What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-15 compared with 2024-02-14 · 111 added, 108 removed, 97 unchanged (69% of the section changed)

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations.

The following discussion of our financial condition

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 December 31, 2023 and with our audited consolidated

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 and with our audited consolidated

financial statements for the year ended June 30, 2023 included in our Annual Report on Form 10-K, filed with the Securities and Exchange

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for smaller, disposable, and more enhanced imaging systems for minimally invasive surgery.

Effective June 1, 2019 we acquired the operating

assets of Ross Optical Industries, Inc.

Effective June 1, 2019 we acquired the operating assets

of Ross Optical Industries, Inc.

of El Paso, Texas.

As Ross Optical Industries we also operate as a supplier of custom optical

components and assemblies for military and defense, medical and various other industrial applications.

All products sold by us under the

Ross Optical name include a custom or catalog optic, which is sourced through our extensive domestic and worldwide network of optical

fabrication suppliers.

Most systems make use of optical lenses, prisms, mirrors and windows and range from individual optical components

to complex mechano-optical assemblies.

As Ross Optical Industries we also operate as a supplier of custom optical components

and assemblies for military and defense, medical and various other industrial applications.

All products sold by us under the Ross Optical

name include a custom or catalog optic, which is sourced through our extensive domestic and worldwide network of optical fabrication suppliers.

Most systems make use of optical lenses, prisms, mirrors and windows and range from individual optical components to complex mechano-optical

Products often include thin film optical coatings that are applied using our in-house coating department.

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

The markets in which we do business are highly

competitive and include both foreign and domestic competitors.

Many of our competitors are larger and have substantially greater resources

Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce

products or services that compete with ours.

The markets in which we do business are highly competitive

and include both foreign and domestic competitors.

Many of our competitors are larger and have substantially greater resources than we

Furthermore, other domestic or foreign companies, some with greater financial resources than we have, may seek to produce products

or services that compete with ours.

Over the years we have developed extensive experience collaborating with other optical specialists

The markets for our products have increasingly

been driven by the demand for smaller and more enhanced imaging systems by the needs of the surgical community, including applications

for the brain, eye, ear, urology, cardiology/angiography and the spine.

The markets for our products have increasingly been

driven by the demand for smaller and more enhanced imaging systems by the needs of the surgical community, including applications for

the brain, eye, ear, urology, cardiology/angiography and the spine.

We market directly to established medical device companies primarily

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division markets through existing customers and trade shows, in addition to proactive online marketing strategies executed primarily through

We produce micro-precision optics, which are nominally

millimeter sized and smaller cameras with low manufacturing costs.

The small size provides visualization for new procedures in new parts

of the body and for existing procedures that are currently performed blind or with sub-optimal imaging, facilitating the development of

new surgical procedures that are currently impractical.

We use patented and patent-pending approaches to fabricating opto-mechanical and

opto-electronic systems.

We have developed and helped commercialize applications for numerous customers in the medical device and defense/aerospace

We believe that our future success depends to

a large degree on our ability to develop new optical products and services to enhance the performance characteristics and methods of

manufacture or existing products.

Competition amongst medical device companies is increasing with multiple companies now pursuing less

expensive, procedure specific robotic systems.

We expect to continue to seek and obtain product-related design and development contracts

with customers and to selectively invest our own funds on research and development, particularly in the areas of Microprecision™ optics,

micro medical cameras, illumination, single-use endoscopes, and 3D endoscopes.

We are one of only a handful of companies in the world

to design and provide high-quality 3D endoscopes.

By designing systems with low manufacturing costs, we have also begun to penetrate

the single-use endoscope market.

Single-use endoscopes virtually eliminate the potential for patient cross-contamination and support

a number of additional operational benefits for hospitals and surgeons.

We estimate this segment of the overall minimally invasive surgical

market is growing at two to three times the rate of the overall market.

We produce micro-precision optics, which are millimeter-sized

and smaller cameras with low manufacturing costs.

