LightPath Technologies(LPTH) - 2021 Q3 - Quarterly Report

Filing Information This section details the registrant's identity, stock listing, and company classification - The registrant is LIGHTPATH TECHNOLOGIES, INC., incorporated in Delaware, with its Class A Common Stock (LPTH) registered on The Nasdaq Stock Market, LLC[2][4] - The company is classified as a Smaller reporting company and a Non-accelerated filer[7] - As of May 3, 2021, there were 26,565,926 shares of Class A Common Stock, $0.01 par value, outstanding[9] CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS This section highlights the inherent risks and uncertainties associated with forward-looking statements in the report - This section outlines forward-looking statements in the report, which are subject to risks and uncertainties, including those related to the continued duration and scope of the COVID-19 pandemic, raw material and component availability, government actions, global economic conditions, and the company's ability to sustain profitable sales growth and implement business initiatives[13] PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including core financial statements and explanatory notes Unaudited Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and equity Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2021 | June 30, 2020 | | :-------------------------------- | :------------- | :------------ | | Total Assets | $48,708,471 | $47,574,918 | | Total Liabilities | $12,718,235 | $13,007,977 | | Total Stockholders' Equity | $35,990,236 | $34,566,941 | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) This section details the company's financial performance, including revenue, gross margin, and net income or loss Key Income Statement Metrics (Three Months Ended March 31) | Metric | 2021 | 2020 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :----------- | | Revenue, net | $10,701,362 | $8,708,981 | +23% | | Gross margin | $3,903,757 | $4,012,176 | -3% | | Operating income | $166,657 | $1,062,812 | -84% | | Net income (loss) | $(222,564) | $816,017 | -127% | | Earnings (loss) per common share (basic) | $(0.01) | $0.03 | -133% | Key Income Statement Metrics (Nine Months Ended March 31) | Metric | 2021 | 2020 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :----------- | | Revenue, net | $30,132,505 | $25,860,823 | +17% | | Gross margin | $11,384,285 | $10,332,274 | +10% | | Operating income | $901,111 | $1,507,366 | -40% | | Net income (loss) | $(272,041) | $209,977 | -230% | | Earnings (loss) per common share (basic) | $(0.01) | $0.01 | -200% | Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity This section outlines the changes in the company's stockholders' equity over the reporting period Stockholders' Equity Changes (June 30, 2020 to March 31, 2021) | Metric | June 30, 2020 | March 31, 2021 | Change | | :-------------------------------- | :------------ | :------------- | :----- | | Class A Common Stock (Shares) | 25,891,885 | 26,565,926 | +674,041 | | Class A Common Stock (Amount) | $258,919 | $265,659 | +$6,740 | | Additional Paid-in Capital | $230,634,056 | $231,243,062 | +$609,006 | | Accumulated Other Comprehensive Income | $735,892 | $1,815,482 | +$1,079,590 | | Accumulated Deficit | $(197,061,926) | $(197,333,967) | -272,041 | | Total Stockholders' Equity | $34,566,941 | $35,990,236 | +$1,423,295 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Nine Months Ended March 31) | Cash Flow Activity | 2021 | 2020 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Net cash provided by operating activities | $3,076,235 | $1,869,783 | +$1,206,452 | | Net cash used in investing activities | $(2,721,567) | $(1,318,035) | -1,403,532 | | Net cash used in financing activities | $(312,700) | $(727,039) | +$414,339 | | Change in cash and cash equivalents | $553,311 | $(222,988) | +$776,299 | | Cash and cash equivalents, end of period | $5,940,699 | $4,381,713 | +$1,558,986 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with Article 8 of Regulation S-X and should be read with the Annual Report on Form 10-K for the fiscal year ended June 30, 2020. No material changes to significant accounting policies occurred during the nine months ended March 31, 2021[27][29] Revenue by Product Group (Three Months Ended March 31) | Product Group | 2021 | 2020 | | :---------------- | :----------- | :----------- | | PMO | $3,904,857 | $3,851,518 | | Infrared Products | $6,462,527 | $4,296,111 | | Specialty