vest immediately upon grant. The stock underlying RSAs is issued upon vesting. Restricted Stock Units RSUs are granted primarily to our directors, although RSU awards may also be made to executive officers, employees and consultants. RSUs typically vest over a one to four year period from the date of grant, although some may vest immediately upon grant. Information Regarding Current Share-Based Compensation Awards A summary of the activity for share-based compensation awards in the six months ended December 31, 2024 is presented below: Stock Options Restricted Stock Units (RSUs) Restricted Stock Awards (RSAs) Weighted- Weighted- Weighted- Weighted- Average Average Average Average Exercise Remaining Remaining Remaining Shares Price Contract Shares Contract Shares Contract June 30, 2024 553,689 $ 2.02 5.4 1,250,132 0.8 161,540 1.5 Granted — — 44,361 72,612 Exercised ( 127,000 ) $ 2.01 ( 159,224 ) ( 136,604 ) Cancelled/Forfeited ( 28,794 ) $ 2.96 — — December 31, 2024 397,895 $ 1.96 5.6 1,135,269 0.5 97,548 1.2 Awards exercisable/ vested as of December 31, 2024 350,409 $ 1.92 5.3 587,351 — — — Awards unexercisable/ unvested as of December 31, 2024 47,486 $ 2.25 8.0 547,918 0.5 97,548 1.2 397,895 1,135,269 97,548 As of December 31, 2024, there was approximately $ 1.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including stock options, RSAs and RSUs) granted. We expect to recognize the compensation cost as follows: Fiscal Year Ending: Stock Options RSAs RSUs Total June 30, 2025 (remaining six months) $ 36,202 $ 86,842 $ 331,510 $ 454,554 June 30, 2026 22,104 100,377 296,475 418,956 June 30, 2027 16,350 22,019 180,387 218,756 $ 74,656 $ 209,238 $ 808,372 $ 1,092,266 14 Table of Contents 10. Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income or loss by the weighted-average number of shares of Class A common stock outstanding, during each period presented. Diluted earnings (loss) per share is computed similarly to basic earnings (loss) per share, except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue shares of Class A common stock were exercised or converted into shares of Class A common stock. The computations for basic and diluted earnings (loss) per share of Class A common stock are described in the following table: Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Net loss $ ( 2,611,997 ) $ ( 1,713,663 ) $ ( 4,234,742 ) $ ( 3,056,039 ) Weighted-average common shares outstanding: Basic number of shares 39,728,933 37,501,683 39,645,206 37,446,714 Diluted number of shares 39,728,933 37,501,683 39,645,206 37,446,714 Loss per common share: Basic $ ( 0.07 ) $ ( 0.05 ) $ ( 0.11 ) $ ( 0.08 ) Diluted $ ( 0.07 ) $ ( 0.05 ) $ ( 0.11 ) $ ( 0.08 ) The following potential dilutive shares were not included in the computation of diluted earnings (loss) per share of Class A common stock, as their effects would be anti-dilutive: Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Options to purchase common stock 523,188 534,462 532,179 534,462 RSUs and RSAs 1,292,221 1,704,638 1,348,442 1,695,723 1,815,409 2,239,100 1,880,621 2,230,185 11. Leases Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida; Riga, Latvia; Shanghai, China; and Zhenjiang, China, and finance leases related to certain equipment located in Orlando, Florida and Riga, Latvia. The operating leases for facilities are non-cancelable operating leases, with terms at various times through 2034. We typically include options to renew (or terminate) in our lease term, and as part of our right-of-use (“ROU”) assets and lease liabilities, when it is reasonably certain that we will exercise such options. We currently have fourteen finance lease agreements entered into during fiscal years 2023, 2024 and 2025 with terms ranging from three to five years. The finance leases are for computer and manufacturing equipment. Our operating lease ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. One of our operating leases includes renewal options, which were not included in the measurement of the operating lease ROU assets and related lease liabilities. The lease on the premises comprising our primary facility in Orlando, Florida (the “Orlando Facility”) was amended in April 2021, and again in September 2021, to expand the space from approximately 26,000 square feet to approximately 58,500 square feet. The lease term was extended from April 30, 2022, to that certain date that is one hundred twenty-seven (127) months after the date the landlord completes certain work to be done at the leased premises. The landlord’s work was completed in August 2023, and accordingly the lease expires on March 31, 2034. Effective in January 2022, the terms of our leases in Zhenjiang, China and Riga, Latvia were extended to December 31, 2024 and 2030, respectively. It is our intention to renew the lease on the reduced space in Zhenjiang for at least a one-year term . 