LightPath Technologies(LPTH) - 2023 Q4 - Annual Report

PART I Item 1. Business LightPath Technologies, Inc. manufactures optical components globally, transitioning to a solutions partner leveraging advanced optical technologies - LightPath Technologies, Inc. was incorporated in Delaware in 1992 and operates globally with major facilities in the United States, the People's Republic of China, and the Republic of Latvia, with corporate headquarters in Orlando, Florida[14] - The company's strategic direction has evolved from focusing on optical component manufacturing to providing domain expertise in optics and partnering with customers for optical engine solutions[26] - In July 2023, LightPath acquired Visimid Technologies, an engineering and design firm specializing in thermal imaging, night vision, and IoT applications, to enhance development and engineering capabilities[18][28][33] - LightPath is developing and commercializing BlackDiamond glass (BD2, BD6) as an alternative to Germanium for infrared applications, offering advantages like multispectral imaging and a-thermal behavior, supported by government funding[33][47][62] - New product development costs were approximately $2.1 million in both fiscal years 2023 and 2022, with a recent focus on internally-funded projects like the MANTIS broadband multispectral camera[36][173] - The company's revenues are categorized into three product groups: Precision Molded Optics (PMOs), infrared products, and specialty products, including value-added items and NRE products[39][40][41] - LightPath's competitive advantages include unique technologies (e.g., precision molded optics), vertical integration in infrared optics, and manufacturing flexibility with facilities in Asia, Europe, and North America[57][60][64] Revenue by Product Group (FY2023 vs. FY2022) | Product Group | FY2023 Revenue ($) | FY2022 Revenue ($) | Change (%) | | :-------------- | :----------------- | :----------------- | :--------- | | PMO | 13,425,643 | 15,020,542 | -11% | | Infrared Products | 16,735,869 | 18,735,325 | -11% | | Specialty Products | 2,772,437 | 1,803,293 | 54% | | Total Revenue | 32,933,949 | 35,559,160 | -7% | Customer Concentration (FY2023 vs. FY2022) | Metric | FY2023 | FY2022 | | :-------------------------------- | :----- | :----- | | Sales to top 3 customers (aggregate) | 24% | 35% | | Sales to largest customer | 11% | 19% | | Sales to second largest customer | 7% | 9% | | Sales to third largest customer | 6% | 7% | International Sales (FY2023 vs. FY2022) | Metric | FY2023 | FY2022 | | :-------------------------------- | :----- | :----- | | Net revenue from outside U.S. | 50% | 61% | | Foreign sales from Europe and Asia | 93% | 95% | Item 1A. Risk Factors The company faces significant risks including net losses, customer concentration, and international operational vulnerabilities - LightPath reported net losses of $4.0 million, $3.5 million, and $3.2 million for fiscal years 2023, 2022, and 2021, respectively, with an accumulated deficit of approximately $207.8 million as of June 30, 2023[91] - The company is highly dependent on a few key customers; in fiscal year 2023, three customers accounted for an aggregate of approximately 24% of annual revenue, with the largest customer contributing 11%[94][428] - International operations expose the company to political and economic risks, including supply shortages from single/limited sources (e.g., Germanium from China), the impact of the Russia-Ukraine conflict, and international tariffs[96][97][104] - Future growth is dependent on market penetration efforts, including diversifying sales and offering complete optical solutions, which requires gaining customer trust and significant investment[107] - The company faces substantial competition from larger companies with greater resources and anticipates further reductions in average selling prices for some products[112][114] - Protection of intellectual property relies on trade secrets, patents, trademarks, and copyrights, but there's a risk of competitors developing similar technology and enforcement challenges globally[140][143][144] Item 2. Properties LightPath's primary properties consist of leased office and manufacturing facilities in Orlando, Riga, and Zhenjiang Company Facilities as of June 30, 2023 | Location | Square Feet | Commitment and Use | | :--------------- | :---------- | :------------------------------------------------------ | | Orlando, Florida | 58,500 | Leased; corporate headquarters, manufacturing, R&D | | Riga, Latvia | 29,000 | Leased; administrative offices, manufacturing, crystal growing | | Zhenjiang, China | 55,000 | Leased; manufacturing | Item 3. Legal Proceedings LightPath is involved in various legal actions in the normal course of business but currently has no material legal proceedings - The company is involved in various legal actions arising in the normal course of business but currently has no material legal proceeding to which it is a party or to which its property