Products | $333,978 | $561,352 | | Total revenue | $10,701,362 | $8,708,981 | Inventory Components (March 31, 2021 vs June 30, 2020) | Component | March 31, 2021 | June 30, 2020 | | :-------------------- | :------------- | :------------ | | Raw materials | $3,640,273 | $3,876,955 | | Work in process | $2,971,839 | $2,989,070 | | Finished goods | $3,395,230 | $3,134,800 | | Allowance for obsolescence | $(1,124,059) | $(1,016,343) | | Total inventories, net | $8,883,283 | $8,984,482 | Income Tax Provision and Effective Rate (Nine Months Ended March 31) | Metric | 2021 | 2020 | | :---------------------- | :------- | :------- | | Income before income taxes | $711,545 | $883,533 | | Income tax provision | $983,586 | $673,556 | | Effective income tax rate | 138% | 76% | - Income tax expense was primarily related to China operations, including $400,000 in Chinese withholding taxes on $4 million of intercompany dividends declared by LPOIZ in the first nine months of fiscal 2021[42][46] Stock-Based Compensation Expense (Nine Months Ended March 31) | Type | 2021 | 2020 | | :---------------- | :------- | :------- | | Stock options | $51,277 | $(15,330) | | RSUs | $391,800 | $261,616 | | Total | $443,077 | $246,286 | Earnings (Loss) Per Common Share (Nine Months Ended March 31) | Metric | 2021 | 2020 | | :-------------------------------- | :------- | :------- | | Net income (loss) | $(272,041) | $209,977 | | Basic EPS | $(0.01) | $0.01 | | Diluted EPS | $(0.01) | $0.01 | - Loans payable primarily include the BankUnited Term Loan ($4.7 million outstanding), BankUnited Revolving Line ($300,000 outstanding), and a subordinated Equipment Loan ($247,000 outstanding) as of March 31, 2021. The company was in compliance with all loan covenants[121][71] - Over 50% of the company's $5.9 million cash and cash equivalents at March 31, 2021, was held by foreign subsidiaries in China and Latvia. LPOIZ had approximately $6.6 million available for repatriation[76][118][120] - In April 2021, the company terminated several employees of its China subsidiaries due to malfeasance, incurring $194,000 in investigation expenses and agreeing to $470,000 in severance. Short-term adverse impacts on domestic sales in China are anticipated[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operations, and liquidity, covering strategy and key performance indicators Potential Impact of COVID-19 This section assesses the operational and financial impacts of the COVID-19 pandemic on the company - The company's manufacturing facilities have continued to operate substantially as normal, with some non-manufacturing employees working remotely. No significant direct negative impact has been experienced, but future effects on demand, operations, cash flows, and financial position remain uncertain due to evolving economic conditions[85] - There has been increased demand for thermal imaging assemblies for fever detection applications in response to the pandemic[85] Introduction (Company Overview) This section provides an overview of the company's global operations and specialized optical product offerings - LightPath is a global company with major facilities in the United States, China, and Latvia, specializing in precision molded optics, thermal imaging optics, custom designed optics, and the design and manufacturing of optical assemblies and subsystems[86][87] Subsidiaries This section identifies and describes the company's key operational subsidiaries - Key subsidiaries include LPOI (sales and support in China), LPOIZ (primary manufacturing in China), and ISP Optics Latvia, SIA (manufacturer of high precision infrared optics in Latvia). The ISP facility in Irvington, NY was relocated to Orlando, FL and Riga, Latvia in June 2019[88][89] Growth Strategy This section outlines the company's strategic shift towards providing complete optical solutions and OEM partnerships - The company is shifting its strategic focus from component manufacturing to offering complete optical solutions and becoming a partner of choice for OEM customers integrating optics. This involves aligning resources, processes, and developing capabilities to support this strategy[91][93][94] Product Groups and Markets This section categorizes the company's products and identifies its target markets and market size - The business is organized into three product groups: Precision Molded Optics (PMO), Infrared Products, and Specialty Products (value-added products and NRE). These serve major