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EX-32.2 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - LIGHTPATH TECHNOLOGIES INClpth_ex322.htm
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - LIGHTPATH TECHNOLOGIES INClpth_ex321.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - LIGHTPATH TECHNOLOGIES INClpth_ex312.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - LIGHTPATH TECHNOLOGIES INClpth_ex311.htm
EX-10.1 - LETTER AGREEMENT, DATED NOVEMBER 13, 2020 - LIGHTPATH TECHNOLOGIES INClpth_ex101.htm
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
[X]            
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2020
 
OR
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________ to ____________
 
Commission file number 000-27548
 
LIGHTPATH TECHNOLOGIES, INC.
___________________________________________________
 (Exact name of registrant as specified in its charter)
 
 DELAWARE
 86-0708398
 (State or other jurisdiction of
incorporation or organization)  
 (I.R.S. Employer
Identification No.)
http://www.lightpath.com
 
2603 Challenger Tech Ct. Suite 100
Orlando, Florida 32826
_________________________________________
(Address of principal executive offices)
(ZIP Code)
 
(407) 382-4003
________________________________
(Registrant’s telephone number, including area code)
N/A
_______________________________________________________________________
(Former name, former address, and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common
Stock, par value $0.01
LPTH
The Nasdaq Stock Market, LLC
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
 YES [ X ] NO [ ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [ ]
 Accelerated filer [ ]
 
 Smaller reporting company [ X ]
Non-accelerated filer [ X ] 
 Emerging growth company [  ]
  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
 
26,138,292 shares of common stock, Class A, $0.01 par value, outstanding as of February 1, 2021.
 

 
 
 
 
LIGHTPATH TECHNOLOGIES, INC.
Form 10-Q
 
Index
 
Item
 
Page
 
 
 
 3
 
 
 
 4
 
 
 
 4
 
 4
 
 5
 
 6
 
 7
 
 8
 
 
 
  20
 
 22
 
 25
 
 26
 
 26
 
 26
 
  30
  31
 
 
 
  32
 
 
 
  32
  32
  32
  32
  32
  32
  33
 
 
 
 
  35
 
 
 
 
 
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
 
Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2020 (the “Quarterly Report”) may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures, growth, product development, sales, business strategy, statements related to the expected effects on our business from the coronavirus (“COVID-19”) pandemic, and other similar matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or other comparable terminology. These forward-looking statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. These statements are subject to many risks, uncertainties, and other important factors that could cause actual future results to differ materially from those expressed in the forward-looking statements including, but not limited to, the duration and scope of the COVID-19 pandemic and impact on the demand for our products; our ability to obtain needed raw materials and components from our suppliers; actions governments, businesses, and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the effects of steps that we could take to reduce operating costs; our inability to sustain profitable sales growth, convert inventory to cash, or reduce our costs to maintain competitive prices for our products; circumstances or developments that may make us unable to implement or realize the anticipated benefits, or that may increase the costs, of our current and planned business initiatives; and those factors detailed by us in our public filings with the Securities and Exchange Commission (the “SEC”), including in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended June 30, 2020. In light of these risks and uncertainties, all of the forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized. We undertake no obligation to update or revise any of the forward-looking statements contained herein.
 
 
 
3
 
 
PART I FINANCIAL INFORMATION 
 
Item 1. Financial Statements
 
LIGHTPATH TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
(unaudited)
 
 
 
December 31,
 
 
June 30,
 
Assets
 
2020
 
 
2020
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $5,306,243 
 $5,387,388 
Trade accounts receivable, net of allowance of $10,352 and $9,917
  6,842,818 
  6,188,726 
Inventories, net
  9,693,277 
  8,984,482 
Other receivables
   
  132,051 
Prepaid expenses and other assets
  346,377 
  565,181 
Total current assets
  22,188,715 
  21,257,828 
 
    
    
Property and equipment, net
  13,631,399 
  11,799,061 
Operating lease right-of-use assets
  1,389,428 
  1,220,430 
Intangible assets, net
  6,145,423 
  6,707,964 
Goodwill
  5,854,905 
  5,854,905 
Deferred tax assets, net
  659,000 
  659,000 
Other assets
  27,737 
  75,730 
Total assets
 $49,896,607 
 $47,574,918 
Liabilities and Stockholders’ Equity
    
    
Current liabilities:
    
    
Accounts payable
 $2,737,740 
 $2,558,638 
Accrued liabilities
  1,175,444 
  992,221 
Accrued payroll and benefits
  2,164,827 
  1,827,740 
Operating lease liabilities, current
  843,533 
  765,422 
Loans payable, current portion
  936,615 
  981,350 
Finance lease obligation, current portion
  274,112 
  278,040 
Total current liabilities
  8,132,271 
  7,403,411 
 
    
    
Finance lease obligation, less current portion
  147,031 
  279,435 
Operating lease liabilities, noncurrent
  891,849 
  887,766 
Loans payable, less current portion
  4,372,429 
  4,437,365 
Total liabilities
  13,543,580 
  13,007,977 
 
    
    
Commitments and Contingencies
    
    
 
    
    
Stockholders’ equity:
    
    
Preferred stock: Series D, $.01 par value, voting;
    
    
500,000 shares authorized; none issued and outstanding
   
   
Common stock: Class A, $.01 par value, voting;
    
    
44,500,000 shares authorized; 26,127,361 and 25,891,885
    
    
shares issued and outstanding
  261,274 
  258,919 
Additional paid-in capital
  231,014,560 
  230,634,056 
Accumulated other comprehensive income
  2,188,596 
  735,892 
Accumulated deficit
  (197,111,403)
  (197,061,926)
Total stockholders’ equity
  36,353,027 
  34,566,941 
Total liabilities and stockholders’ equity
 $49,896,607 
 $47,574,918 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
4
 
 
LIGHTPATH TECHNOLOGIES, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
December 31,
 
 
December 31,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Revenue, net
 $9,922,171 
 $9,599,912 
 $19,431,143 
 $17,151,842 
Cost of sales
  6,291,835 
  5,670,632 
  11,950,615 
  10,831,744 
Gross margin
  3,630,336 
  3,929,280 
  7,480,528 
  6,320,098 
Operating expenses:
    
    
    
    
Selling, general and administrative
  2,763,178 
  2,199,133 
  5,203,655 
  4,540,911 
New product development
  529,902 
  468,646 
  980,399 
  897,057 
Amortization of intangibles
  281,271 
  283,279 
  562,542 
  566,800 
Gain on disposal of property and equipment
  (477)
  (79,224)
  (522)
  (129,224)
Total operating expenses
  3,573,874 
  2,871,834 
  6,746,074 
  5,875,544 
Operating income
  56,462 
  1,057,446 
  734,454 
  444,554 
Other income (expense):
    
    
    
    
Interest expense, net
  (55,147)
  (89,257)
  (113,696)
  (187,798)
Other income (expense), net
  93,252 
  122,797 
  5,517 
  (392,609)
Total other income (expense), net
  38,105 
  33,540 
  (108,179)
  (580,407)
Income (loss) before income taxes
  94,567 
  1,090,986 
  626,275 
  (135,853)
Income tax provision
  241,112 
  321,869 
  675,752 
  470,187 
Net income (loss)
 $(146,545)
 $769,117 
 $(49,477)
 $(606,040)
Foreign currency translation adjustment
  723,396 
  143,056 
  1,452,704 
  196,822 
Comprehensive income (loss)
 $576,851 
 $912,173 
 $1,403,227 
 $(409,218)
Earnings (loss) per common share (basic)
 $(0.01)
 $0.03 
 $(0.00)
 $(0.02)
Number of shares used in per share calculation (basic)
  26,117,239 
  25,837,903 
  26,049,750 
  25,832,337 
Earnings (loss) per common share (diluted)
 $(0.01)
 $0.03 
 $(0.00)
 $(0.02)
Number of shares used in per share calculation (diluted)
  26,117,239 
  27,361,273 
  26,049,750 
  25,832,337 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
5
 
 
LIGHTPATH TECHNOLOGIES, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
Class A
 
 
 
 
 
Additional
 
 
Other
 
 
 
 
 
Total
 
 
 
Common Stock
 
 
 
 
 
Paid-in
 
 
Comphrehensive
 
 
Accumulated
 
 
Stockholders’
 
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Income
 
 
Deficit
 
 
Equity
 
Balances at June 30, 2020
  25,891,885 
 $258,919 
 $230,634,056 
 $735,892 
 $(197,061,926)
 $34,566,941 
Issuance of common stock for:
    
    
    
    
    
    
Employee Stock Purchase Plan
  3,306 
  33 
  10,976 
   
   
  11,009 
Exercise of stock options, net
  207,640 
  2,076 
  124,024 
   
   
  126,100 
Stock-based compensation on stock options & RSUs
   
   
  136,849 
   
   
  136,849 
Foreign currency translation adjustment
   
   
   
  729,308 
   
  729,308 
Net income
   
   
   
   
  97,068 
  97,068 
Balances at September 30, 2020
  26,102,831 
 $261,028 
 $230,905,905 
 $1,465,200 
 $(196,964,858)
 $35,667,275 
Issuance of common stock for:
    
    
    
    
    
