LIGHTPATH TECHNOLOGIES INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
December 31,
2019
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from ___________ to ____________
Commission file number 000-27548
LIGHTPATH TECHNOLOGIES, INC.
------------------------------------------------------------------------
(Exact name of registrant as specified in its
charter)
|
DELAWARE
|
86-0708398
|
|
(State or other jurisdiction of
incorporation or
organization)
|
(I.R.S.
Employer
Identification
No.)
|
http://www.lightpath.com
2603 Challenger Tech Ct. Suite 100
Orlando, Florida 32826
-----------------------------------------------------------
(Address of principal executive offices)
(ZIP Code)
(407) 382-4003
---------------------------------------------
(Registrant’s telephone number, including area
code)
N/A
----------------------------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed
since last report)
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
Class A Common
Stock, par value $0.01
|
LPTH
|
The Nasdaq Stock Market, LLC
|
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or such shorter period
that the registrant was required to submit such files). YES [ X ]
NO [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
|
Large accelerated filer [ ]
|
Accelerated
filer [ ]
|
|
|
Smaller
reporting company [ X ]
|
|
Non-accelerated filer [ X ]
|
Emerging
growth company [ ]
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act [
]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO
[X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest
practicable date:
25,857,529 shares of common stock, Class A, $0.01 par value,
outstanding as of February 3, 2020.
LIGHTPATH TECHNOLOGIES, INC.
Form 10-Q
Index
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Item
|
|
Page
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|
Cautionary Note Concerning Forward-Looking
Statements
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4
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|
|
|
|
|
|
Part I
Financial Information
|
|
|
|
Item 1
|
Financial Statements
|
5
|
|
|
Unaudited Condensed Consolidated Balance
Sheets
|
5
|
|
|
Unaudited Condensed Consolidated Statements of
Comprehensive Income (Loss)
|
6
|
|
|
Unaudited Condensed Consolidated Statement of
Changes in Stockholders’ Equity
|
7
|
|
|
Unaudited Condensed Consolidated Statements of
Cash Flows
|
8
|
|
|
Notes
to Unaudited Condensed Consolidated Financial
Statements
|
9
|
|
Item
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
21
|
|
|
Overview
|
21
|
|
|
Results of Operations
|
22
|
|
|
Liquidity and Capital
Resources
|
25
|
|
|
Contractual Obligations and
Commitments
|
26
|
|
|
Off-Balance Sheet Arrangements
|
26
|
|
|
Critical Accounting Policies and
Estimates
|
26
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|
|
Non-GAAP Financial Measures
|
30
|
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Item 4
|
Controls and Procedures
|
30
|
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Part II
Other
Information
|
|
|
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Item 1
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Legal Proceedings
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31
|
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Item 2
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Unregistered Sales of Equity Securities and Use of
Proceeds
|
31
|
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Item 3
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Defaults Upon Senior
Securities
|
31
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Item 4
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Mine Safety Disclosures
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31
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Item 5
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Other Information
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31
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Item 6
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Exhibits
|
31
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Signatures
|
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34
|
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form
10-Q for the quarter ended December 31, 2019 (the “Quarterly
Report”) may constitute “forward-looking
statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities
Act”), Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, which address activities,
events, or developments that we expect or anticipate will or may
occur in the future, including such things as future capital
expenditures, growth, product development, sales, business
strategy, and other similar matters are forward-looking statements.
In some cases, you can identify forward-looking statements by
terminology such as “may,” “will,”
“should,” “expect,” “plan,”
“anticipate,” “believe,”
“estimate,” “predict,”
“potential,” or “continue,” or other
comparable terminology. These forward-looking statements are based
largely on our current expectations and assumptions and are subject
to a number of risks and uncertainties, many of which are beyond
our control. These statements are subject to many risks,
uncertainties, and other important factors that could cause actual
future results to differ materially from those expressed in the
forward-looking statements. For a discussion of risks and
uncertainties that could cause actual results to differ materially
from those contained in our forward-looking statements, please
refer to Item 1A, Risk Factors, in our Annual Report on Form 10-K
for the year ended June 30, 2019. In light of these risks and
uncertainties, all of the forward-looking statements made herein
are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by us
will be realized. We undertake no obligation to update or revise
any of the forward-looking statements contained
herein.
4
LIGHTPATH TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(unaudited)
|
|
December 31,
|
June 30,
|
|
|
2019
|
2019
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$
4,277,607
|
$
4,604,701
|
|
Trade
accounts receivable, net of allowance of $20,780 and
$29,406
|
7,401,375
|
6,210,831
|
|
Inventories,
net
|
7,542,329
|
7,684,527
|
|
Other
receivables
|
—
|
353,695
|
|
Prepaid
expenses and other assets
|
415,897
|
754,640
|
|
Total
current assets
|
19,637,208
|
19,608,394
|
|
|
|
|
|
Property
and equipment, net
|
11,640,542
|
11,731,084
|
|
Operating
lease right-of-use assets
|
1,488,126
|
—
|
|
Intangible
assets, net
|
7,270,506
|
7,837,306
|
|
Goodwill
|
5,854,905
|
5,854,905
|
|
Deferred
tax assets, net
|
652,000
|
652,000
|
|
Other
assets
|
290,200
|
289,491
|
|
Total
assets
|
$
46,833,487
|
$
45,973,180
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
2,699,115
|
$
2,227,768
|
|
Accrued
liabilities
|
1,261,584
|
1,338,912
|
|
Accrued
payroll and benefits
|
1,467,675
|
1,730,658
|
|
Operating
lease liabilities, current
|
749,399
|
—
|
|
Deferred
rent, current portion
|
—
|
72,151
|
|
Loans
payable, current portion
|
581,350
|
581,350
|
|
Finance
lease obligation, current portion
|
378,095
|
404,424
|
|
Total
current liabilities
|
7,137,218
|
6,355,263
|
|
|
|
|
|
Finance
lease obligation, less current portion
|
456,388
|
640,284
|
|
Operating
lease liabilities, noncurrent
|
1,265,152
|
—
|
|
Deferred
rent, noncurrent
|
—
|
518,364
|
|
Loans
payable, less current portion
|
4,718,754
|
5,000,143
|
|
Total
liabilities
|
13,577,512
|
12,514,054
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred
stock: Series D, $.01 par value, voting;
500,000
shares authorized; none issued and outstanding
|
—
|
—
|
|
Common
stock: Class A, $.01 par value, voting;
44,500,000
shares authorized; 25,840,362 and 25,813,895
shares
issued and outstanding
|
258,404
|
258,139
|
|
Additional
paid-in capital
|
230,527,126
|
230,321,324
|
|
Accumulated
other comprehensive income
|
1,005,340
|
808,518
|
|
Accumulated
deficit
|
(198,534,895
)
|
(197,928,855
)
|
|
Total
stockholders’ equity
|
33,255,975
|
33,459,126
|
|
Total
liabilities and stockholders’ equity
|
$
46,833,487
|
$
45,973,180
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
Condensed Consolidated Statements of Comprehensive Income
(Loss)
(unaudited)
|
|
Three
Months Ended
|
Six
Months Ended
|
||
|
|
December
31,
|
December
31,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
Revenue,
net
|
$
9,599,912
|
$
8,548,507
|
$
17,151,842
|
$
17,098,228
|
|
Cost
of sales
|
5,670,632
|
5,007,364
|
10,831,744
|
10,513,912
|
|
Gross
margin
|
3,929,280
|
3,541,143
|
6,320,098
|
6,584,316
|
|
Operating
expenses:
|
|
|
|
|
|
Selling,
general and administrative
|
2,199,133
|
2,518,853
|
4,540,911
|
4,982,731
|
|
New
product development
|
468,646
|
518,793
|
897,057
|
988,776
|
|
Amortization
of intangibles
|
283,279
|
324,351
|
566,800
|
653,622
|
|
Loss
(gain) on disposal of property and equipment
|
(79,224
)
|
(15,500
)
|
(129,224
)
|
43,257
|
|
Total
operating expenses
|
2,871,834
|
3,346,497
|
5,875,544
|
6,668,386
|
|
Operating
income (loss)
|
1,057,446
|
194,646
|
444,554
|
(84,070
)
|
|
Other
income (expense):
|
|
|
|
|
|
Interest
expense, net
|
(89,257
)
|
(153,289
)
|
(187,798
)
|
(298,302
)
|
|
Other
income (expense), net
|
122,797
|
(48,484
)
|
(392,609
)
|
(386,606
)
|
|
Total
other income (expense), net
|
33,540
|
(201,773
)
|
(580,407
)
|
(684,908
)
|
|
Income
(loss) before income taxes
|
1,090,986
|
(7,127
)
|
(135,853
)
|
(768,978
)
|
|
Income
tax provision (benefit)
|
321,869
|
(23,403
)
|
470,187
|
(202,363
)
|
|
Net
income (loss)
|
$
769,117
|
$
16,276
|
$
(606,040
)
|
$
(566,615
)
|
|
Foreign
currency translation adjustment
|
143,056
|
52,793
|
196,822
|
225,840
|
|
Comprehensive
income (loss)
|
$
912,173
|
$
69,069
|
$
(409,218
)
|
$
(340,775
)
|
|
Earnings
(loss) per common share (basic)
|
$
0.03
|
$
0.00
|
$
(0.02
)
|
$
(0.02
)
|
|
Number
of shares used in per share calculation (basic)
|
25,837,903
|
25,781,941
|
25,832,337
|
25,777,330
|
|
Earnings
(loss) per common share (diluted)
|
$
0.03
|
$
0.00
|
$
(0.02
)
|
$
(0.02
)
|
|
Number
of shares used in per share calculation (diluted)
|
27,361,273
|
27,397,239
|
25,832,337
|
25,777,330
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial
statements.
6
LIGHTPATH TECHNOLOGIES, INC.
Condensed Consolidated Statements of Changes in Stockholders'
Equity
(unaudited)
|
|
|
|
|
Accumulated
|
|
|
|
|
Class
A
|
|
Additional
|
Other
|
|
Total
|
|
|
Common
Stock
|
|
Paid-in
|
Comphrehensive
|
Accumulated
|
Stockholders’
|
|
|
Shares
|
Amount
|
Capital
|
Income
|
Deficit
|
Equity
|
|
Balances at June 30, 2019
|
25,813,895
|
$
258,139
|
$
230,321,324
|
$
808,518
|
$
(197,928,855
)
|
$
33,459,126
|
|
Issuance of
common stock for:
|
|
|
|
|
|
|
|
Employee Stock
Purchase Plan
|
13,370
|
134
|
12,033
|
—
|
—
|
12,167
|
|
Exercise of
RSUs, net
|
4,394
|
44
|
(44
)
|
—
|
—
|
—
|
|
Stock-based
compensation on stock options & RSUs
|
—
|
—
|
98,459
|
—
|
—
|
98,459
|
|
Foreign
currency translation adjustment
|
—
|
—
|
—
|
53,766
|
—
|
53,766
|
|
Net
loss
|
—
|
—
|
—
|
—
|
(1,375,157
)
|
(1,375,157
)
|
|
Balances at September 30, 2019
|
25,831,659
|
$
258,317
|
$
230,431,772
|
$
862,284
|
$
(199,304,012
)
|
$
32,248,361
|
|
Issuance of
common stock for:
|
|
|
|
|
|
|
|
Exercise of
RSUs, net
|
8,703
|
87
|
(87
)
|
—
|
—
|
—
|
|
Stock-based
compensation on stock options & RSUs
|
—
|
—
|
95,441
|
—
|
—
|
95,441
|
|
Foreign
currency translation adjustment
|
—
|
—
|
—
|
143,056
|
—
|
143,056
|
|
Net
income
|
—
|
—
|
—
|
—
|
769,117
|
769,117
|
|
Balances at December 31, 2019
|
25,840,362
|
$
258,404
|
$
230,527,126
|
$
1,005,340
|
$
(198,534,895
)
|
$
33,255,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 30, 2018
|
25,764,544
|
$
257,645
|
$
229,874,823
|
$
473,508
|
$
(195,248,532
)
|
$
35,357,444
|
|
Issuance of
common stock for:
|
|
|
|
|
|
|
|
Employee Stock
Purchase Plan
|
9,061
|
91
|
20,750
|
—
|
—
|
20,841
|
|
Stock-based
compensation on stock options & RSUs
|
—
|
—
|
93,910
|
—
|
—
|
93,910
|
|
Foreign
currency translation adjustment
|
—
|
—
|
—
|
173,047
|
—
|
173,047
|
|
Net
loss
|
—
|
—
|
—
|
—
|
(582,891
)
|
(582,891
)
|
|
Balances at September 30, 2018
|
25,773,605
|
$
257,736
|
$
229,989,483
|
$
646,555
|
$
(195,831,423
)
|
$
35,062,351
|
|
Issuance of
common stock for:
|
|
|
|
|
|
|
|
Exercise of
Stock Options & RSUs, net
|
15,667
|
157
|
4,104
|
—
|
—
|
4,261
|
|
Stock-based
compensation on stock options & RSUs
|
—
|
—
|
103,905
|
—
|
—
|
103,905
|
|
Foreign
currency translation adjustment
|
—
|
—
|
—
|
52,793
|
—
|
52,793
|
|
Net
income
|
—
|
—
|
—
|
—
|
16,276
|
16,276
|
|
Balances at December 31, 2018
|
25,789,272
|
$
257,893
|
$
230,097,492
|
$
699,348
|
$
(195,815,147
)
|
$
35,239,586
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial
statements.
