Annual Report for Fiscal Year Ending 06-30, 2026 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our consolidated financial statements and the accompanying notes.

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 Annual Report on Form 10-K regarding forward-looking statements.

The following discussions also include use of non-GAAP measures discussed in more detail under the heading "Non-GAAP Financial Measures."

Results of Operations

Operating Results for Fiscal Year Ended June 30, 2026 Compared to the Fiscal Year Ended June 30, 2025:

Revenue.

Revenue for fiscal year 2026 was approximately $71.7 million, an increase of 93%, as compared to $37.2 million in fiscal year 2025. We categorize our products into four product groups: (i) infrared components; (2) visible components; (3) assemblies and modules; and (iv) engineering services. Note that certain fiscal year 2025 amounts have been reclassified from infrared components to assemblies and modules to conform to current classification.

Revenue generated by the infrared components product group was approximately $21.2 million in fiscal year 2026, an increase of $7.3 million, or 52%, as compared to the prior fiscal year. Of this increase, approximately $1.3 million was attributable to increased sales by G5 Infrared of coating services, reflecting a full fiscal year, compared to less than half of fiscal 2025 due to the timing of the acquisition. AML, which was acquired in January 2026, contributed approximately $2.2 million to the increase in sales of infrared components. The remaining $3.8 million increase in revenue from infrared components is primarily due to increases in sales to defense and industrial customers in Europe.

Revenue generated by the visible components product group was approximately $15.5 million for fiscal year 2026, an increase of $3.8 million, or 32%, as compared to the prior fiscal year. The increase was primarily driven by increases in sales to industrial customers the U.S., Asia and Europe, including several new programs.

Revenue from the assemblies and modules product group was approximately $31.9 million in fiscal year 2026, an increase of $23.5 million, or 281%, as compared to fiscal year 2025. Of this increase, approximately $23.1 million is due to an increase in G5 Infrared sales of cameras and modules, including previously announced large defense and security programs.

Revenue from engineering services was nearly flat for fiscal 2026, as compared to the same period of the prior fiscal year. This includes Visimid's contract with Lockheed Martin, as well as several other non-recurring engineering projects, the largest of which was for another defense customer. The timing and dollar value of deliverables is not always consistent, which causes revenue for the programs within this product group to fluctuate from period to period.

Cost of Sales and Gross Profit.

Gross profit for fiscal year 2026 was approximately $25.8 million, an increase of 155%, as compared to approximately $10.1 million in fiscal year 2025. Total cost of sales was approximately $45.9 million for fiscal year 2026, compared to $27.1 million for fiscal year 2025, an increase of 70%. Gross margin as a percentage of revenue was 36% for fiscal year 2026 as compared to 27% for fiscal year 2025. The increase in gross margin for fiscal year 2026 was driven by the increase in sales across nearly all product groups, as well as improved gross margins across each of the product groups. Fiscal year 2026 also includes a full year of G5 Infrared revenue and gross profit, particularly in the assemblies and modules product group. The assemblies and modules product group increased from 23% of revenue in fiscal year 2025, to 44% of revenue in fiscal year 2026, and these products typically have higher gross margins than the component product groups. Gross profit for fiscal year 2025 was also unusually low, partially due to the unfavorable impact of an approximately $0.5 million increase in inventory reserve charges primarily related to visible components where revenue had declined for the past several years.

Selling, General and Administrative.

For fiscal year 2026, Selling, General and Administrative ("SG&A") costs were approximately $24.7 million, an increase of approximately $8.8 million, or 56%, as compared to the prior fiscal year. The increase in SG&A costs was partially attributable to including a full year of G5 Infrared SG&A costs for 2026, an increase of $2.3 million, as compared to fiscal 2025 due to the timing of the acquisition. The AML transaction also added $1.0 million in SG&A for fiscal 2026, including acquisition-related costs. In addition, we have increased our sales and marketing spend to promote new products, including personnel costs, travel and tradeshows. We have also increased our spend on information technology to meet heightened security standards as required by our customers, and for acquisition integration projects. Our SG&A personnel costs have also increased due to filling certain vacant executive roles and accruing for incentive compensation plans for employees.

New Product Development.