    
Exercise of stock options & RSU's, net
  24,530 
  246 
  2,488 
   
   
  2,734 
Stock-based compensation on stock options & RSUs
   
   
  106,167 
   
   
  106,167 
Foreign currency translation adjustment
   
   
   
  723,396 
   
  723,396 
Net loss
   
   
   
   
  (146,545)
  (146,545)
Balances at December 31, 2020
  26,127,361 
 $261,274 
 $231,014,560 
 $2,188,596 
 $(197,111,403)
 $36,353,027 
 
    
    
    
    
    
    
 
    
    
    
    
    
    
Balances at June 30, 2019
  25,813,895 
 $258,139 
 $230,321,324 
 $808,518 
 $(197,928,855)
 $33,459,126 
Issuance of common stock for:
    
    
    
    
    
    
Employee Stock Purchase Plan
  13,370 
  134 
  12,033 
   
   
  12,167 
Exercise of RSUs, net
  4,394 
  44 
  (44)
   
   
   
Stock-based compensation on stock options & RSUs
   
   
  98,459 
   
   
  98,459 
Foreign currency translation adjustment
   
   
   
  53,766 
   
  53,766 
Net loss
   
   
   
   
  (1,375,157)
  (1,375,157)
Balances at September 30, 2019
  25,831,659 
 $258,317 
 $230,431,772 
 $862,284 
 $(199,304,012)
 $32,248,361 
Issuance of common stock for:
    
    
    
    
    
    
Exercise of RSUs, net
  8,703 
  87 
  (87)
   
   
   
Stock-based compensation on stock options & RSUs
   
   
  95,441 
   
   
  95,441 
Foreign currency translation adjustment
   
   
   
  143,056 
   
  143,056 
Net income
   
   
   
   
  769,117 
  769,117 
Balances at December 31, 2019
  25,840,362 
 $258,404 
 $230,527,126 
 $1,005,340 
 $(198,534,895)
 $33,255,975 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
6
 
 
LIGHTPATH TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
 
 
Six Months Ended December 31,
 
 
 
2020
 
 
2019
 
Cash flows from operating activities:
 
 
 
 
 
 
Net loss
 $(49,477)
 $(606,040)
Adjustments to reconcile net loss to net cash provided by operating activities:
    
    
Depreciation and amortization
  1,691,163 
  1,760,220 
Interest from amortization of debt costs
  9,286 
  9,286 
Gain on disposal of property and equipment
  (522)
  (129,224)
Stock-based compensation on stock options & RSUs, net
  243,016 
  178,389 
Provision for doubtful accounts receivable
   
  9,147 
Change in operating lease liabilities
  (86,804)
  (64,090)
Inventory write-offs to allowance
  133,204 
   
Changes in operating assets and liabilities:
    
    
Trade accounts receivable
  (654,092)
  (1,199,691)
Other receivables
  132,051 
  353,695 
Inventories
  (841,999)
  142,198 
    Prepaid expenses and other assets
  266,797 
  338,034 
    Accounts payable and accrued liabilities
  699,412 
  146,547 
                  Net cash provided by operating activities
  1,542,035 
  938,471 
 
    
    
Cash flows from investing activities:
    
    
   Purchase of property and equipment
  (2,160,710)
  (1,153,227)
   Proceeds from sale of equipment
   
  179,573 
                  Net cash used in investing activities
  (2,160,710)
  (973,654)
 
    
    
Cash flows from financing activities:
    
    
Proceeds from exercise of stock options
  128,834 
   
Proceeds from sale of common stock from Employee Stock Purchase Plan
  11,009 
  12,167 
Borrowings on loan payable
  275,377 
   
Payments on loan payable
  (395,257)
  (290,675)
Repayment of finance lease obligations
  (136,332)
  (210,225)
                 Net cash used in financing activities
  (116,369)
  (488,733)
Effect of exchange rate on cash and cash equivalents
  653,899 
  196,822 
Change in cash and cash equivalents and restricted cash
  (81,145)
  (327,094)
Cash and cash equivalents, beginning of period
  5,387,388 
  4,604,701 
Cash and cash equivalents, end of period
 $5,306,243 
 $4,277,607 
 
    
    
Supplemental disclosure of cash flow information:
    
    
 Interest paid in cash
 $105,029 
 $182,241 
 Income taxes paid
 $512,499 
 $249,777 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
7
 
 
LIGHTPATH TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
 
1.            
Basis of Presentation
 
References in this document to “the Company,” “LightPath,” “we,” “us,” or “our” are intended to mean LightPath Technologies, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.
 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the requirements of Article 8 of Regulation S-X promulgated under the Exchange Act and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with our Consolidated Financial Statements and related notes, included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020, filed with the SEC. Unless otherwise stated, references to particular years or quarters refer to our fiscal years ended June 30 and the associated quarters of those fiscal years.
 
These Condensed Consolidated Financial Statements are unaudited, but include all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. The Consolidated Balance Sheet as of June 30, 2020 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year as a whole. The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
 
2.            
Significant Accounting Policies
 
Our significant accounting policies are provided in Note 2, Summary of Significant Accounting Policies, in the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. There have been no material changes to our significant accounting policies during the six months ended December 31, 2020, from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
 
Use of Estimates
Management makes estimates and assumptions during the preparation of our unaudited Condensed Consolidated Financial Statements that affect amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes available, which, in turn, could impact the amounts reported and disclosed herein.
 
3.            
Revenue
 
Product Revenue
We are a manufacturer of optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared optical components, and other optical materials used to produce products that manipulate light. We design, develop, manufacture, and distribute optical components and assemblies utilizing advanced optical manufacturing processes. We also perform research and development for optical solutions for a wide range of optics markets. Revenue is derived primarily from the sale of optical components and assemblies.
 
Revenue Recognition
Revenue is generally recognized upon transfer of control, including the risks and rewards of ownership, of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We generally bear all costs, risk of loss, or damage and retain title to the goods up to the point of transfer of control of products to customers. Shipping and handling costs are included in the cost of goods sold. We present revenue net of sales taxes and any similar assessments.
 
Customary payment terms are granted to customers, based on credit evaluations. We currently do not have any contracts where revenue is recognized, but the customer payment is contingent on a future event. We record deferred revenue when cash payments are received or due in advance of our performance. Deferred revenue was immaterial as of June 30, 2020 and December 31, 2020.
 
 
8
 
 
 
Nature of Products
Revenue from the sale of optical components and assemblies is recognized upon transfer of control, including the risks and rewards of ownership, to the customer. The performance obligations for the sale of optical components and assemblies are satisfied at a point in time. Product development agreements are generally short term in nature, with revenue recognized upon satisfaction of the performance obligation, and transfer of control of the agreed-upon deliverable. We have organized our products in three groups: precision molded optics (“PMO”), infrared, and specialty products. Revenues from product development agreements are included in specialty products. Revenue by product group for the three and six months ended December 31, 2020 and 2019 was as follows:
 
 
 
Three Months Ended
December 31,
 
 
Six Months Ended
December 31,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
PMO
 $4,742,459 
 $3,710,549 
 $9,036,062 
 $6,895,007 
Infrared Products
  4,808,102 
  5,003,874 
  9,532,606 
  8,963,499 
Specialty Products
  371,610 
  885,489 
  862,475 
  1,293,336 
Total revenue
 $9,922,171 
 $9,599,912 
 $19,431,143 
 $17,151,842 
 
4.            
Inventories
 
The components of inventories include the following:
 
 
 
December 31,
2020
 
 
June 30,
2020
 
Raw materials
 $4,094,767 
 $3,876,955 
Work in process
  3,390,968 
  2,989,070 
Finished goods
  3,302,822 
  3,134,800 
Allowance for obsolescence
  (1,095,280)
  (1,016,343)
 
 $9,693,277 
 $8,984,482 
 
The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $2.1 million and $2.3 million at December 31, 2020 and June 30, 2020, respectively.
 
 
 
9
 
 
5.            
Property and Equipment
 
Property and equipment are summarized as follows:
 
 
 
Estimated
 
 
December 31,
 
 
June 30,
 
 
 
Lives (Years)
 
 
2020
 
 
2020
 
Manufacturing equipment
  5 - 10 
 $20,870,729 
 $18,444,448 
Computer equipment and software
  3 - 5 
  852,575 
  801,625 
Furniture and fixtures
  5 
  364,506 
  321,418 
Leasehold improvements
  5 - 7 
  2,697,248 
  2,171,388 
Construction in progress
    
  1,597,166 
  1,274,880 
Total property and equipment
    
  26,382,224 
  23,013,759 
Less accumulated depreciation and amortization
    
  (12,750,825)
  (11,214,698)
Total property and equipment, net
    
 $13,631,399 
 $11,799,061 
 
6. Goodwill and Intangible Assets
 
There were no changes in the net carrying value of goodwill during the six months ended December 31, 2020.
 
