LIGHTPATH TECHNOLOGIES INC - Quarter Report: 2021 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

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.)

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:

 

26,565,926 shares of common stock, Class A, $0.01 par value, outstanding as of May 3, 2021.

 

 

 

LIGHTPATH TECHNOLOGIES, INC.

Form 10-Q

Index

Item		Page
Cautionary Note Concerning Forward-Looking Statements		3
Part I	Financial Information
Item 1	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	5
	Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Results of Operations	21
	Liquidity and Capital Resources	24
	Contractual Obligations and Commitments	25
	Off-Balance Sheet Arrangements	25
	Critical Accounting Policies and Estimates	25
	Non-GAAP Financial Measures	29
Item 4	Controls and Procedures	29
Part II	Other Information
Item 1	Legal Proceedings	30
Item 1A	Risk Factors	30
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3	Defaults Upon Senior Securities	30
Item 4	Mine Safety Disclosures	30
Item 5	Other Information	30
Item 6	Exhibits	30
Signatures		32

 

 

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 (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 any further 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 continued duration and scope of the COVID-19 pandemic and any impact on the demand for our products; our ability to obtain needed raw materials and components from our suppliers; additional 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.

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

	March 31,	June 30,
Assets	2021	2020
Current assets:
Cash and cash equivalents	$5,940,699	$5,387,388
Trade accounts receivable, net of allowance of $11,984 and $9,917	6,158,709	6,188,726
Inventories, net	8,883,283	8,984,482
Other receivables	318,820	132,051
Prepaid expenses and other assets	487,937	565,181
Total current assets	21,789,448	21,257,828
Property and equipment, net	13,304,537	11,799,061
Operating lease right-of-use assets	1,208,692	1,220,430
Intangible assets, net	5,864,152	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	$48,708,471	$47,574,918
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$2,196,823	$2,558,638
Accrued liabilities	1,389,101	992,221
Accrued payroll and benefits	2,132,585	1,827,740
Operating lease liabilities, current	849,169	765,422
Loans payable, current portion	934,185	981,350
Finance lease obligation, current portion	242,417	278,040
Total current liabilities	7,744,280	7,403,411
Finance lease obligation, less current portion	108,412	279,435
Operating lease liabilities, noncurrent	656,535	887,766
Loans payable, less current portion	4,209,008	4,437,365
Total liabilities	12,718,235	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; 26,565,926 and 25,891,885
shares issued and outstanding	265,659	258,919
Additional paid-in capital	231,243,062	230,634,056
Accumulated other comprehensive income	1,815,482	735,892
Accumulated deficit	(197,333,967)	(197,061,926)
Total stockholders’ equity	35,990,236	34,566,941
Total liabilities and stockholders’ equity	$48,708,471	$47,574,918

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

	Three Months Ended		Nine Months Ended
	March 31,		March 31,
	2021	2020	2021	2020
Revenue, net	$10,701,362	$8,708,981	$30,132,505	$25,860,823
Cost of sales	6,797,605	4,696,805	18,748,220	15,528,549
Gross margin	3,903,757	4,012,176	11,384,285	10,332,274
Operating expenses:
Selling, general and administrative	2,805,829	2,255,625	8,009,484	6,796,536
New product development	640,528	412,326	1,620,927	1,309,383
Amortization of intangibles	281,270	281,271	843,812	848,071
Loss (gain) on disposal of property and equipment	9,473	142	8,951	(129,082)
Total operating expenses	3,737,100	2,949,364	10,483,174	8,824,908
Operating income	166,657	1,062,812	901,111	1,507,366
Other income (expense):
Interest expense, net	(52,795)	(85,464)	(166,491)	(273,262)
Other income (expense), net	(28,592)	42,038	(23,075)	(350,571)
Total other income (expense), net	(81,387)	(43,426)	(189,566)	(623,833)
Income before income taxes	85,270	1,019,386	711,545	883,533
Income tax provision	307,834	203,369	983,586	673,556
Net income (loss)	$(222,564)	$816,017	$(272,041)	$209,977
Foreign currency translation adjustment	(373,114)	(244,520)	1,079,590	(47,698)
Comprehensive income (loss)	$(595,678)	$571,497	$807,549	$162,279
Earnings (loss) per common share (basic)	$(0.01)	$0.03	$(0.01)	$0.01
Number of shares used in per share calculation (basic)	26,366,651	25,858,155	26,153,839	25,840,881
Earnings (loss) per common share (diluted)	$(0.01)	$0.03	$(0.01)	$0.01
Number of shares used in per share calculation (diluted)	26,366,651	27,569,844	26,153,839	27,349,303

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

				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
Issuance of common stock for:
Employee Stock Purchase Plan	4,839	48	18,920	—	—	18,968
Exercise of stock options & RSUs, net	433,726	4,337	9,521	—	—	13,858
Stock-based compensation on stock options & RSUs	—	—	200,061	—	—	200,061
Foreign currency translation adjustment	—	—	—	(373,114)	—	(373,114)
Net loss	—	—	—	—	(222,564)	(222,564)
Balances at March 31, 2021	26,565,926	$265,659	$231,243,062	$1,815,482	$(197,333,967)	$35,990,236
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
Issuance of common stock for:
Employee Stock Purchase Plan	17,167	171	12,274	—	—	12,445
Shares issued as compensation	5,000	50	6,100	—	—	6,150
Stock-based compensation on stock options & RSUs	—	—	68,130	—	—	68,130
Foreign currency translation adjustment	—	—	—	(244,520)	—	(244,520)
Net income	—	—	—	—	816,017	816,017
Balances at March 31, 2020	25,862,529	$258,625	$230,613,630	$760,820	$(197,718,878)	$33,914,197

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

	Nine Months Ended March 31,
	2021	2020
Cash flows from operating activities:
Net (loss) income	$(272,041)	$209,977
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	2,608,472	2,587,315
Interest from amortization of debt costs	13,929	13,929
Loss (gain) on disposal of property and equipment	8,951	(129,082)
Stock-based compensation on stock options & RSUs, net	443,077	252,436
Provision for doubtful accounts receivable	(1,632)	9,769
Change in operating lease liabilities	(135,746)	(107,747)
Inventory write-offs to allowance	144,741	37,883
Changes in operating assets and liabilities:
Trade accounts receivable	31,649	(108,222)
Other receivables	(186,769)	353,695
Inventories	(43,542)	(590,415)
Prepaid expenses and other assets	125,237	198,058
Accounts payable and accrued liabilities	339,909	(857,813)
Net cash provided by operating activities	3,076,235	1,869,783
Cash flows from investing activities:
Purchase of property and equipment	(2,721,567)	(1,505,021)
Proceeds from sale of equipment	—	186,986
Net cash used in investing activities	(2,721,567)	(1,318,035)
Cash flows from financing activities:
Proceeds from exercise of stock options	142,693	—
Proceeds from sale of common stock from Employee Stock Purchase Plan	29,976	24,612
Borrowings on loan payable	275,377	—
Payments on loan payable	(554,102)	(436,013)
Repayment of finance lease obligations	(206,644)	(315,638)
Net cash used in financing activities	(312,700)	(727,039)
Effect of exchange rate on cash and cash equivalents	511,343	(47,697)
Change in cash and cash equivalents and restricted cash	553,311	(222,988)
Cash and cash equivalents, beginning of period	5,387,388	4,604,701
Cash and cash equivalents, end of period	$5,940,699	$4,381,713
Supplemental disclosure of cash flow information:
Interest paid in cash	$151,537	$262,607
Income taxes paid	$787,289	$441,982

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

LIGHTPATH TECHNOLOGIES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

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.

 

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 nine months ended March 31, 2021, 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.

 

 

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 March 31, 2021.

 

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 nine months ended March 31, 2021 and 2020 was as follows:

 

	Three Months Ended March 31,		Nine Months Ended March 31,
	2021	2020	2021	2020
PMO	$3,904,857	$3,851,518	$12,940,919	$10,746,525
Infrared Products	6,462,527	4,296,111	15,995,133	13,259,610
Specialty Products	333,978	561,352	1,196,453	1,854,688
Total revenue	$10,701,362	$8,708,981	$30,132,505	$25,860,823

 

The components of inventories include the following:

	March 31, 2021	June 30, 2020
Raw materials	$3,640,273	$3,876,955
Work in process	2,971,839	2,989,070
Finished goods	3,395,230	3,134,800
Allowance for obsolescence	(1,124,059)	(1,016,343)
	$8,883,283	$8,984,482

 

The value of tooling in raw materials, net of the related allowance for obsolescence, was approximately $2.0 million and $2.3 million at March 31, 2021 and June 30, 2020, respectively.

 

 

 

Property and equipment are summarized as follows:

	Estimated	March 31,	June 30,
	Lives (Years)	2021	2020
Manufacturing equipment	5 - 10	$21,327,900	$18,444,448
Computer equipment and software	3 - 5	896,506	801,625
Furniture and fixtures	5	359,929	321,418
Leasehold improvements	5 - 7	2,772,195	2,171,388
Construction in progress		1,181,671	1,274,880
Total property and equipment		26,538,201	23,013,759
Less accumulated depreciation and amortization		(13,233,664)	(11,214,698)
Total property and equipment, net		$13,304,537	$11,799,061

 

6. Goodwill and Intangible Assets

There were no changes in the net carrying value of goodwill during the nine months ended March 31, 2021.

 

Identifiable intangible assets were comprised of:

 

	Useful Lives (Years)	March 31, 2021	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		(4,811,848)	(3,968,036)
Total intangible assets, net		$5,864,152	$6,707,964

 

Future amortization of identifiable intangibles is as follows:

 

Fiscal year ending:
June 30, 2021 (remaining three months)	$281,271
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
	$5,864,152

 

7.   Accounts Payable

The accounts payable balance as of March 31, 2021 and June 30, 2020 include earned but unpaid Board of Directors’ fees of approximately $92,000 and $91,000, respectively.

 

 

8.   Income Taxes

A summary of our total income tax expense and effective income tax rate for the three and nine months ended March 31, 2021 and 2020 is as follows:

 

	Three Months Ended March 31,		Nine Months Ended March 31,
	2021	2020	2021	2020
Income before income taxes	$85,270	$1,019,386	$711,545	$883,533
Income tax provision	$307,834	$203,369	$983,586	$673,556
Effective income tax rate	361%	20%	138%	76%

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 three and nine months ended March 31, 2021 and 2020, income tax expense was primarily related to income taxes from our operations in China, including accruals for withholding taxes on intercompany dividends declared 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 March 31, 2021 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 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.

 

During the first nine months of fiscal 2021, we declared intercompany dividends of $4 million from LPOIZ, payable to us as its parent company. Accordingly, we accrued Chinese withholding taxes of $400,000 associated with the dividend. During the first nine months of fiscal 2021, LPOIZ has paid to us $2.7 million, after the withholding of $300,000 in taxes, in equal installments during each of the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021. 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.

 

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 nine months ended March 31, 2021 and 2020 included in selling, general and administrative expenses in the accompanying unaudited Condensed Consolidated Statements of Comprehensive Income:

 

	Nine Months Ended March 31,
	2021	2020
Stock options	$51,277	$(15,330)
RSUs	391,800	261,616
Total	$443,077	$246,286

 

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 $2,978 and $2,491 for the nine months ended March 31, 2021 and 2020, 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 three and nine months ended March 31, 2021 and 2020. 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.

For the nine months ended March 31, 2021 and 2020, there were no stock options granted under the Omnibus Plan. For stock options granted under the SICP in the nine-month periods ended March 31, 2021 and 2020, we estimated the fair value of each stock option as of the date of grant using the following assumptions:

 

	Nine Months Ended March 31,
	2021	2020
Weighted-average expected volatility	71.2%	65.6%
Dividend yields	0%	0%
Weighted-average risk-free interest rate	0.28%	1.56%
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 nine months ended March 31, 2021 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	9.5	209,852	2.3
Exercised	(224,326)	$1.49		(443,628)
Cancelled/Forfeited	(391,288)	$1.73		-
March 31, 2021	345,100	$1.71	8.6	2,094,527	0.9
Awards exercisable/
vested as of
March 31, 2021	115,940	$1.53	8.1	1,517,323	—
Awards unexercisable/
unvested as of
March 31, 2021	229,160	$1.81	8.9	577,204	0.9
	345,100			2,094,527

 

RSU awards vest immediately or from two to four years from the date of grant.

As of March 31, 2021, there was approximately $888,000 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 three months)	$16,540	$91,601	$108,141
June 30, 2022	65,123	286,468	351,591
June 30, 2023	71,980	219,864	291,844
June 30, 2024	49,393	87,185	136,578
	$203,036	$685,118	$888,154

 

 

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 (loss) per share of Class A common stock are described in the following table:

	Three Months Ended March 31,		Nine Months Ended March 31,
	2021	2020	2021	2020
Net income (loss)	$(222,564)	$816,017	$(272,041)	$209,977
Weighted-average common shares outstanding:
Basic number of shares	26,366,651	25,858,155	26,153,839	25,840,881
Effect of dilutive securities:
Options to purchase common stock	—	828	—	—
RSUs	—	1,710,861	—	1,508,422
Diluted number of shares	26,366,651	27,569,844	26,153,839	27,349,303
Earnings (loss) per common share:
Basic	$(0.01)	$0.03	$(0.01)	$0.01
Diluted	$(0.01)	$0.03	$(0.01)	$0.01

 

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 March 31,		Nine Months Ended March 31,
	2021	2020	2021	2020
Options to purchase common stock	364,536	900,185	515,870	905,348
RSUs	2,255,487	561,120	2,331,648	552,934
	2,620,023	1,461,305	2,847,518	1,458,282

 

 

Our leases primarily consist of operating leases related to our facilities located in Orlando, Florida; Riga, 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.

 

 

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.