What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-05-15 · 113 added, 97 removed, 111 unchanged (65% 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 March 31, 2024 and with our audited consolidated

statements included elsewhere in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 and with our audited consolidated

financial statements for the year ended June 30, 2024 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

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.

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 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.

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.

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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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

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.

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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.

Critical Accounting Policies and Estimates

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, 2024 filed with the Securities and Exchange Commission on September 30, 2024.

Results of Operations

Ended March 31,

Percent of Sales

Percent Change

Engineering Design Services

Optical Components

Finished Products and Assemblies

Technology Rights

Total Revenues

Ended March 31,

Ended September 30,

Percent of Sales

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Finished Products and Assemblies

Technology Rights

Total Revenues

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

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 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

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.

Total revenues for the quarter ending September

30, 2024 were $4,197,053, as compared to $4,321,255 for the same period in the prior year, a decrease of $124,202.

Revenue from Engineering

Design Services decreased 2.6% during the quarter ending September 30, 2024 from the prior year period ending September 30, 2023.

the quarter ending September 30, 2024 engineering capacity, and therefore billable revenues, was reduced as a result of increased research

and development activities.

Revenue from Optical Components increased 9.3%

during the three-month period ending September 30, 2024 from the prior year period ending September 30, 2023.

The market for Optical Components

was impacted beginning in the period ending September 30, 2023, as we noted lower order volumes as customers sought to rebalance their

inventories, and we believe a recovery is now underway.

Revenue from Finished Products and Assemblies

decreased 48.6% during the quarter ending September 30, 2024 from the prior year quarter ending September 30, 2023.

The decrease in revenue

from Finished Products and Assemblies was primarily attributable to a manufacturing pause for a defense/aerospace customer that was occasioned

by a change in specification finalized late in the quarter ending September 30, 2024.

Gross margin decreased to 26.6% during the quarter

ending September 30, 2024, compared to 33.9% for the quarter ending September 30, 2023.

Gross profit decreased to $1,117,330 during the

three months ended September 30, 2024, compared to $1,463,611 for the three months ended September 30, 2023, primarily driven by changes

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

Research & Development

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.

R&D expenses increased $187,901 to $400,659

during the quarter ending September 30, 2024, compared to $212,758 during the quarter ending September 30, 2023.

R&D expenses for

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

to address the opportunities for an evolving single-use medical device environment.

Selling, General and Administrative Expenses

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.

SG&A expenses increased $307,466, or 18.6%

to $1,963,612 during the three months ended September 30, 2024, compared to $1,656,146 during the three months ended September 30, 2023.

The increase in SG&A for the three-month period was primarily due to increased recruitment costs, bad debt expense, consulting expenses

and information technology expenses.

Liquidity and Capital Resources

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.

Based on our current plans and business conditions, management believes

that the Company’s available cash and cash equivalents, the cash generated from operations, availability on our line of credit,

and our ability to raise funds in the capital markets will be sufficient to provide for the Company’s working capital and capital

expenditure requirements for at least 12 months from the date of this filing.

However, our cash on hand and cash generated solely from

operations may be insufficient to meet working capital needs for such period and we may be required to raise external financing in the

Net Cash Used in Operating Activities

During the three months ending September 30, 2024,

net cash used in operating activities totaled $318,622 and included a net loss of $1,311,247, increases in inventory of $592,521, offset

by increases in accounts payable and accrued expenses of $1,016,135, decreases in accounts receivable net of decreased customer deposit

liabilities of $356,092, and non-cash items totaling $202,030.

During the three months ending September 30, 2023,

net cash used in operating activities totaled $1,372,989 and included a net loss of $464,515, increases in inventory of $194,995, increases

in accounts receivable net of increased customer deposit liabilities of $375,426, decreases in accounts payable and accrued expenses of

$390,719, and non-cash items totaling $164,886.

Net Cash Used in Investing Activities

During the three months ending September 30, 2024,

net cash used in investing activities was $28,099, consisting of purchases of property and equipment and patent costs.

During the three

months ended September 30, 2023, net cash used in investing activities was $43,517, consisting of purchases of property and equipment

and patent costs.

Net Cash Provided by Financing Activities

During the three months ending September 30, 2024,

we made payments of $139,527 on term notes and capital leases and repaid $500,000 on our revolving line of credit.

We raised a net of

$1,204,542 through the issuance of new shares in a registered direct common stock offering.

During the three months ending September 30,

2023, we made payments of $138,876 on term notes and capital leases.

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 $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.

were $500,000 in borrowings outstanding on the line of credit on September 30, 2024 and additional availability in the amount of $750,000.

Our loan agreement contains a minimum annual debt

service coverage ratio covenant of 1.2x, for the period ending June 30, 2024.

We did not meet this annual debt service coverage ratio

as of June 30, 2024.

Our lender has agreed to waive compliance with the debt service ratio covenant for the period ending June 30, 2024.

In addition to the waiver, we have entered into amendments dated September 30, 2024 with our lender to both term loans which provide for

a six month period of interest only payments from October 15, 2024 through March 15, 2025.

We will begin to pay principal and interest

under the Notes beginning with the payments due on April 15, 2025, with a new amortization schedule for the remaining term for such Notes

through their maturity date.

There were no other changes to or modifications to the Loan Agreement or the Notes.

On August 14.

2024 we entered into securities

purchase agreements with institutional and accredited investors in addition to certain directors and officers of the Company for the purchase

and sale of 265,868 shares of the Company’s common stock resulting in gross proceeds of approximately $1.4 million before deducting

placement agent commissions and other estimated offering expenses.

Net proceeds were $1,204,542.

Capital equipment expenditures and additional

patent costs during the three months ended September 30, 2024 and in the same period in the prior year were $28,099 and $43,517, respectively.

Contractual cash commitments for the fiscal periods

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

subsequent to September 30, 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 March 31, 2024 of approximately $2,500,000.

We have contractual cash commitments related to

open purchase orders as of September 30, 2024 of approximately $4,549,000.

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