Identifiable intangible assets were comprised of:
 
 
 
 Useful Lives
(Years)
 
 
 December 31,
2020
 
 
 June 30,
2020
 
 Customer relationships
  15 
 $3,590,000 
 $3,590,000 
 Trade secrets
  8 
  3,272,000 
  3,272,000 
 Trademarks
  8 
  3,814,000 
  3,814,000 
 Total intangible assets
    
  10,676,000 
  10,676,000 
 Less accumulated amortization
    
  (4,530,577)
  (3,968,036)
 Total intangible assets, net
    
 $6,145,423 
 $6,707,964 
 
Future amortization of identifiable intangibles is as follows:
 
Fiscal year ending:
 
 
 
 June 30, 2021 (remaining six months)
 $562,542 
 June 30, 2022
  1,125,083 
 June 30, 2023
  1,125,083 
 June 30, 2024
  1,125,083 
 June 30, 2025 and later
  2,207,632 
 
 $6,145,423 
 
7.   Accounts Payable
 
The accounts payable balance as of December 31, 2020 and June 30, 2020 both include approximately $91,000 of earned but unpaid Board of Directors’ fees.
 
 
10
 
 
8.   Income Taxes
 
A summary of our total income tax expense and effective income tax rate for the three and six months ended December 31, 2020 and 2019 is as follows:
 
 
 
Three Months Ended December 31,
 
 
Six Months Ended December 31,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Income (loss) before income taxes
 $94,567 
 $1,090,986 
 $626,275 
 $(135,853)
Income tax provision
 $241,112 
 $321,869 
 $675,752 
 $470,187 
Effective income tax rate
  255%
  30%
  108%
  -346%
 
The difference between our effective tax rates in the periods presented above and the federal statutory rate is due to the mix of taxable income and losses generated in our various tax jurisdictions, which include the United States (the “U.S.”), the People’s Republic of China, and the Republic of Latvia. For the six months ended December 31, 2020 and 2019, income tax expense was primarily related to income taxes from our operations in China. Income tax expense for the six months ended December 31, 2020 also includes withholding taxes of $300,000 accrued on a $3 million intercompany dividend declared in July 2020 by LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”), which dividend will be paid to us, as its parent company.
 
We record net deferred tax assets to the extent we believe it is more likely than not that some portion or all of these assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 2020 and June 30, 2020, we have provided for a valuation allowance against our net deferred tax assets to reduce the net deferred tax assets to the amount we estimate is more-likely-than-not to be realized. Our net deferred tax asset consists primarily of U.S. net operating loss (“NOL”) carryforward benefits, and federal and state tax credits with indefinite carryover periods.
 
U.S. Federal and State Income Taxes
Our U.S. federal and state statutory income tax rate is estimated to be 25.5%. Based on our current assessment of the valuation allowance position on our net deferred tax assets, no additional tax benefit is expected to be recorded on pre-tax losses generated in the U.S.
 
Income Tax Law of the People’s Republic of China
Our Chinese subsidiaries, LightPath Optical Instrumentation (Shanghai) Co., Ltd. (“LPOI”) and LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”), are governed by the Income Tax Law of the People’s Republic of China. As of December 31, 2020, LPOI and LPOIZ were subject to statutory income tax rates of 25% and 15%, respectively.
 
In July 2020, we declared an intercompany dividend of $3 million from LPOIZ, payable to us as its parent company. Accordingly, we accrued Chinese withholding taxes of $300,000 associated with the dividend. LPOIZ paid to us $900,000, after the withholding of $100,000 in taxes, during each of the quarters ended September 30, 2020 and December 31, 2020. The remaining $100,000 of withholding taxes are included in accrued liabilities in the accompanying unaudited Condensed Consolidated Balance Sheet as of December 31, 2020. Other than these withholding taxes, this intercompany dividend has no impact on our unaudited Condensed Consolidated Financial Statements.
 
Historically, the Company considered unremitted earnings held by its foreign subsidiaries to be permanently reinvested. However, during fiscal 2020, the Company began declaring intercompany dividends to remit a portion of the historical earnings of its foreign subsidiaries to the U.S. parent company. It is still the Company’s intent to reinvest a significant portion of the more recent earnings generated by its foreign subsidiaries, however the Company also plans to repatriate a portion of the historical earnings of its subsidiaries. Based on its previous intent, the Company had not historically provided for future Chinese withholding taxes on the related earnings. However, during fiscal 2020 the Company began to accrue for these taxes on the portion of historical earnings that it intends to repatriate.
 
 
11
 
 
 
Law of Corporate Income Tax of Latvia
Our Latvian subsidiary, ISP Optics Latvia, SIA (“ISP Latvia”), is governed by the Law of Corporate Income Tax of Latvia. Effective January 1, 2018, the Republic of Latvia enacted tax reform with the following key provisions: (i) corporations are no longer subject to income tax, but are instead subject to a distribution tax on distributed profits (or deemed distributions, as defined) and (ii) the rate of tax was changed to 20%; however, distribution amounts are first divided by 0.8 to arrive at the profit before tax amount, resulting in an effective tax rate of 25%. As a transitional measure, distributions of earnings prior to January 1, 2018 are not subject to tax if declared prior to December 31, 2019. ISP Latvia has declared an intercompany dividend to be paid to ISP, its U.S. parent company, for the full amount of earnings accumulated prior to January 1, 2018. Distributions of this dividend will be from earnings prior to January 1, 2018 and, therefore, will not be subject to tax. We currently do not intend to distribute any earnings generated after January 1, 2018. If, in the future, we change such intention, we will accrue distribution taxes, if any, as profits are generated.
 
9.   Stock-Based Compensation
 
Our directors, officers, and key employees are granted stock-based compensation through our Amended and Restated Omnibus Incentive Plan, as amended (the “Omnibus Plan”), through October 2018 and after that date, the 2018 Stock and Incentive Compensation Plan (the “SICP”), including incentive stock options, non-qualified stock options, and restricted stock unit (“RSU”) awards. The stock-based compensation expense is based primarily on the fair value of the award as of the grant date, and is recognized as an expense over the requisite service period.
 
The following table shows total stock-based compensation expense for the six months ended December 31, 2020 and 2019 included in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income:
 
 
 
Six Months Ended December 31,
 
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
Stock options
 $34,241 
 $5,307 
RSUs
  208,775 
  173,082 
     Total
 $243,016 
 $178,389 
 
    
    
The amounts above were included in:
    
    
Selling, general & administrative
 $243,016 
 $178,389 
Cost of sales
  - 
  - 
New product development
  - 
  - 
 
 $243,016 
 $178,389 
 
We also adopted the LightPath Technologies, Inc. Employee Stock Purchase Plan (the “2014 ESPP”). The 2014 ESPP permits employees to purchase Class A common stock through payroll deductions, subject to certain limitations. A discount of $1,091 and $1,203 for the six months ended December 31, 2020 and 2019, respectively, is included in the selling, general and administrative expense in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income, which represents the value of the 10% discount given to the employees purchasing stock under the 2014 ESPP.
 
Grant Date Fair Values and Underlying Assumptions; Contractual Terms
We estimate the fair value of each stock option as of the date of grant, using the Black-Scholes-Merton pricing model. The fair value of 2014 ESPP shares is the amount of the discount the employee obtains at the date of the purchase transaction.
 
Most stock options granted vest ratably over two to four years and are generally exercisable for ten years. The assumed forfeiture rates used in calculating the fair value of RSU grants was 0%, and the assumed forfeiture rates used in calculating the fair value of options for performance and service conditions were 20% for each of the six months ended December 31, 2020 and 2019. The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures. The interest rate used is the U.S. Treasury interest rate for constant maturities.
 
 
12
 
 
For the six months ended December 31, 2020 and 2019, there were no stock options granted under the Omnibus Plan. For stock options granted under the SICP in the six-month periods ended December 31, 2020 and 2019, we estimated the fair value of each stock option as of the date of grant using the following assumptions:
 
 
 
Six Months Ended December 31,
 
 
 
2020
 
 
2019
 
Weighted-average expected volatility
  71.2% 
  63.7% 
Dividend yields
  0% 
  0% 
Weighted-average risk-free interest rate
  0.74% 
  1.57% 
Weighted-average expected term, in years
  7.49 
  7.50 
 
Information Regarding Current Share-Based Compensation Awards
A summary of the activity for share-based compensation awards in the six months ended December 31, 2020 is presented below:
 
 
 
 Stock Options
 
 
 Restricted Stock Units (RSUs)
 
 
 
 
 
 
Weighted-
 
 
Weighted-
 
 
 
 
 
Weighted-
 
 
 
 
 
 
Average
 
 
Average
 
 
 
 
 
Average
 
 
 
 
 
 
Exercise
 
 
Remaining
 
 
 
 
 
Remaining
 
 
 
 Shares
 
 
 Price
 
 
 Contract
 
 
 Shares
 
 
 Contract
 
June 30, 2020
  942,575 
 $1.65 
  6.5 
  2,328,303 
  0.9 
 
    
    
    
    
    
Granted
  18,139 
 $2.80 
  9.8 
  177,776 
  2.9 
Exercised
  (209,776)
 $1.47 
    
  (24,452)
    
Cancelled/Forfeited
  (378,558)
 $1.72 
    
   
    
December 31, 2020
  372,380 
 $1.73 
  8.8 
  2,481,627 
  0.9 
 
    
    
    
    
    
Awards exercisable/
    
    
    
    
    
vested as of
    
    
    
    
    
December 31, 2020
  90,095 
 $1.58 
  7.6 
  1,871,348 
   
 
    
    
    
    
    
Awards unexercisable/
    
    
    
    
    
unvested as of
    
    
    
    
    
December 31, 2020
  282,285 
 $1.77 
  9.1 
  610,279 
  0.9 
 
  372,380 
    
    
  2,481,627 
    
 
RSU awards vest immediately or from two to four years from the date of grant.
 
