What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-14 compared with 2022-11-14 · 78 added, 67 removed, 147 unchanged (50% of the section changed)

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and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and notes to those

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 and with our audited consolidated

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2022 and with our audited consolidated

financial statements for the year ended June 30, 2022 included in our Annual Report on Form 10-K, filed with the Securities and Exchange

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Lighthouse Imaging is an industry leader in chip on tip visualization systems.

Approximately 32% our business during the three

months ended September 30, 2022 is from engineering services (primarily relating to the design of medical device optical assemblies),

52% from the sale of both internally manufactured and purchased optical components, and 16% from the manufacture of optical assemblies

and sub-assemblies (primarily for medical device instrument applications).

Our proprietary medical instrumentation line, unique custom

design and manufacturing capabilities, and expert electrical engineering and development services have generated orders for traditional

proprietary endoscopes and endocouplers as well as for custom imaging and illumination products for use in minimally invasive surgical

We design and manufacture 3D endoscopes and very small Microprecision TM lenses, assemblies and complete medical

devices to meet the surgical community’s continuing demand for smaller, disposable, and more enhanced imaging systems for minimally

invasive surgery.

Approximately 31% our business during the six

months ended December 31, 2022 is from engineering services (primarily relating to the design of medical device optical assemblies), 48%

from the sale of both internally manufactured and purchased optical components, and 16% from the manufacture of optical assemblies and

sub-assemblies (primarily for medical device instrument applications).

Our proprietary medical instrumentation line, unique custom design

and manufacturing capabilities, and expert electrical engineering and development services have generated orders for traditional proprietary

endoscopes and endocouplers as well as for custom imaging and illumination products for use in minimally invasive surgical procedures.

We design and manufacture 3D endoscopes and very small Microprecision TM lenses, assemblies and complete medical devices to

meet the surgical community’s continuing demand for smaller, disposable, and more enhanced imaging systems for minimally invasive

We are registered to the ISO 9001:2015 and ISO

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to production orders and new customer projects enter the development phase.

Our Ross Optical division markets through existing customers

and trade shows, in addition to proactive online marketing strategies executed primarily through its website.

This management’s discussion and analysis

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Results of Operations

Our total revenues for the quarter ended September

Our total revenues for the quarter ended December

31, 2022, were $5,886,961, as compared to $3,897,041 for the same period in the prior year, an increase of $1,989,920, or 51.1%, primarily

due to inclusion of the Lighthouse division since its acquisition in October, 2021 and an increase in medical device manufacturing and

optical component revenue.

Excluding the effect of the Lighthouse acquisition, component revenue increased 82%, production increased 37%

and engineering revenue increased 18% from the quarter ended September 30, 2021 to 2022.

Our largest customer during the three months ended

September 30, 2022 accounted for 16.6% of our revenue and represented component revenue for a defense/aerospace customer.

revenues from 194 unique customers during the three months ended September 30, 2022.

due to an increase in component revenue to a large defense contractor, and a $600,000 one-time sale of technology rights relating to a

medical device instrument developed for a customer.

Our total revenues for the six months ended December 31,

2022 were $10,972,262, as compared to $6,233,385 for the same period in the prior year, an increase of $4,738,877, or 76.0% due in part

to the inclusion of the Lighthouse division since its acquisition on October 4, 2021, increases in component sales in the El Paso and

Gardner locations, an increase in engineering revenues, and one-time technology rights revenue in the quarter ended December 31, 2022.

Our two largest customers accounted for 14.2%

and 18.1% of our revenue during the quarter ended December 31, 2022, and 15.3% and 11.8% of our revenue during the six months ended December

One of our two largest customers is a defense/aerospace company and the other is developing a medical device instrument.

generated revenues from 207 unique customers during the six months ended December 31, 2022, and no other customer represented over 10%

of our revenue during the three and six months ended December 31, 2022.

The COVID-19 world-wide pandemic that began during

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of amounts owed to us from our customers, our internal operating procedures, and our overall financial condition.

Gross profit for the quarter ended September 30,

Gross profit for the quarter ended December

31, 2022 was $2,725,224, compared to $1,119,582 for the same period in the prior year, an increase of $1,605,642, or 143%.