7
LIGHTPATH TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
|
|
Six
Months Ended December 31,
|
|
|
|
2019
|
2018
|
|
Cash
flows from operating activities:
|
|
|
|
Net
loss
|
$
(606,040
)
|
$
(566,615
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|
|
|
Depreciation
and amortization
|
1,760,220
|
1,683,676
|
|
Interest
from amortization of debt costs
|
9,286
|
11,962
|
|
(Gain)
loss on disposal of property and equipment
|
(129,224
)
|
43,257
|
|
Stock-based
compensation on stock options & RSUs, net
|
178,389
|
197,815
|
|
Provision
for doubtful accounts receivable
|
9,147
|
1,469
|
|
Change
in operating lease liabilities
|
(64,090
)
|
(27,096
)
|
|
Inventory
write-offs to reserve
|
—
|
2,114
|
|
Deferred
tax benefit
|
—
|
(406,000
)
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Trade
accounts receivable
|
(1,199,691
)
|
(849,007
)
|
|
Other
receivables
|
353,695
|
(22,858
)
|
|
Inventories
|
142,198
|
(594,141
)
|
|
Prepaid
expenses and other assets
|
338,034
|
214,960
|
|
Accounts
payable and accrued liabilities
|
146,547
|
(87,707
)
|
|
Net
cash provided by (used in) operating activities
|
938,471
|
(398,171
)
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
Purchase
of property and equipment
|
(1,153,227
)
|
(1,180,184
)
|
|
Proceeds
from sale of equipment
|
179,573
|
110,500
|
|
Net
cash used in investing activities
|
(973,654
)
|
(1,069,684
)
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
Proceeds
from exercise of stock options
|
—
|
4,261
|
|
Proceeds
from sale of common stock from Employee Stock Purchase
Plan
|
12,167
|
20,841
|
|
Payments
on loan payable
|
(290,675
)
|
(729,399
)
|
|
Repayment
of finance lease obligations
|
(210,225
)
|
—
|
|
Payments
on capital lease obligations
|
—
|
(167,626
)
|
|
Net
cash used in financing activities
|
(488,733
)
|
(871,923
)
|
|
Effect
of exchange rate on cash and cash equivalents
|
196,822
|
472,547
|
|
Change
in cash and cash equivalents and restricted cash
|
(327,094
)
|
(1,867,231
)
|
|
Cash
and cash equivalents and restricted cash, beginning of
period
|
4,604,701
|
6,508,620
|
|
Cash
and cash equivalents and restricted cash, end of
period
|
$
4,277,607
|
$
4,641,389
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
Interest
paid in cash
|
$
182,241
|
$
267,065
|
|
Income
taxes paid
|
$
249,777
|
$
247,664
|
|
Supplemental
disclosure of non-cash investing & financing
activities:
|
|
|
|
Purchase
of equipment through capital lease arrangements
|
—
|
$
411,750
|
|
|
|
|
The
accompanying notes are an integral part of these unaudited
condensed consolidated financial
statements.
8
LIGHTPATH TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial
Statements
1.
Basis
of Presentation
References
in this document to “the Company,”
“LightPath,” “we,” “us,” or
“our” are intended to mean LightPath Technologies,
Inc., individually, or as the context requires, collectively with
its subsidiaries on a consolidated basis.
The
accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with the requirements of Article 8
of Regulation S-X promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”) and, therefore,
do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash
flows in conformity with accounting principles generally accepted
in the United States of America. These unaudited Condensed
Consolidated Financial Statements should be read in conjunction
with our Consolidated Financial Statements and related notes,
included in our Annual Report on Form 10-K for the fiscal year
ended June 30, 2019, filed with the Securities and Exchange
Commission (the “SEC”). Unless otherwise stated,
references to particular years or quarters refer to our fiscal
years ended June 30 and the associated quarters of those fiscal
years.
These
Condensed Consolidated Financial Statements are unaudited, but
include all adjustments, including normal recurring adjustments,
which, in the opinion of management, are necessary to present
fairly our financial position, results of operations and cash flows
for the interim periods presented. The Consolidated Balance Sheet
as of June 30, 2019 has been derived from the audited financial
statements at that date but does not include all of the information
and notes required by generally accepted accounting principles for
complete financial statements. Results of operations for interim
periods are not necessarily indicative of the results that may be
expected for the year as a whole. The unaudited Condensed
Consolidated Financial Statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
2.
Significant Accounting Policies
Our significant accounting policies are provided in Note 2,
Summary of
Significant Accounting Policies
, in the Consolidated Financial Statements in our
Annual Report on Form 10-K for the fiscal year ended June 30,
2019.
Use of Estimates
Management makes estimates and assumptions during the preparation
of our unaudited Condensed Consolidated Financial Statements that
affect amounts reported in the unaudited Condensed Consolidated
Financial Statements and accompanying notes. Such estimates and
assumptions could change in the future as more information becomes
available, which, in turn, could impact the amounts reported and
disclosed herein.
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board
(“FASB") issued ASU No. 2016-02,
Leases (Topic 842)
(“ASC Topic 842”). This
guidance requires an entity to recognize lease liabilities and a
right-of-use asset for all leases on the balance sheet and to
disclose key information about the entity’s leasing
arrangements. The Company adopted this standard as of July 1, 2019,
using the modified retrospective transition method by applying the
new standard to all leases existing at the date of initial
application and not restating comparative periods. The Company
elected the package of practical expedients permitted under the
transition guidance, which allowed the Company to carryforward
historical lease classification, and not reassess (i) whether a
contract was or contained a lease, and (ii) initial direct costs
for any leases that existed prior to July 1, 2019. The Company also
elected to combine lease and non-lease components and not to record
leases with an initial term of 12 months or less on the unaudited
Condensed Consolidated Balance Sheet. As a result of adopting ASC
Topic 842 on July 1, 2019, the Company recognized operating lease
right-of-use assets of $1.7 million and corresponding operating
lease liabilities of $2.3 million from existing leases on the
Company's unaudited Condensed Consolidated Balance Sheet. Operating
lease liabilities include amounts previously classified as
“Deferred Rent” in the unaudited Condensed Consolidated
Balance Sheet as of June 30, 2019. See Note 11,
Leases
, for further details. The adoption of ASC Topic
842 had no impact on the Company’s unaudited Condensed
Consolidated Statement of Comprehensive Income (Loss) or Condensed
Consolidated Statement of Cash Flows.
There have been no other material changes to our significant
accounting policies during the six months ended December 31, 2019,
from those disclosed in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2019.
Reclassifications
The classification of certain prior-year amounts have been adjusted
in our unaudited Condensed Consolidated Financial Statements to
conform to current year classifications. An accrual of $467,000
related to the lease for ISP Optics Corporation’s
(“ISP”) Irvington, New York facility (the
“Irvington Facility”) was reclassified from
“Deferred rent, current portion” to “Accrued
liabilities” in the unaudited Condensed Consolidated Balance
Sheet as of June 30, 2019. See Note 11,
Lease
Commitments
, and Note
14,
Restructuring
,
for further information. In addition, upon adoption of ASC Topic
842, amounts previously included in the line items “Capital
lease obligation, current portion” and “Capital lease
obligation, less current portion” are now included in the
line items “Finance lease obligation, current portion”
and “Finance lease obligation, less current portion”,
respectively, in the unaudited Condensed Consolidated Balance Sheet
as of June 30, 2019.
9
3.
Revenue
Product Revenue
We are a manufacturer of optical components and higher-level
assemblies, including precision molded glass aspheric optics,
molded and diamond-turned infrared aspheric lenses, and other
optical materials used to produce products that manipulate light.
We design, develop, manufacture, and distribute optical components
and assemblies utilizing advanced optical manufacturing processes.
We also perform research and development for optical solutions for
a wide range of optics markets. Revenue is derived primarily from
the sale of optical components and assemblies.
Revenue Recognition
Revenue is generally recognized upon transfer of control, including
the risks and rewards of ownership, of promised products or
services to customers in an amount that reflects the consideration
we expect to receive in exchange for those products or services. We
generally bear all costs, risk of loss, or damage and retain title
to the goods up to the point of transfer of control of products to
customers. Shipping and handling costs are included in the cost of
goods sold. We present revenue net of sales taxes and any similar
assessments.
Customary payment terms are granted to customers, based on credit
evaluations. We currently do not have any contracts where revenue
is recognized, but the customer payment is contingent on a future
event. We record deferred revenue when cash payments are received
or due in advance of our performance. Deferred revenue was
immaterial as of June 30, 2019 and December 31, 2019.
Nature of Products
Revenue from the sale of optical components and assemblies is
recognized upon transfer of control, including the risks and
rewards of ownership, to the customer. The performance obligations
for the sale of optical components and assemblies are satisfied at
a point in time. Product development agreements are generally short
term in nature, with revenue recognized upon satisfaction of the
performance obligation, and transfer of control of the agreed-upon
deliverable. We have organized our products in three groups:
precision molded optics (“PMO”), infrared, and
specialty products. Revenues from product development agreements
are included in specialty products. Revenue by product group for
the three and six months ended December 31, 2019 and 2018 was as
follows:
|
|
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
PMO
|
$
3,710,549
|
$
4,126,091
|
$
6,895,007
|
$
7,238,195
|
|
Infrared
Products
|
5,003,874
|
3,729,845
|
8,963,499
|
8,690,772
|
|
Specialty
Products
|
885,489
|
692,571
|
1,293,336
|
1,169,261
|
|
Total
revenue
|
$
9,599,912
|
$
8,548,507
|
$
17,151,842
|
$
17,098,228
|
4.
Inventories
The
components of inventories include the following:
|
|
December
31,
2019
|
June
30,
2019
|
|
Raw
materials
|
$
3,469,263
|
$
3,467,105
|
|
Work
in process
|
2,377,664
|
2,288,226
|
|
Finished
goods
|
2,573,561
|
2,704,471
|
|
Allowance
for obsolescence
|
(878,159
)
|
(775,275
)
|
|
|
$
7,542,329
|
$
7,684,527
|
The
value of tooling in raw materials was approximately $2.3 million
and $2.2 million at December 31, 2019 and June 30, 2019,
respectively.
10
5.
Property and Equipment
Property
and equipment are summarized as follows:
|
|
Estimated
|
December
31,
|
June
30,
|
|
|
Lives
(Years)
|
2019
|
2019
|
|
Manufacturing
equipment
|
5 - 10
|
$
18,246,535
|
$
17,412,136
|
|
Computer
equipment and software
|
3 - 5
|
786,089
|
706,840
|
|
Furniture
and fixtures
|
5
|
315,190
|
293,582
|
|
Leasehold
improvements
|
5 - 7
|
2,151,397
|
2,074,069
|
|
Construction
in progress
|
|
522,697
|
697,126
|
|
Total
property and equipment
|
|
22,021,908
|
21,183,753
|
|
Less
accumulated depreciation and amortization
|
|
(10,381,366
)
|
(9,452,669
)
|
|
Total
property and equipment, net
|
|
$
11,640,542
|
$
11,731,084
|
6. Goodwill and Intangible Assets
There were no changes in the net carrying value of goodwill during
the six months ended December 31, 2019.
Identifiable intangible assets were comprised of:
|
|
Useful
|
December 31,
|
June 30,
|
|
|
Lives (Years)
|
2019
|
2019
|
|
Customer
relationships
|
15
|
$
3,590,000
|
$
3,590,000
|
|
Backlog
|
2
|
366,000
|
366,000
|
|
Trade
secrets
|
8
|
3,272,000
|
3,272,000
|
|
Trademarks
|
8
|
3,814,000
|
3,814,000
|
|
Non-compete
agreement
|
3
|
27,000
|
27,000
|
|
Total
intangible assets
|
|
11,069,000
|
11,069,000
|
|
Less
accumulated amortization
|
|
(3,798,494
)
|
(3,231,694
)
|
|
Total
intangible assets, net
|
|
$
7,270,506
|
$
7,837,306
|
11
Future amortization of identifiable intangibles is as
follows:
|
Fiscal
year ending:
|
|
|
June
30, 2020 (remaining six months)
|
$
562,542
|
|
June
30, 2021
|
1,125,083
|
|
June
30, 2022
|
1,125,083
|
|
June
30, 2023
|
1,125,083
|
|
June
30, 2024 and later
|
3,332,715
|
|
|
$
7,270,506
|
7. Accounts Payable
The
accounts payable balance as of December 31, 2019 and June 30, 2019
includes earned but unpaid Board of Directors’ fees of
approximately $82,000 and $91,000, respectively.