The small size provides visualization for new procedures in new parts of the body and

for existing procedures that are currently performed blind or with sub-optimal imaging, facilitating the development of new surgical procedures

that are currently impractical.

We use patented and patent-pending approaches to fabricating opto-mechanical and opto-electronic systems.

We have developed and helped commercialize applications for numerous customers in the medical device and defense/aerospace industries.

We believe that our future success depends to a large

degree on our ability to develop new optical products and services to enhance the performance characteristics and methods of manufacture

of existing products.

Competition among medical device companies is increasing with multiple companies now pursuing less expensive, procedure

specific robotic systems.

We expect to continue to seek and obtain product-related design and development contracts with customers and

to selectively invest our own funds on research and development, particularly in the areas of Microprecision TM optics, micro

medical cameras, illumination, single-use endoscopes, and 3D endoscopes.

We are one of only a handful of companies in the world to design

and provide 3D endoscopes.

By designing systems with low manufacturing costs, we have also begun to penetrate the single-use endoscope

Single-use endoscopes virtually eliminate the potential for patient cross-contamination and support a number of additional operational

benefits for hospitals and surgeons.

We estimate this segment of the overall minimally invasive surgical market is growing at two to three

times the rate of the overall market.

Current sales and marketing activities are intended

to broaden awareness of the benefits of our new technology platforms and our successful application of these new technologies to medical

device projects requiring surgical-grade visualization from millimeter sized devices and 3D endoscopy, including single-use products and

device projects requiring surgery-grade visualization from millimeter sized devices and 3D endoscopy, including single-use products and

We are registered to the ISO 9001:2015 and ISO 13485:2016

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The information contained on our websites does not constitute part of this report.

This management’s discussion and analysis

of financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared

This management’s discussion and analysis of

financial condition and results of operations is based upon our unaudited consolidated financial statements, which have been prepared

without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

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or conditions and any such differences may be material.

There have been no significant changes in our

critical accounting policies as disclosed in the Notes to our Financial Statements contained in our Annual Report on Form 10-K for

the year ended June 30, 2023 filed with the Securities and Exchange Commission on September 28, 2023.

There have been no significant changes in our critical

accounting policies as disclosed in the Notes to our Financial Statements contained in our Annual Report on Form 10-K for the year

ended June 30, 2023 filed with the Securities and Exchange Commission on September 28, 2023.

Results of Operations

Ended December 31,

Ended March 31,

Percent of Sales

Percent Change

Engineering Design Services

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Total Revenues

Ended December 31,

Ended March 31,

Percent of Sales

Percent Change

Engineering Design Services

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Total Revenues

Total revenues for the quarter ended December

31, 2023 were $4,824,289, as compared to $5,886,961 for the same period in the prior year, and for the six months ended December 31, 2023

was $9,145,544 as compared to $10,972,262 for the same period in the prior year, a decrease of $1,826,718, or 16.6%.

A decrease of $600,000

in both periods was attributable to the sale of one-time technology rights recognized in the prior year.

Total revenues for the quarter ended March 31, 2024

were $5,242,579, as compared to $5,048,065 for the same period in the prior year, an increase of $194,514 or 3.9%.

Total revenues for

the nine months ended March 31, 2024 were $14,388,123 as compared to $16,020,327 for the same period in the prior year, a decrease of

$1,632,204, or 10.2%.

Of this decrease, $600,000 was attributable to the sale of one-time technology rights sold in December 2022.

Revenue from Engineering Design Services increased

33.1% and 24.6% during the three- and six-month periods ending December 31, 2023 from the same periods in the year ending December 31,

Revenue increases in the engineering category resulted from increasing demand for services and expansion of engineering capacity.

62.4% and 35.7% during the three- and nine-month periods ending March 31, 2024 from the prior year periods ending March 31, 2023.

increases in the engineering design services resulted from increasing demand for services and continued expansion of engineering capacity.