markets including defense and security, optical systems, datacom/telecom, information technology, life sciences, machine vision, and production technology[95][97][98][99] - The company estimates a $2.0 billion market for its current products and capabilities within the larger $401 billion photonics market (excluding displays and photovoltaic), which is growing at a 7% compound annual growth rate[100] Results of Operations This section analyzes the company's financial performance, including revenue, gross margin, and expense trends Revenue by Product Group (Three Months Ended March 31) | Product Group | 2021 | 2020 | Change (YoY) | | :---------------- | :----------- | :----------- | :----------- | | PMO | $3,904,857 | $3,851,518 | +1% | | Infrared Products | $6,462,527 | $4,296,111 | +50% | | Specialty Products | $333,978 | $561,352 | -41% | | Total Revenue | $10,701,362 | $8,708,981 | +23% | Revenue by Product Group (Nine Months Ended March 31) | Product Group | 2021 | 2020 | Change (YoY) | | :---------------- | :----------- | :----------- | :----------- | | PMO | $12,940,919 | $10,746,525 | +20% | | Infrared Products | $15,995,133 | $13,259,610 | +21% | | Specialty Products | $1,196,453 | $1,854,688 | -35% | | Total Revenue | $30,132,505 | $25,860,823 | +17% | - Gross margin as a percentage of revenue decreased to 36% (Q3 2021) from 46% (Q3 2020) due to product mix shift towards lower-margin infrared products (60% of revenue) and lower yields in new infrared products, particularly BD6 coatings, experiencing start-up inefficiencies in mass production[104] SG&A Costs (Nine Months Ended March 31) | Metric | 2021 | 2020 | Change (YoY) | | :------------- | :----------- | :----------- | :----------- | | SG&A costs | $8,009,484 | $6,796,536 | +18% | - SG&A costs increased due to $400,000 in additional compensation to the former CEO, $194,000 in legal/consulting fees for China employee terminations, and $84,000 in stock compensation for a retiring director[106][108] New Product Development Costs (Nine Months Ended March 31) | Metric | 2021 | 2020 | Change (YoY) | | :-------------------------- | :------- | :------- | :----------- | | New product development costs | $1,620,927 | $1,309,383 | +24% | - Net loss for Q3 2021 was $223,000 (EPS $(0.01)) compared to net income of $816,000 (EPS $0.03) in Q3 2020, primarily due to increased SG&A and new product development costs, and lower gross margin percentage[115] Liquidity and Capital Resources This section discusses the company's cash position, working capital, and capital expenditure activities Liquidity Position (March 31, 2021) | Metric | Amount | | :-------------------- | :----------- | | Working Capital | $14.0 million | | Cash and Cash Equivalents | $5.9 million | - Over 50% of cash and cash equivalents are held by foreign subsidiaries. The company repatriated $3 million from LPOIZ in the first nine months of fiscal 2021, with $6.6 million still available for repatriation from LPOIZ[118][120] - Cash flow from operations improved to $3.1 million for the first nine months of fiscal 2021, up from $1.9 million in the prior year, due to improved receivables and inventory management. Capital expenditures increased to $2.7 million, primarily for infrared coating, lens pressing, and dicing capacity[124][125] Contractual Obligations and Commitments This section details the company's principal contractual obligations and contingent liabilities - Principal commitments as of March 31, 2021, consisted of obligations under operating and finance leases, and debt agreements. No material changes occurred in contractual cash obligations or contingent liabilities during the first nine months of fiscal 2021[127] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet arrangements or variable interest entities - The company does not engage in any activities involving variable interest entities or off-balance sheet arrangements[128] Critical Accounting Policies and Estimates This section confirms the consistency of critical accounting policies and estimates with prior disclosures - There have been no material changes to critical accounting policies and estimates during the nine months ended March 31, 2021, from those disclosed in the Annual Report on Form 10-K for the year ended June 30, 2020[129] How We Operate This section describes the company's sales model, focusing on ad-hoc orders versus design-win annuity streams - The company operates with two basic sales types: ad-hoc purchase