As of December 31, 2020, there was approximately $1.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including stock options and RSUs) granted. We expect to recognize the compensation cost as follows:
 
Fiscal Year Ending:
 
Stock Options
 
 
RSUs
 
 
Total
 
June 30, 2021 (remaining six months)
 $33,884 
 $200,962 
 $234,846 
June 30, 2022
  65,160 
  308,534 
  373,694 
June 30, 2023
  72,024 
  228,716 
  300,740 
June 30, 2024
  49,425 
  93,848 
  143,273 
 
 $220,493 
 $832,060 
 $1,052,553 
 
 
 
13
 
 
10.            
Earnings (Loss) Per Share
 
Basic earnings per share is computed by dividing net income or loss by the weighted-average number of shares of Class A common stock outstanding, during each period presented. Diluted earnings per share is computed similarly to basic earnings per share, except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue shares of Class A common stock were exercised or converted into shares of Class A common stock. The computations for basic and diluted earnings per share of Class A common stock are described in the following table:
 
 
 
Three Months Ended
December 31,
 
 
Six Months Ended
December 31,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $(146,545)
 $769,117 
 $(49,477)
 $(606,040)
 
    
    
    
    
Weighted-average common shares outstanding:
    
    
    
    
Basic number of shares
  26,117,239 
  25,837,903 
  26,049,750 
  25,832,337 
 
    
    
    
    
Effect of dilutive securities:
    
    
    
    
Options to purchase common stock
   
   
   
   
RSUs
   
  1,523,370 
   
   
Diluted number of shares
  26,117,239 
  27,361,273 
  26,049,750 
  25,832,337 
 
    
    
    
    
Earnings (loss) per common share:
    
    
    
    
Basic
 $(0.01)
 $0.03 
 $(0.00)
 $(0.02)
Diluted
 $(0.01)
 $0.03 
 $(0.00)
 $(0.02)
 
The following potential dilutive shares were not included in the computation of diluted earnings per share of Class A common stock, as their effects would be anti-dilutive:
 
 
 
Three Months Ended
December 31,
 
 
Six Months Ended
December 31,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Options to purchase common stock
  372,776 
  1,013,743 
  589,892 
  996,834 
RSUs
  2,409,499 
  527,416 
  2,368,901 
  1,957,189 
 
  2,782,275 
  1,541,159 
  2,958,793 
  2,954,023 
 
11.            
Leases
 
Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida; Latvia; Shanghai, China; and Zhenjiang, China, and finance leases related to certain equipment located in Orlando, Florida. The operating leases for facilities are non-cancelable operating leases, expiring through 2025. We include options to renew (or terminate) in our lease term, and as part of our right-of-use ("ROU") assets and lease liabilities, when it is reasonably certain that we will exercise that option. We currently have obligations under four finance lease agreements, entered into during fiscal years 2018 and 2019, with terms ranging from three to five years. The leases are for computer and manufacturing equipment.
 
Our operating lease ROU assets and the related lease liabilities are initially measured at the present value of future lease payments over the lease term. Two of our operating leases include renewal options, which were not included in the measurement of the operating lease ROU assets and related lease liabilities. As most of our leases do not provide an implicit rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Currently, none of our leases include variable lease payments that are dependent on an index or rate. We are responsible for payment of certain real estate taxes, insurance and other expenses on certain of our leases. These amounts are generally considered to be variable and are not included in the measurement of the ROU asset and lease liability. We generally account for non-lease components, such as maintenance, separately from lease components. Our lease agreements do not contain any material residual value guarantees or material restricted covenants. Leases with a term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
 
 
14
 
 
We received tenant improvement allowances for each of our two leases with respect to our facility located in Orlando, Florida (the “Orlando Facility”). These allowances were used to construct improvements and are included in leasehold improvements and operating lease liabilities. The balances are being amortized over the corresponding lease terms.
 
The components of lease expense were as follows:
 
 
 
Three Months Ended
December 31,
 
 
Six Months Ended
December 31,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
Operating lease cost
 $173,437 
 $172,102 
 $340,411 
 $336,973 
Finance lease cost:
    
    
    
    
Depreciation of lease assets
  47,354 
  86,063 
  113,223 
  172,126 
Interest on lease liabilities
  11,432 
  20,425 
  24,256 
  42,957 
Total finance lease cost
  58,786 
  106,488 
  137,479 
  215,083 
Total lease cost
 $232,223 
 $278,590 
 $477,890 
 $552,056 
 
Supplemental balance sheet information related to leases was as follows:
 
 
Classification
 
December 31,
2020
 
 
June 30,
2020
 
Assets:
 
 
 
 
 
 
 
Operating lease assets
Operating lease assets
 $1,389,428 
 $1,220,430 
Finance lease assets
Property and equipment, net(1)
  571,811 
  666,519 
Total lease assets
 
 $1,961,239 
 $1,886,949 
 
    
    
Liabilities:
 
    
    
Current:
 
    
    
Operating leases
Operating lease liabilities, current
 $843,533 
 $765,422 
Short-term leases
Accrued liabilities(2)
   
  97,665 
Finance leases
Finance lease liabilities, current
  274,112 
  278,040 
 
    
    
Noncurrent:
 
    
    
Operating leases
Operating lease liabilities, less current portion
  891,849 
  887,766 
Finance leases
Finance lease liabilities, less current portion
  147,031 
  279,435 
Total lease liabilities
 
 $2,156,525 
 $2,308,328 
 
(1)
Finance lease assets were recorded net of accumulated depreciation of approximately $1.1 million as of December 31, 2020, and $1.0 million as of June 30, 2020.
(2)
Represents accrual related to the lease of a manufacturing and office facility in Irvington, New York, which we ceased use of as of June 30, 2019 as the relocation of the operations formerly housed in this facility was complete. All remaining lease payments were accrued as of that date, through the lease expiration in August 2020.
 
Lease term and discount rate information related to leases was as follows:
 
Lease Term and Discount Rate
 
December 31, 2020
Weighted Average Remaining Lease Term (in years)
Operating leases
 
2.7
Finance leases
 
1.7
 
 
 
Weighted Average Discount Rate
 
 
Operating leases
 
4.5%
Finance leases
 
7.9%
 
 
15
 
 
Supplemental cash flow information:
 
 
 
 Six Months Ended December 31,
 
 
 
2020
 
 
2019
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
 
 
 
Operating cash used for operating leases
 $427,215 
 $386,661 
Operating cash used for finance leases
 $24,256 
 $42,970 
Financing cash used for finance leases
 $136,332 
 $210,225 
 
Future maturities of lease liabilities were as follows as of December 31, 2020:
 
Fiscal year ending:
 
Finance
Leases
 
 
Operating
Leases
 
June 30, 2021 (remaining six months)
 $160,648 
 $446,769 
June 30, 2022
  231,783 
  835,454 
June 30, 2023
  59,647 
  244,026 
June 30, 2024
  11,811 
  123,683 
June 30, 2025
   
  123,683 
Total future minimum payments
  463,889 
  1,773,615 
   Less imputed interest
  (42,746)
  (38,233)
Present value of lease liabilities
 $421,143 
 $1,735,382 
 
12.            
Loans Payable
 
As of December 31, 2020 and June 30, 2020, loans payable primarily consisted of the BankUnited Term Loan (as defined below) payable to BankUnited N.A. (“BankUnited”). On February 26, 2019, we entered into a Loan Agreement (the “Loan Agreement”) with BankUnited for (i) a revolving line of credit up to maximum amount of $2,000,000 (the “BankUnited Revolving Line”), (ii) a term loan in the amount of up to $5,813,500 (“BankUnited Term Loan”), and (iii) a non-revolving guidance line of credit up to a maximum amount of $10,000,000 (the “Guidance Line” and, together with the BankUnited Revolving Line and BankUnited Term Loan, the “BankUnited Loans”). Each of the BankUnited Loans is evidenced by a promissory note in favor of BankUnited (the “BankUnited Notes”). Simultaneously with the execution of the Loan Agreement, we used the proceeds from the BankUnited Term Loan to pay in full, all outstanding amounts owed to Avidbank Corporate Finance, a division of Avidbank (“Avidbank”) pursuant to an acquisition term loan. For additional information related to the Avidbank loans, please see Note 17, Loans Payable, to our audited Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended June 30, 2020.
 
On May 6, 2019, we entered into that certain First Amendment to Loan Agreement, effective February 26, 2019, with BankUnited (the “Amendment” and, together with the Loan Agreement, the “Amended Loan Agreement”). The Amendment amended the definition of the fixed charge coverage ratio to more accurately reflect the parties’ understandings at the time the Loan Agreement was executed.
 
BankUnited Revolving Line
 
Pursuant to the Amended Loan Agreement, BankUnited will make loan advances under the BankUnited Revolving Line to us up to a maximum aggregate principal amount outstanding not to exceed $2,000,000, which proceeds will be used for working capital and general corporate purposes. Amounts borrowed under the BankUnited Revolving Line may be repaid and re-borrowed at any time prior to February 26, 2022, at which time all amounts will be immediately due and payable. The advances under the BankUnited Revolving Line bear interest, on the outstanding daily balance, at a per annum rate equal to 2.75% above the 30-day LIBOR. Interest payments are due and payable, in arrears, on the first day of each month. As of December 31, 2020, the applicable interest rate was 2.90%.
 