15 Table of Contents We received tenant improvement allowances for the lease of our Orlando Facility. These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities. The balance is being amortized over the corresponding lease term. In August 2023, we completed the construction of additional tenant improvements within the premises subject to our continuing lease for our Orlando Facility, of which the landlord provided $ 2.4 million in tenant improvement allowances. We funded the balance of the tenant improvement costs of approximately $ 3.7 million. The components of lease expense for the three and six months ended December 31, 2024 and 2023 were as follows: Three Months Ended December 31, Six Months Ended December 31, 2024 2023 2024 2023 Operating lease cost $ 269,985 $ 238,652 $ 538,480 $ 443,675 Finance lease cost: Depreciation of lease assets 42,916 13,982 80,732 33,897 Interest on lease liabilities 17,027 7,856 31,089 15,392 Total finance lease cost 59,943 21,838 111,821 49,289 Total lease cost $ 329,928 $ 260,490 $ 650,301 $ 492,964 Supplemental balance sheet information related to the leases as of December 31, 2024 and June 30, 2024 was as follows: Classification December 31, 2024 June 30, 2024 Assets: Operating lease assets Operating lease assets $ 6,218,147 $ 6,741,549 Finance lease assets Property and equipment, net (1) 954,791 1,063,768 Total lease assets $ 7,172,938 $ 7,805,317 Liabilities: Current: Operating leases Operating lease liabilities, current $ 997,957 $ 1,059,998 Finance leases Finance lease liabilities, current 203,739 177,148 Noncurrent: Operating leases Operating lease liabilities, less current portion 7,539,488 8,058,502 Finance leases Finance lease liabilities, less current portion 496,025 528,753 Total lease liabilities $ 9,237,209 $ 9,824,401 (1) Finance lease assets were recorded net of accumulated depreciation of approximately $ 190,000 and $ 109,000 as of December 31, 2024 and June 30, 2024, respectively. Lease term and discount rate information related to leases was as follows: Lease Term and Discount Rate December 31, 2024 Weighted Average Remaining Lease Term (in years) Operating leases 8.9 Finance leases 3.3 Weighted Average Discount Rate Operating leases 2.9 % Finance leases 7.1 % 16 Table of Contents Supplemental cash flow information was as follows for the six months ended December 31, 2024 and 2023: Six Months Ended December 31, 2024 2023 Cash paid for amounts included in the measurement of lease liabilities: Operating cash used for operating leases $ 590,037 $ 363,320 Operating cash used for finance leases $ 31,089 $ 15,393 Financing cash used for finance leases $ 89,705 $ 58,785 Future maturities of lease liabilities were as follows as of December 31, 2024: Fiscal year ending: Finance Leases Operating Leases June 30, 2025 (remaining six months) $ 147,073 $ 551,758 June 30, 2026 240,481 1,126,945 June 30, 2027 213,832 1,134,178 June 30, 2028 170,535 1,152,594 June 30, 2029 57,642 1,182,835 Thereafter — 5,563,403 Total future minimum payments 829,563 10,711,713 Less imputed interest ( 129,799 ) ( 2,174,268 ) Present value of lease liabilities $ 699,764 $ 8,537,445 12. Loans Payable As of December 31, 2024, loans payable consisted of two equipment loans and a bridge promissory note (as described below). Bridge Promissory Note On August 6, 2024, we entered into a bridge promissory note (the “Bridge Note”) with Lytton-Kambara Foundation (the “Lender”) pursuant to which the Lender extended a loan to the Company in the principal amount of $ 3,000,000 (the “Loan”). The Loan is subject to an original issue discount of 7 %. After deducting the original issue discount, fees paid to our placement agent, and certain expenses, the Company received net proceeds of $ 2,700,000 . The Bridge Note is unsecured, bears interest at the rate of 12.5 % per annum and has a 1 -year term, maturing on August 6, 2025 (the “Maturity Date”), at which time the entire principal amount of the Bridge Note and all accrued but unpaid interest is due and payable in full. We may prepay the principal outstanding under the Bridge Note at any time prior to the Maturity