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Item 7. Management’s Discussion and Analysis

2025-09-26 compared with 2024-09-19 · 185 added, 178 removed, 218 unchanged (62% of the section changed)

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Please also see the cautionary language at the beginning of this Annual Report on Form 10-K regarding forward-looking statements.

The following discussions also include use of the non-GAAP term “gross margin,” as well as other non-GAAP measures discussed in more detail under the heading “Non-GAAP Financial Measures.” Gross margin is determined by deducting the cost of sales from operating revenue.

Cost of sales includes manufacturing direct and indirect labor, materials, services, fixed costs for rent, utilities and depreciation, and variable overhead.

Gross margin should not be considered an alternative to operating income or net income, both of which are determined in accordance with GAAP.

We believe that gross margin, although a non-GAAP financial measure, is useful and meaningful to investors as a basis for making investment decisions.

It provides investors with information that demonstrates our cost structure and indicates the amount of funds available to cover our total costs and expenses.

We use gross margin in measuring the performance of our business and have historically analyzed and reported gross margin information publicly.

Other companies may calculate gross margin in a different manner.

The following discussions also include use of non-GAAP measures discussed in more detail under the heading “Non-GAAP Financial Measures.”

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 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).

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 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 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.

In December 2023, the Company recovered approximately $0.2 million 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 recover any further funds or incur additional legal fees or consulting expenses in future periods as we have exhausted nearly all of our legal options and remedies.

Results of Operations

Operating Results for Fiscal Year Ended June 30, 2025 compared to the Fiscal Year Ended June 30, 2024:

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 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.

Revenue for fiscal year 2025 was approximately $37.2 million, an increase of 17%, as compared to $31.7 million in fiscal year 2024.

Revenue generated by the infrared components product group was approximately $14.3 million in fiscal year 2025, an increase of 2%, as compared to the prior fiscal year.

Fiscal year 2025 includes $1.6 million of G5 Infrared sales of coating services and components.

The remaining decrease of $1.4 million 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 2024, largely due to the challenges associated with the Germanium supply chain, where it is difficult to secure pricing and availability for long-term orders.

The decrease in sales to this customer was partially offset by increases in sales of infrared components to several defense customers 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 generated by the visible components product group was approximately $11.7 million for fiscal year 2025, an increase of 4%, as compared to the prior fiscal year.

The increase in revenue is primarily due to sales to defense customers, partially offset by decreases in sales through catalog and distribution channels in the U.S., as well as decreases in sales to commercial and medical customers.

Revenue from the assemblies and modules product group was approximately $8.0 million in fiscal year 2025, an increase of 79% as compared to fiscal year 2024.

Fiscal year 2025 includes $4.0 million of G5 Infrared sales of cameras and modules.

The remaining decrease is due to an end of life order for a custom visible lens assembly which shipped complete in the first quarter of fiscal 2025.

This decrease in visible lens assembly sales was partially offset by increased sales of an infrared lens assembly to an industrial customer which started shipping at volume in the third quarter of fiscal 2025.

Revenue from engineering services increased by $1.2 million for fiscal 2025, 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.

This increase was driven by Visimid’s contract with Lockheed Martin, as well as revenue from one of our space-related funded research contracts.

The timing and dollar value of deliverables is not always consistent, which causes revenue for this product group to fluctuate from period to period.

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.

Gross margin for fiscal year 2025 was approximately $10.1 million, an increase of 17%, as compared to approximately $8.6 million in fiscal year 2024.

Total cost of sales was approximately $27.1 million for fiscal year 2025, compared to $23.1 million for fiscal year 2024, an increase of 17%.

Gross margin as a percentage of revenue was 27% for fiscal year 2025 as compared to 27% for fiscal year 2024.

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.

Gross margin for fiscal year 2025 was favorably impacted by the addition of G5 Infrared revenue and gross margin since acquisition, particularly in the assemblies and modules product group.

The assemblies and modules product group increased from 14% of revenue in fiscal year 2024, to 21% of revenue in fiscal year 2025, and these products typically have higher gross margins than the component product groups.

