LIGHTPATH TECHNOLOGIES INC

Results of Operations

Revenue

Three months ended December 31, 2024, compared to three months ended December 31, 2023

Revenue for the second quarter of fiscal 2025 was approximately $7.4 million, an increase of approximately $0.1 million, or 1%, as compared to approximately $7.3 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 from infrared components was approximately $3.1 million in the second quarter of fiscal 2025, a decrease of approximately $0.5 million, or 13%, 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. The availability of Germanium is becoming increasingly limited due to new trade restrictions and additional tariffs on goods imposed by China. See the section entitled*“Potential Impact of Economic Conditions and Policies in China”* within Item 2, for additional information and a discussion of economic conditions and policies in China.

Revenue from the visible components product group for the second quarter of fiscal 2025 was $2.8 million, an increase of approximately $0.1 million, or 3%, 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 industry, partially offset by decreases in sales to industrial and medical customers.

Revenue from assemblies and modules was approximately $0.9 million in the second quarter of fiscal 2025, a decrease of approximately $0.1 million, or 13%, as compared to the same quarter of the prior fiscal year. The majority of the decrease is due to a decrease in sales of a custom visible lens assembly to a medical customer, for which we had an end-of-life order which shipped complete in the first quarter of fiscal 2025. This decrease in visible lens assembly sales was partially offset by increased sales of infrared cores and cameras.

Revenue from engineering services increased by $0.6 million, or 797%, for the second 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.

Six months ended December 31, 2024, compared to six months ended December 31, 2023

Revenue for the first half of fiscal 2025 was approximately $15.8 million, an increase of approximately $0.4 million, or 3%, as compared to approximately $15.4 million in the same period 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 from infrared components was approximately $5.7 million in the first half of fiscal 2025, a decrease of approximately $1.7 million, or 23%, as compared to the same period of the prior fiscal year. The decrease in revenue is primarily due to a decrease in sales against the aforementioned annual contract for Germanium-based products. The decrease in sales to this customer was partially offset by increases in sales to several defense customers in the U.S. and in Europe.

Revenue from the visible components product group for the first half of fiscal 2025 was $6.1 million, an increase of approximately $0.7 million, or 13%, as compared to the same period of the prior fiscal year. The increase in revenue is primarily due to an increase in sales to customers in the defense industry, partially offset by decreases in sales to industrial and medical customers.

Revenue from assemblies and modules was approximately $2.1 million in the first half of fiscal 2025, a decrease of approximately $0.3 million, or 13%, as compared to the same period of the prior fiscal year. The majority of the decrease is due to a decrease in sales of a custom visible lens assembly to a medical customer, for which we had an end of life order which shipped complete in the first quarter of fiscal 2025.

Revenue from engineering services increased by $1.7 million, or 465%, for the first half of fiscal 2025, as compared to the same period 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

In the second quarter of fiscal 2025, gross profit was approximately $1.9 million, a decrease of $0.3 million, or 11%, as compared to the same quarter of the prior fiscal year. Total cost of sales was approximately $5.5 million for the second quarter of fiscal 2025, compared to approximately $5.1 million for the same quarter of the prior fiscal year. Gross margin as a percentage of revenue was 26% for the second quarter of fiscal 2025, compared to 30% for the same quarter of the prior fiscal year. The decrease in gross margin as a percentage of revenue is primarily due to differences in the product mix, coupled with some manufacturing yield issues in infrared components, which were resolved late in the second quarter. We continue to focus our strategic direction on higher margin products.

For the first half of fiscal 2025, gross profit was approximately $4.8 million, an increase of $0.3 million, or 6%, as compared to the same period of the prior fiscal year. Total cost of sales was approximately $11.0 million for the first half of fiscal 2025, compared to approximately $10.9 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 30% for the first half of fiscal 2025, compared to 29% for the same period of the prior fiscal year. The increase in gross margin as a percentage of revenue is primarily due to 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

In the second quarter of fiscal 2025, SG&A costs were approximately $3.4 million, an increase of approximately $0.5 million, or 17%, as compared to approximately $2.9 million in the same quarter of the prior fiscal year. For the first half of fiscal 2025, SG&A costs were approximately $6.6 million, an increase of approximately $1.1 million, or 20%, as compared to approximately $5.5 million in the same period 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. Due diligence and other costs incurred leading up to the acquisition of G5 were approximately $175,000 for the second quarter of fiscal 2025, and $585,000 for the first half of 2025. We have also increased our sales and marketing spend to promote new products, including personnel costs, travel, advertising and tradeshows.

New Product Development

In the second quarter of fiscal 2025, new product development costs were approximately $0.8 million, an increase of approximately $0.2 million, or 26%, as compared to the same quarter of the prior fiscal year. For the first half of fiscal 2025, new product development costs were approximately $1.2 million, approximately the same as the first half of fiscal 2024. The increase for the second quarter was primarily driven by materials consumed for continued development of infrared assembly products. For the first half, the increase in material spend was offset by a decrease in personnel costs as engineering personnel have shifted toward externally funded, rather than internally funded, development projects.

Amortization of Intangibles

Amortization of intangibles decreased by $0.2 million for the second quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year, and decreased by $0.1 million for the first half of fiscal 2025, as compared to the same period of the prior fiscal year. These decreases are driven by the amortization of identifiable intangible assets associated with the Visimid acquisition, for which the backlog intangible reached full amortization during the first quarter of fiscal 2025. See Note 3,Acquisition of Visimid, in the unaudited Condensed Consolidated Financial Statements, for further information.

Other Income (Expense)

Interest expense, net, was approximately $169,000 for the second quarter of fiscal 2025, as compared to $54,000 for the same quarter of the prior fiscal year. For the first half of fiscal 2025, interest expense, net was approximately $318,000, as compared to $111,000 for the same period 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 income, net, was approximately $86,000 for the second quarter of fiscal 2025, as compared to other income, net of $200,000 for the same quarter of the prior fiscal year. For the first half of fiscal 2025, other income, net was approximately $5,000, as compared to $205,000 for the same period of the prior fiscal year. Other income for the second quarter and first half of fiscal 2024 includes a gain of $190,000 for the return of funds previously misappropriated by our former Chinese management team, as a result of the ongoing legal proceedings described in Note 14, Contingencies, in the unaudited Condensed Consolidated Financial Statements.

Other income, net also 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 recognized foreign currency transaction gains of $40,000 and $4,000 for the second quarter of fiscal 2025 and 2024, respectively. For the first half of fiscal 2025 and 2024, we recognized foreign currency gains of $4,000 and $29,000, 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 $45,000 for the second quarter of fiscal 2025, as compared to $76,000 for the same quarter of the prior fiscal year. For the first half of fiscal 2025, income tax expense was $60,000, as compared to $116,000 for the same period of the prior fiscal year. The decreases are due to timing of intercompany dividends.

Net Loss

Net loss for the second quarter of fiscal 2025 was approximately $2.6 million, or $0.07 basic and diluted loss per share, compared to $1.7 million, or $0.05 basic and diluted loss per share, for the same quarter of the prior fiscal year.The increase in net loss of approximately $1.0 million for the second quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year, was primarily attributable to lower gross profit coupled with increased SG&A and new product development costs, as well as higher interest expense. Included in SG&A are $175,000 in non-recurring costs leading up to the acquisition of G5.

Net loss for the first half of fiscal 2025 was approximately $4.2 million, or $0.11 basic and diluted loss per share, compared to $3.1 million, or $0.08 basic and diluted loss per share, for the same period of the prior fiscal year. The increase in net loss of approximately $1.2 million for the first half of fiscal 2025, as compared to the same period of the prior fiscal year, was primarily attributable to the increased SG&A costs, including legal and consulting expenses of $585,000 related to the acquisition of G5.

Weighted-average common shares outstanding for the second quarter of fiscal 2025 were 39,728,933, basic and diluted, compared to 37,501,683, basic and diluted, in the same quarter of fiscal 2024. Weighted-average common shares outstanding for the first half of fiscal 2025 were 39,645,206, basic and diluted, compared to 37,446,714, basic and diluted, in the same period 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 all periods presented, as their effects would have been anti-dilutive due to net losses 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, 5.2% in 2023 and 5% in 2024. 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, which we expect will continue in future quarters.

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 was disrupted, though not completely stopped. This also resulted in significant price increases in the cost of Germanium material, by as much as 60%. Following these restrictions we had proactively canceled a number of customer orders for Germanium, to reduce our exposure in case of a supply disruption.

Then, in December 2024, China escalated trade tensions with the United States by imposing more stringent export restrictions on critical minerals, including germanium. The Chinese Ministry of Commerce cited national security concerns as the rationale for these measures, which effectively banned shipments of these minerals to the U.S., and significantly limited shipments of those minerals for dual-use applications in many other countries.

As a purchaser of Germanium, we cannot provide any assurance that we will be able to obtain adequate supplies of Germanium, or that the timing or costs of obtaining such raw materials will be acceptable to us. As a precaution against disruptions in the Germanium supply chain and in anticipation of increased demand for optics produced from other materials, particularly our proprietary BlackDiamond materials, we have, in agreement with a key customer, canceled sales orders for optics made of Germanium and are actively working with our customers to redesign their systems to use our BlackDiamond materials instead of Germanium-based materials. Additionally, we are actively collaborating with our customers to ensure those redesigned systems are tested and qualified as replacements for legacy Germanium-based systems. In some cases, such as complex defense and airborne systems, the re-qualification of such redesigned systems is a lengthy process that can take up to two years. In other systems such as commercial systems and also some specific defense systems, this is a faster process, that takes several months.

In February 2025, the U.S. announced additional tariffs on goods imported from China, effective immediately, and China announced its intent to follow suit and implement additional tariffs on goods imported to China from the U.S. We have in place a number of strategies to mitigate the impact of tariffs, which we will adjust in response to these additional tariffs. However, given the uncertainty regarding the potential for additional trade actions by the U.S. or other countries, any future impact on our operations and financial results is uncertain and these impacts could be more significant than in the past. Further, we can provide no assurance that the strategies we implemented to mitigate the impact of such tariffs or other trade actions will continue to be successful. To the extent that our supply chain, costs, sales, or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition, and results of operations may be adversely affected.