SYNTEC OPTICS HOLDINGS INC

Previous wording

Our sales consist of sales of highly specialized optic and photonic enabled components and sub-components. These products are sold to different customer types (e.g., OEMs and Tier 1 manufacturers) and at different prices and involve varying levels of costs. In any particular period, changes in the mix and volume of particular products sold and the prices of those products relative to other products will impact our average selling price and our cost of goods sold. The price of our products may also increase as a result of increases in the cost of components due to inflation, labor and raw materials. The Company generated 53% of revenues for the three months ended March 31, 2024 from three customers and 44% of revenues for the three months ended March 31, 2023 from three customers. In addition, revenues from these larger customers may fluctuate from time to time based on these customers’ business needs and customer experience, the timing of which may be affected by market conditions or other factors outside of our control. These customers have a broad product purchase mix across various departments of Syntec Optics. Syntec Optics supplies several mission critical components and sub-components to these customers that are not tied to a single application, customer initiative, or purchase order. We expect sales to increase as we further advance our full-system design expertise and product offerings and customers increasingly demand more sophisticated systems, rather than drop-in replacements. In addition to the impacts attributable to the general sales mix across our products, our results of operations are impacted by the relative margins of products sold. As we continue to introduce new products at varying price points, our overall gross margin may vary from period to period as a result of changes in product and customer mix.

Current wording

Our sales consist of sales of highly specialized optic and photonic enabled components and sub-components. These products are sold to different customer types (e.g., OEMs and Tier 1 manufacturers) and at different prices and involve varying levels of costs. In any particular period, changes in the mix and volume of particular products sold and the prices of those products relative to other products will impact our average selling price and our cost of goods sold. The price of our products may also increase as a result of increases in the cost of components due to inflation, labor and raw materials. The Company generated 53% of revenues for the six months ended June 30, 2024 from three customers and 51% of revenues for the six months ended June 30, 2023 from three customers. In addition, revenues from these larger customers may fluctuate from time to time based on these customers’ business needs and customer experience, the timing of which may be affected by market conditions or other factors outside of our control. These customers have a broad product purchase mix across various departments of Syntec Optics. Syntec Optics supplies several mission critical components and sub-components to these customers that are not tied to a single application, customer initiative, or purchase order. We expect sales to increase as we further advance our full-system design expertise and product offerings and customers increasingly demand more sophisticated systems, rather than drop-in replacements. In addition to the impacts attributable to the general sales mix across our products, our results of operations are impacted by the relative margins of products sold. As we continue to introduce new products at varying price points, our overall gross margin may vary from period to period as a result of changes in product and customer mix.

Previous wording

The following table sets forth our results of operations for the three months ended March 31, 2024 and 2023. This data should be read together with our financial statements and related notes included elsewhere in this Quarterly Report, and is qualified in its entirety by reference to such financial statements and related notes.

Current wording

The following table sets forth our results of operations for the three months ended June 30, 2024 and 2023, respectively. This data should be read together with our financial statements and related notes included elsewhere in this Quarterly Report, and is qualified in its entirety by reference to such financial statements and related notes.

Previous wording

Net sales decreased by $0.6 million, or 9.1%, to $6.3 million for the three months ended March 31, 2024, as compared to $6.9 million for the three months ended March 31, 2023. This decrease was primarily due to a decrease of $2.3 million spread across the medical, consumer and defense end markets offset by an increase of $1.7 million in the communications end market.

Current wording

Net sales decreased by $0.7 million, or 8.9%, to $7.0 million for the three months ended June 30, 2024, as compared to $7.7 million for the three months ended June 30, 2023. This decrease was primarily due to a decrease of $1.3 million spread across the medical, consumer and defense end markets offset by an increase of $0.6 million in the communications end market.

Previous wording

General and administrative expenses increased by $0.6 million, or 39.3%, to $2.1 million for the three months ended March 31, 2024, as compared to $1.5 million for the three months ended March 31, 2023. This increase was primarily due to an approximately $0.2 million increase in professional fees, and $0.2 million in advertising expenses and increase of $0.1 million in insurance, and $0.1 million in research and development expenses.

Current wording

General and administrative expenses increased by $0.4 million, or 25.3%, to $2.0 million for the three months ended June 30, 2024, as compared to $1.6 million for the three months ended June 30, 2023. This increase was primarily due to an approximately $0.1 million increase in professional fees, $0.1 million increase in salaries and wages, $0.1 million increase in insurance, and $0.1 million in research and development expenses.