Gross margin for fiscal year 2025 was unfavorably impacted by an approximately $0.5 million increase in inventory reserve charges primarily related to visible components where revenue has declined for the past several years.

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 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.

For fiscal year 2025, Selling, General and Administrative (“SG&A”) costs were approximately $15.8 million, an increase of approximately $3.5 million, or 29%, as compared to the prior fiscal year.

The increase in SG&A for fiscal year 2025 is primarily related to the acquisition of G5 Infrared, including:

(i) the addition of approximately $1.1 million in SG&A costs related to G5 Infrared;

and (ii) non-recurring costs of $1.5 million related to the acquisition, an increase of $1.0 million as compared to prior fiscal year, as we began incurring costs related to this acquisition in the second half of fiscal year 2024.

The remaining increase of approximately $1.5 million was driven by:

(i) increased sales and marketing spend, including additional headcount, consultants, advertising and tradeshows;

and (ii) an increase in information technology spend to upgrade our infrastructure to meet customer requirements, particularly, Cybersecurity, for the defense industry.

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.

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.

New product development costs were approximately $3.1 million in fiscal year 2025, an increase of approximately $0.7 million, or 28%, as compared to the prior fiscal year.

These increases are due to the addition of engineering personnel, as well as an increase in materials and outside services utilized for development projects, primarily for infrared cores and camera systems.

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.

Amortization of intangibles decreased by $0.2 million for fiscal year 2025, as compared to the prior fiscal year, as certain of the intangible assets related to the acquisition of ISP were fully amortized as of December 31, 2024.

This decrease was largely offset by the addition of amortization of intangible assets associated with the G5 Infrared acquisition.

See Note 3, Acquisitions , 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 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 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.

Interest expense, net, was approximately $1.1 million for fiscal year 2025, compared to approximately $0.2 million in the prior fiscal year.

Interest expense for fiscal year 2025 include financing costs associated with the warrant liability of approximately $0.3 million.

The remaining increase in interest expense is due to the interest and amortization of loan issuance costs associated with the Bridge Note, executed in August 2024, which was subsequently replaced by the Acquisition Notes executed in February 2025.

See Note 14, Loans Payable , in the Consolidated Financial Statements included in this Annual Report on Form 10-K, for definitions and further information.

We recorded a loss in extinguishment of debt of $0.4 million during fiscal year 2025, related to the exchange of the Bridge Note for an Acquisition Note in connection with the financing of the acquisition of G5 Infrared.

The loss is based on the difference between the carrying value of the debt being extinguished and the fair value of the new debt, plus any other payments exchanged (e.g.

the aforementioned Class A Common Stock, Series G Convertible Preferred Stock and warrants).

Other expense, net, was approximately $0.1 million for fiscal year 2025, compared to other income, net of $0.1 million for fiscal year 2024.

Other expense, net, for fiscal year 2025 primarily consists of net foreign exchange losses.

Other income, net, for fiscal year 2024 includes a gain of $0.2 million 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 $0.2 million associated with an event of default by a sub-tenant of a portion of our Orlando Facility lease.

We execute all foreign sales from our U.S.

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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 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.

During fiscal year 2025, we incurred net foreign currency transaction losses of approximately $0.1 million, compared to net foreign currency transaction gains of $0.1 million for fiscal year 2024.

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 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.

During fiscal year 2025, we recorded income tax expense of approximately $0.1 million, compared to $0.1 million in fiscal year 2024, primarily related to our operations in China.

Income taxes for fiscal years 2025 and 2024 include Chinese withholding tax expenses of $0.2 million and $0.2 million, 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;

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Net loss for fiscal year 2025 was approximately $14.9 million, or $0.36 basic and diluted loss per share, compared to approximately $8.0 million, or $0.21 basic and diluted loss per share, for fiscal year 2024.

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.

The increase in net loss for fiscal year 2025, as compared to fiscal year 2024, is partially attributable to the approximately $3.5 million increase in operating loss due to higher operating expenses, partially offset by the increase in gross margin.