Date at 105% of the prepaid principal amount plus any unpaid accrued interest. Upon the consummation of a transaction resulting in a Change of Control (as defined in the Bridge Note) we are required to repay the holder of the Bridge Note in cash an amount equal to 105% of the outstanding principal balance of the Bridge Note plus unpaid accrued interest on the original principal . The Bridge Note contains customary representations, warranties and covenants for agreements of this type and provides for customary events of default, including among other things, failure to make payments when due, breaches of representations and warranties, and certain bankruptcy and insolvency events. Upon an event of default, the Bridge Note’s interest rate shall increase to 18 % per annum and the Bridge Note holder may, at its option, accelerate the Bridge Note whereupon the entire principal amount thereof and all accrued but unpaid interest shall be due and payable in full. 17 Table of Contents Equipment Loans In December 2020, ISP Latvia received an equipment loan from a third party (the “2020 Equipment Loan”), which party is also a significant customer. The 2020 Equipment Loan was collateralized by certain equipment. The initial advance under the 2020 Equipment Loan was 225,000 EUR (or USD $ 275,000 ), payable in equal installments over 60 months, the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date. An additional 225,000 EUR (or USD $ 267,000 ) was drawn in September 2021, which proceeds were paid to the vendor for the equipment, payable in equal installments over 52 months. The 2020 Equipment Loan bears interest at a fixed rate of 3.3 %. In May 2023, ISP Latvia entered into an equipment loan with a third party 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 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 that began on January 1, 2024. The 2023 Equipment Loan bears interest at the six-month EURIBOR rate, plus 2.84% ( 5.63 % as of December 31, 2024). Future maturities of loans payable are as follows: Promissory Note Equipment Loans Total Fiscal year ending: June 30, 2025 (remaining six months) $ — $ 102,567 $ 102,567 June 30, 2026 3,000,000 145,465 3,145,465 June 30, 2027 — 102,844 102,844 June 30, 2028 — 68,563 68,563 Total payments $ 3,000,000 $ 419,439 $ 3,419,439 Unamortized loan issuance costs ( 179,167 ) Loans payable $ 3,240,272 Less current portion ( 3,017,443 ) Non-current portion $ 222,829 13. Foreign Operations Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the balance sheet date, and revenues and expenses are translated at average rates of exchange for the period. Gains or losses on the translation of the financial statements of a non-U.S. operation, where the functional currency is other than the U.S. dollar, are reflected as a separate component of equity, which was a cumulative gain of approximately $ 330,000 and $ 510,000 as of December 31, 2024 and June 30, 2024, respectively. We also recognized net foreign currency transaction gains of $ 40,000 and $ 4,000 during the three months ended December 31, 2024 and 2023, respectively. During the six months ended December 31, 2024 and 2023, we recognized net foreign currency transaction gains of $ 4,000 and $ 29,000 , respectively, included in the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net.” Our cash, cash equivalents and restricted cash totaled approximately $ 3.2 million at December 31, 2024. Of this amount, approximately 60% was held by our foreign subsidiaries in China and Latvia. These foreign funds were generated in China and Latvia as a result of foreign earnings. With respect to the funds generated by our foreign subsidiaries in China, the retained earnings of the respective subsidiary must equal at least 50% of its registered capital before any funds can be repatriated through dividends. As of December 31, 2024, LPOIZ had approximately $ 1.2 million in retained earnings available for repatriation, based on earnings accumulated through December 31, 2024, the end of the most recent statutory tax year, that remained undistributed as of December 31, 2024. 18 Table of Contents Revenues from foreign countries for the six months ended December 31, 2024 and 2023 are as follows: Six Months Ended December 31, 2024 2023 Revenues: United States $ 10,628,649 $ 8,640,498 Europe 2,589,988 4,521,846 China 1,324,301 1,217,955 Other Asian countries 482,518 614,037 Rest of world 799,754 398,549 $ 15,825,210 $ 15,392,885 Long-lived assets located in foreign countries as of December 31, 2024 and June 30, 2024 are as follows: December 31, 2024 June 30, 2024 Long-lived assets: United States $ 23,372,056 $ 24,989,477 Latvia 4,517,296 4,961,741 China 2,290,539 2,615,410 $ 30,179,891 $ 32,566,628 14. Contingencies Legal The Company, from time to time, is involved in various legal actions arising in the normal course of business. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company’s financial position or results of operations. In April 2021, we terminated several employees of our China subsidiaries, LPOIZ and LPOI, including the General Manager, the Sales Manager, and the Engineering Manager, after determining that they had engaged in malfeasance and conduct adverse to our interests, including efforts to misappropriate certain of our proprietary technology, diverting sales to entities owned or controlled by these former employees and other suspected acts of fraud, theft and embezzlement. In connection with such terminations, our China subsidiaries have engaged in certain legal proceedings with the terminated employees. We incurred various expenses associated with the investigation into these matters prior and subsequent to the termination of the employees and the associated legal proceedings. In December 2023, we recovered approximately $ 190,000 in funds that had been recovered by the Chinese authorities. We expect to incur minimal additional legal fees and consulting expenses in future periods as we have exhausted nearly all of our legal options and remedies. Potential Impact of Economic Conditions in and Trade Relations with China Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline. Deteriorating economic conditions in China, as well as geo-political drivers such as sanctions on Chinese companies, generally have led to lower demand for our products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall. A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a further adverse effect on our business and results of operations in future quarters. 19 Table of Contents In addition, China’s export limitations on Germanium and Gallium, two materials that are commonly used in infrared optical components, are becoming increasingly disruptive to our business with adverse impacts. The initial restrictions imposed in July 2023, required all international customers to provide an end user statement for approval before receiving an export license. Following that announcement, supply of Germanium was disrupted, though not completely stopped. This also resulted in significant price increases in the cost of Germanium material. Following these restrictions we had proactively canceled a number of customer orders for Germanium, to reduce our exposure in case of a supply disruption. Then, in December 2024, China escalated trade tensions with the U.S. by imposing more stringent export restrictions on critical minerals, including Germanium. The Chinese Ministry of Commerce cited national security concerns as the rationale for these measures, which effectively banned shipments of these minerals to the U.S. and significantly limited shipments of those minerals for dual-use applications in many other countries. As a purchaser of Germanium, we cannot provide any assurance that we will be able to obtain adequate supplies of Germanium, or that the timing or costs of obtaining such raw materials will be acceptable to us. As a precaution against disruptions in the Germanium supply chain and in anticipation of increased demand for optics produced from other materials, particularly our proprietary BlackDiamond materials, we have, in agreement with a key customer, canceled sales orders for optics made of Germanium and are actively working with our customers to redesign their systems to use our BlackDiamond materials instead of Germanium-based materials. Additionally, we are actively collaborating with our customers to ensure those redesigned systems are tested and qualified as replacements for legacy Germanium-based systems. In some cases, such as complex defense and airborne systems, the re-qualification of such redesigned systems is a lengthy process that can take up to two years. In other systems such as commercial systems and also some specific defense systems, this is a faster process, that takes several months. In February 2025, the U.S. announced additional tariffs on goods imported from China, effective immediately, and China announced its intent to follow suit and implement additional tariffs on goods imported to