LIGHTPATH TECHNOLOGIES INC

Results of Operations

Revenue

Revenue for the first quarter of fiscal 2025 was approximately $8.4 million, an increase of approximately $0.3 million, or 4%, as compared to approximately $8.1 million in 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 infrared components was approximately $2.6 million in the first quarter of fiscal 2025, a decrease of approximately $1.2 million, or 32%, as compared to the 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. Revenue from the visible components product group for the first quarter of fiscal 2025 was $3.3 million, an increase of approximately $0.6 million, or 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. Revenue from assemblies and modules was approximately $1.1 million in the first quarter of fiscal 2025, a decrease of approximately $0.2 million, or 13%, 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 an increase in sales of infrared camera cores. 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.

Gross Profit

Gross profit in the first quarter of fiscal 2025 was approximately $2.8 million, an increase of $0.5 million, or 22%, as compared to the same quarter of the prior fiscal year. Total cost of sales was approximately $5.6 million for the first quarter of fiscal 2025, compared to approximately $5.7 million for the same quarter of the prior fiscal year. Gross margin as a percentage of revenue was 34% for the first quarter of fiscal 2025, compared to 29% for the same quarter of the prior fiscal year. The increase in gross margin as a percentage of revenue is primarily due a more favorable product mix, with increases in both visible components sales and engineering services, which typically have higher margins than infrared components.

Selling, General and Administrative

SG&A costs were approximately $3.3 million for the first quarter of fiscal 2025, an increase of approximately $609,000, or 23%, as compared to approximately $2.7 million in the same quarter of the prior fiscal year. The increase in SG&A costs is primarily due to an increase in legal and consulting fees related to business development initiatives. We have also increased our sales and marketing spend to promote new products.

New Product Development

New product development costs were approximately $0.5 million in the first quarter of fiscal 2025, a decrease of approximately $0.2 million, or 26%, as compared to the same quarter of the prior fiscal year. This decrease reflects the shift of engineering resources toward externally funded, rather than internally funded, development projects.

Amortization of Intangibles

Amortization of intangibles increased by $0.1 million for the first quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year, due to the amortization of identifiable intangible assets associated with the Visimid acquisition. See Note 3,Acquisition of Visimid, in the unaudited Condensed Consolidated Financial Statements, for further information.

Other Income (Expense)

Interest expense, net, was approximately $149,000 for the first quarter of fiscal 2025, as compared to $58,000 for the same quarter of the prior fiscal year. The increase in interest expense is due to the interest and amortization of loan issuance costs associated with the Bridge Note which was executed in August 2024.

Other expense, net, was approximately $81,000 for the first quarter of fiscal 2025, as compared to other income, net of $5,000 for the same quarter of the prior fiscal year. Other income (expense) includes net gains and 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. We incurred foreign currency transaction losses of $36,000 and gains of $25,000 for the first quarter of fiscal 2025 and 2024, respectively.

Income Taxes

Income tax expense is primarily related to income taxes from our operations in China, including estimated Chinese withholding taxes associated with intercompany dividends declared by LPOIZ and payable to us as its parent company, as well as withholding taxes on payments from LPOIZ to LightPath for administrative services rendered. Income tax expense was approximately $16,000 for the first quarter of fiscal 2025, as compared to $40,000 for the same period of the prior year. The decrease is due to timing of intercompany dividends.

Net Loss

Net loss for the first quarter of fiscal 2025 was approximately $1.6 million, or $0.04 basic and diluted loss per share, compared to $1.3 million, or $0.04 basic and diluted loss per share, for the same quarter of the prior fiscal year.The increase in net loss of approximately $0.3 million for the first quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year, was primarily attributable to the increased legal and consulting expenses related to business development initiatives.

Weighted-average common shares outstanding were 39,561,480, basic and diluted, in the first quarter of fiscal 2025, compared to 37,431,748, basic and diluted, in the same quarter of fiscal 2024. The increase in weighted-average basic common shares was due to the 585,483 shares issued during the second half of fiscal year 2024 pursuant to the at-the-market equity program, and the shares of Class A common stock issued in conjunction with the acquisition of Visimid. The increase is also attributable to the issuance of shares of Class A common stock under the 2014 ESPP and underlying vested RSUs and RSAs. Potential dilutive common stock equivalents were excluded from the calculation of diluted shares for the first quarter of fiscal year 2025 and 2024, as their effects would have been anti-dilutive due to the net loss in those periods.

Potential Impact of Economic Conditions and Policies in China

Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China. China’s economy differs from the economies of other countries in many respects, including with respect to the level of development, growth rate, amount of government involvement, control of foreign exchange and allocation of resources. While China’s economy has experienced significant growth over the past several decades, its growth rate has declined in recent years and may continue to decline. According to the National Bureau of Statistics of China, the annual economic growth rate in China was 6.9% in 2017, 6.8% in 2018, 6.1% in 2019, 2.3% in 2020, 8.1% in 2021, 3% in 2022, and 5.2% in 2023. The annual economic growth rate in 2024 is projected to be 4.6%, although some analysts have indicated that China’s economic growth could be lower. Deteriorating economic conditions in China generally have led to lower demand for the Company’s products in China and thus lower revenues and net income for our subsidiaries in China and the Company overall. A continuation of China’s current economic conditions or a further slowdown in the economic growth, an economic downturn, a recession, or other adverse economic conditions in China is likely to have a material adverse effect on our business and results of operations in future quarters.

In addition, on July 4, 2023 China announced export limitations on Germanium and Gallium, two materials that are commonly used in infrared optical components, requiring all international customers to provide an end user statement for approval before receiving an export license. Since that announcement, supply of Germanium has been disrupted, though not completely stopped. As a purchaser of Germanium, we are mostly able to purchase the Germanium we need, though the availability of it and ability to receive export licenses varies amongst vendors. Some of our customers are able to import Germanium from China, while some get denied a license to do so. Yet, even those that are granted a license experience extended material lead times and drastic price increases. We cannot provide any assurance that we will be able to obtain adequate supplies in the future, if adequate supplies will be available, or that the timing or costs of obtaining such raw materials will be acceptable to us. As a precaution to the disruption in the supply chain of Germanium, and in anticipation of customers ordering more optics produced from other materials, primarily our own BlackDiamond materials, we have, in agreement with one key customer, proactively canceled some of our sales orders for optics made of Germanium. This serves to both reduce our exposure to possible shortages in Germanium material supply, as well as to free up capacity for orders for optics made of materials other than Germanium. This also led to us intentionally not renew a large annual customer order for optics made of Germanium from the same customer. This annual order is typically renewed during our second fiscal quarter; the prior renewal was announced in December 2022 for over $5 million. The lack of this renewal has impacted our backlog in the short term; however, the lack of this order booking does not mean that we have lost the customer. Instead, we expect this order to renew in coming months, as the customer completes evaluating, and working toward transitioning to optics made of our BlackDiamond materials.