In addition, fiscal year 2025 net income reflects a number of non-operating items driven by the acquisition financing, including the increased interest expense of $1.0 million, loss on extinguishment of debt of $0.4 million, and change in fair value of warrant liability of $1.4 million.

Weighted-average common stock shares outstanding were 40,874,068 for both basic and diluted in fiscal year 2025, compared to 37,944,935 for both basic and diluted in fiscal year 2024.

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.

The increase in weighted-average basic common shares was primarily due to the Class A Common Stock issued in conjunction with the financing of the acquisition of G5 Infrared (refer to Note 8, Stockholders’ Equity , in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information).

The increase is also attributable to:

(i) the 585,483 shares of Class A Common Stock issued during the second half of fiscal year 2024 pursuant to the at-the-market equity program;

(ii) the shares of Class A Common Stock issued in conjunction with the acquisition of Visimid;

and (iii) 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 all periods presented, as their effects would have been anti-dilutive due to net losses in those periods.

Liquidity and Capital Resources

At June 30, 2025, we had working capital of approximately $11.3 million and total cash and cash equivalents of approximately $4.9 million.

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

Approximately 25% 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.

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parent company.

It is still our intent to reinvest a significant portion of earnings generated by our foreign subsidiaries, however we also plan to repatriate a portion of their earnings.

It is still our intent to reinvest a portion of earnings generated by our foreign subsidiaries, however we also plan to repatriate a portion of their earnings.

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

During fiscal years 2025 and 2024, we repatriated approximately $1.2 million and $1.4 million, respectively, from LPOIZ.

As of June 30, 2024, LPOIZ had approximately $1.6 million in retained earnings available for repatriation, and LPOI did not have any earnings available for repatriation, based on earnings accumulated through December 31, 2023, the end of the most recent statutory tax year, that remained undistributed as of June 30, 2024.

Based on our previous intent, we had not historically provided for future Chinese withholding taxes on the related earnings.

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, 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.

As of June 30, 2025, LPOIZ had approximately $0.4 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 June 30, 2025.

Loans payable as of June 30, 2025 consisted of the Acquisition Notes (as defined below) and two third-party equipment loans (as defined below).

Details of the loans are as follows:

Acquisition Notes

On February 18, 2025 in connection with the closing of the Securities Purchase Agreement (as defined in Note 3, Acquisitions , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K), we issued senior secured promissory notes in an aggregate principal amount of $5.2 million (the “Acquisition Notes”).

The Acquisition Notes accrue interest at the rate between 10-12% per annum (12% as of June 30, 2025), based on the ratio of indebtedness to EBIDTA of the Company, unless an event of default (as defined in the Acquisition Notes) occurs, at which time the Acquisition Notes would accrue interest at 15% per annum.

The Acquisition Notes will mature on February 18, 2027, the second anniversary of the issuance date.

The Acquisition Notes will automatically convert into shares of Series G Convertible Preferred Stock, which are convertible into Conversion Shares, if the EBIDTA reported by the Company for the calendar year ending December 31, 2025, is less than approximately $4.9 million, which are in turn convertible into Conversion Shares (the “Automatic Note Conversion”).

The Series G Convertible Preferred Stock is convertible into Class A Common Stock.

The Company determined that the Automatic Note Conversion did not require bifurcation from the Acquisition Notes as the Automatic Note Conversion (i) is indexed to the Company’s own stock, (ii) is settled in shares, not cash, and (iii) is only exercisable into a fixed number of shares at a fixed exercise price of $1,000 per share once it is triggered to convert and the conversion price can only be adjusted for standard antidilution provisions.

All or part of the Acquisition Notes may, unless converted under the Automatic Note Conversion, be redeemed by the Company prior to the maturity date at a redemption price equal to the portion of principal so redeemed plus all accrued and unpaid interest thereon, provided that if the funds used for redemption were not generated internally by Company operations, the redemption amount will be multiplied by 102%.

In addition, following an event of default or upon a change of control, the Purchaser may require the Company to redeem all or any portion of the Acquisition Notes.