8. Income Taxes
A
summary of our total income tax expense and effective income tax
rate for the three and six months ended December 31, 2019 and 2018
is as follows:
|
|
Three
Months Ended
December
31,
|
Six
Months Ended
December
31,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
Income
(loss) before income taxes
|
$
1,090,986
|
$
(7,127
)
|
$
(135,853
)
|
$
(768,978
)
|
|
Income
tax provision (benefit)
|
$
321,869
|
$
(23,403
)
|
$
470,187
|
$
(202,363
)
|
|
Effective
income tax rate
|
30%
|
328%
|
-346%
|
26%
|
The
difference between our effective tax rates in the periods presented
above and the federal statutory rate is due to the mix of taxable
income and losses generated in our various tax jurisdictions, which
include the United States (the “U.S.”), the
People’s Republic of China, and the Republic of Latvia.
Income tax expense for the three and six months ended December 31,
2019 was primarily related to income taxes from our operations in
China, as we are not recording additional income tax benefits on
losses in the U.S. jurisdiction based on our assessment of the
valuation allowance position on our U.S. net deferred tax assets.
For the three and six months ended December 31, 2018, we recorded a
net income tax benefit, comprised of a tax benefit on losses in the
U.S. jurisdiction, offset by tax expense on income generated in
China. Income tax expense for the three and six months ended
December 31, 2019 also includes withholding taxes accrued on a $2
million intercompany dividend declared in December 2019 by
LightPath Optical Instrumentation (Zhenjiang) Co., Ltd.
(“LPOIZ”), which dividend will be paid to us, as its
parent company.
We
record net deferred tax assets to the extent we believe it is more
likely than not that some portion or all of these assets will be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. We
consider the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in
making this assessment. As of December 31, 2019 and June 30, 2019,
we have provided for a valuation allowance against our net deferred
tax assets to reduce the net deferred tax assets to the amount we
estimate is more-likely-than-not to be realized. Our net deferred
tax asset consists primarily of U.S. net operating loss
(“NOL”) carryforward benefits, and federal and state
tax credits with indefinite carryover periods.
12
U.S. Federal and State Income Taxes
Our
U.S. federal and state statutory income tax rate is estimated to be
25%. Based on our current assessment of the valuation allowance
position on our net deferred tax assets, no tax benefit is expected
to be recorded on pre-tax losses generated in the U.S.
Income Tax Law of the People’s Republic of China
Our
Chinese subsidiaries, LightPath Optical Instrumentation (Shanghai)
Co., Ltd. (“LPOI”) and LPOIZ, are governed by the
Income Tax Law of the People’s Republic of China. As of
December 31, 2019, LPOI and LPOIZ were subject to statutory income
tax rates of 25% and 15%, respectively. In December 2019, we
declared an intercompany dividend of $2 million from LPOIZ, payable
to us as its parent company. Accordingly, we accrued Chinese
withholding taxes of $200,000 associated with the dividend. Of the
$2 million dividend, $1 million was paid to us during the quarter
ended December 31, 2019, from which taxes of $100,000 were withheld
and paid. An additional $100,000 of withholding taxes were accrued
as of December 31, 2019, and will be withheld and paid at a future
date, when the remaining $1 million is paid to us. Other than these
withholding taxes, this intercompany dividend has no impact on our
unaudited Condensed Consolidated Finanacial Statements. This
dividend is from earnings accumulated prior to January 1, 2019. We
currently intend to permanently invest earnings generated after
January 1, 2019 from LPOIZ and, therefore, have not provided for
future Chinese withholding taxes on such related
earnings.
Law of Corporate Income Tax of Latvia
Our Latvian subsidiary, ISP Optics Latvia, SIA (“ISP
Latvia”), is governed by the Law of Corporate Income Tax of
Latvia. Effective January 1, 2018, the Republic of Latvia enacted
tax reform with the following key provisions: (i) corporations are
no longer subject to income tax, but are instead subject to a
distribution tax on distributed profits (or deemed distributions,
as defined) and (ii) the rate of tax was changed to 20%; however,
distribution amounts are first divided by 0.8 to arrive at the
profit before tax amount, resulting in an effective tax rate of
25%. As a transitional measure, distributions of earnings prior to
January 1, 2018 are not subject to tax if declared prior to
December 31, 2019. ISP Latvia has declared an intercompany dividend
to be paid to ISP, its U.S. parent company. Distributions of
this dividend will be from earnings prior to January 1, 2018 and,
therefore, will not be subject to tax. We currently do not intend
to distribute any earnings generated after January 1, 2018. If, in
the future, we change such intention, we will accrue distribution
taxes, if any, as profits are generated.
9. Stock-Based Compensation
Our directors, officers, and key employees are granted stock-based
compensation through our Amended and Restated Omnibus Incentive
Plan, as amended (the “Omnibus Plan”), through October
2018 and after that date, the 2018 Stock and Incentive Compensation
Plan (the “SICP”), including incentive stock options,
non-qualified stock options, and restricted stock unit
(“RSU”) awards. The stock-based compensation expense is
based primarily on the fair value of the award as of the grant
date, and is recognized as an expense over the requisite service
period.
The following table shows total stock-based compensation expense
for the six months ended December 31, 2019 and 2018 included in the
accompanying unaudited Condensed Consolidated Statements of
Comprehensive Income (Loss):
|
|
Six
Months Ended
December
31,
|
|
|
|
2019
|
2018
|
|
Stock
options
|
$
5,307
|
$
29,468
|
|
RSUs
|
173,082
|
168,347
|
|
Total
|
$
178,389
|
$
197,815
|
|
|
|
|
|
The amounts above were included in:
|
|
|
|
Selling,
general & administrative
|
$
178,389
|
$
196,378
|
|
Cost
of sales
|
-
|
1,620
|
|
New
product development
|
-
|
(183
)
|
|
|
$
178,389
|
$
197,815
|
13
We also adopted the LightPath Technologies, Inc. Employee Stock
Purchase Plan (the “2014 ESPP”). The 2014 ESPP permits
employees to purchase Class A common stock through payroll
deductions, subject to certain limitations. A discount of $1,203
and $2,084 for the six months ended December 31, 2019 and 2018,
respectively, is included in the selling, general and
administrative expense in the accompanying unaudited Condensed
Consolidated Statements of Comprehensive Income (Loss), which
represents the value of the 10% discount given to the employees
purchasing stock under the 2014 ESPP.
Grant Date Fair Values and Underlying Assumptions; Contractual
Terms
We estimate the fair value of each stock option as of the date of
grant, using the Black-Scholes-Merton pricing model. The fair value
of 2014 ESPP shares is the amount of the discount the employee
obtains at the date of the purchase transaction.
Most stock options granted vest ratably over two to four years and
are generally exercisable for ten years. The assumed forfeiture
rates used in calculating the fair value of RSU grants was 0%, and
the assumed forfeiture rates used in calculating the fair value of
options for performance and service conditions were 20% for each of
the six-month periods ended December 31, 2019 and 2018. The
volatility rate and expected term are based on seven-year
historical trends in Class A common stock closing prices and actual
forfeitures. The interest rate used is the U.S. Treasury interest
rate for constant maturities.
For the six months ended December 31, 2019 and 2018, there were no
stock options granted under the Omnibus Plan. For stock options
granted under the SICP in the six-month periods ended December 31,
2019 and 2018, we estimated the fair value of each stock option as
of the date of grant using the following assumptions:
|
|
Six Months Ended
December 31,
|
|
|
|
2019
|
2018
|
|
Weighted-average expected
volatility
|
63.7%
|
56%-69%
|
|
Dividend yields
|
0%
|
0%
|
|
Weighted-average risk-free interest
rate
|
1.57%
|
2.65%-3.00%
|
|
Weighted-averageexpected term, in years
|
7.50
|
2.53
|
Information Regarding Current Share-Based Compensation
Awards
A summary of the activity for share-based compensation awards in
the six months ended December 31, 2019 is presented
below:
|
|
|
|
|
Restricted
|
|
|
|
Stock Options
|
Stock Units (RSUs)
|
|||
|
|
|
Weighted-
|
Weighted-
|
|
Weighted-
|
|
|
|
Average
|
Average
|
|
Average
|
|
|
|
Exercise
|
Remaining
|
|
Remaining
|
|
|
Shares
|
Price
|
Contract
|
Shares
|
Contract
|
|
June 30, 2019
|
979,925
|
$
1.80
|
5.5
|
1,864,526
|
0.9
|
|
|
|
|
|
|
|
|
Granted
|
64,817
|
$
1.28
|
9.9
|
384,000
|
2.9
|
|
Exercised
|
—
|
|
|
(17,204
)
|
|
|
Cancelled/Forfeited
|
(191,366
)
|
$
1.73
|
|
—
|
|
|
December 31, 2019
|
853,376
|
$
1.77
|
5.3
|
2,231,322
|
0.9
|
|
|
|
|
|
|
|
|
Awards
exercisable/
|
|
|
|
|
|
|
vested
as of
|
|
|
|
|
|
|
December 31, 2019
|
788,229
|
$
1.73
|
5.1
|
1,650,325
|
—
|
|
|
|
|
|
|
|
|
Awards
unexercisable/
|
|
|
|
|
|
|
unvested
as of
|
|
|
|
|
|
|
December 31, 2019
|
65,147
|
$
1.72
|
5.1
|
580,997
|
0.9
|
|
|
853,376
|
|
|
2,231,322
|
|
RSU
awards vest immediately or from two to four years from the date of
grant.
14
As of December 31, 2019, there was approximately $584,000 of total
unrecognized compensation cost related to non-vested share-based
compensation arrangements (including stock options and RSUs)
granted. We expect to recognize the compensation cost as
follows:
|
|
Stock
|
|
|
|
Fiscal Year Ending:
|
Options
|
RSUs
|
Total
|
|
June
30, 2020 (remaining six months)
|
$
4,084
|
$
169,349
|
$
173,433
|
|
June
30, 2021
|
6,870
|
248,698
|
255,568
|
|
June
30, 2022
|
2,952
|
125,374
|
128,326
|
|
June
30, 2023
|
310
|
26,233
|
26,543
|
|
|
$
14,216
|
$
569,654
|
$
583,870
|
10.
Earnings (Loss) Per Share
Basic earnings per share is computed by dividing net income or loss
by the weighted-average number of shares of Class A common stock
outstanding, during each period presented. Diluted earnings per
share is computed similarly to basic earnings per share, except
that it reflects the potential dilution that could occur if
dilutive securities or other obligations to issue shares of Class A
common stock were exercised or converted into shares of Class A
common stock. The computations for basic and diluted earnings per
share of Class A common stock are described in the following
table:
|
|
Three
Months Ended December 31,
|
Six
Months Ended December 31,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
Net
income (loss)
|
$
769,117
|
$
16,276
|
$
(606,040
)
|
$
(566,615
)
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding:
|
|
|
|
|
|
Basic number of shares
|
25,837,903
|
25,781,941
|
25,832,337
|
25,777,330
|
|
|
|
|
|
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
Options
to purchase common stock
|
-
|
133,471
|
-
|
-
|
|
RSUs
|
1,523,370
|
1,481,827
|
-
|
-
|
|
Diluted number of shares
|
27,361,273
|
27,397,239
|
25,832,337
|
25,777,330
|
|
|
|
|
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
Basic
|
$
0.03
|
$
0.00
|
$
(0.02
)
|
$
(0.02
)
|
|
Diluted
|
$
0.03
|
$
0.00
|
$
(0.02
)
|
$
(0.02
)
|
The following potential dilutive shares were not included in the
computation of diluted earnings per share of Class A common stock,
as their effects would be anti-dilutive:
|
|
Three
Months Ended December 31,
|
Six
Months Ended December 31,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
Options
to purchase common stock
|
1,013,743
|
875,085
|
996,834
|
1,006,348
|
|
RSUs
|
527,416
|
274,334
|
1,957,189
|
1,702,757
|
|
|
1,541,159
|
1,149,419
|
2,954,023
|
2,709,105
|
15
11.
Leases
As discussed in Note 2,
Significant Accounting
Policies
, the Company adopted
ASC Topic 842 effective July 1, 2019. Our leases primarily consist
of operating leases related to our facilities located in Orlando,
Florida; Irvington, New York; Riga, Latvia; Shanghai, China; and
Zhenjiang, China, and finance leases related to certain equipment
located in Orlando, Florida. The operating leases for facilities
are non-cancelable operating leases, expiring through 2022. We
include options to renew (or terminate) in our lease term, and as
part of our right-of-use (“ROU”) assets and lease
liabilities, when it is reasonably certain that we will exercise
that option. We currently have obligations under five finance lease
agreements, entered into during fiscal years 2016 to 2019, with
terms ranging from three to five years. The leases are for computer
and manufacturing equipment.