Previous wording

Other income (expense) increased by $0.01 million, or 8.7%, to ($0.14) million for the three months ended March 31, 2024, as compared to other income (expense) of ($0.13) million for the three months ended March 31, 2023. This increase was primarily due to interest expense due to increased rates for the debt facilities.

Current wording

Other income (expense) increased by $0.2 million, or 284.7%, to $0.15 million for the three months ended June 30, 2024, as compared to other income (expense) of ($0.08) million for the three months ended June 30, 2023. This increase was primarily due to the sale of machinery and equipment of $0.3 million offset by increased interest expense of ($0.04) million due to increased rates for the debt facilities.

Previous wording

Net income decreased by $1.3 million, or 2,380.4%, to ($1.2) million for the three months ended March 31, 2024, as compared to $0.05 million for the three months ended March 31, 2023. This decrease was primarily due to a decrease in sales of $0.6 million, an increase in cost of goods sold of $0.3 million, and an increase in general and administrative expenses of $0.6 million offset by an increase of benefit from income tax of $0.3 million.

Current wording

Net income decreased by $0.3 million, or 50.4%, to $0.3 million for the three months ended June 30, 2024, as compared to $0.6 million for the three months ended June 30, 2023. This decrease was primarily due to a decrease in sales of $0.7 million, and an increase in general and administrative expenses of $0.4 million, offset by a decrease in cost of goods sold of $0.5 million, an increase in other income (expense) of $0.2 million and a decrease in provision for income tax of $0.1 million.

Previous wording

Gross profit decreased by $1.0 million, or 58.7%, to $0.7 million for the three months ended March 31, 2024, as compared to $1.7 million for the three months ended March 31, 2023. This decrease was primarily due to the decrease in revenue and the increase in cost of goods sold.

Current wording

Gross profit decreased by $1.2 million, or 29.5%, to $2.9 million for the six months ended June 30, 2024, as compared to $4.1 million for the six months ended June 30, 2023. This decrease was primarily due to the decrease in revenue and the decrease in cost of goods sold.

Previous wording

Income tax expense (benefit) decreased by ($0.3) million, or 3,056.7%, to ($0.3) million for the three months ended March 31, 2024, as compared to $0.01 million for the three months ended March 31, 2023. This increase was primarily due to the increase in net loss.

Current wording

Income tax expense (benefit) decreased by ($0.4) million, or 340.7%, to ($0.3) million for the six months ended June 30, 2024, as compared to $0.1 million for the six months ended June 30, 2023. This increase was primarily due to the increase in net loss.

Previous wording

The table below presents our adjusted EBITDA, reconciled to net income for the three months ended March 31, 2024 and 2023.

Current wording

The table below presents our adjusted EBITDA, reconciled to net income for the three and six months ended June 30, 2024 and 2023.

Previous wording

NON-GAAP RECONCILIATION OF ADJUSTED EBITDA

Current wording

NON-GAAP RECONCILIATION OF EBITDA

Previous wording

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. As of March 31, 2024, our principal sources of liquidity were cash totaling $1.7 million and a line of credit with $4.6 million available.

Current wording

Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions, contractual obligations and other commitments. We assess liquidity in terms of our cash flows from operations and their sufficiency to fund our operating and investing activities. As of June 30, 2024, our principal sources of liquidity were cash totaling $0.8 million and a line of credit with $3.7 million available.

Previous wording

Net cash used in operating activities was $0.2 million for the three months ended March 31, 2024, as compared to net cash provided by operating activities of $0.5 million for the three months ended March 31, 2023. The primary drivers for the year-over-year change include a decrease to accounts receivable of $1.7 million, and an increase to net loss of $1.2 million.

Current wording

Net cash used in operating activities was $2.0 million for the six months ended June 30, 2024, as compared to net cash provided by operating activities of $0.6 million for the six months ended June 30, 2023. The primary drivers for the year-over-year change include an increase in net loss of $1.5 million, an increase in inventory of $1.0 million, a decrease in accounts payable and accrued expenses of $1.8 million, offset by a decrease in accounts receivable of $2.1 million.

Previous wording

Net cash used in investing activities was $0.1 million for the three months ended March 31, 2024, as compared to net cash used in investing activities of $0.2 million for the three months ended March 31, 2023. The net cash used in investing activities decreased primarily due to a decrease in capital expenditures of $0.1 million.

Current wording

Net cash provided by investing activities was $0.1 million for the six months ended June 30, 2024, as compared to net cash used in investing activities of $0.8 million for the six months ended June 30, 2023. The net cash used in investing activities decreased primarily due to a decrease in capital expenditures of $0.6 million and an increase in proceeds from sale of equipment of $0.3 million.