Gross profit for

the quarter ended September 30, 2022 as a percentage of our revenues was 33.9%, an increase from the gross profit percentage 27.4% for

profit for the quarter ended December 31, 2022 as a percentage of our revenues was 46.3%, an increase from the gross profit

percentage of 28.7% for the same period in the prior year.

Gross profit for the six months ended December 31, 2022 was $4,449,878,

as compared to $1,758,614 for the same period in the prior year, an increase of $2,691,264 or 153%.

Gross profit for the six months

ended December 31, 2022 as a percentage of our revenues was 40.6%, an increase from the gross profit percentage of 28.2% for

the same period in the prior year.

Quarterly gross profit and gross profit percentage depend on a number of factors, including overall

sales volume, facility utilization, product sales mix, the costs of engineering services, production start-up costs and challenges in

connection with new products, the effects of COVID-19 pandemic policy decisions on various economies and our suppliers and customers,

as well as the effects on production efficiencies due to the augmented policies we have incorporated into our operations as a result of

the COVID-19 pandemic.

Quarterly gross profit and gross profit percentage depend on a number of factors, including

overall sales volume, facility utilization, product sales mix, the costs of engineering services, and production start-up costs and

challenges in connection with new products, the effects of COVID-19 pandemic policy decisions on various economies and our suppliers

and customers, as well as the effects on production efficiencies due to the augmented policies we have incorporated into our

operations as a result of the COVID-19 pandemic.

Our gross profit on individual engineering projects

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changes or delays.

Our increase in gross margin dollars during the quarter ended September 30, 2022 was due to inclusion of the Lighthouse

division since its acquisition on October 4, 2021, an increase in both medical device manufacturing revenue and optical component revenue,

and improved efficiencies in engineering projects, which is partially offset by inclusion of the Lighthouse division engineering and production

revenues at overall margins lower than the Ross Optical division revenues.

The remainder of our production, engineering and component

revenues resulted in margins within our targeted range with reasonably expected fluctuations.

Our increase in gross profit dollars and margin during three and six months ended December 31, 2022 compared to the

same periods in the previous years was due to inclusion of the Lighthouse division since its acquisition on October 4, 2021, increases

in engineering, component and production revenues, greater production and personnel utilization, and recognition of technology rights

revenue with no associated direct incremental costs.

Research and development expenses were $208,666

for the quarter ended September 30, 2022, compared to $105,186 for the same period in the prior year, an increase of $140,291, or 133%.

In-house research and development and certain internal functions not directly related to customer engagements are classified as research

and development expenses with the majority of our engineering, research and development activities being consumed in revenue generating

engagements with our customers for the development of their products.

During the quarter ended September 30, 2022 we had an increase in

research and development costs due to the inclusion of the Lighthouse division offset by a greater amount of our engineering personnel

time consumed in customer focused compared to the same periods of the prior fiscal year.

for the quarter ended December 31, 2022, compared to $113,164 for the same period in the prior year, an increase of $95,502, or 84.4%.

Research and development expenses were $454,143 for the six months ended December 31, 2022, compared to $218,350 for the same period

in the prior year, an increase of $235,793, or 108%.

In-house research and development and certain internal functions not directly related

to customer engagements are classified as research and development expenses with the majority of our engineering, research and development

activities being consumed in revenue generating engagements with our customers for the development of their products.

During the three

and six months ended December 31, 2022 compared to the same periods of the prior year we had an increase in personnel, and an increase

in research and development costs incurred in the development of internal research and development efforts and projects.

Selling, general and administrative expenses were

$1,495,766 for the quarter ended September 30, 2022, compared to $933,624 for the same period in the prior year, an increase of $562,142,

The increase in selling, general and administrative expenses in the three months ended September 30, 2022 compared to the same

periods of the prior fiscal year was primarily due to inclusion of the Lighthouse division since its acquisition in October, 2021, plus

increased compensation due to expanded headcount and marketing related expenses.