Our operating lease ROU assets and the related lease liabilities
are initially measured at the present value of future lease
payments over the lease term. Two of our operating leases include
renewal options, which were not included in the measurement of the
operating lease ROU assets and related lease liabilities. As most
of our leases do not provide an implicit rate, we use our
collateralized incremental borrowing rate based on the information
available at the commencement date in determining the present value
of future payments. Currently, none of our leases include variable
lease payments that are dependent on an index or rate. We are
responsible for payment of certain real estate taxes, insurance and
other expenses on certain of our leases. These amounts are
generally considered to be variable and are not included in the
measurement of the ROU asset and lease liability. We generally
account for non-lease components, such as maintenance, separately
from lease components. Our lease agreements do not contain any
material residual value guarantees or material restricted
covenants. Leases with a term of 12 months or less are not recorded
on the unaudited Condensed Consolidated Balance Sheet; we recognize
lease expense for these leases on a straight-line basis over the
lease term.
We are party to two leases with respect to our facility located in
Orlando, Florida (the “Orlando Facility”). We received
tenant improvement allowances for each of our two Orlando Facility
leases. These allowances were used to construct improvements and
are included in leasehold improvements and operating lease
liabilities. The balances are being amortized over the
corresponding lease terms.
The components of lease expense were as follows:
|
|
Three
Months Ended December 31, 2019
|
Six
Months Ended December 31,
2019
|
|
Operating
lease cost
|
$
172,102
|
$
336,973
|
|
Finance
lease cost:
|
|
|
|
Depreciation
of lease assets
|
86,063
|
172,126
|
|
Interest
on lease liabilities
|
20,425
|
42,957
|
|
Total
finance lease cost
|
106,488
|
215,083
|
|
Total
lease cost
|
$
278,590
|
$
552,056
|
Supplemental balance sheet information related to leases was as
follows:
|
|
Classification
|
As of
December 31,
2019
|
|
Assets:
|
|
|
|
Operating
lease assets
|
Operating
lease assets
|
$
1,488,126
|
|
Finance
lease assets
|
Property and equipment, net
(1)
|
913,234
|
|
Total
lease assets
|
|
$
2,401,360
|
|
|
|
|
|
Liabilities:
|
|
|
|
Current:
|
|
|
|
Operating
leases
|
Operating
lease liabilities, current
|
$
749,399
|
|
Short-term
leases
|
Accrued liabilities
(2)
|
282,985
|
|
Finance
leases
|
Finance
lease liabilities, current
|
378,095
|
|
|
|
|
|
Noncurrent:
|
|
|
|
Operating
leases
|
Operating
lease liabilities, less current portion
|
1,265,152
|
|
Finance
leases
|
Finance
lease liabilities, less current portion
|
456,388
|
|
Total
lease liabilities
|
|
$
3,132,019
|
(1)
Finance
lease assets are recorded net of accumulated depreciation of
approximately $1.1 million as of December 31, 2019.
(2)
Represents accrual related to the lease of the
Irvington Facility, which we ceased use of as of June 30, 2019. All
remaining lease payments were accrued as of that date, through the
lease expiration in September 2020. See Note 14,
Restructuring
,
to these unaudited Condensed Consolidated Financial Statements for
additional information.
16
Lease term and discount rate information related to leases was as
follows:
|
Lease Term and Discount Rate
|
As of December 31,
2019
|
|
Weighted
Average Remaining Lease Term (in years)
|
|
|
Operating
leases
|
2.6
|
|
Finance
leases
|
2.4
|
|
|
|
|
Weighted
Average Discount Rate
|
|
|
Operating
leases
|
4.9
%
|
|
Finance
leases
|
7.9
%
|
Supplemental cash flow information:
|
|
Six Months Ended December
31,
2019
|
|
Cash paid for amounts included in the measurement of lease
liabilities:
|
|
|
Operating
cash used for operating leases
|
$
386,661
|
|
Operating
cash used for finance leases
|
$
42,970
|
|
Financing
cash used for finance leases
|
$
210,225
|
Future maturities of lease liabilities, excluding amounts accrued
for the Irvington Facility lease, were as follows as of December
31, 2019:
|
Fiscal year ending:
|
Finance
Leases
|
Operating
Leases
|
|
June
30, 2020 (remaining six months)
|
$
229,857
|
$
409,244
|
|
June
30, 2021
|
407,954
|
829,565
|
|
June
30, 2022
|
231,783
|
771,283
|
|
June
30, 2023
|
59,647
|
157,849
|
|
June
30, 2024
|
11,811
|
─
|
|
Total
future minimum payments
|
941,052
|
2,167,941
|
|
Less
imputed interest
|
(106,569
)
|
(153,390
)
|
|
Present
value of lease liabilities
|
$
834,483
|
$
2,014,551
|
17
12.
Loans Payable
During the three months ended December 31, 2019, loans payable
consisted of the BankUnited Term Loan (as defined below) payable to
BankUnited N.A. (“BankUnited”). On February 26, 2019,
we entered into a Loan Agreement (the “Loan Agreement”)
with BankUnited for (i) a revolving line of credit up to maximum
amount of $2,000,000 (the “BankUnited Revolving Line”),
(ii) a term loan in the amount of up to $5,813,500
(“BankUnited Term Loan”), and (iii) a non-revolving
guidance line of credit up to a maximum amount of $10,000,000 (the
“Guidance Line” and, together with the BankUnited
Revolving Line and BankUnited Term Loan, the “BankUnited
Loans”). Each of the BankUnited Loans is evidenced by a
promissory note in favor of BankUnited (the “BankUnited
Notes”). Simultaneously with the execution of the Loan
Agreement, we used the proceeds from the BankUnited Term Loan to
pay in full, all outstanding amounts owed to Avidbank Corporate
Finance, a division of Avidbank (“Avidbank”) pursuant
to a then-outstanding acquisition term loan. For additional
information related to the Avidbank loans, please see Note
18,
Loans
Payable
, to our audited
Consolidated Financial Statements in our Annual Report on Form 10-K
for the year ended June 30, 2019.
On May 6, 2019, we entered into that certain First Amendment to
Loan Agreement, effective February 26, 2019, with BankUnited (the
“Amendment” and, together with the Loan Agreement, the
“Amended Loan Agreement”). The Amendment amended the
definition of the fixed charge coverage ratio to more accurately
reflect the parties’ understandings at the time the Loan
Agreement was executed.
BankUnited Revolving Line
Pursuant to the Amended Loan Agreement, BankUnited will make loan
advances under the BankUnited Revolving Line to us up to a maximum
aggregate principal amount outstanding not to exceed $2,000,000,
which proceeds will be used for working capital and general
corporate purposes. Amounts borrowed under the BankUnited Revolving
Line may be repaid and re-borrowed at any time prior to February
26, 2022, at which time all amounts will be immediately due and
payable. The advances under the BankUnited Revolving Line bear
interest, on the outstanding daily balance, at a per annum rate
equal to 2.75% above the 30-day LIBOR. Interest payments are due
and payable, in arrears, on the first day of each month. There were
no borrowings under the BankUnited Revolving Line as of December
31, 2019.
BankUnited Term Loan
Pursuant to the Amended Loan Agreement, BankUnited advanced us
$5,813,500 to satisfy in full the amounts owed to Avidbank,
including the outstanding principal amount and all accrued interest
under the acquisition term loan and to pay the fees and expenses
incurred in connection with closing of the BankUnited Loans. The
BankUnited Term Loan is for a 5-year term, but co-terminus with the
BankUnited Revolving Line. The BankUnited Term Loan bears interest
at a per annum rate equal to 2.75% above the 30-day LIBOR. Equal
monthly principal payments of approximately $48,446, plus accrued
interest, are due and payable, in arrears, on the first day of each
month during the term. Upon maturity, all principal and interest
shall be immediately due and payable. As of December 31, 2019, the
applicable interest rate was 4.44%.
Guidance Line
Pursuant to the Amended Loan Agreement, BankUnited, in its sole
discretion, may make loan advances to us under the Guidance Line up
to a maximum aggregate principal amount outstanding not to exceed
$10,000,000, which proceeds will be used for capital expenditures
and approved business acquisitions. Such advances must be in
minimum amounts of $1,000,000 for acquisitions and $500,000 for
capital expenditures, and will be limited to 80% of cost or as
otherwise determined by BankUnited. Amounts borrowed under the
Guidance Line may not re-borrowed. The advances under the Guidance
Line bear interest, on the outstanding daily balance, at a per
annum rate equal to 2.75% above the 30-day LIBOR. Interest payments
are due and payable, in arrears, on the first day of each month. On
each anniversary of the Amended Loan Agreement, monthly principal
payments become payable, amortized based on a ten-year term. There
were no borrowings under the Guidance Line as of December 31,
2019.
18
Security and Guarantees
Our obligations under the Amended Loan Agreement are collateralized
by a first priority security interest (subject to permitted liens)
in all of our assets and the assets of our U.S. subsidiaries,
GelTech, Inc. (“GelTech”) and ISP, pursuant to a
Security Agreement granted by GelTech, ISP, and us in favor of
BankUnited. Our equity interests in, and the assets of, our foreign
subsidiaries are excluded from the security interest. In addition,
all of our subsidiaries have guaranteed our obligations under the
Amended Loan Agreement and related documents, pursuant to Guaranty
Agreements executed by us and our subsidiaries in favor of
BankUnited.
General Terms
The Amended Loan Agreement contains customary covenants including,
but not limited to: (i) limitations on the disposition of property;
(ii) limitations on changing our business or permitting a change in
control; (iii) limitations on additional indebtedness or
encumbrances; (iv) restrictions on distributions; and (v)
limitations on certain investments. The Amended Loan Agreement also
contains certain financial covenants, including obligations to
maintain a fixed charge coverage ratio of 1.25 to 1.00 and a total
leverage ratio of 4.00 to 1.00. As of December 31, 2019, the
Company was in compliance with all required covenants.
We may prepay any or all of the BankUnited Loans in whole or in
part at any time, without penalty or premium. Late payments are
subject to a late fee equal to five percent (5%) of the unpaid
amount. Amounts outstanding during an event of default accrue
interest at a rate of five percent (5%) above the 30-day LIBOR
applicable immediately prior to the occurrence of the event of
default. The Amended Loan Agreement contains other customary
provisions with respect to events of default, expense
reimbursement, and confidentiality.
Financing costs incurred were recorded as a discount on debt and
are amortized over the term. Amortization of approximately $9,300
and $12,000 is included in interest expense for the six months
ended December 31, 2019 and 2018, respectively. For the six months
ended December 31, 2018, the amortization of financing costs was
related to the previous term loan payable to Avidbank.
Future maturities of loans payable are as follows:
|
|
BankUnited
Term Loan
|
Unamortized
Debt Costs
|
Total
|
|
Fiscal year ending:
|
|
|
|
|
June
30, 2020 (remaining six months)
|
$
290,675
|
$
(8,357
)
|
$
282,318
|
|
June
30, 2021
|
581,350
|
(17,334
)
|
564,016
|
|
June
30, 2022
|
581,350
|
(17,334
)
|
564,016
|
|
June
30, 2023
|
581,350
|
(17,334
)
|
564,016
|
|
June
30, 2024
|
3,342,762
|
(17,024
)
|
3,325,738
|
|
Total
payments
|
$
5,377,487
|
$
(77,383
)
|
5,300,104
|
|
Less
current portion
|
|
|
(581,350
)
|
|
Non-current
portion
|
|
|
$
4,718,754
|
19
13.
Foreign
Operations
Assets and liabilities denominated in non-U.S. currencies are
translated at rates of exchange prevailing on the balance sheet
date, and revenues and expenses are translated at average rates of
exchange for the period. Gains or losses on the translation of the
financial statements of a non-U.S. operation, where the functional
currency is other than the U.S. dollar, are reflected as a separate
component of equity, which was a cumulative gain of approximately
$1.0 million and $809,000 as of December 31, 2019 and June 30,
2019, respectively. During the six months ended December 31, 2019
and 2018, we also recognized net foreign currency transaction
losses of approximately $376,000 and $388,000, respectively,
included in the unaudited Condensed Consolidated Statements of
Comprehensive Income (Loss) in the line item entitled “Other
income (expense), net.”
Our
cash and cash equivalents totaled $4.3 million at December 31,
2019. Of this amount, greater than 50% was held by our foreign
subsidiaries in China and Latvia. These foreign funds were
generated in China and Latvia as a result of foreign earnings. With
respect to the funds generated by our foreign subsidiaries in
China, the retained earnings of the respective subsidiary must
equal at least 50% of its registered capital before any funds can
be repatriated through dividends. Based on retained earnings as of
the end of the prior statotury tax year ended December 31, 2018,
LPOIZ had approximately $3.5 million available for repatriation and
LPOI did not have any earnings available for repatriation. During
the three months ended December 31, 2019, we declared an
intercompany dividend of $2 million payable by LPOIZ to us, of
which $1 million has been paid to us as of December 31, 2019. The
remaining $1 million will be paid to us in a future
period.
