LIGHTPATH TECHNOLOGIES INC

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, optical system or sub-system designs that we call “engineered solutions.” These engineered solutions are often based on existing reference designs we have demonstrated, that then get further customized to the customer’s specific needs. This is followed by “sampling” or “prototyping” 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 and longer-term revenue planning, as compared to the turns business, which is unpredictable and uneven. 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:

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 market to our current and potential customers looking for specific solutions to their needs. 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 critical component(s) from foreign sources. For information regarding revenue recognition related to our various revenue streams, refer toCritical Accounting Policies and Estimates in our Annual Report on Form 10-K dated June 30, 2024.

Our Key Performance Indicators:

Typically, 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:

These indicators are also used to determine tactical operating actions and changes and are discussed in more detail below. Management continues to evaluate these key indicators as we refine our strategic plan to determine whether any changes or updates to our key indicators are warranted.

Sales Backlog

We believe our sales activity has been and continues to be a key 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 evaluate our total backlog, which includes all firm orders requested by a customer that are reasonably believed 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 total backlog is better for us.

Our total backlog at September 30, 2024 was approximately $21.0 million, a decrease of 4%, as compared to $21.3 million as of September 30, 2023. Compared to the end of fiscal 2024, our total backlog increased by 7% during the first quarter of fiscal 2025. Backlog change rates for the last five fiscal quarters are:

The increase in backlog during the first quarter of fiscal 2025 is primarily due to a significant contract renewal for advanced infrared optics for a critical international military program, with a small increase over the previous renewal in the same quarter of the prior fiscal year. Also contributing to the increase is a $0.5 million low-rate initial production order for thermal imaging assemblies with a new tier-1 defense customer. These significant bookings were partially offset by shipments against prior period backlog under other annual and multi-year contracts. The timing of multi-year contract renewals are not always consistent and, thus, backlog levels may increase substantially when annual and multi-year orders are received, and decrease as shipments are made against these orders.We anticipate that our existing annual and multi-year contracts will be renewed in future quarters.

Markets continue to experience growing demand for infrared products used in the industrial, defense and first responder sectors. Demand for infrared products continues to be fueled by interest in lenses made with our proprietary BD6 and our new BDNL-4 materials. With the global supply of germanium currently concentrated in Russia and China, recent global events are generating renewed interest in germanium alternatives such as our proprietary BlackDiamond materials, and other materials we are currently developing under an exclusive license with the Naval Research Lab.

As we have outlined in our strategic direction, we do not expect to see significant growth in our visible components product group in the near future. Competition in that product line has grown substantially over the last few years, and some of our new molding capabilities and technologies such as free-form molded optics, might take longer than anticipated to reach full commercialization, depending on economic conditions and technology trends in the area of AR\VR.

In addition, order bookings for both visible and infrared components and assemblies continue to be slow in China. Domestic sales in China have also been adversely impacted by the economic downturn in China, which continues to negatively impact revenue and bookings in that region.

Revenue by Product Group

The following table sets forth revenue for our four product groups for the three-month periods ended September 30, 2024 and 2023:

Our revenue increased by 4% in the first quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year, driven by increases in sales of visible components and engineering services, partially offset by decreases in infrared components and assemblies and modules.

Revenue generated by the infrared components product group for the first quarter of fiscal 2025 was $2.6 million, a decrease of 32%, as compared to same quarter of the prior fiscal year. The decrease in revenue is primarily due to a decrease in sales against a large annual contract for Germanium-based products, which was not renewed in the second quarter of fiscal 2024, as we have decided to reduce the amount of optics we produce from Germanium, both to reduce our risk of supply chain disruption, and more importantly, to work with customers to convert their systems to use optics made of our own BlackDiamond materials. We continue to work with this customer, as well as other customers to convert their systems to use BlackDiamond optics. During the first quarter of fiscal 2025, we announced that a current key defense customer using Germanium lenses successfully completed the qualification and evaluation of new optics made from our proprietary BlackDiamond chalcogenide-based glass.

Revenue from the visible components product group for the first quarter of fiscal 2025 was $3.3 million, an increase of 23%, as compared to the same quarter of the prior fiscal year. The increase in revenue is primarily due to an increase in sales to customers in the defense and medical industries, as well as sales through catalog and distribution channels. The quarter-over-quarter increase was largely due to timing; we generally do not expect growth in our visible components product group.

Revenue from assemblies and modules decreased by 13% for the first quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year. The majority of the decrease is due to timing of shipments against a multi-year contract with a defense customer, partially offset by increased sales of infrared camera cores. During the first quarter of fiscal 2025, we announced the global launch of a new version of the Mantis™ camera, specifically designed for monitoring high-temperature processes inside boilers and furnaces in power plants, and the first commercial order for furnace inspection for a customer in the southeastern U.S., as well as a new Optical Gas Imaging (“OGI”) camera platform to detect fugitive gas emissions for oil and gas applications.

Revenue from engineering services increased by $1.1 million, or 378%, for the first quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year. This increase was primarily driven by Visimid’s contract with Lockheed Martin, where revenue is generally recognized based on the achievement of milestones. During the first quarter of fiscal 2025, we received qualification of our advanced thermal camera system by Lockheed Martin as part of its bid to produce the design of a major missile program for the U.S. Army. LightPath will now start delivering flightworthy hardware for implementation into Lockheed Martin's initial live test units.

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 evaluating the pipeline of sales opportunities, on time delivery trends, 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. 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.”