 
16
 
 
 
BankUnited Term Loan
 
Pursuant to the Amended Loan Agreement, BankUnited advanced us $5,813,500 to satisfy in full the amounts owed to Avidbank, including the outstanding principal amount and all accrued interest under the acquisition term loan and to pay the fees and expenses incurred in connection with closing of the BankUnited Loans. The BankUnited Term Loan is for a 5-year term, but co-terminus with the BankUnited Revolving Line should the BankUnited Revolving Line not be renewed beyond February 26, 2022. Management expects the BankUnited Revolving Line to be renewed. The BankUnited Term Loan bears interest at a per annum rate equal to 2.75% above the 30-day LIBOR. Equal monthly principal payments of $48,445.83, plus accrued interest, are due and payable, in arrears, on the first day of each month during the term. Upon maturity, all principal and interest shall be immediately due and payable. As of December 31, 2020, the applicable interest rate was 2.90%.
 
Guidance Line
 
Pursuant to the Amended Loan Agreement, BankUnited, in its sole discretion, may make loan advances to us under the Guidance Line up to a maximum aggregate principal amount outstanding not to exceed $10,000,000, which proceeds will be used for capital expenditures and approved business acquisitions. Such advances must be in minimum amounts of $1,000,000 for acquisitions and $500,000 for capital expenditures, and will be limited to 80% of cost or as otherwise determined by BankUnited. Amounts borrowed under the Guidance Line may not re-borrowed. The advances under the Guidance Line bear interest, on the outstanding daily balance, at a per annum rate equal to 2.75% above the 30-day LIBOR. Interest payments are due and payable, in arrears, on the first day of each month. On each anniversary of the Amended Loan Agreement, monthly principal payments become payable, amortized based on a ten-year term. There were no borrowings under the Guidance Line as of December 31, 2020.
 
Security and Guarantees
 
Our obligations under the Amended Loan Agreement are collateralized by a first priority security interest (subject to permitted liens) in all of our assets and the assets of our U.S. subsidiaries, GelTech, Inc. (“GelTech”), and ISP, pursuant to a Security Agreement granted by GelTech, ISP, and us in favor of BankUnited. Our equity interests in, and the assets of, our foreign subsidiaries are excluded from the security interest. In addition, all of our subsidiaries have guaranteed our obligations under the Amended Loan Agreement and related documents, pursuant to Guaranty Agreements executed by us and our subsidiaries in favor of BankUnited.
 
General Terms
 
The Amended Loan Agreement contains customary covenants, including, but not limited to: (i) limitations on the disposition of property; (ii) limitations on changing our business or permitting a change in control; (iii) limitations on additional indebtedness or encumbrances; (iv) restrictions on distributions; and (v) limitations on certain investments. The Amended Loan Agreement also contains certain financial covenants, including obligations to maintain a fixed charge coverage ratio of 1.25 to 1.00 and a total leverage ratio of 4.00 to 1.00. As of December 31, 2020, the Company was in compliance with all required covenants.
 
We may prepay any or all of the BankUnited Loans in whole or in part at any time, without penalty or premium. Late payments are subject to a late fee equal to five percent (5%) of the unpaid amount. Amounts outstanding during an event of default accrue interest at a rate of five percent (5%) above the 30-day LIBOR applicable immediately prior to the occurrence of the event of default. The Amended Loan Agreement contains other customary provisions with respect to events of default, expense reimbursement, and confidentiality.
 
Financing costs incurred related to the BankUnited Loans were recorded as a discount on debt and will be amortized over the term. Amortization of approximately $4,600 and $9,300 is included in interest expense for the three and six months ended December 31, 2020, respectively, and the same amounts are included in interest expense for the three and six months ended December 31, 2019, respectively.
 
In December 2020, ISP Latvia entered into an equipment loan with a third party (the “Equipment Loan”), which party is also a significant customer, and which Equipment Loan is subordinate to the BankUnited Loans, and collateralized by certain equipment. The initial advance under the Equipment Loan was 225,000 EUR (or USD $275,000), payable in equal installments over 60 months, the proceeds of which were used to make a prepayment to a vendor for equipment to be delivered at a future date. The Equipment Loan bears interest at a fixed rate of 3.3%. An additional 225,000 EUR (or USD $275,000) is expected to be drawn when the final payment is due to the vendor for the equipment.
 
 
17
 
 
 
Future maturities of loans payable are as follows:
 
 
 
BankUnited
Term Loan
 
 
BankUnited
Revolver
 
 
Equipment
Loan
 
 
Unamortized
Debt Costs
 
 
Total
 
Fiscal year ending:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2021 (remaining six months)
 $290,676 
 $300,000 
 $27,172 
 $(9,286)
 $608,562 
June 30, 2022
  581,350 
  - 
  54,343 
  (18,572)
  617,121 
June 30, 2023
  581,350 
  - 
  54,343 
  (18,572)
  617,121 
June 30, 2024
  3,342,762 
  - 
  54,343 
  (12,381)
  3,384,724 
After June 30, 2024
  - 
  - 
  81,516 
  - 
  81,516 
Total payments
 $4,796,138 
 $300,000 
 $271,717 
 $(58,811)
  5,309,044 
Less current portion
    
    
    
    
  (936,615)
Non-current portion
    
    
    
    
 $4,372,429 
 
13.            
Foreign Operations
 
Assets and liabilities denominated in non-U.S. currencies 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 period. Gains or losses on the translation of the financial statements of a non-U.S. operation, where the functional currency is other than the U.S. dollar, are reflected as a separate component of equity, which was a cumulative gain of approximately $2.2 million and $1.0 million as of December 31, 2020 and 2019, respectively. We also recognized net foreign currency transaction gains of $77,000 and $119,000 during the three months ended December 31, 2020 and 2019, respectively. During the six months ended December 31, 2020 and 2019, we recognized net foreign currency transaction losses of approximately $21,000 and $376,000, respectively, included in the unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) in the line item entitled “Other income (expense), net.”
 
Our cash and cash equivalents totaled $5.3 million at December 31, 2020. Of this amount, greater than 50% was held by our foreign subsidiaries in China and Latvia. These foreign funds were generated in China and Latvia as a result of foreign earnings. With respect to the funds generated by our foreign subsidiaries in China, the retained earnings of the respective subsidiary must equal at least 50% of its registered capital before any funds can be repatriated through dividends. As of December 31, 2020, the end of the most recent statutory tax year, LPOIZ had approximately $7.6 million available for repatriation and LPOI did not have any earnings available for repatriation.
 
Assets and net assets in foreign countries are as follows:
 
 
 
China
 
Latvia
 
 
December 31, 2020
 
June 30, 2020
 
December 31, 2020
 
June 30, 2020
Assets
 
 $20.9 million
 
 $19.0 million
 
 $9.7 million
 
 $9.8 million
Net assets
 
 $17.8 million
 
 $16.2 million
 
 $8.7 million
 
 $8.2 million
 
14.            
Contingencies
 
Legal
 
The Company from time to time is involved in various legal actions arising in the normal course of business. Management, after reviewing with legal counsel all of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company’s financial position or results of operations.
 
 
18
 
 
COVID-19
 
The Company’s business, results of operations financial condition, cash flows, and the stock price of its Class A common stock can be adversely affected by pandemics, epidemics, or other public health emergencies, such as the recent outbreak of COVID-19, which has spread from China to many other countries across the world, including the United States.
 
To date, the Company has not experienced any significant direct negative impact of COVID-19 to its business. However, the COVID-19 pandemic continues to impact economic conditions, which could impact the short-term and long-term demand from customers and, therefore, has the potential to negatively impact the Company’s results of operations, cash flows, and financial position in the future.  Additionally, some areas may impose travel restrictions which may impact some aspects of our operations that depend on travel, such as recruitment of senior positions, and travel of service providers to maintain our production equipment.  Management is actively monitoring this situation and any impact on our financial condition, liquidity, and results of operations. However, given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not presently able to estimate the effects of the COVID-19 pandemic on our future results of operations, financial, or liquidity for the remainder of fiscal year 2021 or beyond.
 
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited Condensed Consolidated Financial Statements and notes thereto and our Annual Report on Form 10-K for the year ended June 30, 2020, including the audited Consolidated Financial Statements and notes thereto. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.
 
The discussions of our results as presented in this Quarterly Report include use of the non-GAAP term “gross margin,” as well as other non-GAAP measures discussed in more detail under the heading “Non-GAAP Financial Measures.” Gross margin is determined by deducting the cost of sales from operating revenue. Cost of sales includes manufacturing direct and indirect labor, materials, services, fixed costs for rent, utilities and depreciation, and variable overhead. Gross margin should not be considered an alternative to operating income or net income, which are determined in accordance with GAAP. We believe that gross margin, although a non-GAAP financial measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates our cost structure and provides funds for our total costs and expenses. We use gross margin in measuring the performance of our business and have historically analyzed and reported gross margin information publicly. Other companies may calculate gross margin in a different manner.
 