is subject[151] Item 4. Mine Safety Disclosures This item is not applicable to LightPath Technologies, Inc PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities LightPath's Class A common stock trades on Nasdaq under 'LPTH', with no cash dividends paid or intended - LightPath's Class A common stock is traded on the Nasdaq Capital Market under the symbol 'LPTH'[154] - As of September 7, 2023, there were approximately 212 holders of record and 10,192 street name holders of the company's Class A common stock[155] - The company has never declared or paid any cash dividends on its Class A common stock and does not intend to do so in the foreseeable future, planning to retain all future earnings for business operations and expansion[156] Item 6. Reserved This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations LightPath's FY2023 revenue decreased 7% to $32.9 million, with stable gross margin but increased net loss and negative EBITDA - The COVID-19 pandemic continues to impact economic conditions, particularly in China, negatively affecting demand and operations, including travel restrictions[161][422] - LightPath incurred approximately $400,000 in legal and consulting fees in fiscal year 2022 related to malfeasance by former Chinese subsidiary employees, with severance payments of $430,000 paid in fiscal year 2023[163][165][414][416][417] Key Financial Results (FY2023 vs. FY2022) | Metric | FY2023 ($) | FY2022 ($) | Change (%) | | :---------------------- | :------------ | :------------ | :--------- | | Revenue, net | 32,933,949 | 35,559,160 | -7% | | Cost of sales | 21,859,126 | 23,744,524 | -8% | | Gross margin | 11,074,823 | 11,814,636 | -6% | | Gross margin % of revenue | 34% | 33% | +1 pp | | Operating loss | (3,554,541) | (2,627,234) | +35% | | Net loss | (4,046,871) | (3,542,181) | +14% | | Basic/Diluted Loss per Share | (0.13) | (0.13) | 0% | - Selling, General and Administrative (SG&A) costs increased by 2% to $11.4 million in FY2023, primarily due to increased stock compensation, personnel costs, Visimid acquisition costs ($140,000), and Orlando facility exit costs ($129,000)[172] - New product development costs increased by 3% to $2.1 million in FY2023, driven by greater spending on internally-funded projects like the MANTIS reference design camera[173] - Interest expense increased to $283,000 in FY2023 due to rising interest rates, despite a 30% reduction in total debt; other income decreased significantly due to a non-recurring $210,000 accrual reversal in FY2022[174][175] - Income tax expense decreased to $234,000 in FY2023, primarily related to China operations and Chinese withholding taxes on intercompany dividends; LPOIZ qualifies for a reduced Chinese income tax rate of 15%[176][347][349] - Cash flow used in operations was $2.8 million in FY2023, a decrease from $1.5 million provided in FY2022, mainly due to increases in accounts receivable and inventory; capital expenditures increased to $3.1 million for the Orlando Facility expansion[193][195] - Net cash provided by financing activities was $7.5 million in FY2023, driven by $9.2 million in equity proceeds from a public offering in January 2023[197][409] - The company's strategy focuses on converting 'turns' business to more rewarding 'annuity' revenue streams through customer product development and 'engineered solutions'[198][199] Quarterly Sales Backlog (FY2022-FY2023) | Quarter | Total Backlog ($000) | Change From Prior Year End (%) | Change From Prior Quarter End (%) | | :------ | :------------------- | :----------------------------- | :------------------------------ | | Q1 2022 | 19,265 | -10% | -10% | | Q2 2022 | 21,929 | 3% | 14% | | Q3 2022 | 19,678 | -8% | -10% | | Q4 2022 | 17,767 | -17% | -10% | | Q1 2023 | 22,973 | 29% | 29% | | Q2 2023 | 29,427 | 66% | 28% | | Q3 2023 | 26,620 | 50% | -10% | | Q4 2023 | 21,652 | 22% | -19% | Revenue and Units by Product Group (FY2023 vs. FY2022) | Product Group | FY2023 Revenue ($) | FY2022 Revenue ($) | Revenue Change (%) | FY2023 Units | FY2022 Units | Units Change (%) | | :---------------- | :----------------- | :----------------- | :----------------- | :----------- | :----------- | :--------------- | | PMO | 13,425,643 | 15,020,542 | -11% | 1,462,800 | 1,999,200 | -27% | | Infrared Products | 16,735,869 | 18,735,325 | -11% | 167,095 | 438,508 | -62% | | Specialty Products | 2,772,437 | 1,803,293 | 54% | 58,197 | 18,948 | 207% | | Total | 32,933,949 | 35,559,160 | -7% | 1,688,092 | 2,456,656 | -31% | Days Cost of Sales in Inventory (DCSI) (FY2022-FY2023) | Fiscal Quarter | Ended | DCSI (days) | | :------------- | :--------- | :---------- | | Q4-2023 | 6/30/2023 | 102 | | Q3-2023 | 3/31/2023 | 154 | | Q2-2023 | 12/31/2022 | 120 | | Q1-2023 | 9/30/2022 | 125 | | FY2023 Average | | 125 | | Q4-2022 | 6/30/2022 | 104 | | Q3-2022 | 3/31/2022 | 132 | | Q2-2022 | 12/31/2021 | 104 | | Q1-2022 | 9/30/2021 | 134 | | FY2022 Average | | 118 | Days Sales Outstanding (DSO) (FY2022-FY2023) | Fiscal Quarter | Ended | DSO (days) | | :------------- | :--------- | :--------- | | Q4-2023 | 6/30/2023 | 63 | | Q3-2023 | 3/31/2023 | 59 | | Q2-2023 | 12/31/2022 | 52 | | Q1-2023 | 9/30/2022 | 57 | | FY2023 Average | | 58 | | Q4-2022 | 6/30/2022 | 54 | | Q3-2022 | 3/31/2022 | 55 | | Q2-2022 | 12/31/2021 | 49 | | Q1-2022 | 9/30/2021 | 59 | | FY2022 Average | | 54 | EBITDA (FY2023 vs. FY2022) | Metric | FY2023 ($) | FY2022 ($) | | :----- | :--------- | :--------- | | EBITDA | (355,002) | 1,167,944 | | % of revenue | -1% | 3% | Item 8. Financial Statements and Supplementary Data This section incorporates by reference the consolidated financial statements and supplementary data from Item 15 of Part IV - The information required by this Item is incorporated by reference to the consolidated financial statements and supplementary data set forth in Item 15. Exhibits, Financial Statement Schedules of Part IV of this Annual Report on Form 10-K[240] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure LightPath Technologies, Inc. reports no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[241] Item 9A. Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective as of June 30, 2023 - As of June 30, 2023, LightPath's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded, processed, summarized, and reported timely[243] - Management assessed and concluded that the company's internal control over financial reporting was effective as of June 30, 2023, based on the COSO Internal Control—Integrated Framework (2013)[244] - Following events at its Chinese subsidiaries, LightPath adopted additional policies and procedures to improve internal controls, including revising reporting structures for foreign-based finance directors and implementing Codes of Conduct[247] Item 9B. Other Information This item reports that there is no other information required to be disclosed - There is no other information to report under this item[248] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to LightPath Technologies, Inc PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement - Information for this item is incorporated by reference to the Proxy Statement for the fiscal year 2024 Annual Stockholders' Meeting[250] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement - Information for this item is incorporated by reference to the Proxy Statement for the fiscal year 2024 Annual Stockholders' Meeting[251] Item 12. Security Ownership of Certain Beneficial Owners and Management Security ownership information is incorporated by reference from the Proxy Statement, with 2.23 million securities outstanding under equity plans - Information for this item is incorporated by reference to the Proxy Statement for the fiscal year 2024 Annual Stockholders' Meeting[252] Securities Authorized for Issuance Under Equity Compensation Plans (FY2023) | Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise and Grant Price of Outstanding Options, Warrants and Rights ($) | Number of Securities Remaining Available for Future Issuance | | :------------------------------------------------ | :-------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------- | :----------------------------------------------------------- | | Equity compensation plans approved by security holders | 2,232,417 | 1.66 | 1,633,538 | | Equity compensation plans not approved by security holders | — | — | — | Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - Information for this item is incorporated by reference to the Proxy Statement for the fiscal year 2024 Annual Stockholders' Meeting[254] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement - Information for this item is incorporated by reference to the Proxy Statement for the fiscal year 2024 Annual Stockholders' Meeting[255] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the Annual Report on Form 10-K - This section details the exhibits filed as part of the Annual Report on Form 10-K, including corporate governance documents, loan agreements, and equity compensation plans[257][265][267][268][269] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[270] Index to Consolidated Financial Statements This section provides an index to the consolidated financial statements, including the Report of Independent Registered Public Accounting Firm and detailed Notes - The index lists the Report of Independent Registered Public Accounting Firm by MSL, P.A., and the Consolidated Financial Statements, which include Balance Sheets, Statements of Comprehensive Income (Loss), Statements of Changes in Stockholders' Equity, and Statements of Cash Flows, along with their accompanying notes[272] Report of Independent Registered Public Accounting Firm – MSL, P.A. MSL, P.A. issued an unqualified opinion on LightPath's consolidated financial statements, identifying inventory allowance as a critical audit matter - MSL, P.A. provided an unqualified opinion, stating that LightPath's consolidated financial statements for June 30, 2023, and 2022, are presented fairly, in all