Assets
and net assets in foreign countries are as follows:
|
|
China
|
|
Latvia
|
||||
|
|
December
31, 2019
|
|
June
30, 2019
|
|
December
31, 2019
|
|
June
30, 2019
|
|
Assets
|
$16.5 million
|
|
$16.9 million
|
|
$9.5 million
|
|
$8.2 million
|
|
Net assets
|
$13.9 million
|
|
$14.5 million
|
|
$8.2 million
|
|
$7.8 million
|
14.
Restructuring
In July 2018, we announced the relocation and consolidation of
ISP’s Irvington Facility into our existing Orlando Facility
and our existing facility in Riga, Latvia (the “Riga
Facility”). We recorded charges for restructuring and other
exit activities related to the closure or relocation of business
activities at fair value, when incurred. Such charges include
termination benefits, contract termination costs, and costs to
consolidate facilities or relocate employees. For the year ended
June 30, 2019, we recorded approximately $1.2 million in expenses
related to the relocation of the Irvington Facility, of which
approximately $291,000 were recorded during the six months ended
December 31, 2018. These charges are included as a component of the
“Selling, general and administrative” expenses line
item in our unaudited Condensed Consolidated Statement of
Comprehensive Income (Loss). The charges recorded during the fiscal
year ended June 30, 2019 included approximately $467,000 for our
remaining obligation under the lease agreement for the Irvington
Facility until the lease expires in September 2020 because we
ceased use of this facility as of June 30, 2019. Amounts accrued
and included in our unaudited Condensed Consolidated Balance Sheet
as of June 30, 2019 related to this activity were comprised of the
remaining lease obligation of approximately $467,000, included in
“Accrued liabilities”, and approximately $246,000 of
termination benefits and other costs, included in “Accrued
payroll and benefits.” As of December 31, 2019, the remaining
amounts accrued in our unaudited Condensed Consolidated Balance
sheet included approximately $283,000 related to the lease
obligation.
20
I
tem 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations is designed to provide a reader of the financial
statements with a narrative report on our financial condition,
results of operations, and liquidity. This discussion and analysis
should be read in conjunction with the attached unaudited Condensed
Consolidated Financial Statements and notes thereto and our Annual
Report on Form 10-K for the year ended June 30, 2019, including the
audited Consolidated Financial Statements and notes thereto. The
following discussion contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans,
objectives, expectations, and intentions. Our actual results could
differ materially from those discussed in the forward-looking
statements. Please also see the cautionary language at the
beginning of this Quarterly Report regarding forward-looking
statements.
The discussions of our results as presented in this Quarterly
Report include use of the non-GAAP term “gross margin,”
as well as other non-GAAP measures discussed in more detail under
the heading “Non-GAAP Financial Measures.” Gross margin
is determined by deducting the cost of sales from operating
revenue. Cost of sales includes manufacturing direct and indirect
labor, materials, services, fixed costs for rent, utilities and
depreciation, and variable overhead. Gross margin should not be
considered an alternative to operating income or net income, which
are determined in accordance with GAAP. We believe that gross
margin, although a non-GAAP financial measure, is useful and
meaningful to investors as a basis for making investment decisions.
It provides investors with information that demonstrates our cost
structure and provides funds for our total costs and expenses. We
use gross margin in measuring the performance of our business and
have historically analyzed and reported gross margin information
publicly. Other companies may calculate gross margin in a different
manner.
Introduction
We were incorporated in Delaware in 1992 as the successor to
LightPath Technologies Limited Partnership, a New Mexico limited
partnership, formed in 1989, and its predecessor, Integrated Solar
Technologies Corporation, a New Mexico corporation, formed in 1985.
Today, LightPath is a global company with major facilities in the
United States, the People’s Republic of China, and the
Republic of Latvia.
Our capabilities include precision molded optics, thermal imaging
optics and custom designed optics. These capabilities allow us to
manufacture optical components and higher-level assemblies,
including precision molded glass aspheric optics, molded and
diamond-turned infrared aspheric lenses and other optical materials
used to produce products that manipulate light. We design, develop,
manufacture and distribute optical components and assemblies
utilizing advanced optical manufacturing processes. We serve a wide
and diverse number of industries including defense and security,
optical systems and components, datacom/telecom, information
technology, life sciences, machine vision and production
technology. Our products are incorporated into a variety of
applications by our broad and diverse customer base. These
applications include defense products, medical devices, laser aided
industrial tools, automotive safety applications, barcode scanners,
optical data storage, hybrid fiber coax datacom, telecommunication
optical networks, machine vision and sensors, among others. All the
products we produce enable lasers and imaging devices to function
more effectively.
Subsidiaries
In
November 2005,
we formed
LPOI, a wholly-owned subsidiary, located in
Jiading, People’s Republic of China. LPOI provides sales and
support functions. In December 2013, we formed LPOIZ, a
wholly-owned subsidiary located in the New City district, of the
Jiangsu province, of the People’s Republic of China.
LPOIZ’s 55,000 square foot manufacturing facility (the
“Zhenjiang Facility”) serves as our primary
manufacturing facility in China and provides a lower cost structure
for production of larger volumes of optical components and
assemblies. Late in fiscal 2019, this facility was expanded from
39,000 to 55,000 square feet to add capacity for polishing to
support our growing infrared business.
In December 2016, we acquired ISP, and its wholly-owned subsidiary,
ISP Latvia. ISP is a vertically integrated manufacturer offering a
full range of infrared products from custom infrared optical
elements to catalog and high-performance lens assemblies.
Historically, ISP’s Irvington Facility functioned as its
global headquarters for operations, while also providing
manufacturing capabilities, optical coatings, and optical and
mechanical design, assembly, and testing. In June 2019, we
completed the relocation of the Irvington Facility to our existing
Orlando Facility and Riga Facility. ISP Latvia is a manufacturer of
high precision optics and offers a full range of infrared products,
including catalog and custom infrared optics. ISP Latvia’s
Riga Facility functions as its manufacturing facility.
For additional information, please refer to our Annual Report on
Form 10-K for the year ended June 30, 2019.
Recent Organizational and Strategic Initiatives
To ensure we fully leverage the expanded capabilities and manage
the broader product portfolio that we now have, we begun
introducing organizational changes in July 2019. We created and
filled the position of Chief Operating Officer. This position
combines all operations, engineering, sales and marketing functions
under one leader to ensure the closest possible ties between demand
and supply of our products. We believe this will ensure the best
coordination between technical and operational requirements. The
position is responsible for managing annual plan objectives,
i.e.
, revenues, gross margin, controllable operating
income and return on asset objectives. We have also implemented a
product management function, with a product manager for each of our
major product capabilities: molded optics, thermal imaging optics
and custom designed optics. Product management is principally a
portfolio management process that analyzes products within the
product capability areas as defined above. This function will
facilitate choosing investment priorities and ensuring successful
product life cycle management. We have also defined, but not
filled, the position of Senior Vice President, Strategic Business
Assessment. This person will be responsible for strategically
aligning LighPath’s competencies with strategic industry
revenue opportunities, and will manage the product management
function.
21
Product Groups and Markets
In fiscal 2019, we reorganized our business into three product
groups: PMO, infrared products and specialty products. These
product groups are supported by our major product capabilities:
molded optics, thermal imaging optics, and custom designed
optics.
Our PMO product group consists of visible precision molded optics
with varying applications. Our infrared product group is comprised
of infrared optics, both molded and diamond-turned, and thermal
imaging assemblies. This product group also includes both
conventional and CNC ground and polished lenses. Between these two
product groups, we have the capability to manufacture lenses from
very small (with diameters of sub-millimeter) to over 300
millimeters, and with focal lengths from approximately 0.4mm to
over 2000mm. In addition, both product groups offer both catalog
and custom designed optics.
Our specialty product group is comprised of value-added products,
such as optical subsystems, assemblies, and collimators, and
non-recurring engineering (“NRE”) products, consisting
of those products we develop pursuant to product development
agreements that we enter into with customers. Typically, customers
approach us and request that we develop new products or
applications for our existing products to fit their particular
needs or specifications. The timing and extent of any such product
development is outside of our control.
We have also aligned our marketing efforts by our capabilities
(
i.e.,
molded optics, thermal imaging optics, and custom
optics), and then by industry. We currently serve the following
major markets: defense and security, optical systems and
components, datacom/telecom, information technology, life sciences,
machine vision and production technology. Customers in each of
these markets may select the best optical technologies that suit
their needs from our entire suite of products, availing us to
cross-selling opportunities, particularly where we can leverage our
knowledge base against our expanding design library. Within our
product groups, we have various applications that serve our major
markets. For example, our infrared products can be used for gas
sensing devices, spectrometers, night vision systems, advanced
driver-assistance systems (“ADAS”), thermal weapon gun
sights, and infrared counter measure systems, among
others.
The photonics market drives our growth and is comprised of eight
application areas: information and communication technology,
display, lighting, photovoltaic, production technology, life
sciences, and measurement and automated vision. In 2018, the market
size for these applications at the system level was estimated at
approximately $556 billion. LightPath has product applications in
six of the eight application areas, all except for displays and
photovoltaic. According to the latest Markets and Markets survey,
these six application areas had an estimated market value of
approximately $401 billion and are growing at a 7% compound annual
growth rate. Within the larger overall markets, we believe there is
a market of approximately $2.0 billion for our current products and
capabilities. We continue to believe our products will provide
significant growth opportunities over the next several years and,
therefore, we will continue to target specific applications in each
of these major markets. In addition to these major markets, a large
percentage of our revenues are derived from sales to unaffiliated
companies that purchase our products to fulfill their
customers’ orders, as well as unaffiliated companies that
offer our products for sale in their catalogs. Our strategy is to
leverage our technology, know-how, established low-cost
manufacturing capability and partnerships to grow our business. Our
product managers focus on pursuing customer growth opportunities
where our differential advantages coincide with key customer
needs.
Results of Operations
Fiscal Second Quarter: Three months ended December 31, 2019,
compared to three months ended December 31, 2018
Revenues:
Revenue for the second quarter of fiscal 2020 was approximately
$9.6 million, an increase of approximately $1.1 million, or 12%, as
compared to the same period of the prior fiscal year. Revenue
generated by infrared products was approximately $5.0 million in
the second quarter of fiscal 2020, an increase of approximately
$1.3 million, or 34%, compared to approximately $3.7 million in the
same period of the prior fiscal year. This increase is primarily
due to the timing of order shipments against a large-volume annual
contract for diamond-turned infrared products. During the second
quarter of fiscal 2019, revenue from this contract was lower, as we
had shipped the balance of the existing contract before the renewal
was finalized. In the second quarter of fiscal 2020, the customer
requested that we accelerate shipments that the customer had
previously delayed in the preceding quarter because of delays it
experienced for other components in the supply chain; thus, order
shipments related to this large contract were higher in the second
quarter of fiscal 2020, as compared to the second quarter of fiscal
2019. According to the terms of the contract, these orders cannot
be delayed beyond March 31, 2020 and, therefore, the balance of
this order must ship next quarter. Revenue generated by PMO
products was approximately $3.7 million for the second quarter of
fiscal 2020, as compared to $4.1 million in the same period of the
prior fiscal year, a decrease of approximately $416,000, or 10%.
The decrease in revenue is primarily attributed to decreases in
sales to customers in the commercial market, as well as the defense
and industrial markets. Revenue generated by our specialty products
was approximately $885,000 in the second quarter of fiscal 2020, an
increase of approximately $193,000, or 28%, compared to $693,000 in
the same period of the prior fiscal year. This increase is
primarily related to new NRE projects for customers in the medical
and commercial markets.
22
Cost of Sales and Gross Margin:
Gross margin in the second quarter of fiscal 2020 was approximately
$3.9 million, an increase of 11%, as compared to approximately $3.5
million in same quarter of the prior fiscal year. Total cost of
sales was approximately $5.7 million for the second quarter of
fiscal 2020, compared to $5.0 million for the same period of the
prior fiscal year. The increases in gross margin and cost of sales
are primarily driven by the increase in sales. Gross margin as a
percentage of revenue was 41% for the second quarter of fiscal
2020, consistent with the second quarter of fiscal 2019. Given the
shift in revenue toward infrared products, which typically have
lower margins than PMO products, this actually reflects an overall
improvement in gross margins, due to our improved cost structure
and operating performance following the completion of the Irvington
Facility relocation in June 2019.
Selling, General and Administrative:
Selling, general and administrative (“SG&A”) costs
were approximately $2.2 million for the second quarter of fiscal
2020, a decrease of approximately 13%, as compared to approximately
$2.5 million in the same quarter of the prior fiscal year. SG&A
for the second quarter of fiscal 2019 included approximately
$200,000 of non-recurring expenses related to the relocation of the
Irvington Facility to our existing Orlando Facility and Riga
Facility. The second quarter of fiscal 2020 reflects savings from
the absence of these non-recurring costs, as well as reduced
personnel and overhead costs resulting from the restructuring
associated with the relocation of the Irvington Facility. We expect
future SG&A costs to continue to reflect reduced operating and
overhead costs as a result of the consolidation of our
manufacturing facilities.
New Product Development:
New product development costs were approximately $469,000 in the
second quarter of fiscal 2020, a decrease of 10%, as compared to
approximately $519,000 in the same period of the prior fiscal year.