Notwithstanding anything to the contrary, upon any bankruptcy event of default, the Company will immediately pay the holder an amount in cash representing all outstanding principal and accrued and unpaid interest.

The Company determined that these redemption features did not require bifurcation from the Acquisition Notes as these are clearly and closely related to the Acquisition Notes.

The Acquisition Notes include customary affirmative and negative covenants and events of default.

Additionally, the Acquisition Notes include financial covenants requiring the Company to maintain a Total Leverage Ratio (as defined in the Acquisition Notes) of not greater than 4.00:1:00 and a Fixed Charge Covered Ratio (as defined in the Acquisition Notes) of greater than 1.20:1.00 for each fiscal quarter beginning with the fiscal quarter ending December 31, 2025.

Equipment Loans.

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

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

The initial advance under the 2020 Equipment Loan was 225,000 EUR (or approximately USD $0.3 million), 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.

The 2020 Equipment Loan bears interest at a fixed rate of 3.3%.

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.

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

An additional 225,000 EUR (or approximately USD $0.3 million) was drawn in September 2021, which proceeds were paid to the vendor for the equipment, payable in equal installments over 52 months.

As of June 30, 2025, the outstanding balance on the 2020 Equipment Loan was approximately 49,000 EUR (or USD $0.1 million).

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 initial advances under the 2023 Equipment Loan totaled 260,258 EUR (or approximately USD $0.3 million), the proceeds of which were used to make prepayments 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 approximately USD $0.1 million).

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% (4.89% as of June 30, 2025).

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”).

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.

As of June 30, 2025, the outstanding balance on the 2023 Equipment Loan was approximately 263,000 EUR (or USD $0.3 million).

For additional information regarding the Acquisition Notes 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.

Equity Financing.

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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 our shelf registration statement to $50.6 million.

The shelf registration statement was declared effective by the SEC on March 1, 2022.

The shelf registration statement was declared effective by the Securities and Exchange Commission (the “SEC”) on March 1, 2022.

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.

No shares were issued under this program during fiscal year 2025 before the shelf registration expired on March 1, 2025.

On February 18, 2025, we announced the closing of the acquisition of G5 Infrared and the related financing, including the issuance of shares of Series G Convertible Preferred Stock.

For additional information, refer to Note 3, Acquisitions , to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

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.

In addition, approximately 25% of our cash and cash equivalents was held by our foreign subsidiaries as of June 30, 2025 and, although we regularly repatriate cash, it may not be readily available to repay our liabilities in the U.S.

should our cash assets in the U.S.

not be sufficient.

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

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

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

If these efforts are not successful, we may need to raise additional capital.

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

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

We may also 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.

Cash Flows – Operating.

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.

Cash used in operations was $8.3 million, compared to cash provided by operations was approximately $0.5 million for fiscal year 2024.

The cash used in operations for fiscal 2025 was driven by the net loss, after considering non-cash items, which was partially driven by significant legal and consulting expenses related to the acquisition of G5 Infrared.

In addition, inventory increased $1.4 million (net of inventory included in the acquisition of G5 Infrared), while the increase in accounts payable was largely offset by increases in accounts payable and accrued liabilities.

The cash provided by operations during fiscal year 2024 was primarily due decreases in accounts receivable and inventory, due to lower sales in fiscal year 2024, as compared to fiscal year 2023.

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

Cash Flows – Investing.

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

During fiscal years 2025 and 2024, we expended approximately $18.5 million and $0.8 million, net, to acquire G5 Infrared and Visimid, respectively, as disclosed in Note 3, Acquisitions , in the Consolidated Financial Statements in this Annual Report on Form 10-K.

During fiscal 2025, we expended approximately $1.3 million for capital equipment, as compared to approximately $2.2 million during fiscal year 2024.

During fiscal year 2025, our capital expenditures were primarily related to expansion of our glass fabrication capacity, as well as metrology and infrared coating equipment, whereas our capital expenditures in fiscal year 2024 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.

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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.

Net cash provided by financing activities was approximately $29.3 million, whereas cash used in financing activities was approximately $1.5 million in fiscal year 2024.