China from the U.S. We have in place a number of strategies to mitigate the impact of tariffs, which we will adjust in response to these additional tariffs. However, given the uncertainty regarding the potential for additional trade actions by the U.S. or other countries, any future impact on our operations and financial results is uncertain and these impacts could be more significant than 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 adversely affected. Impact of Recent Wars In February 2022, Russian military forces invaded Ukraine. This war has led to sanctions on Russia, which have had some impacts, though temporary, on our supply chain of raw materials. Separately, Israel declared war on Hamas in October 2023. Initially, this resulted in a temporary increase in our sales, as Israel worked to replace electro-optical systems that in some cases use our materials. Our sales to customers in this region have since stabilized, however, it is still possible that this war could have a negative impact on our business as a result of the overall economic impact in Israel. In addition to the significant defense related market in Israel, we also serve many commercial related applications and work with commercial companies in Israel, and the business of those customers may be negatively impacted by the war over time. Given the dynamic nature of this situation, we cannot reasonably estimate the impact of either the Russian-Ukraine conflict or the Israel-Hamas war on our financial condition, results of operations or cash flows into the foreseeable future. 15. Liquidity We generally rely on cash from operations and equity and debt offerings, to the extent available, to satisfy our liquidity needs and to maintain our ability to repay our debt. On February 16, 2022, we filed a shelf registration statement to facilitate the issuance of our Class A common stock, warrants exercisable for shares of our Class A common stock, and/or units up to an aggregate offering price of $ 75.8 million from time to time. In connection with the filing of the shelf registration statement, we also included a prospectus supplement relating to an at-the-market equity program under which we may issue and sell shares of our Class A common stock up to an aggregate offering price of $ 25.2 million from time to time, decreasing the aggregate offering price available under the shelf registration statement to $ 50.6 million. The shelf registration statement was declared effective by the SEC on March 1, 2022. As of June 30, 2024, we issued 585,483 shares of our Class A common stock pursuant to the at-the-market equity program. 20 Table of Contents 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 . On February 13, 2025, we announced a strategic acquisition and the related financing, including the issuance of a new series of preferred shares. For additional information, refer to Note 16, Subseqent Event . There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums, and increases in other costs. In addition, we may identify opportunities for additional 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. 16. Subsequent Event On February 13, 2025, we entered into a Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) by and among the Company, G5 Infrared, LLC, a New Hampshire limited liability company (“G5 Infrared”), the members of G5 Infrared (the “Sellers”), and Kenneth R. Greenslade, solely in his capacity as Sellers’ Representative, pursuant to which the Company has agreed to acquire from the Sellers all of the issued and outstanding membership interests of G5 Infrared. The aggregate consideration is approximately $ 27 million which consists of (i) $ 20.25 million in cash, (ii) 1,972,531 shares of Class A Common Stock, and (iii) and up to an additional $ 23 million in earnout consideration paid annually in fiscal years 2026 and 2027 subject to achievement of certain revenue and EBITDA targets set forth in the Membership Interest Purchase Agreement. G5 Infrared is an infrared camera solutions provider for Department of Defense (“DoD”) contractors, commercial and industrial customers, and OEMs. The closing of the transaction is expected to occur on or before February 19, 2025. Concurrent with the entry into the Membership Interest Purchase Agreement on February 13, 2025 , we entered into Securities Purchase Agreements (the “Securities Purchase Agreement”) with North Run Capital, AIGH Capital Management LLC and the Lytton-Kambara Foundation (the “Purchasers”) pursuant