Engineering sales were driven by customer design engagements that will be transitioning into the later manufacture of new Finished Products

and Assemblies.

Revenue from Optical Components decreased 23.3%

and 25.8% during the three- and six-month periods ending December 31, 2023 from the same periods in the year ending December 31, 2022

due in part to reduced industry demand.

We believe the decreases in optical components were largely driven by lower order volumes as customers

sought to rebalance their inventories, which had previously grown beyond sustainable levels due to increased ordering in response to concerns

Revenue from Optical Components decreased 7.9% and

19.9% during the three- and nine-month periods ending March 31, 2024 from the prior year periods ending March 31, 2023, due in large part

to reduced industry demand.

We believe the decreases in optical components continue to be driven by lower order volumes as customers sought

to rebalance their inventories, which had previously grown beyond sustainable levels due to increased ordering in response to concerns

about supply chain disruptions.

Revenue from Finished Products and Assemblies

decreased 42.4% and 38.9% during the three- and six-month periods ending December 31, 2023 from the same periods in the year ending December

The decreases in Finished Products and Assemblies was attributable to timing differences between the exit of certain mature

customer programs and reorders for ongoing products and the introduction of new customer programs, primarily single-use medical devices

and new defense / aerospace opportunities.

Gross margin decreased to 30.1% during the three

months ended December 30, 2023, compared to 44.2% for the three months ended December 31, 2022, and decreased to 31.9% during the six

months ended December 31, 2023 compared to 38.6% during the six months ended December 31, 2022.

Gross profit decreased to $1,450,976 during

the three months ended December 31, 2023, compared to $2,599,472 for the three months ended December 31, 2022, and decreased to $2,914,587

during the six months ended December 31, 2023 compared to $4,238,913 during the six months ended December 31, 2022, primarily driven by

changes in the product sales mix and the decreases in revenue discussed above.

The $600,000 in Technology rights revenue in the prior

year had a significant impact on gross margin as it had no cost of sales associated with it.

Excluding that revenue from both sales and

gross profit for comparison purposes, the gross margin would have been 37.8% and 35.1% for the three- and six-month periods ending December

31, 2022, respectively.

In addition, we recorded an increase in our reserve for excess and obsolete inventory in the amount of $75,000.

Revenue from Finished Products and Assemblies decreased

45.5% and 41.3% during the three- and nine-month periods ending March 31, 2024 from the prior year periods ending March 31, 2023.

decreases in Finished Products and Assemblies were attributable to timing differences between the exit of certain mature customer programs

and reorders for ongoing products and the introduction of new customer programs, primarily single-use medical devices and new defense

/ aerospace opportunities.

Gross margin increased to 35.5% during the three months

ended March 31, 2024, compared to 34.4% for the three months ended March 31, 2023, and decreased to 33.2% during the nine months ended

March 31, 2024 compared to 37.3% during the nine months ended March 31, 2023.

Gross profit increased to $1,858,737 during the three months

ended March 31, 2024, compared to $1,736,098 for the three months ended March 31, 2023, and decreased to $4,773,324 during the nine months

ended March 31, 2024 compared to $5,975,011 during the nine months ended March 31, 2024, primarily driven by changes in the product sales

mix and the decreases in revenue discussed above.

The $600,000 in Technology rights revenue in the prior year had a significant impact

on gross margin as it did not have any cost of sales associated with it.

Excluding that revenue from both sales and gross profit for comparison

purposes, the gross margin would have been 34.9% for the nine-month period ending March 31, 2023.

Research & Development

R&D expenses increased $66,464 to $221,728

during the three months ended December 31, 2023, compared to $155,264 during the three months ended December 31, 2022, and increased $68,595

to $434,486 during the six months ended December 31, 2023, compared to $365,891 during the six months ended December 31, 2022.

in R&D expenses was primarily due to employee-related expenses to support product improvements and the development of new technologies.