Cash provided by financing activities for fiscal year 2025 reflects approximately $29.8 million from financing related to the acquisition of G5 Infrared, offset by $0.4 million in principal payments on loans and finance leases.

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 $0.3 million in proceeds from the 2023 Equipment Loan, $0.8 million in proceeds from the sale of Class A common stock pursuant to the at-the-market equity program.

How We Operate

We have continuing sales of two basic types:

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, 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.

sales of standard product configurations and sales of customized products or products developed specifically for a certain customer.

In this latter type of business, we work with customers to help them determine optical specifications and then 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;

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We face several challenges in doing so:

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

Maintaining the design and new product development capability, including a high-quality and responsive optical design engineering staff, opto-mechanical engineering, and all related disciplines;

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;

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accounts receivable levels and quality;

EBITDA and Adjusted EBITDA;

other key indicators.

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Sales Backlog.

We believe sales growth has been and continues to be our best indicator of success.

We believe sales growth has been and continues to be a key indicator of success.

Our best view into the efficacy of our sales efforts is in our “order book.” Our order book equates to sales “backlog.” It has a quantitative and a qualitative aspect:

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

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.

We monitor and 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.

Generally, a higher total backlog is better for us.

Quarterly backlog levels for fiscal years 2025 and 2024 are as follows:

Total Backlog

Change From Prior Year End

Change From Prior Quarter End

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.

Prior Year End

Prior Quarter

The acquisition of G5 Infrared added $5.6 million of backlog as of the Acquisition Date.

As of June 30, 2025, backlog for G5 Infrared products was $16.6 million.

The remaining backlog of $20.8 million as of June 30, 2025 represents an increase of 8% as compared to the end of the prior fiscal year, primarily due to an increase in orders from an industrial customer, which are scheduled into fiscal year 2027.

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 BlackDiamond materials, and other materials we are currently developing under an exclusive license with the Naval Research Lab.

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

With the global supply of germanium concentrated in Russia and China, recent global events and increases in restrictions on the sourcing of these materials 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.

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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

The following table sets forth revenue dollars by our three product groups for the three months and year ended June 30, 2025 and 2024:

Three Months Ended June 30,

Year Ended June 30,

Infrared components

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Three months ended June 30, 2025 compared to three months ended June 30, 2024.

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.

Our revenue increased by 41% in the fourth quarter of fiscal year 2025, as compared to the same quarter of the prior fiscal year, primarily driven by increases in infrared components and assemblies and modules resulting from the addition of G5 Infrared revenue since acquisition.

Revenue generated by the infrared components product group for the fourth quarter of fiscal year 2025 was $5.0 million, an increase of 63%, as compared to the same quarter of the prior fiscal year.

The fourth quarter of fiscal 2025 includes $1.1 million of G5 Infrared sales of coating services and components.

The remaining $0.8 million increase in revenue is primarily due to an increase in sales to defense customers.

Revenue from the visible components product group for the fourth quarter of fiscal year 2025 was $2.8 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.

The decrease was primarily driven by a decrease in sales through U.S.

catalog and distribution channels, due to a special order which increased revenue in the fourth quarter of the prior fiscal year.

Revenue from assemblies and modules increased by $2.8 million, or 203%, for the fourth quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year.

The fourth quarter of fiscal 2025 includes $3.1 million of G5 Infrared sales of cameras and modules.

The remaining decrease is partially due to the absence of revenue from an end of life order for a custom visible lens assembly which shipped complete in the first quarter of fiscal 2025, and a decrease in sales of infrared camera cores due to timing of an order in the prior year.

Revenue from engineering services decreased $0.8 million, for the fourth quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year.

This increase was primarily driven by Visimid’s contract with Lockheed Martin, where the timing and dollar value of deliverables is not always consistent, which causes revenue for this product group to fluctuate from period to period.

For the fourth quarter of fiscal 2025, the revenue recognized against this contract was less than in the fourth quarter of fiscal 2024.

Year ended June 30, 2025 compared to year ended June 30, 2024.

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.