Potential Impact of COVID-19
 
In March 2020, the World Health Organization (“WHO”) declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout world, including the United States. Throughout the COVID-19 pandemic, our manufacturing facilities in China, Latvia, and the United States have continued to operate as normal. Some of our United States- and Latvia-based non-manufacturing employees are continuing to work remotely, either on a full or partial basis. Where possible, we have staggered shifts to reduce contact within shifts and between different shifts, and have minimized interaction and physical proximity between employees working within the same building. Those measures are continuously adjusted in each of our locations, according to local conditions and guidelines. To date, we have not seen any significant direct negative impact of COVID-19 to our business. However, the COVID-19 pandemic continues to impact economic conditions, which could impact the short-term and long-term demand from our customers and, therefore, has the potential to negatively impact our results of operations, cash flows, and financial position in the future. In addition, we have seen some increased demand for thermal imaging assemblies for fever detection applications in response to the pandemic.  Additionally, some areas impose travel restrictions which may impact some aspects of our operations that depend on travel, such as recruitment of senior positions, and travel of service providers to maintain our production equipment.  Management is actively monitoring this situation and any impact on our financial condition, liquidity, and results of operations. However, given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not presently able to estimate the effects of the COVID-19 pandemic on our future results of operations, financial, or liquidity for the remainder of fiscal year 2021 and, possibly, beyond.
 
Introduction
 
We were incorporated in Delaware in 1992 as the successor to LightPath Technologies Limited Partnership, a New Mexico limited partnership, formed in 1989, and its predecessor, Integrated Solar Technologies Corporation, a New Mexico corporation, formed in 1985. Today, LightPath is a global company with major facilities in the United States, the People’s Republic of China, and the Republic of Latvia.
 
Our capabilities include precision molded optics, thermal imaging optics, custom designed optics, and the design and manufacturing of optical assemblies and subsystems. These capabilities allow us to manufacture optical components and higher-level assemblies, including precision molded glass aspheric optics, molded and diamond-turned infrared aspheric lenses and other optical materials used to produce products that manipulate light. We design, develop, manufacture, and distribute optical components and assemblies utilizing advanced optical manufacturing processes. We serve a wide and diverse number of industries including defense and security, optical systems and components, datacom/telecom, information technology, life sciences, machine vision and production technology. Our products are incorporated into a variety of applications by our broad and diverse customer base. These applications include defense products, medical devices, laser aided industrial tools, automotive safety applications, barcode scanners, optical data storage, hybrid fiber coax datacom, telecommunication optical networks, machine vision and sensors, among others. All the products we produce enable lasers and imaging devices to function more effectively.
 
 
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Subsidiaries
 
In November 2005, we formed LPOI, a wholly-owned subsidiary, located in Jiading, People’s Republic of China. LPOI provides sales and support functions. In December 2013, we formed LPOIZ, a wholly-owned subsidiary located in the New City district, of the Jiangsu province, of the People’s Republic of China. LPOIZ’s 55,000 square foot manufacturing facility (the “Zhenjiang Facility”) serves as our primary manufacturing facility in China and provides a lower cost structure for production of larger volumes of optical components and assemblies.
 
In December 2016, we acquired ISP, and its wholly-owned subsidiary, ISP Latvia. ISP is a vertically integrated manufacturer offering a full range of infrared products from custom infrared optical elements to catalog and high-performance lens assemblies. Historically, ISP’s facility located in Irvington, New York functioned as its global headquarters for operations, while also providing manufacturing capabilities, optical coatings, and optical and mechanical design, assembly, and testing. In June 2019, we completed the relocation of this facility to our existing Orlando Facility and our facility located in Riga, Latvia (the “Riga Facility”). ISP Latvia is a manufacturer of high precision optics and offers a full range of infrared products, including catalog and custom infrared optics. ISP Latvia’s Riga Facility functions as its manufacturing facility.
 
For additional information, please refer to our Annual Report on Form 10-K for the year ended June 30, 2020.
 
Growth Strategy
 
During the last three months of fiscal 2020, our leadership has worked to develop and re-define our strategic direction. We are a component company with deep roots in optics manufacturing technology, known for our innovative products and solutions, which technology we have leveraged over the years to focus on the delivery of “best in class” and cost leading optical components. Initially, we focused on standard glass PMO products, and later, through the acquisition of ISP, as well as through internal research and development, we began to shift our focus to products specific to the infrared market.
 
As is typical with a company with origins in component manufacturing, for years we focused on our products and technology, and as a result, have become a leader in molded optical glass components. We then leveraged that experience and know-how into infrared optics. However, during the 30 years since we began delivering our innovative molded optics, the uses of optical technology have grown exponentially, and, consequently, the optics industry has evolved.
 
With the expansion of optical applications into many industries, technologies, and products, our customers’ needs and expectations have changed. Customers now often seek a partner that can complement their capabilities and support their implementation of optics and integration of photonics technologies into their products. These partnerships are formed based on our offering of complete optical solutions, to be integrated into the system, rather than discrete optical components. We believe we are well positioned to become the partner of choice for OEM customers integrating optics into their products because of our optical technologies expertise, design of optical systems, and manufacturing of the individual components, as well as assemblies.
 
To execute on this strategic direction, we have been focusing on aligning the organization to this new strategic direction, in terms of resources and processes. Additionally, we are focused on identifying and developing any capabilities and infrastructure we need to support the execution of this strategy. Further information about our strategic direction can be found in our recent Annual Report on Form 10-K for the fiscal year ended June 30, 2020.
 
Product Groups and Markets
 
Our business is organized in three product groups: PMO, infrared products and specialty products. These product groups are supported by our major product capabilities: molded optics, thermal imaging optics, and custom designed optics. Beginning late in fiscal 2019, we implemented a product management function by designating a product manager for each of our major product capabilities. This function has begun to facilitate choosing investment priorities to help strategically align our competencies with revenue opportunities in strategic industries. Over the long-term, we believe this function will also help ensure successful product life cycle management.
 
Our PMO product group consists of visible precision molded optics with varying applications. Our infrared product group is comprised of infrared optics, both molded and diamond-turned, and thermal imaging assemblies. This product group also includes both conventional and CNC ground and polished lenses. Between these two product groups, we have the capability to manufacture lenses from very small (with diameters of sub-millimeter) to over 300 millimeters, and with focal lengths from approximately 0.4mm to over 2000mm. In addition, both product groups offer both catalog and custom designed optics.
 
 
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Our specialty product group is comprised of value-added products, such as optical subsystems, assemblies, and collimators, and non-recurring engineering (“NRE”) products, consisting of those products we develop pursuant to product development agreements that we enter into with customers. Typically, customers approach us and request that we develop new products or applications for our existing products to fit their particular needs or specifications. The timing and extent of any such product development is outside of our control.
 
We have also aligned our marketing efforts by our capabilities (i.e., molded optics, thermal imaging optics, and custom optics), and then by industry. We currently serve the following major markets: defense and security, optical systems and components, datacom/telecom, information technology, life sciences, machine vision and production technology. Customers in each of these markets may select the best optical technologies that suit their needs from our entire suite of products, availing us to cross-selling opportunities, particularly where we can leverage our knowledge base against our expanding design library. Within our product groups, we have various applications that serve our major markets. For example, our infrared products can be used for gas sensing devices, temperature sensing and fever detection, spectrometers, night vision systems, advanced driver-assistance systems (“ADAS”), thermal weapon gun sights, and infrared counter measure systems, among others.
 
The photonics market drives our growth and is comprised of eight application areas: information and communication technology, display, lighting, photovoltaic, production technology, life sciences, and measurement and automated vision. In 2018, the market size for these applications at the system level was $556.4 billion. LightPath has product applications in six of the eight application areas, all except for displays and photovoltaic. According to the latest Markets and Markets survey, published in 2019, these six application areas had an estimated market value of $401 billion and are growing at a 7% compound annual growth rate. Within the larger overall markets, we believe there is a market of approximately $2.0 billion for our current products and capabilities. We continue to believe our products will provide significant growth opportunities over the next several years and, therefore, we will continue to target specific applications in each of these major markets. In addition to these major markets, a large percentage of our revenues are derived from sales to unaffiliated companies that purchase our products to fulfill their customers’ orders, as well as unaffiliated companies that offer our products for sale in their catalogs.
 
Our strategy is to capitalize on optics as an enabling technology across many industries and markets, by leveraging our key differentiators, including our deep design and manufacturing expertise, our technology, and our established low-cost vertically integrated manufacturing capabilities. In addition, we intend for our product managers and sales force to work together to focus on pursuing customer growth opportunities where our differential advantages coincide with key customer needs.
 
Results of Operations
 
Revenue
 
Three months ended December 31, 2020, compared to three months ended December 31, 2019
 
Revenue for the second quarter of fiscal 2021 was approximately $9.9 million, an increase of approximately $322,000, or 3%, as compared to $9.6 million in the same period of the prior fiscal year. Revenue generated by infrared products was approximately $4.8 million in the second quarter of fiscal 2021, a decrease of approximately $196,000, or 4%, as compared to approximately $5.0 million in the same period of the prior fiscal year. The decrease in revenue is attributed to decreases in sales to customers in the commercial and defense markets, largely due to the timing of orders, partially offset by an increase in sales to customers in the industrial market. Revenue generated by PMO products was approximately $4.7 million for the second quarter of fiscal 2021, as compared to $3.7 million in the same period of the prior fiscal year, an increase of approximately $1.0 million, or 28%. The increase in revenue is attributed to an increase in sales to customers in the telecommunications market, as well as the defense and industrial markets and sales through our catalog and distribution channels. Revenue generated by our specialty products was approximately $372,000 in the second quarter of fiscal 2021, a decrease of approximately $514,000, or 58%, compared to $885,000 in the same period of the prior fiscal year. This decrease is primarily related to NRE project revenue in the second quarter of fiscal 2020 that did not repeat in the second quarter of fiscal 2021.
 
 
 
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Six months ended December 31, 2020, compared to six months ended December 31, 2019
 
Revenue for the first half of fiscal 2021 was approximately $19.4 million, an increase of approximately $2.3 million, or 13%, as compared to $17.2 million in the same period of the prior fiscal year. Revenue generated by infrared products was approximately $9.5 million in the first half of fiscal 2021, an increase of approximately $569,000, or 6%, as compared to approximately $9.0 million in the same period of the prior fiscal year. Revenue growth for infrared products is attributed to an increase in sales of molded infrared products, including lenses made with our new BD6 material, to customers in the industrial market, while other markets remained fairly consistent compared to the same period of the prior fiscal year. The increased demand for molded infrared products continues to be driven in large part by fever detection products as a result of the ongoing COVID-19 pandemic. Demand for industrial applications, firefighting and other public safety applications also continues to be strong.  Revenue generated by PMO products was approximately $9.0 million for the first half of fiscal 2021, as compared to $6.9 million in the same period of the prior fiscal year, an increase of approximately $2.1 million, or 31%. The increase in revenue is primarily attributed to an increase in sales to customers in the telecommunications market, as well as the commercial and defense markets. Revenue generated by our specialty products was approximately $862,000 in the first half of fiscal 2021, a decrease of approximately $431,000, or 33%, compared to $1.3 million in the same period of the prior fiscal year. This decrease is primarily related to NRE project revenue in the first half of fiscal 2020 that did not repeat in the second half of fiscal 2021.
 
Cost of Sales and Gross Margin
 
Three months ended December 31, 2020, compared to three months ended December 31, 2019
 
Gross margin in the second quarter of fiscal 2021 was approximately $3.6 million, a decrease of 8%, as compared to approximately $3.9 million in the same period of the prior fiscal year. Total cost of sales was approximately $6.3 million for the second quarter of fiscal 2021, compared to $5.7 million for the same period of the prior fiscal year. Gross margin as a percentage of revenue was 37% for the second quarter of fiscal 2021, compared to 41% for the same period of the prior fiscal year. The decrease in gross margin as a percentage of revenue is due to both the mix of products sold in each respective period, as well as due to the initial volume deliveries of new products and sales contracts.  The acceleration of new lenses moving into the volume production stage, and alignments required for orders from the increasing number of new customers, resulted in traditional start-up inefficiencies, which negatively impacted margins but which issues are expected to be reduced as the respective programs mature. The mix of infrared product sales for the second quarter of fiscal 2021 was more heavily weighted toward volume production orders, some of which consisted of products we only recently started producing in mass, and for which we have experienced some yield issues in connection with BD6 coatings, which increased our costs. We are in the process of resolving these technical issues and expect to bring our manufacturing efficiencies to a level similar to our existing products. Additionally, in comparison, the second quarter of fiscal 2020 also included a larger mix of NRE project revenue, which naturally has a higher margin contribution than other products. Most of those NRE projects did not repeat in the second quarter of fiscal 2021.
 
Six months ended December 31, 2020, compared to six months ended December 31, 2019
 
Gross margin in the first half of fiscal 2021 was approximately $7.5 million, an increase of 18%, as compared to approximately $6.3 million in the same period of the prior fiscal year. Total cost of sales was approximately $12.0 million for the first half of fiscal 2021, compared to $10.8 million for the same period of the prior fiscal year. The increases in gross margin and cost of sales are primarily driven by the increase in sales. Gross margin as a percentage of revenue was 38% for the first half of fiscal 2021, compared to 37% for the same period of the prior fiscal year. The increase in gross margin as a percentage of revenue is primarily due to the increase in revenue and volumes for both our PMO and Infrared product groups. In addition, there were several factors that negatively impacted the first quarter of fiscal 2020, such as increased tariffs, the impacts of which have since been mitigated. During the first half of fiscal 2021 we began high-volume delivery of several key OEM projects, which orders consisted of products with both our molded as well as diamond turned BD6 material. As is typical of scaling new products into volume production, we experienced a number of technical challenges, both related to the fabrication of the components, as well as some of the value-added activities such as coating and assembly. While such early-stage problems are common, we expect to resolve the issues, improve production yields and elevate the products to their target margin levels.
 
Selling, General and Administrative
 
Three months ended December 31, 2020, compared to three months ended December 31, 2019
 
Selling, general and administrative (“SG&A”) costs were approximately $2.8 million for the second quarter of fiscal 2021, an increase of approximately $564,000, or 26%, as compared to approximately $2.2 million in the same period of the prior fiscal year. The increase is primarily due to approximately $400,000 of non-recurring additional compensation to our former Chief Executive Officer, as previously disclosed in the Current Report on Form 8-K filed with the SEC on November 18, 2020. The remaining increase in SG&A costs as compared to the same period of the prior fiscal year is due to increases in personnel-related costs associated with a moderate increase in headcount, as well as an increase in outside consulting services for projects related to operational improvements.
 
 
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Six months ended December 31, 2020, compared to six months ended December 31, 2019
 
SG&A costs were approximately $5.2 million for the first half of fiscal 2021, an increase of approximately $663,000, or 15%, as compared to approximately $4.5 million in the same period of the prior fiscal year. The increase is primarily due to approximately $400,000 of non-recurring additional compensation to our former Chief Executive Officer, as previously disclosed in the Current Report on Form 8-K filed with the SEC on November 18, 2020. The remaining increase in SG&A costs as compared to the same period of the prior fiscal year is due to increases in personnel-related costs associated with a moderate increase in headcount, as well as an increase in outside consulting services for projects related to operational improvements.
 
New Product Development
 
Three months ended December 31, 2020, compared to three months ended December 31, 2019
 
New product development costs were approximately $530,000 in the second quarter of fiscal 2021, an increase of approximately $61,000, or 13%, as compared to the same period of the prior fiscal year. This increase was primarily due to the addition of engineering employees in order to support the demand for optical design.
 
Six months ended December 31, 2020, compared to six months ended December 31, 2019
 
New product development costs were approximately $980,000 in the first half of fiscal 2021, an increase of approximately $83,000, or 9%, as compared to the same period of the prior fiscal year. This increase was primarily due to the addition of engineering employees in order to support the demand for optical design.
 
Other Income (Expense)
 
Interest expense was approximately $55,000 and $114,000 for the three and six months ended December 31, 2020, respectively, as compared to $89,000 and $188,000 for the three and six months ended December 31, 2019, respectively. The decrease in interest expense is due to lower interest rates and a 7% reduction in total debt from December 31, 2019 to December 31, 2020.
 
Other income, net, was approximately $93,000 and $6,000 for the three and six months ended December 31, 2020, respectively, as compared to other income of $123,000 and other expense of $393,000 for the three and six months ended December 31, 2019, respectively. Other income and expenses are primarily comprised of net gains 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. During the second quarter of fiscal 2021, we incurred a net foreign currency transaction gain of approximately $77,000, compared to $119,000 for the same period of the prior fiscal year. During the first half of fiscal 2021, we incurred net foreign currency transaction losses of approximately $21,000, compared to $376,000 for the same period of the prior fiscal year.
 
Income Taxes
 
During the second quarter of fiscal 2021, income tax expense was approximately $241,000, compared to approximately $322,000 for the same period of the prior fiscal year, primarily related to income taxes from our operations in China. Income taxes for the second quarter of fiscal 2020 also included Chinese withholding taxes of $200,000 associated with intercompany dividend declared by LPOIZ in December 2019.
 
During the first half of fiscal 2021, income tax expense was approximately $676,000, compared to approximately $470,000 for the same period of the prior fiscal year. Income taxes for the first half of fiscal 2021 and the first half of fiscal 2020 also included Chinese withholding taxes of $300,000 and $200,000, respectively, associated with intercompany dividends declared by LPOIZ during the first quarter of fiscal 2021 and the second quarter of fiscal 2020. While these repatriation transactions resulted in some additional Chinese withholding taxes, LPOIZ currently qualifies for a reduced Chinese income tax rate; therefore, the total income tax on those earnings was still lower than it would have been using the normal income tax rate. Please refer to Note 8, Income Taxes, in the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q for additional information.
 
 
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Net Income (Loss)
 
Net loss for the second quarter of fiscal 2021 was approximately $146,000, or $0.01 basic and diluted loss per share, compared to net income of $769,000, or $0.03 basic and diluted earnings per share, for the second quarter of fiscal 2020. The decrease in net income for the second quarter of fiscal 2021, as compared to the same period of the prior fiscal year, is primarily attributable to lower operating income, which was partially due to lower gross margin, as well as an increase in SG&A and new product development expenses. The increase in SG&A was largely due to approximately $400,000 of non-recurring additional compensation for our former Chief Executive Officer, as previously disclosed in the Current Report on Form 8-K filed with the SEC on November 18, 2020. These differences decreased operating income by approximately $1.0 million for the second quarter of fiscal 2021, as compared to the same period of the prior fiscal year. This decrease was partially offset by a favorable difference of approximately $81,000 in the provision for income taxes.
 