This decrease in new product development costs was primarily due a
decrease in personnel costs associated with restructuring personnel
from product development to our newly created product management
function, for which expenses are now included in SG&A
costs.
This decrease in
personnel costs was partially offset by an increase in patent
appliation filing expenses incurred during the second quarter of
fiscal 2020.
Other Income (Expense):
In the second quarter of fiscal 2020, interest expense was
approximately $89,000, compared to approximately $153,000 in the
same period of the prior fiscal year. The decrease in interest
expense is primarily due to more favorable terms associated with
the BankUnited Term Loan we entered into during the third quarter
of fiscal 2019. We expect that interest expense will remain near
current levels for the remainder of fiscal 2020.
Other income, net, was approximately $123,000 in the second quarter
of fiscal 2020, compared to other expense, net, of approximately
$48,000 in the second quarter of fiscal 2019, primarily resulting
from net gains and losses, respectively, on foreign exchange
transactions. We execute all foreign sales from our U.S. facilities
and inter-company transactions in U.S. dollars, partially
mitigating the impact of foreign currency fluctuations. Assets and
liabilities denominated in non-United States currencies, primarily
the Chinese Yuan and Euro, are translated at rates of exchange
prevailing on the balance sheet date, and revenues and expenses are
translated at average rates of exchange for the year. During the
second quarter of fiscal 2019, we
incurred net foreign currency transaction gains of
approximately $119,000, compared to net foreign currency
transaction losses of $50,000 for the same period of the prior
fiscal year.
Income Taxes:
During the second quarter of fiscal 2020, we recorded income tax
expense of approximately $322,000, primarily related to income
taxes from our operations in China and Chinese withholding taxes
associated with the intercompany dividend declared by LPOIZ during
the quarter. While this repatriation transaction resulted in some
additional Chinese withholding taxes, LPOIZ currently qualifies for
a reduced Chinese income tax rate; therefore, the total tax on
those earnings was still below the normal income tax rate. This
compares to a net income tax benefit of approximately $23,000
recorded for the second quarter of fiscal 2019, which was comprised
of a tax benefit on losses in the U.S. jurisdiction, offset by tax
expense on income generated in China. Please refer to Note
8,
Income
Taxes
, in the unaudited
Condensed Consolidated Financial Statements in this Quarterly
Report on Form 10-Q for additional information.
Net Income:
Net income for the second quarter of fiscal 2020 was approximately
$769,000, or $0.03 basic and diluted earnings per share, compared
to net income of approximately $16,000, or $0.00 basic and diluted
earnings per share, for the second quarter of fiscal 2019. The
increase in net income for the second quarter of fiscal 2020, as
compared to the second quarter of fiscal 2019, is primarily
attributable to the increase in sales, resulting in higher gross
margin, coupled with a decrease in expenses for SG&A and
amortization of intangibles. These differences increased operating
income by approximately $863,000 for the second quarter of fiscal
2020, as compared to the same period of the prior fiscal year. In
addition, there were favorable differences in interest expense and
foreign currency gains and losses, offset by an unfavorable
difference of $345,000 in the provision for income
taxes.
Weighted-average common stock shares outstanding were 25,837,903
and 27,361,273 basic and diluted, respectively, in the second
quarter of fiscal 2020, compared to 25,781,941 and 27,397,239 basic
and diluted, respectively, in the second quarter of fiscal 2019.
The increase in the weighted-average basic common stock shares, and
decrease in weighted-average diluted common stock shares, was due
to the issuance of shares of Class A common stock under the 2014
ESPP and upon the exercises of stock options and RSUs.
23
Fiscal First Half: Six months ended December 31, 2019, compared to
six months ended December 31, 2018
Revenues:
Revenue for the first half of fiscal 2020 was approximately $17.1
million, an increase of less than 1%, as compared to the same
period of the prior fiscal year. Revenue generated by infrared
products was approximately $9.0 million in the first half of fiscal
2020, an increase of 3%, compared to approximately $8.7 million in
the same period of the prior fiscal year. The increase in infrared
product revenue is primarily attributable to sales of molded
infrared products, including products made with our new BD6
material. Revenues from shipments against the large-volume annual
contract for diamond-turned infrared products during the first half
of fiscal 2020 were similar to the first half of fiscal 2019.
Revenue generated by PMO products was approximately $6.9 million
for the first half of fiscal 2020, a decrease of 5%, as compared to
$7.2 million in the same period of the prior fiscal year. The
decrease in revenue is primarily attributed to decreases in sales
to customers in the commercial and defense markets, partially
offset by increases in sales to customers in the medical and
telecommunications markets. Revenue generated by our specialty
products was approximately $1.3 million in the first half of fiscal
2020, an increase of approximately 11%, as compared to $1.2 million
in the same period of the prior fiscal year. This increase is
primarily related to new NRE projects for customers in the medical
and commercial markets, partially offset by a decrease in sales of
specialty products to a medical customer, due to timing of
orders.
Cost of Sales and Gross Margin:
Gross margin in the first half of fiscal 2020 was approximately
$6.3 million, a decrease of 4%, as compared to approximately $6.6
million in the same period of the prior fiscal year. Total cost of
sales was approximately $10.8 million for the first half of fiscal
2020, compared to $10.5 million for the same period of the prior
fiscal year. Gross margin as a percentage of revenue was 37% for
the first half of fiscal 2020, compared to 39% for the first half
of fiscal 2019. The increase in cost of sales, and decrease in
gross margin as a percentage of revenue, is due to several factors
that impacted the first quarter of 2020, which were substantially
mitigated during the second quarter of fiscal 2020. First, gross
margins for our PMO products were negatively impacted by higher
duties and freight charges resulting from increased tariffs
beginning in June 2019. These additional costs increased cost of
sales for the first quarter of fiscal 2020; however, these costs
were mitigated in the second quarter by the strategies we
implemented during the first quarter. Second, gross margins for
infrared products were impacted by yield issues related to our BD6
products, which contributed to higher costs during the first
quarter of fiscal 2020. Yields improved significantly during the
second quarter of fiscal 2020 as a result of actions taken early in
the second quarter. Volumes continue to increase for our BD6-based
infrared molded products, and we continue to work toward converting
germanium-based diamond-turned infrared products to our BD6
material, which we expect will continue to improve our infrared
margins over time.
Selling, General and Administrative:
For the first half of fiscal 2020, SG&A costs were
approximately $4.5 million, a decrease of approximately 9%, as
compared to approximately $5.0 million in the same period of the
prior fiscal year. SG&A for the first half of fiscal 2019
included approximately $291,000 of non-recurring expenses related
to the relocation of the Irvington Facility to our existing Orlando
Facility and Riga Facility. The first half of fiscal 2020 reflects
savings from the absence of these non-recurring costs, as well as
reduced personnel and overhead costs resulting from the
restructuring associated with the relocation of the Irvington
Facility.
New Product Development:
New product development costs were approximately $897,000 in the
first half of fiscal 2020, a decrease of approximately 9%, as
compared to approximately $989,000 in the same period of the prior
fiscal year. This decrease was primarily due to the restructuring
of personnel from product development to our newly created product
management function, for which expenses are now included in
SG&A. The decrease in personnel costs was partially offset by
increases in patent expenses incurred during the first half of
fiscal 2020.
Other Income (Expense):
In the first half of fiscal 2020, interest expense was
approximately $188,000, compared to approximately $298,000 in the
same period of the prior fiscal year. The decrease in interest
expense is primarily due to more favorable terms associated with
the BankUnited Term Loan we entered into during the third quarter
of fiscal 2019.
Other expense, net, was approximately $393,000 in the first half of
fiscal 2020, compared to approximately $387,000 in the first half
of fiscal 2019, primarily resulting from net losses on foreign
exchange transactions. We execute all foreign sales from our U.S.
facilities and inter-company transactions in U.S. dollars,
partially mitigating the impact of foreign currency fluctuations.
Assets and liabilities denominated in non-United States currencies,
primarily the Chinese Yuan and Euro, are translated at rates of
exchange prevailing on the balance sheet date, and revenues and
expenses are translated at average rates of exchange for the year.
During the first half of fiscal 2020, we incurred net foreign
currency transaction losses of approximately $376,000, compared to
$388,000 for the same period of the prior fiscal year.
24
Income Taxes:
During the first half of fiscal 2020, we recorded income tax
expense of $470,000, primarily related to income taxes from our
operations in China, and Chinese withholding taxes associated with
the intercompany dividend declared by LPOIZ during the second
quarter. This compares to a net income tax benefit of approximately
$202,000 recorded for the first half of fiscal 2019, which was
comprised of a tax benefit on losses in the U.S. jurisdiction,
offset by tax expense on income generated in China. Please refer to
Note 8,
Income
Taxes
, in the unaudited
Condensed Consolidated Financial Statements in this Quarterly
Report on Form 10-Q for additional information.
Net Income (Loss):
Net loss for the first half of fiscal 2020 was approximately
$606,000, or $0.02 basic and diluted loss per share, compared to a
net loss of approximately $567,000, or $0.02 basic and diluted loss
per share, for the first half of fiscal 2019. The slight increase
in net loss for the first half of fiscal 2020, as compared to the
first half of fiscal 2019, is primarily attributable to the
unfavorable difference of $673,000 in the provision for income
taxes, offset by an increase of $529,000 in operating income,
coupled with a decrease in interest expense of
$111,000.
Weighted-average common stock shares outstanding were to
25,832,337, for both basic and diluted, in the first half of fiscal
2020, compared to 25,777,330, for both basic and diluted, in the
first half of fiscal 2019. The increase in the weighted-average
basic common stock shares was due the issuance of shares of Class A
common stock under the 2014 ESPP and upon the exercises of stock
options and RSUs.
Liquidity and Capital Resources
At December 31, 2019, we had working capital of approximately $12.5
million and total cash and cash equivalents of approximately $4.3
million, of which, greater than 50% of our cash and cash
equivalents was held by our foreign subsidiaries.
Cash and cash equivalents held by our foreign subsidiaries were
generated in China and Latvia as a result of foreign earnings.
Before any funds can be repatriated from China through dividends,
the retained earnings of the legal entity must equal at least 50%
of its registered capital. Based on retained earnings as of
December 31, 2018, the end of the prior statutory tax year, LPOIZ
had approximately $3.5 million available for repatriation and LPOI
did not have any earnings available for repatriation.
During
the three months ended December 31, 2019, we declared an
intercompany dividend of $2 million payable from LPOIZ to us as its
parent company, of which $1 million has been paid to us as of
December 31, 2019. The remaining $1 million will be paid to us in a
future period. This dividend is from earnings accumulated prior to
January 1, 2019. We currently intend to permanently invest earnings
generated after January 1, 2019, and, therefore, have not provided
for future Chinese withholding taxes on such related
earnings.
Loans payable consists of the BankUnited Term Loan pursuant to the
Amended Loan Agreement. The Amended Loan Agreement also provides
for a BankUnited Revolving Line and a Guidance Line. As of December
31, 2019, the outstanding balance on the BankUnited Term Loan was
approximately $5.3 million, and we had no borrowings outstanding on
the BankUnited Revolving Line or Guidance Line.
The Amended Loan Agreement includes certain customary covenants. As
of December 31, 2019, we were in compliance with all covenants. For
additional information, see Note 12,
Loans
Payable
, to the unaudited
Condensed Consolidated Financial Statements in this Quarterly
Report on Form 10-Q.
We generally rely on cash from operations and equity and debt
offerings, to the extent available, to satisfy our liquidity needs
and to maintain our ability to repay the BankUnited Term Loan.
There are a number of factors that could result in the need to
raise additional funds, including a decline in revenue or a lack of
anticipated sales growth, increased material costs, increased labor
costs, planned production efficiency improvements not being
realized, increases in property, casualty, benefit and liability
insurance premiums, and increases in other costs. We will also
continue efforts to keep costs under control as we seek renewed
sales growth. Our efforts are directed toward generating positive
cash flow and profitability. If these efforts are not successful,
we may need to raise additional capital. Should capital not be
available to us at reasonable terms, other actions may become
necessary in addition to cost control measures and continued
efforts to increase sales. These actions may include exploring
strategic options for the sale of the Company, the sale of certain
product lines, the creation of joint ventures or strategic
alliances under which we will pursue business opportunities, the
creation of licensing arrangements with respect to our technology,
or other alternatives.
Cash Flows – Financings:
Net cash used in financing activities was approximately $489,000 in
the first six months of fiscal 2020, compared to approximately
$872,000 used in the first six months of fiscal 2019. Cash used in
financing activities for the first six months of fiscal 2020
reflected approximately $501,000 in principal payments on our loans
and finance leases, partially offset by approximately $12,000 in
proceeds from the sale of Class A common stock under the 2014 ESPP.
Cash used in financing activities for the first six months of
fiscal 2019 was comprised of approximately $897,000 in principal
payments on our loans and capital leases, partially offset by
approximately $25,000 in proceeds from the sale of Class A common
stock under the 2014 ESPP and from the exercise of stock
options.