Our revenue increased by approximately 17%, for fiscal year 2025, as compared to the prior fiscal year, primarily driven by increases in assemblies and modules and engineering services, as well as increases in both infrared and visible components.

The acquisition of G5 Infrared contributed to the increases in assemblies and modules, and infrared components.

Revenue generated by the infrared components product group for fiscal year 2025 was $14.3 million, an increase of approximately 2%, as compared to the prior fiscal year.

Fiscal year 2025 includes $1.6 million of G5 Infrared sales of coating services and components.

Due to the uncertainty surrounding the global Germanium supply, we decided to reduce the amount of optics we produce from Germanium, both to reduce our exposure to the 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 single customer, as well as other customers to convert their systems to use BlackDiamond optics.

We continue to see growth in the number of customers making that transition, as well as the volume of demand for solutions made using our BlackDiamond materials to replace legacy Germanium systems.

As a result, we continue to also add more manufacturing capacity for our BlackDiamond glass, to address the growing number of customers adopting the material.

Disruptions in the Germanium supply continue to cause delays in fulfilling orders, and we are accepting fewer orders for Germanium-based products.

The decrease in sales to this customer was partially offset by increases in sales of infrared components to several defense customers 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.

Revenue from the visible components product group for fiscal year 2025 was $11.7 million, an increase of 4%, as compared to the prior fiscal year.

In the prior fiscal year, we saw a decrease in this product group, primarily driving by lower sales customers in Asia, however the demand seems to have stabilized.

Revenue from assemblies and modules for fiscal year 2025 was $8.0 million, an increase of $3.5 million, or 79%, as compared to the prior fiscal year.

Fiscal 2025 includes $4.0 million of G5 Infrared sales of cameras and modules.

The remaining decrease is due to an end of life order for a custom visible lens assembly which shipped complete in the first quarter of fiscal 2025.

This decrease in visible lens assembly sales was partially offset by increased sales to an industrial customer which started shipping at volume in the third quarter of fiscal 2025.

Revenue from engineering services increased by $1.2 million for fiscal year 2025, as compared to the prior fiscal year.

This increase was driven by Visimid’s contract with Lockheed Martin, as well as revenue from one of our space-related funded research contracts, where the timing and dollar value of deliverables is not always consistent, which causes revenue for this product group to fluctuate from period to period.

Projects related to this product group are expected to drive sales growth in the other product groups over time, as these new products transition to from development and prototyping to production.

Inventory Levels.

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

Fiscal Quarter

Fiscal Year 2025 Average

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Our average DCSI for fiscal year 2025 was 130, compared to 112 for fiscal year 2024.

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.

The increase in average DCSI is driven by the is acquisition of G5 Infrared during the third quarter of fiscal 2025, which increase the inventory balance disproportionately to sales for that quarter.

We expect DCSI to return to an average of 110 to 120 days.

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 2025 Average

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Our average DSO for fiscal year 2025 was 67, compared to 56 for fiscal year 2024.

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.

The increase in average DSO for fiscal year 2025 is due to the addition of G5 Infrared revenue, which had a higher concentration of shipments in the third month of the third and fourth fiscal quarters which drives the accounts receivable balance up disproportionately to sales.

We strive to maintain a DSO of less than 60, which we did achieve during fiscal 2025, when calculated on a monthly basis.

Other Key Indicators.

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As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.

EBITDA is a non-GAAP financial measures used by management, lenders, and certain investors as a supplemental measure in the evaluation of some aspects of a corporation’s financial position and core operating performance.

EBITDA and Adjusted EBITDA.

EBITDA and Adjusted EBIDA are non-GAAP financial measures used by management, lenders, and certain investors as a supplemental measure in the evaluation of some aspects of a corporation’s financial position and core operating performance.

Investors sometimes use EBITDA as it allows for some level of comparability of profitability trends between those businesses differing as to capital structure and capital intensity by removing the impacts of depreciation and amortization.