orders for standard products ('turns' business) and customer product development leading to 'design wins' and annuity revenue streams. A key objective is to convert more business to the design win and annuity model[130] Our Key Performance Indicators This section presents key operational metrics, including sales backlog, revenue, and unit changes by product group Total Sales Backlog | Quarter End | Backlog ($000) | Change From Prior Year | Change From Prior Quarter | | :---------- | :------------- | :--------------------- | :------------------------ | | Q3 2020 | $22,772 | 26% | 1% | | Q4 2020 | $21,908 | 21% | -4% | | Q1 2020 | $20,866 | -5% | -5% | | Q2 2021 | $23,835 | 9% | 14% | | Q3 2021 | $19,498 | -11% | -18% | - Total backlog decreased by 14% year-over-year to $19.5 million at March 31, 2021, primarily due to record high sales and fewer new orders from a large telecommunications customer, which is believed to be a temporary slowdown related to 5G rollout[137] Revenue and Unit Changes by Product Group (Three Months Ended March 31) | Product Group | Revenue % Change (YoY) | Units % Change (YoY) | | :---------------- | :--------------------- | :------------------- | | PMO | +1% | -15% | | Infrared Products | +50% | +85% | | Specialty Products | -41% | -36% | | Total | +23% | -5% | Revenue and Unit Changes by Product Group (Nine Months Ended March 31) | Product Group | Revenue % Change (YoY) | Units % Change (YoY) | | :---------------- | :--------------------- | :------------------- | | PMO | +20% | +31% | | Infrared Products | +21% | +95% | | Specialty Products | -35% | -28% | | Total | +17% | +37% | - For the three months, PMO average selling prices increased by 19% despite a 15% unit decrease, while Infrared average selling prices decreased 19% with an 85% unit increase, driven by higher volume, lower-priced molded BD6 products[142][143] - Management reviews non-financial indicators like sales opportunity pipeline, on-time delivery, shippable output, and production yield rates to guide tactical operating actions[149] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like EBITDA, used for performance evaluation - EBITDA is a non-GAAP financial measure used by management, lenders, and investors to evaluate core operating performance by excluding net interest expense, income tax expense/benefit, depreciation, and amortization[151] EBITDA Performance (Three Months Ended March 31) | Metric | 2021 | 2020 | Change (YoY) | | :------------- | :----------- | :----------- | :----------- | | EBITDA | $1,055,373 | $1,931,945 | -45% | | % of revenue | 10% | 22% | -12 ppts | EBITDA Performance (Nine Months Ended March 31) | Metric | 2021 | 2020 | Change (YoY) | | :------------- | :----------- | :----------- | :----------- | | EBITDA | $3,486,508 | $3,744,110 | -7% | | % of revenue | 12% | 14% | -2 ppts | - The decrease in EBITDA for both periods was primarily attributable to increased SG&A costs (including expenses related to director and personnel matters) and increased new product development costs[151][152] Item 4. Controls and Procedures Management concluded that disclosure controls were effective, with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2021[153][154] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2021[155] PART II OTHER INFORMATION This section covers other information not included in the financial statements, such as legal proceedings and exhibits Item 1. Legal Proceedings The company reported no legal proceedings for the period - None[156] Item 1A. Risk Factors The company reported no new risk factors for the period - None[156] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for the period - None[157] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - None[157] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures for the period - None[157] Item 5. Other Information The company reported no other information for the period - None[157] Item 6. Exhibits This section lists all exhibits filed, including corporate governance documents and certifications - The exhibits include various corporate governance documents such as Certificates of Incorporation, Amendments, and Bylaws, along with certifications from the CEO and CFO[159][160] SIGNATURES This section contains the official signatures of the company's President, CEO, and CFO - The report was signed on May 6, 2021, by Shmuel Rubin, President and Chief Executive Officer, and Donald O. Retreage, Jr., Chief Financial Officer[165]