$1,819,741 for the quarter ended December 31, 2022, compared to $1,466,768 for the same period in the prior year, an increase of $352,973,

Selling, general and administrative expenses were $3,315,507 for the six months ended December 31, 2022, compared to $2,400,392

for the same period in the prior year, an increase of $915,115, or 38.1%.

The increase in selling, general and administrative expenses

in the six months ended December 31, 2022 compared to the same periods of the prior fiscal year was primarily due to inclusion of the

Lighthouse division since its acquisition in October, 2021, plus increased compensation due to expanded headcount, incentive bonuses and

sales commissions resulting from increased revenues, and marketing related expenses, offset by a decreased amount of stock-based compensation

Liquidity and Capital Resources

We have sustained recurring net losses from operations

for several years.

During the quarter ended September 30, 2022, and the years ended June 30, 2022 and 2021 we incurred operating losses

of $16,589, $1,513,890 and $905,583, respectively.

At September 30, 2022, cash was $673,502, accounts receivables were $3,414,685 and

current liabilities were $5,192,420, including $1,032,891 of customer advances received for future order deliveries.

With the exception of the current period ended

December 31, 2022, during which net income was 560,909, which includes one-time technology rights revenue of $600,000, we have sustained

recurring net losses from operations for several years.

During the years ended June 30, 2022 and 2021 we incurred operating losses of

$1,513,890 and $905,583, respectively.

At December 31, 2022, cash was $381,318, accounts receivables were $4,032,522 and current liabilities

were $5,477,991, including $794,981 of customer advances received for future order deliveries.

Although our revenue and gross margin have increased,

due to the acquisition of the Lighthouse division, our operating expenses have also increased, and we continue to experience pricing pressure

from our customers and challenges in engineering projects and production orders that can result in cost over-runs and depressed gross

We also experience added uncertainty related to our vendors ability to supply materials and our customers future order levels

as a result of the economic impact the COVID-19 world-wide pandemic and related jurisdictional policies and regulations and lingering

supply-chain issues.

Consequently, critical to our ability to maintain our financial condition is achieving and maintaining a level of

quarterly revenues that generate break even or better financial performance as well as timely collection of accounts receivable from our

We believe profitable operating results can be achieved through a combination of revenue levels, realized gross margins and

controlling operating expense increases, all of which are subject to periodic fluctuations resulting from sales mix and the stage of completion

of varying engineering service projects as they progress towards and into production level revenues.

our operating expenses have also increased, and we continue to experience pricing pressure from our customers and challenges in engineering

projects and production orders that can result in cost over-runs and depressed gross margins.

We also experience added uncertainty related

to our vendors ability to supply materials and our customers future order levels as a result of the economic impact the COVID-19 world-wide

pandemic and related jurisdictional policies and regulations and lingering supply-chain issues.

Consequently, critical to our ability

to maintain our financial condition is achieving and maintaining a level of quarterly revenues that generate break even or better financial

performance as well as timely collection of accounts receivable from our customers.

We believe profitable operating results can be achieved

through a combination of revenue levels, realized gross profits and controlling operating expense increases, all of which are subject

to periodic fluctuations resulting from sales mix and the stage of completion of varying engineering service projects as they progress

towards and into production level revenues.

We have traditionally funded working capital needs

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We also secured a $250,000 bank line of credit from the same bank in October 2021 for working capital needs, which was increased to $500,000

There were no borrowings outstanding on the line of credit at September 30, 2022.

There were no borrowings outstanding on the line of credit at December 31, 2022.

Capital equipment expenditures and additional

patent costs during the three months ended September 30, 2022 were $29,174.

patent costs during the six months ended December 31, 2022 were $37,637.

Future capital equipment and patent expenditures will be dependent

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Contractual cash commitments for the fiscal periods

subsequent to September 30, 2022, are summarized as follows:

Capital lease for equipment, including interest

subsequent to December 31, 2022, are summarized as follows:

Financing lease for equipment, including interest

Minimum operating lease payments

We have contractual cash commitments related to

open purchase orders as of September 30, 2022 of approximately $3,252,770.

open purchase orders as of December 31, 2022 of approximately $3,547,236.

Off-Balance Sheet Arrangements

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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-Q

Item 2. Management’s Discussion and Analysis