25
Cash Flows – Operating:
Cash flow provided by operations was approximately $938,000 for the
first six months of fiscal 2020, compared to cash used in
operations of approximately $398,000 for the first six months of
fiscal 2019.
The increase in
cash flow from operations for the first six months of fiscal 2020
was primarily due to a reduction in inventory, compared to an
increase in inventory during the same period of the prior fiscal
year, and collections on other receivables during the first six
months of fiscal 2020. We anticipate improvement in our cash flows
provided by operations in future years based on our forecasted
sales growth and anticipated margin improvements based on
production efficiencies, including the relocation of our Irvington
Facility, partially offset by marginal increases in sales and
marketing and new product development
expenditures.
Cash Flows – Investing:
During the first six months of fiscal 2020, we
expended approximately $1.2 million in investments
in capital equipment, compared to approximately $1.6 million,
including equipment financed through capital leases, in the first
six months of fiscal 2019. The majority of our capital expenditures
during the first six months of fiscal 2020 were related to
expansion of our BD6 material production and our infrared coating
capacity.
Overall, we
anticipate that the level of capital expenditures during fiscal
2020 will be lower than in fiscal 2019, however, the total amount
expended will depend on opportunities and
circumstances.
Contractual Obligations and Commitments
As of December 31, 2019, our principal commitments consisted of
obligations under operating and finance leases and debt agreements.
No material changes occurred during the first half of fiscal 2020
in our contractual cash obligations to repay debt or to make
payments under operating and finance leases, or in our contingent
liabilities as disclosed in our Annual Report on Form 10-K for the
year ended June 30, 2019.
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest
entities or off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Other than the policy changes disclosed in Note 2,
Significant
Accounting Policies
, to the
unaudited Condensed Consolidated Financial Statements in Item 1 of
Part I of this Quarterly Report, there have been no material
changes to our critical accounting policies and estimates during
the six months ended December 31, 2019 from those disclosed in Item
7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of our Annual Report on Form
10-K for the year ended June 30, 2019.
Recent Accounting Pronouncements
See Note 2,
Significant Accounting
Policies
, to the unaudited
Condensed Consolidated Financial Statements in Item 1 of Part I of
this Quarterly Report for a description of recent accounting
pronouncements and accounting changes.
26
How We Operate
We have continuing sales of two basic types: sales via ad-hoc
purchase orders of mostly standard product configurations (our
“turns” business) and the more challenging and
potentially more rewarding business of customer product
development. In this latter type of business, we work with
customers to help them determine optical specifications and even
create certain optical designs for them, including complex
multi-component designs that we call “engineered
assemblies.” This is followed by “sampling” small
numbers of the product for the customers’ test and
evaluation. Thereafter, should a customer conclude that our
specification or design is the best solution to their product need;
we negotiate and “win” a contract (sometimes called a
“design win”) – whether of a “blanket
purchase order” type or a supply agreement. The strategy is
to create an annuity revenue stream that makes the best use of our
production capacity, as compared to the turns business, which is
unpredictable and uneven. This annuity revenue stream can also
generate low-cost, high-volume type orders. A key business
objective is to convert as much of our business to the design win
and annuity model as is possible. We face several challenges in
doing so:
●
Maintaining an
optical design and new product sampling capability, including a
high-quality and responsive optical design engineering
staff;
●
The fact that as
our customers take products of this nature into higher volume,
commercial production (for example, in the case of molded optics,
this may be volumes over one million pieces per year) they begin to
work seriously to reduce costs – which often leads them to
turn to larger or overseas producers, even if sacrificing quality;
and
●
Our small business
mass means that we can only offer a moderate amount of total
productive capacity before we reach financial constraints imposed
by the need to make additional capital expenditures – in
other words, because of our limited cash resources and cash flow,
we may not be able to service every opportunity that presents
itself in our markets without arranging for such additional capital
expenditures.
Despite these challenges to winning more “annuity”
business, we nevertheless believe we can be successful in procuring
this business because of our unique capabilities in optical design
engineering that we make available on the merchant market, a market
that we believe is underserved in this area of service offering.
Additionally, we believe that we offer value to some customers as a
source of supply in the U.S. should they be unwilling to commit to
purchase their supply of a critical component from foreign merchant
production sources. For information regarding revenue recognition
related to our various revenue streams, refer to
Critical
Accounting Policies and Estimates
in our Annual Report on Form 10-K dated June 30,
2019.
Our Key Performance Indicators:
Usually on a weekly basis, management reviews a number of
performance indicators, both qualitative and quantitative. These
indicators change from time to time as the opportunities and
challenges in the business change. These indicators are used to
determine tactical operating actions and changes. We believe that
our non-financial production indicators, such as those noted, are
proprietary information.
Financial indicators that are considered key and reviewed regularly
are as follows:
●
sales
backlog;
●
revenue
dollars and units by product group; and
●
other
key indicators.
These indicators are also used to determine tactical operating
actions and changes and are discussed in more detail
below.
27
Sales Backlog
We believe our sales growth has been and continues to be our best
indicator of success. Our best view into the efficacy of our sales
efforts is in our “order book.” Our order book equates
to sales “backlog.” It has a quantitative and a
qualitative aspect: quantitatively, our backlog’s prospective
dollar value and qualitatively, what percent of the backlog is
scheduled by the customer for date-certain delivery. We define our
“12-month backlog” as that which is requested by the
customer for delivery within one year and which is reasonably
likely to remain in the backlog and be converted into revenues.
This includes customer purchase orders and may include amounts
under supply contracts if they meet the aforementioned criteria.
Generally, a higher 12-month backlog is better for us.
Our 12-month backlog at December 31, 2019 was approximately $19.1
million, an increase of 7%, as compared to $18.1 million as of
December 31, 2018. Compared to the end of fiscal 2019, our 12-month
backlog increased by 12% during the first six months of fiscal
2020. Backlog growth rates for the last five fiscal quarters
are:
|
Quarter
|
Backlog
($ 000)
|
Change
From Prior Year End
|
Change
From Prior Quarter End
|
|
Q2 2019
|
$
18,145
|
41%
|
30%
|
|
Q3 2019
|
$
17,137
|
34%
|
-6%
|
|
Q4 2019
|
$
17,121
|
33%
|
0%
|
|
Q1 2020
|
$
15,390
|
-10%
|
-10%
|
|
Q2 2020
|
$
19,095
|
12%
|
24%
|
The increase in our 12-month backlog from the first quarter of
fiscal 2020 to the second quarter of fiscal 2020 was largely due to
the renewal of a large annual contract for diamond-turned infrared
products during the second quarter, which we will begin shipping
against in the third quarter of fiscal 2020, after shipments
against the previous contract are completed. The timing of this
renewal is similar to the prior fiscal year. During the fourth
quarter of fiscal 2019, we booked new annual contracts for molded
infrared products.
These annual
contracts are expected to renew during the second half of the
current fiscal year. The timing of each of these annual contract
renewals may vary, and may substantially increase backlog levels at
the time the orders are received, and backlog will subsequently be
drawn down as shipments are made against these
orders.
We have experienced strong demand for infrared products used in the
industrial, defense and first responder sectors. Demand for
infrared products is being further fueled by interest in lenses
made with our new BD6 material. We expect to maintain moderate
growth in our visible PMO product group by continuing to diversify
and offer new applications, with a cost competitive structure. Over
the past several years, we have broadened our capabilities to
include additional glass types and the ability to make much larger
lenses, providing long-term opportunities for our technology
roadmap and market share expansion. Based on our backlog and recent
quote activity, we expect increases in revenue from sales of both
molded and turned infrared products for the remainder of fiscal
2020.
Revenue Dollars and Units by Product Group
The following table sets forth revenue dollars and units for our
three product groups for the three and six-month periods ended
December 31, 2019 and 2018:
|
|
Three
Months Ended December 31,
|
Six
Months Ended December 31,
|
Quarter
|
Year-to-date
|
||
|
|
2019
|
2018
|
2019
|
2018
|
%
Change
|
%
Change
|
|
Revenue
|
|
|
|
|
|
|
|
PMO
|
$
3,710,549
|
$
4,126,091
|
$
6,895,007
|
$
7,238,195
|
-10%
|
-5%
|
|
Infrared
Products
|
5,003,874
|
3,729,845
|
8,963,499
|
8,690,772
|
34%
|
3%
|
|
Specialty
Products
|
885,489
|
692,571
|
1,293,336
|
1,169,261
|
28%
|
11%
|
|
Total
revenue
|
$
9,599,912
|
$
8,548,507
|
$
17,151,842
|
$
17,098,228
|
12%
|
0%
|
|
|
|
|
|
|
|
|
|
Units
|
|
|
|
|
|
|
|
PMO
|
779,434
|
647,363
|
1,348,164
|
1,078,141
|
20%
|
25%
|
|
Infrared
Products
|
74,597
|
39,109
|
139,654
|
88,033
|
91%
|
59%
|
|
Specialty
Products
|
14,133
|
21,188
|
23,050
|
34,861
|
-33%
|
-34%
|
|
Total
units
|
868,164
|
707,660
|
1,510,868
|
1,201,035
|
23%
|
26%
|
28
Three months ended December 31, 2019
Our revenue increased by approximately $1.1 million for the second
quarter of fiscal 2020, as compared to the same quarter of the
prior fiscal year, primarily driven by an increase in infrared and
specialty product sales, partially offset by a decrease in PMO
product sales.
Revenue from the PMO product group decreased approximately
$416,000, or 10%, for the second quarter of fiscal 2020, as
compared to the same quarter of the prior fiscal year. The decrease
in revenue is primarily attributed to decreases in sales to
customers in the commercial market, as well as the defense and
industrial markets. Sales of PMO units increased by 20%, as
compared to the prior year period, however, average selling prices
decreased 25%. The decrease in average selling prices is due to a
significant increase in telecommunications products unit sales,
which typically have higher volumes and lower average selling
prices. Revenue from sales of telecommunications products decreased
by approximately 7%, while unit volumes for these products more
than doubled for the second quarter of fiscal 2020, as compared to
the prior year period.
Revenue generated by the infrared product group increased by
approximately $1.3 million, or 34%, for the second quarter of
fiscal 2020, as compared to same quarter of the prior fiscal year.
The increase in infrared product revenue is primarily due to the
timing of order shipments against a large-volume annual contract
for diamond-turned infrared products. During the second quarter of
fiscal 2019, revenue from this contract was lower, as we had
shipped the balance of the existing contract before the renewal was
finalized. In the second quarter of fiscal 2020, the customer
requested that we accelerate shipments that the customer had
previously delayed in the preceding quarter because of delays it
experienced for other components in the supply chain; thus, order
shipments related to this large contract were higher in fiscal
2020, as compared to the second quarter of fiscal 2019. In
accordance with the terms of the contract, the balance of these
orders must ship by the end of the third quarter of fiscal 2020.
Sales of molded infrared products, including products made with our
new BD6 material, also increased significantly during the second
quarter of fiscal 2020, as compared to the same quarter of the
prior fiscal year. Molded infrared products are higher in volume
and lower in prices than diamond-turned infrared products.
Accordingly, sales of infrared units increased by 91% during the
second quarter of fiscal 2020, as compared to the prior year
period, and average selling prices decreased 30%. Industrial
applications, firefighting cameras and other public safety
applications continue to be the primary drivers of the increased
demand for infrared products, particularly our thermal imaging
assemblies.
Our specialty products revenue increased by $193,000, or 28%, in
the second quarter of fiscal 2020, as compared to the same quarter
of the prior fiscal year. This increase is primarily related to new
NRE projects for customers in the medical and commercial
markets.
Six months ended December 31, 2019
Our revenue increased by approximately $54,000, or less than 1%,
for the first half of fiscal 2020, as compared to the prior year
period, with increases in infrared and specialty product sales,
offset by a decrease in PMO product sales.
Revenue from the PMO product group decreased approximately
$343,000, or 5%, for the first half of fiscal 2020, as compared to
the prior year period. The decrease in revenue is primarily
attributed to decreases in sales to customers in the commercial and
defense markets, partially offset by increases in sales to
customers in the medical and telecommunications markets. Sales of
PMO units increased by 25%, as compared to the same period of the
prior fiscal year, however, average selling prices decreased 24%,
due to a significant increase in telecommunications products sales,
which typically have higher volumes and lower average selling
prices. The unit volume for telecommunications products for the
second quarter of fiscal 2020 more than doubled, as compared to the
same period of the prior fiscal year.
Revenue generated by the infrared product group increased by
approximately $273,000, or 3%, for the first half of fiscal 2020,
as compared to the same period of the prior fiscal year. For the
first half of fiscal 2020, revenues from shipments against the
large-volume annual contract for diamond-turned infrared products
were similar to the first half of fiscal 2019. The increase in
infrared product revenue is primarily attributable to sales of
molded infrared products, including products made with our new BD6
material. Molded infrared products are higher in volume and lower
in prices than diamond-turned infrared products. Accordingly,
during the first half of fiscal 2020, sales of infrared units
increased by 59%, as compared to the prior year period, and average
selling prices decreased 35%. Industrial applications, firefighting
cameras and other public safety applications continue to be the
primary drivers of the increased demand for infrared products,
particularly our thermal imaging assemblies.