material respects, in conformity with GAAP[274] - The critical audit matter identified was the subjective evaluation of management's estimate of the inventory allowance, due to significant assumptions involved in estimating future inventory turnover and sales[279][280] Consolidated Financial Statements The consolidated financial statements present LightPath's financial position, including total assets of $53.5 million (2023) and net losses of $4.0 million (2023) Consolidated Balance Sheet Highlights | Metric | June 30, 2023 ($) | June 30, 2022 ($) | | :---------------------- | :---------------- | :---------------- | | Total Assets | 53,536,184 | 50,713,921 | | Total Liabilities | 17,583,659 | 20,982,683 | | Total Stockholders' Equity | 35,952,525 | 29,731,238 | | Cash and cash equivalents | 4,687,004 | 5,507,891 | | Restricted cash | 2,457,486 | — | | Inventories, net | 7,410,734 | 6,985,427 | | Loans payable, current portion | 1,023,814 | 998,692 | Consolidated Statements of Comprehensive Income (Loss) Highlights | Metric | Year Ended June 30, 2023 ($) | Year Ended June 30, 2022 ($) | | :---------------------- | :--------------------------- | :--------------------------- | | Revenue, net | 32,933,949 | 35,559,160 | | Gross margin | 11,074,823 | 11,814,636 | | Operating loss | (3,554,541) | (2,627,234) | | Net loss | (4,046,871) | (3,542,181) | | Loss per common share (basic) | (0.13) | (0.13) | Consolidated Statements of Cash Flows Highlights | Metric | Year Ended June 30, 2023 ($) | Year Ended June 30, 2022 ($) | | :-------------------------------------- | :--------------------------- | :--------------------------- | | Net cash (used in) provided by operating activities | (2,809,523) | 1,464,128 | | Net cash used in investing activities | (2,867,985) | (1,626,614) | | Net cash provided by (used in) financing activities | 7,455,876 | (636,174) | | Change in cash, cash equivalents and restricted cash | 1,636,599 | (1,266,803) | | Cash, cash equivalents and restricted cash, end of period | 7,144,490 | 5,507,891 | Notes to Consolidated Financial Statements The notes provide detailed information on LightPath's accounting policies, financial statement components, and a subsequent event regarding the Visimid acquisition - LightPath's accounting policies include estimates for accounts receivable allowance, inventory obsolescence, stock-based compensation, and income taxes; revenue is recognized upon transfer of control of products or services[298][301][303][311][318][330] Inventories, net (FY2023 vs. FY2022) | Component | June 30, 2023 ($) | June 30, 2022 ($) | | :---------------- | :---------------- | :---------------- | | Raw materials | 2,999,879 | 3,019,156 | | Work in process | 2,909,439 | 2,243,907 | | Finished goods | 2,626,106 | 3,052,001 | | Allowance for obsolescence | (1,124,690) | (1,329,637) | | Total Inventories, net | 7,410,734 | 6,985,427 | Goodwill and Intangible Assets, net (FY2023 vs. FY2022) | Asset Type | June 30, 2023 ($) | June 30, 2022 ($) | | :------------------ | :---------------- | :---------------- | | Goodwill | 5,854,905 | 5,854,905 | | Total Intangible Assets, net | 3,332,715 | 4,457,798 | - LightPath's Chinese subsidiary, LPOIZ, benefits from an incentive program with a 15% tax rate and repatriated $1.9 million and $2.8 million from LPOIZ in FY2023 and FY2022, respectively, incurring Chinese withholding taxes[347][349] Deferred Tax Assets and Liabilities (June 30, 2023 vs. 2022) | Item | June 30, 2023 ($) | June 30, 2022 ($) | | :------------------------ | :---------------- | :---------------- | | Gross deferred tax assets | 12,348,000 | 15,914,250 | | Valuation allowance | (11,057,000) | (14,388,277) | | Total deferred tax assets | 1,291,000 | 1,525,973 | | Total deferred tax liabilities | (1,616,000) | (1,923,988) | | Net deferred tax assets (liabilities) | (325,000) | (398,015) | - Total stock-based compensation expense was $1.31 million in FY2023, up from $825,250 in FY2022, included in selling, general and administrative expenses[373] - LightPath has operating leases for facilities in Orlando, Zhenjiang, and Riga, and finance leases for equipment; the Orlando lease was extended to March 31, 2034, and the Zhenjiang lease expires December 31, 2024[377][379][380] Future Maturities of Loans Payable (as of June 30, 2023) | Fiscal Year Ending | BankUnited Term Loan ($) | Equipment Loans ($) | Total ($) | | :----------------- | :----------------------- | :------------------ | :-------- | | June 30, 2024 | 901,078 | 122,736 | 1,023,814 | | June 30, 2025 | 1,273,533 | 139,966 | 1,413,499 | | June 30, 2026 | - | 79,761 | 79,761 | | June 30, 2027 | - | 37,571 | 37,571 | | After June 30, 2027 | - | 19,756 | 19,756 | | Total Payments | 2,174,611 | 399,790 | 2,574,401 | - In July 2023, LightPath acquired Visimid Technologies for $1 million in cash, $1.55 million in restricted stock, and $150,000 in assumed bank debt, aligning with its growth strategy to enhance engineered solutions capabilities[430][431][432]