Net loss for the first half of fiscal 2021 was approximately $49,000, or $0.00 basic and diluted loss per share, compared to a net loss of $606,000, or $0.02 basic and diluted loss per share, for the first half of fiscal 2020. The decrease in net loss for the first half of fiscal 2021 is primarily attributable to the increase in sales, resulting in higher gross margin, partially offset by increases in SG&A and new product development costs, of which approximately $400,000 relates to non-recurring additional compensation to our former Chief Executive Officer, as previously disclosed in the Current Report on Form 8-K filed with the SEC on November 18, 2020. These differences increased operating income by approximately $290,000 for the first half of fiscal 2021, as compared to the same period of the prior fiscal year. In addition, there was a favorable difference in foreign exchange gains and losses of $355,000. These increases were partially offset by an unfavorable difference of approximately $206,000 in the provision for income taxes.
 
Weighted-average common shares outstanding were 26,117,239, basic and diluted, in the second quarter of fiscal 2021, compared to 25,837,903 and 27,361,273, basic and diluted, respectively in the second quarter of fiscal 2020. Weighted-average common shares outstanding were 26,049,750, basic and diluted, in the first half of fiscal 2021, compared to 25,832,337, basic and diluted, in the first half of fiscal 2020. The increase in the weighted-average basic common shares was due to the issuance of shares of Class A common stock under the 2014 ESPP and upon the exercises of stock options and RSUs.
 
Liquidity and Capital Resources
 
As of December 31, 2020, we had working capital of approximately $14.1 million and total cash and cash equivalents of approximately $5.3 million, of which, greater than 50% of our cash and cash equivalents was held by our foreign subsidiaries.
 
Cash and cash equivalents held by our foreign subsidiaries in China and Latvia were generated in-country as a result of foreign earnings. Historically, we considered unremitted earnings held by our foreign subsidiaries to be permanently reinvested. However, during fiscal 2020, we began declaring intercompany dividends to remit a portion of the earnings of our foreign subsidiaries to us, as the U.S. parent company. It is still our intent to reinvest a significant portion of earnings generated by our foreign subsidiaries, however we also plan to repatriate a portion of their earnings.
 
In China, before any funds can be repatriated, the retained earnings of the legal entity must equal at least 50% of the registered capital. During fiscal 2020, we repatriated approximately $2 million from LPOIZ. Based on retained earnings as of December 31, 2020, the end of the prior statutory tax year, LPOIZ had an additional $7.6 million available and LPOI did not have any earnings available for repatriation. Historically, we did not provide for future Chinese withholding taxes on the related earnings based on our previous intent not to repatriate earnings. However, during fiscal 2020 we began to accrue for these taxes on the portion of earnings that we intend to repatriate.
 
Loans payable consists of the BankUnited Term Loan and the BankUnited Revolving Line, both pursuant to the Amended Loan Agreement, and the subordinated Equipment Loan. The Amended Loan Agreement also provides for a BankUnited Guidance Line. As of December 31, 2020, the outstanding balance on the BankUnited Term Loan was approximately $4.8 million, the outstanding balance on the BankUnited Revolving Line was $300,000, and there were no borrowings outstanding on the Guidance Line. The outstanding balance on the Equipment Loan was approximately $272,000 as of December 31, 2020.
 
 
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The Amended Loan Agreement includes certain customary covenants. As of December 31, 2020, we were in compliance with all covenants. For additional information, see Note 12, Loans Payable, to the unaudited Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
 
We generally rely on cash from operations and equity and debt offerings, to the extent available, to satisfy our liquidity needs and to maintain our ability to repay the BankUnited Term Loan. There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums, and increases in other costs. We will also continue efforts to keep costs under control as we seek renewed sales growth. Our efforts are directed toward generating positive cash flow and profitability. If these efforts are not successful, we may need to raise additional capital. Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase sales. These actions may include exploring strategic options for the sale of the Company, the sale of certain product lines, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, the creation of licensing arrangements with respect to our technology, or other alternatives.
 
Cash Flows – Financings:
Net cash used in financing activities was approximately $116,000 in the first half of fiscal 2021, compared to approximately $489,000 used in the same period of the prior fiscal year. Cash used in financing activities for the first half of fiscal 2021 reflects approximately $532,000 in principal payments on our loans and finance leases, offset by proceeds of $275,000 from the Equipment Loan, and approximately $140,000 in proceeds from the exercise of stock options, and from the sale of Class A common stock under the 2014 ESPP. Cash used in financing activities for the first half of fiscal 2020 reflects approximately $501,000 in principal payments on our loans and capital leases, net of approximately $12,000 in proceeds from the sale of Class A common stock under the 2014 ESPP.
 
Cash Flows – Operating:
Cash flow provided by operations was approximately $1.5 million for the first half of fiscal 2021, compared to approximately $938,000 for the same period of the prior fiscal year. The increase in cash flow from operations for the first half of fiscal 2021 is primarily due to the decrease in the net loss. We anticipate continued improvement in our cash flows provided by operations in future years, based on our forecasted sales growth and anticipated margin improvements, partially offset by marginal increases in sales and marketing, and new product development expenditures.
 
Cash Flows – Investing:
During the first half of fiscal 2021, we expended approximately $2.2 million in investments in capital equipment, compared to approximately $1.2 million in the first half of fiscal 2020. The majority of our capital expenditures during the first half of fiscal 2021 were related to the continued expansion of our infrared coating capacity as well as increasing our lens pressing and dicing capacity to meet current and forecasted demand. Overall, we anticipate that the level of capital expenditures during fiscal 2021 will be higher than in fiscal 2020, however, the total amount expended will depend on opportunities and circumstances.
 
Contractual Obligations and Commitments
 
As of December 31, 2020, our principal commitments consisted of obligations under operating and finance leases, and debt agreements. No material changes occurred during the first half of fiscal 2021 in our contractual cash obligations to repay debt or to make payments under operating and finance leases, or in our contingent liabilities as disclosed in our Annual Report on Form 10-K for the year ended June 30, 2020.
 
Off Balance Sheet Arrangements
 
We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.
 
Critical Accounting Policies and Estimates
 
There have been no material changes to our critical accounting policies and estimates during the three months ended December 31, 2020 from those disclosed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended June 30, 2020.
 
 
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How We Operate
 
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 designs that we call “engineered solutions.” This is followed by “sampling” 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, as compared to the turns business, which is unpredictable and uneven. This annuity revenue stream can also generate low-cost, high-volume type orders. 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:
 
Maintaining an optical design and new product sampling capability, including a high-quality and responsive optical design engineering staff;
 
The fact that as our customers take products of this nature into higher volume, commercial production (for example, in the case of molded optics, this may be volumes over one million pieces per year) they begin to focus on reducing costs – which often leads them to turn to larger or overseas producers, even if sacrificing quality; and
 
Our small business mass means that we can only offer a moderate amount of total productive capacity before we reach financial constraints imposed by the need to make additional capital expenditures – in other words, because of our limited cash resources and cash flow, we may not be able to service every opportunity that presents itself in our markets without arranging for such additional capital expenditures.
 
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 merchant market, a market that we believe is underserved in this area of service offering. 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 a critical component from foreign merchant production sources. For information regarding revenue recognition related to our various revenue streams, refer to Critical Accounting Policies and Estimates in our Annual Report on Form 10-K dated June 30, 2020.
 
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:
 
Sales backlog;
Revenue dollars and units by product group; and
Other key indicators.
 
These indicators are also used to determine tactical operating actions and changes and are discussed in more detail below. Management is evaluating these key indicators as we transition to our new strategic plan, and is implementing certain changes and updates as further described below.
 
 
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Sales Backlog
 
We believe our sales growth has been and continues to be our best 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. Historically, we evaluated our backlog on a 12-month basis, which examined orders required by a customer for delivery within a one-year period . To better align with our strategic focus on longer-term customer orders and relationships, beginning in fiscal 2021, management began evaluating 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 December 31, 2020 was approximately $23.8 million, an increase of 6%, as compared to $22.6 million as of December 31, 2019. Compared to the end of fiscal 2020, our total backlog increased by 9% during the first half of fiscal 2021. Backlog growth rates for the last five fiscal quarters are:
 
Quarter
Total
Backlog
($ 000)
Change From Prior
Year End
Change From Prior
Quarter End
Q2 2020
 $ 22,559
24%
36%
Q3 2020
 $ 22,772
26%
1%
Q4 2020
 $ 21,908
21%
-4%
Q1 2021
 $ 20,866
-5%
-5%
Q2 2021
 $ 23,835
9%
14%
 
The majority of the increase in our backlog from the first quarter of fiscal 2021 to the second quarter of fiscal 2021 was largely due to the renewal of a large annual contract for infrared products during the second quarter, which we will begin shipping against in the third quarter of fiscal 2021, after shipments against the previous contract are completed. The timing of this renewal is similar to the prior fiscal year, however the value increased by 16% as compared to the prior annual contract renewal. Backlog levels may increase substantially at the time these orders are received, and the total backlog will subsequently be drawn down as shipments are made against these orders. These annual and multi-year contracts are expected to renew in future quarters.
 
We continue to experience strong demand for infrared products used in the industrial, defense and first responder sectors. Over the last