R&D expenses decreased $13,602 to $192,773 during

the three months ended March 31, 2024, compared to $206,375 during the three months ended March 31, 2023, and decreased $33,259 to $627,259

during the nine months ended March 31, 2024, compared to $660,518 during the nine months ended March 31, 2023.

R&D expenses for the

period represent employee-related expenses to support product improvements and the development of new technologies.

Selling, General and Administrative Expenses

SG&A expenses increased $60,267 to $1,933,410

during the three months ended December 31, 2023, compared to $1,873,143 during the three months ended December 31, 2022, and increased

$185,797, or 5.5%, to $3,589,556 during the six months ended December 31, 2023, compared to $3,403,759 during the six months ended December

The increase in SG&A was primarily due to increased personnel costs, increased travel-related expenses, increased stock-based

compensation and increases in our reserve for doubtful accounts.

SG&A expenses decreased $98,500, or 4.9% to $1,924,491

during the three months ended March 31, 2024, compared to $2,022,991 during the three months ended March 31, 2023, and increased $175,549,

or 3.3%, to $5,514,047 during the nine months ended March 31, 2024, compared to $5,338,498 during the nine months ended March 31, 2023.

The increase in SG&A for the nine-month period was primarily due to increased travel and marketing-related expenses and increases

in our reserve for doubtful accounts.

Liquidity and Capital Resources

During the six months ended December 31, 2023,

cash on hand funded increases in inventory of $323,770 and a net decrease in accounts payable and accrued expenses of $945,002, partially

offset by decreases in accounts receivable of $395,863.

We also made payments of $277,912 on our term notes and capital leases.

items, in addition to the impact of the quarterly net loss, net of depreciation, amortization, stock-based compensation and other non-cash

items, resulted in a decrease of $1,938,808 in our cash and cash equivalents at December 31 2023 from $2,925,852 at June 30, 2023 to $987,044

at December 31, 2023.

During the nine months ended March 31, 2024, cash

on hand funded increases in inventory of $256,005 and a net decrease in accounts payable and accrued expenses of $843,872 and an increase

of accounts receivable netted with increased customer deposit liabilities of $26,127.

We also made payments of $17,109 on our term notes

and capital leases and borrowed $400,000 on our revolving line of credit.

These items, in addition to the impact of the quarterly net

loss, net of depreciation, amortization, stock-based compensation and other non-cash items, resulted in a decrease of $2,000,785 in our

cash and cash equivalents at March 31 2024 from $2,925,852 at June 30, 2023 to $925,067 at March 31, 2024.

In October 2021 we entered a $2,600,000 term loan

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the same bank in October 2021 for working capital needs, which was increased to $500,000 in May 2022 and to $1,250,000 in June 2023.

were no borrowings outstanding on the line of credit on December 31, 2023 and full availability in the amount of $1,250,000.

Capital equipment expenditures and additional

patent costs during the six months ended December 31, 2023 and in the same period in the prior year were $170,772 and $37,637, respectively.

The increase was primarily attributable to the implementation of a new computer system.

were $400,000 in borrowings outstanding on the line of credit on March 31, 2024 and additional availability in the amount of $850,000.

Capital equipment expenditures and additional patent

costs during the nine months ended March 31, 2024 and in the same period in the prior year were $260,804 and $21,276, respectively.

increase was primarily attributable to the implementation of new computer systems.

Contractual cash commitments for the fiscal periods

subsequent to December 31, 2023, are summarized as follows:

subsequent to March 31, 2024, are summarized as follows:

Capital lease for equipment, including interest

Minimum operating lease payments

We have contractual cash commitments related to

open purchase orders as of December 31, 2023 of approximately $3,163,000.

We have contractual cash commitments related to open

purchase orders as of March 31, 2024 of approximately $2,500,000.

Off-Balance Sheet Arrangements

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About Market Risk.

As a smaller reporting company, as defined by

Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations

and therefore are not required to provide the information requested by this Item.

As a smaller reporting company, as defined by Rule 12b-2

of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore

are not required to provide the information requested by this Item.

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