to which the Purchasers have agreed to purchase from the Company (i) an aggregate of approximately 24,956 shares (the “Preferred Shares”) of a newly created series of preferred stock, with a stated value of $ 1,000 per share (the “Preferred Stock”), designated Series G Convertible Preferred Stock, which shall be convertible into shares of Common Stock (the shares of Common Stock issuable upon conversion of the Preferred Shares being referred to as the “Conversion Shares”), in accordance with the terms of the Company’s Certificate of Designations, Preferences and Rights of the Series G Convertible Preferred Stock to be filed with the Delaware Secretary of State (the “Certificate of Designations”), (ii) warrants to purchase an aggregate of 4,352,774 shares of Common Stock, with an exercise price of $ 2.58 per share (the “Warrants; the shares of Common Stock issuable upon exercise of the Warrants being referred to as the “Warrant Shares”), and (iii) senior secured promissory notes (the “Notes”) in an aggregate principal amount of $ 5.2 million, which are convertible into shares of Preferred Stock upon the occurrence of the event specified in the Notes (the “Preferred Conversion Shares”), which are in turn convertible into Conversion Shares (the transactions contemplated by the Securities Purchase Agreement, the “Private Placement”). The Private Placement is expected to close immediately prior to the closing of the G5 Infrared acquisition. At the closing of the Securities Purchase Agreement, the Company and the Purchasers will enter into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company has agreed to register all Conversion Shares and Warrant Shares (the “Registrable Securities”) under the Securities Act. The Company agreed to file a registration statement covering the resale of such Registrable Securities within 75 days of the date of closing. The Company may not issue Conversion Shares and/or Warrant Shares to the extent such issuances would result in an aggregate number of shares of Common Stock exceeding 19.99% of the total shares of Common Stock issued and outstanding as of the G5 acquisition closing date, in accordance with the rules and regulations of Nasdaq unless the Company first obtains stockholder approval (the “Stockholder Approval”). Pursuant to the Securities Purchase Agreement and as required by Nasdaq, the Company agreed to file a proxy statement to obtain the Stockholder Approval and hold such meeting of stockholders of the Company not later than 120 days after the closing. On February 13, 2025, the Company entered into a Securities Purchase Agreement (the “Class A Common Securities Purchase Agreement”) with Lytton-Kambara Foundation (the “Buyer”), pursuant to which Buyer has agreed to purchase from the Company: (i) 455,192 shares of Class A common stock at a purchase price of approximately $ 2.15 per share, plus warrants to purchase 37.5 % of the number of shares, or 170,697 shares of Class A common stock, with an exercise price of $ 2.58 per share; and (ii) 232,558 shares of Class A common stock at a purchase price of approximately $2.15 per share (the “Common Offering”). The consideration aggregate of $1.5 million to be paid consists of: 1) $ 500,000 cash; and 2) the remaining $ 1,000,000 by exchange of an equal amount of principal and accrued and unpaid interest outstanding under that certain existing indebtedness of the Company held by the Buyer as evidenced by that certain Bridge Note in the original principal amount of $ 3,000,000 dated August 6, 2024, by the Company in favor of the Buyer (the “Existing Note”). Upon such exchange under the Class A Common Securities Purchase Agreement, and a like exchange for the remaining balance of the Existing Note in connection with the Buyer purchasing Preferred Stocks and Notes in the Private Placement, all of the Company’s obligations under the Existing Note shall be deemed satisfied in full, waived or terminated and the Existing Note will be deemed cancelled and of no force or effect. The Common Offering is expected to close immediately prior to the closing of the G5 Infrared acquisition. The Company expects to receive aggregate proceeds from the Private Placement and the Common Offering of approximately $32.2 million, inclusive of the conversion of existing indebtedness, before deducting estimated offering expenses payable by the Company, which will be used to fund, in part, the cash consideration payable in connection with the G5 acquisition. 21 Table of Contents