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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 months and year ended June 30, 2024 and 2023:

We also calculate an adjusted EBITDA, which excludes:

(1) stock compensation expenses;

(2) the loss on extinguishment of debt;

(3) the effect of the non-cash income or expense associated with the mark-to-market adjustments, related to the warrants;

and (4) the effect of foreign exchange gains or losses.

Management uses adjusted EBITDA to evaluate our underlying operating performance and for planning and forecasting future business operations.

The fair value of the warrants was re-measured each reporting period until the warrants were reclassified from liabilities to equity as a result of the action taken at a special meeting of the stockholders on June 16, 2025.

The change in the fair value of the warrants was either recognized as a non-cash expense or non-cash income each reporting period from February 18, 2025, the date of issuance, through June 16, 2025, when the liability was reclassified to equity.

The change in the fair value of the warrants was not impacted by our actual operations but was instead strongly tied to the change in the market value of our Class A Common Stock.

Please refer to Note 8, Stockholders’ Equity , in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.

We believe EBITDA and Adjusted EBITDA are helpful for investors to better understand our underlying business operations.

The following table adjusts net income to EBITDA and Adjusted EBITDA for the three months and year ended June 30, 2025 and 2024:

Three Months Ended June 30,

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$ (14,873,182 )

$ (8,007,346 )

Depreciation and amortization

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$ (1,302,312 )

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.

$ (9,567,939 )

$ (3,699,585 )

Stock-based compensation

Loss on extinguishment of debt

Change in fair value of warrant liability

Change in fair value of acquisition liabilities

Foreign exchange (gain) loss

Adjusted EBITDA

$ (1,978,765 )

$ (1,117,423 )

$ (5,061,930 )

$ (2,753,303 )

Our adjusted EBITDA for the quarter ended June 30, 2025 was a loss of approximately $2.0 million, compared to a loss of $1.1 million for the same period of the prior fiscal year.

The decrease in adjusted EBITDA in the fourth quarter of fiscal year 2025 is primarily attributable to higher SG&A, including non-recurring costs related to the acquisition of G5 Infrared, and new product development expenses, partially offset by the increase in gross margin.

Our adjusted EBITDA for fiscal year 2025 was a loss of approximately $5.1 million, compared to a loss of $2.8 million for fiscal year 2024.

The decrease in adjusted EBITDA for fiscal year 2025 is primarily attributable to higher SG&A, including non-recurring costs of approximately $1.5 million related to the acquisition of G5 Infrared, an increase of $1.0 million as compared to prior fiscal year, as we began incurring costs related to this acquisition in the second half of fiscal year 2024, and higher new product development expenses, partially offset by the increase in gross margin.

Off Balance Sheet Arrangements

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expense during the reporting periods presented.

Our critical estimates include the allowance for trade receivables, which is made up of allowances for bad debts, allowances for obsolete inventory, valuation of compensation expense on stock-based awards and accounting for income taxes.

Our critical estimates include the allowance for trade receivables, which is made up of allowances for credit losses, allowances for obsolete inventory, valuation of compensation expense on stock-based awards and accounting for income taxes.

Although we believe that these estimates are reasonable, actual results could differ from those estimates given a change in conditions or assumptions that have been consistently applied.

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

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.

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.

If our actual collection experience changes, revisions to our allowance may be required.

After attempts to collect a receivable have failed, the receivable is written off against the allowance.

To date, our actual results have been materially consistent with our estimates, and we expect such estimates to continue to be materially consistent in the future.

Inventory obsolescence allowance is calculated by reserving 100% for items that have not been sold in two years or that have not been purchased in two years.

These items, as identified, are allowed for at 100%, as well as allowing 50% for other items deemed to be slow moving within the last twelve months and allowing 25% for items deemed to have low material usage within the last six months.

Items of which we have greater than a two-year supply are also reserved at 25% to 100%, depending on usage rates.

Items of which we have excess supply are also reserved at 25% to 100%, depending on usage rates.

The parts identified are adjusted for recent order and quote activity to determine the final inventory allowance.

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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.

As of June 30, 2025, there are no outstanding option grants with performance-based vesting criteria.

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

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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.

Amortizable 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 tradenames.

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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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