In the first half of fiscal 2020, our specialty products revenue
increased by $124,000, or 11%, as compared to prior year period.
This increase is primarily related to new NRE projects for
customers in the medical and commercial markets. This increase is
partially offset by a decrease in sales of specialty products to a
medical customer, due to timing of orders.
Other Key Indicators
Other key indicators include various operating metrics, some of
which are qualitative and others are quantitative. These indicators
change from time to time as the opportunities and challenges in the
business change. They are mostly non-financial indicators, such as
on-time delivery trends, units of shippable output by major product
line, production yield rates by major product line, and the output
and yield data from significant intermediary manufacturing
processes that support the production of the finished shippable
product. These indicators can be used to calculate such other
related indicators as fully-yielded unit production per-shift,
which varies by the particular product and our state of automation
in production of that product at any given time. Higher unit
production per shift means lower unit cost and, therefore, improved
margins or improved ability to compete, where desirable, for price
sensitive customer applications. The data from these reports is
used to determine tactical operating actions and changes.
Management also assesses business performance and makes business
decisions regarding our operations using certain non-GAAP measures.
These non-GAAP measures are described in more detail below under
the heading “Non-GAAP Financial Measures.”
29
Non-GAAP Financial Measures
We report our historical results in accordance with GAAP; however,
our management also assesses business performance and makes
business decisions regarding our operations using certain non-GAAP
financial measures. We believe these non-GAAP financial measures
provide useful information to management and investors that is
supplementary to our financial condition and results of operations
computed in accordance with GAAP; however, we acknowledge that our
non-GAAP financial measures have a number of limitations. As such,
you should not view these disclosures as a substitute for results
determined in accordance with GAAP, and they are not necessarily
comparable to non-GAAP financial measures that other companies
use.
EBITDA
EBITDA is a non-GAAP financial measure used by management, lenders,
and certain investors as a supplemental measure in the evaluation
of some aspects of a corporation's financial position and core
operating performance. Investors sometimes use EBITDA, as it allows
for some level of comparability of profitability trends between
those businesses differing as to capital structure and capital
intensity by removing the impacts of depreciation and amortization.
EBITDA also does not include changes in major working capital
items, such as receivables, inventory and payables, which can also
indicate a significant need for, or source of, cash. Since
decisions regarding capital investment and financing and changes in
working capital components can have a significant impact on cash
flow, EBITDA is not necessarily a good indicator of a business's
cash flows. We use EBITDA for evaluating the relative underlying
performance of our core operations and for planning purposes. We
calculate EBITDA by adjusting net income to exclude net interest
expense, income tax expense or benefit, depreciation and
amortization, thus the term “Earnings Before Interest, Taxes,
Depreciation and Amortization” and the acronym
“EBITDA.”
We believe EBITDA is helpful for investors to better understand our
underlying business operations. The following table adjusts net
income (loss) to EBITDA for the three and six months ended December
31, 2019 and 2018:
|
|
(unaudited)
|
|||
|
|
Quarter
Ended:
|
Six Months
Ended:
|
||
|
|
December
31, 2019
|
December
31, 2018
|
December
31, 2019
|
December
31, 2018
|
|
Net
income (loss)
|
$
769,117
|
$
16,276
|
$
(606,040
)
|
$
(566,615
)
|
|
Depreciation
and amortization
|
868,148
|
821,530
|
1,760,220
|
1,683,676
|
|
Income
tax provision (benefit)
|
321,869
|
(23,403
)
|
470,187
|
(202,363
)
|
|
Interest
expense
|
89,257
|
153,289
|
187,798
|
298,302
|
|
EBITDA
|
$
2,048,391
|
$
967,692
|
$
1,812,165
|
$
1,213,000
|
|
%
of revenue
|
21%
|
11%
|
11%
|
7%
|
Our EBITDA for the three months ended December 31, 2019 was
approximately $2.0 million, as compared to approximately $968,000
for the three months ended December 31, 2018.
The increase in EBITDA in the second quarter of
fiscal 2020 was due to higher revenue and gross margin, and lower
operating expenses.
Our EBITDA for the six months ended December 31, 2019 was
approximately $1.8 million, as compared to approximately $1.2
million for the six months ended December 31, 2018. The increase in
EBITDA in the second quarter of fiscal 2020 was primarily due to
lower operating expenses and improved operating
performance.
I
tem 4. Controls and
Procedures
Under
the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial
Officer, we evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Exchange Act) as of December 31, 2019, the end
of the period covered by this report. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of
December 31, 2019 in reporting on a timely basis information
required to be disclosed by us in the reports we file or submit
under the Exchange Act.
During the fiscal quarter ended December 31, 2019, there was no
change in our internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
30
P
ART II OTHER INFORMATION
I
tem 1. Legal
Proceedings
None
I
tem 2. Unregistered Sales of Equity
Securities and Use of Proceeds
None
I
tem 3. Defaults Upon Senior
Securities
None
I
tem 4. Mine Safety
Disclosures
None
I
tem 5. Other
Information
None.
I
tem 6. Exhibits
The following exhibits are filed herewith as a part of this
report.
31
|
Exhibit Number
|
|
Description
|
|
|||||
|
|
|
|
|
|
||||
|
3.1.1
|
|
Certificate of Incorporation of LightPath Technologies, Inc., filed
June 15, 1992 with the Secretary of State of Delaware, which was
filed as an exhibit to our Registration Statement on Form SB-2
(File No: 33-80119) filed with the Securities and Exchange
Commission on December 7, 1995, and is incorporated herein by
reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.2
|
|
Certificate of Amendment to Certificate of Incorporation of
LightPath Technologies, Inc., filed October 2, 1995 with the
Secretary of State of Delaware, which was filed as an exhibit to
our Registration Statement on Form SB-2 (File No: 33-80119) filed
with the Securities and Exchange Commission on December 7, 1995,
and is incorporated herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.3
|
|
Certificate of Designations of Class A common stock and Class E-1
common stock, Class E-2 common stock, and Class E-3 common stock of
LightPath Technologies, Inc., filed November 9, 1995 with the
Secretary of State of Delaware, which was filed as an exhibit to
our Registration Statement on Form SB-2 (File No: 33-80119) filed
with the Securities and Exchange Commission on December 7, 1995,
and is incorporated herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.4
|
|
Certificate of Designation of Series A Preferred Stock of LightPath
Technologies, Inc., filed July 9, 1997 with the Secretary of State
of Delaware, which was filed as Exhibit 3.4 to our Annual Report on
Form 10-KSB40 filed with the Securities and Exchange Commission on
September 11, 1997, and is incorporated herein by reference
thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.5
|
|
Certificate of Designation of Series B Stock of LightPath
Technologies, Inc., filed October 2, 1997 with the Secretary of
State of Delaware, which was filed as Exhibit 3.2 to our Quarterly
Report on Form 10-QSB (File No. 000-27548) filed with the
Securities and Exchange Commission on November 14, 1997, and is
incorporated herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.6
|
|
Certificate of Amendment of Certificate of Incorporation of
LightPath Technologies, Inc., filed November 12, 1997 with the
Secretary of State of Delaware, which was filed as Exhibit 3.1 to
our Quarterly Report on Form 10-QSB (File No. 000-27548) filed with
the Securities and Exchange Commission on November 14, 1997, and is
incorporated herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.7
|
|
Certificate of Designation of Series C Preferred Stock of LightPath
Technologies, Inc., filed February 6, 1998 with the Secretary of
State of Delaware, which was filed as Exhibit 3.2 to our
Registration Statement on Form S-3 (File No. 333-47905) filed with
the Securities and Exchange Commission on March 13, 1998, and is
incorporated herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.8
|
|
Certificate of Designation, Preferences and Rights of Series D
Participating Preferred Stock of LightPath Technologies, Inc. filed
April 29, 1998 with the Secretary of State of Delaware, which was
filed as Exhibit 1 to our Registration Statement on Form 8-A (File
No. 000-27548) filed with the Securities and Exchange Commission on
April 28, 1998, and is incorporated herein by reference
thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.9
|
|
Certificate of Designation of Series F Preferred Stock of LightPath
Technologies, Inc., filed November 2, 1999 with the Secretary of
State of Delaware, which was filed as Exhibit 3.2 to our
Registration Statement on Form S-3 (File No: 333-94303) filed with
the Securities and Exchange Commission on January 10, 2000, and is
incorporated herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.10
|
|
Certificate of Amendment of Certificate of Incorporation of
LightPath Technologies, Inc., filed February 28, 2003 with the
Secretary of State of Delaware, which was filed as Appendix A to
our Proxy Statement (File No. 000-27548) filed with the Securities
and Exchange Commission on January 24, 2003, and is incorporated
herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.11
|
|
Certificate of Amendment of Certificate of Incorporation of
LightPath Technologies, Inc., filed March 1, 2016 with the
Secretary of State of Delaware, which was filed as Exhibit 3.1.11
to our Quarterly Report on Form 10-Q (File No: 000-27548) filed
with the Securities and Exchange Commission on November 14, 2016,
and is incorporated herein by reference thereto.
|
|
|
||||
32
|
3.1.12
|
|
Certificate of Amendment of Certificate of Incorporation of
LightPath Technologies, Inc., filed October 30, 2017 with the
Secretary of State of Delaware, which was filed as Exhibit 3.1 to
our Current Report on Form 8-K (File No: 000-27548) filed with the
Securities and Exchange Commission on October 31, 2017, and is
incorporated herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.13
|
|
Certificate of Amendment of Certificate of Designations of Class A
Common Stock and Class E-1 Common Stock, Class E-2 Common Stock,
and Class E-3 Common Stock of LightPath Technologies, Inc., filed
October 30, 2017 with the Secretary of State of Delaware, which was
filed as Exhibit 3.2 to our Current Report on Form 8-K (File No:
000-27548) filed with the Securities and Exchange Commission on
October 31, 2017, and is incorporated herein by reference
thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.1.14
|
|
Certificate of Amendment of Certificate of Designation, Preferences
and Rights of Series D Participating Preferred Stock of LightPath
Technologies, Inc., filed January 30, 2018 with the Secretary of
State of Delaware, which was filed as Exhibit 3.1 to our Current
Report on Form 8-K (File No: 000-27548) filed with the Securities
and Exchange Commission on February 1, 2018, and is incorporated
herein by references thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.2.1
|
|
Amended and Restated Bylaws of LightPath Technologies, Inc., which
was filed as Exhibit 3.1 to our Current Report on Form 8-K (File
No: 000-27548) filed with the Securities and Exchange Commission on
February 3, 2015, and is incorporated herein by reference
thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
3.2.2
|
|
First Amendment to Amended and Restated Bylaws of LightPath
Technologies, Inc., which was filed as Exhibit 3.1 to our Current
Report on Form 8-K (File No: 000-27548) filed with the Securities
and Exchange Commission on September 21, 2017, and is incorporated
herein by reference thereto.
|
|
|
||||
|
|
|
|
|
|
||||
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934
*
|
|
|
|
||||
|
|
|
|
|
|
|
|||
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934
*
|
|
|
|
||||
|
|
|
|
|
|
|
|||
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 of Chapter 63 of Title 18 of the United States
Code
*
|
|
|
|
||||
|
|
|
|
|
|
|
|||
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 of Chapter 63 of Title 18 of the United States
Code
*
|
|
|
|
||||
101.INS
XBRL Instance
Document
*
101.SCH
XBRL Taxonomy
Extension Schema Document
*
101.CAL
XBRL Taxonomy
Extension Calculation Linkbase Document
*
101.DEF
XBRL Taxonomy
Extension Definition Linkbase Document
*
101.LAB
XBRL Taxonomy
Extension Label Linkbase Document
*
101.PRE
XBRL Taxonomy Presentation Linkbase
Document
*
*filed herewith
33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly
authorized.
|
|
LIGHTPATH TECHNOLOGIES, INC. |
|
|
|
|
|
|
|
|
Date:
February 6, 2020
|
By:
|
/s/
J. James Gaynor
|
|
|
|
|
J.
James Gaynor
|
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
Date:
February 6, 2020
|
By:
|
/s/
Donald
O. Retreage, Jr.
|
|
|
|
|
Donald
O. Retreage, Jr.
|
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
34
TABLE OF CONTENTS
Part IItem 1 Financial Statements 5Item 2 Management S Discussion and Analysis Of Financial Condition and Results Of Operations 21Item 4 Controls and Procedures 30Part II Other InformationPart IIItem 1 Legal Proceedings 31Item 2 Unregistered Sales Of Equity Securities and Use Of Proceeds 31Item 3 Defaults Upon Senior Securities 31Item 4 Mine Safety Disclosures 31Item 5 Other Information 31Item 6 Exhibits 31Item 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 4. Controls and ProceduresItem 1. Legal ProceedingsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits