LIGHTPATH TECHNOLOGIES INC

Results of Operations

Revenue

Three months ended March 31, 2025, compared to three months ended March 31, 2024

Revenue for the third quarter of fiscal 2025 was approximately $9.2 million, an increase of approximately $1.5 million, or 19%, as compared to approximately $7.7 million in the same quarter of the prior fiscal year, primarily driven by an increase in engineering services and assemblies and modules along with slight increases in visible components and infrared components.

Revenue from infrared components was approximately $3.6 million in the third quarter of fiscal 2025, nearly flat as compared to the same quarter of the prior fiscal year. The third quarter of fiscal 2025 includes the addition of $0.5 million of G5 Infrared coating services and components. This increase was offset by 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 third quarter of fiscal 2025 was $2.8 million, an increase of approximately $0.1 million, or 6%, 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 commercial customers.

Revenue from assemblies and modules was approximately $1.9 million in the third quarter of fiscal 2025, an increase of approximately $1.0 million, or 123%, as compared to the same quarter of the prior fiscal year. The third quarter of fiscal 2025 includes the addition of $0.9 million of G5 Infrared cameras and modules. The remaining increase is primarily due to sales of infrared cores and cameras, partially offset by the absence of revenue from an end-of-life order for a custom visible lens assembly which shipped complete in the first quarter of fiscal 2025.

Revenue from engineering services increased by $0.3 million, or 54%, for the third 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, as well as one of our space-related funded research contracts where revenue is generally recognized based on the achievement of milestones and, therefore, is not always consistent between periods.

Nine months ended March 31, 2025 compared to nine months ended March 31, 2024

Revenue for the first nine months of fiscal 2025 was approximately $25.0 million, an increase of approximately $1.9 million, or 8%, as compared to approximately $23.0 million in the same period of the prior fiscal year, driven by increases in sales of engineering services, assemblies and modules and visible components, partially offset by a decrease in infrared components.

Revenue from infrared components was approximately $9.4 million in the first nine months of fiscal 2025, a decrease of approximately $1.7 million, or 15%, 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 nine months of fiscal 2025 was $8.9 million, an increase of approximately $0.9 million, or 10%, 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.

Revenue from assemblies and modules was approximately $3.8 million for the first nine months of fiscal 2025, an increase of approximately $0.7 million, or 24%, as compared to the same period of the prior fiscal year. The third quarter of fiscal 2025 includes $0.9 million of G5 Infrared cameras and modules. The remaining decrease is due to an end of life order for a custom visible lens assembly 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 $2.0 million, or 221%, for the first nine months 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, as well as revenue from one of our space-related funded research contracts, where revenue is generally recognized based on the achievement of milestones.

Gross Profit

In the third quarter of fiscal 2025, gross profit was approximately $2.6 million, an increase of $1.1 million, or 66%, as compared to the same quarter of the prior fiscal year. Total cost of sales was approximately $6.5 million for the third quarter of fiscal 2025, compared to approximately $6.1 million for the same quarter of the prior fiscal year. Gross margin as a percentage of revenue was 29% for the third quarter of fiscal 2025, compared to 21% for the same quarter 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 more revenue from assemblies and modules and engineering services, which typically have higher margins than infrared components. We continue to focus our strategic direction on higher margin products.

For the first nine months of fiscal 2025, gross profit was approximately $7.4 million, an increase of $1.3 million, or 22%, as compared to the same period of the prior fiscal year. Total cost of sales was approximately $17.6 million for the first nine months of fiscal 2025, compared to approximately $17.0 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 30% for the first nine months of fiscal 2025, compared to 26% 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 more revenue from assemblies and modules and engineering services, which typically have higher margins than infrared components.

Selling, General and Administrative

In the third quarter of fiscal 2025, SG&A costs were approximately $4.4 million, an increase of approximately $1.3 million, or 40%, as compared to approximately $3.2 million in the same quarter of the prior fiscal year. For the first nine months of fiscal 2025, SG&A costs were approximately $11.1 million, an increase of approximately $2.4 million, or 27%, as compared to approximately $8.7 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 related to the acquisition of G5 Infrared were approximately $0.7 million for the third quarter of fiscal 2025, and $1.3 million for the first nine months of 2025. We have also increased our sales and marketing spend to promote new products, including personnel costs, travel, advertising and tradeshows. The third quarter and first nine months of 2025 also reflect the addition of G5 Infrared’s SG&A costs since the G5 Acquisition Date.

New Product Development

In the third quarter of fiscal 2025, new product development costs were approximately $0.8 million, an increase of approximately $0.2 million, or 33%, as compared to the same quarter of the prior fiscal year. For the first nine months of fiscal 2025, new product development costs were approximately $2.0 million, an increase of approximately $0.2 million, or 10%, as compared to the same period of the prior fiscal year. The increase for the third quarter was primarily driven by materials consumed for continued development of infrared assembly products. For the first nine months, 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 increased by $0.3 million for the third quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year, and increased by $0.3 million for the first nine months of fiscal 2025, as compared to the same period of the prior fiscal year. The increases are driven by the amortization of identifiable intangible assets associated with the acquisition of G5 Infrared, partially offset by decreases in amortization of intangible assets associated with the acquisition of Visimid, for which the backlog intangible reached full amortization during the first quarter of fiscal 2025. See Note 3,Acquisition of G5 Infrared, and Note 4,Acquisition of Visimid, in the unaudited Condensed Consolidated Financial Statements, for further information.

Other Income (Expense)

Interest expense, net, was approximately $487,000 for the third quarter of fiscal 2025, as compared to $38,000 for the same quarter of the prior fiscal year. For the first nine months of fiscal 2025, interest expense, net was approximately $805,000, as compared to $149,000 for the same period of the prior fiscal year. Interest expense for both the three and nine months ended March 31, 2025 include financing costs associated with the warrant liability of approximately $319,000. The remaining increase in interest expense is due to the interest and amortization of loan issuance costs associated with the Bridge Note, executed in August 2024, which was subsequently replaced by the Acquisition Notes executed in February 2025.

We recorded a loss in extinguishment of debt of $0.4 million during the three and nine months ended March 31, 2025, related to the exchange of the Bridge Note for an Acquisition Note in connection with the financing of the acquisition of G5 Infrared. The loss is based on the difference between the carrying value of the debt being extinguished and the fair value of the new debt, plus any other payments exchanged (e.g. the aforementioned Class A Common Stock, Series G Convertible Preferred Stock and warrants).

Other expense, net, was approximately $124,000 for the third quarter of fiscal 2025, as compared to other income, net, of $29,000 for the same quarter of the prior fiscal year. For the first nine months of fiscal 2025, other expense, net was approximately $119,000, as compared to other income, net, of $234,000 for the same period of the prior fiscal year. Other expense, net, for the third quarter and first nine months of fiscal 2025 includes a non-cash valuation adjustment of $130,000 related to the Visimid acquisition payments that were settled in Class A Common Stock. Other income for the first nine months 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 15, 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-U.S. 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 $8,000 and $12,000 for the third quarter of fiscal 2025 and 2024, respectively. For the first nine months of fiscal 2025 and 2024, we recognized foreign currency gains of $12,000 and $41,000, 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 $100,000 for the third quarter of fiscal 2025, as compared to $6,000 for the same quarter of the prior fiscal year. For the first nine months of fiscal 2025, income tax expense was $160,000, as compared to $121,000 for the same period of the prior fiscal year. The increases are primarily due to the timing of intercompany dividends.

Net Loss

Net loss for the third quarter of fiscal 2025 was approximately $3.6 million, or $0.09 basic and diluted loss per share, compared to $2.6 million, or $0.07 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 third quarter of fiscal 2025, as compared to the same quarter of the prior fiscal year, was primarily attributable to increased SG&A driven by acquisition costs, interest expense and amortization of intangible assets, partially offset by a net favorable change in other income items. Included in SG&A are $0.7 million in non-recurring costs related to the acquisition of G5 Infrared.

Net loss for the first nine months of fiscal 2025 was approximately $7.8 million, or $0.19 basic and diluted loss per share, compared to $5.7 million, or $0.15 basic and diluted loss per share, for the same period of the prior fiscal year. The increase in net loss of approximately $2.1 million for the first nine months of fiscal 2025, as compared to the same period of the prior fiscal year, was primarily attributable to the increased SG&A costs, including non-recurring costs of $1.3 million related to the acquisition of G5 Infrared, as well as increased interest expense and amortization of intangible assets.

Weighted-average common shares outstanding for the third quarter of fiscal 2025 were 41,363,643, basic and diluted, compared to 37,988,770, basic and diluted, in the same quarter of fiscal 2024. Weighted-average common shares outstanding for the first nine months of fiscal 2025 were 40,209,657, basic and diluted, compared to 37,639,464, basic and diluted, in the same period of fiscal 2024. The increase in weighted-average basic common shares was primarily due to the Class A Common Stock issued in conjunction with the Acquisition Financing. The increase is also attributable to: (i) the 585,483 shares of Class A Common Stock issued during the second half of fiscal year 2024 pursuant to the at-the-market equity program; (ii) the shares of Class A Common Stock issued in conjunction with the acquisition of Visimid; and (iii) 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 to the supply disruption.

Then, in December 2024, China escalated trade tensions with the U.S. 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.