New product development costs were approximately $3.8 million in fiscal year 2026, an increase of approximately $0.7 million, or 24%, as compared to the prior fiscal year. New product development costs increased with the addition of G5 Infrared product development costs, and other additional engineering personnel. These increases were partially offset by a decrease in outside services and materials utilized for development projects, due to timing of such projects. Management views the investment in new product development as an important part of execution of our strategy, and plans to continue to grow our investment in new product development.

Amortization of Intangible Assets.

Amortization of intangible assets increased by $0.4 million for fiscal year 2026, as compared to the prior fiscal year due to the addition of amortization of intangible assets associated with the G5 Infrared and AML acquisitions. See Note 3, Acquisitions, in the Consolidated Financial Statements included in this Annual Report on Form 10-K, for further information.

Change in Fair Value of Acquisition Liabilities.

Change in fair value of acquisition liabilities increased by $14.1 million for fiscal year 2026, as compared to the prior fiscal year primarily related to the earnouts associated with the G5 Infrared acquisition, where the amounts earned were greater than the fair values estimated and recorded at the date of acquisition. See Note 3, Acquisitions, in the Consolidated Financial Statements included in this Annual Report on Form 10-K, for further information.

Other Expense.

Interest income, net, was approximately $0.01 million for fiscal year 2026, compared to interest expense, net, of approximately $1.1 million in the prior fiscal year. For fiscal 2026, we earned interest on our cash balance following the December Offering (as defined below) and the June Offering (as defined below), partially offset by interest expense on finance leases and interest and amortization of loan issuance costs on the Acquisition Notes (as defined below) until they were redeemed in December 2025. Interest expense for fiscal year 2025 includes financing costs associated with the warrant liability of approximately $0.3 million, and the interest and amortization of loan issuance costs associated with the Bridge Note (as defined below), executed in August 2024, which was subsequently replaced by the Acquisition Notes executed in February 2025. See Note 14, Loans Payable, in the Consolidated Financial Statements included in this Annual Report on Form 10-K, for definitions and further information.

We recorded a loss in extinguishment of debt of $0.5 million during fiscal year 2026, upon redemption of the Acquisition Notes, based on the difference between the carrying value of the debt being extinguished and the redemption amount. During fiscal year 2025, we recorded a loss on extinguishment of debt of $0.4 million related to the exchange of the Bridge Note for an Acquisition Note in connection with the financing of the acquisition of G5 Infrared. The loss is based on the difference between the carrying value of the debt being extinguished and the fair value of the new debt, plus any other payments exchanged (e.g. the aforementioned Class A Common Stock, Series G Convertible Preferred Stock and warrants).

In fiscal year 2025, we recorded an expense associated with the change in fair value of the warrant liability of $1.4 million. The fair value of the warrants was re-measured each reporting period from the date of issuance until the warrants were reclassified from liabilities to equity as a result of the action taken at a special meeting of the stockholders on June 16, 2025. See Note 8, Stockholders' Equity, in the Consolidated Financial Statements included in this Annual Report on Form 10-K, for definitions and further information.

Other expense, net, was approximately $0.1 million for fiscal year 2026, compared to $0.1 million for fiscal year 2025. Other expense, net, for fiscal years 2026 and 2025 primarily consists of net foreign exchange losses. 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.

Income Taxes.

During fiscal year 2026, we recorded income tax expense of approximately $0.3 million, compared to $0.04 million in fiscal year 2025, primarily related to our operations in China. Income taxes for fiscal years 2026 and 2025 include Chinese withholding tax expenses of $0.1 million and $0.2 million, respectively, the majority of which are associated with intercompany dividends declared by LPOIZ, payable to us as the parent company. While these repatriation transactions result in some additional Chinese withholding taxes, LPOIZ currently qualifies for a reduced Chinese income tax rate; therefore, the total tax on those earnings was still below the normal income tax rate. Income tax expense for fiscal years 2026 and 2025 are also offset by deferred income tax benefits from the turnaround of temporary differences, and increased by deferred income tax expense related to certain indefinite lived temporary differences. Please refer to Note 9, Income Taxes, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information related to each of our tax jurisdictions.

Net Income (Loss).

Net loss for fiscal year 2026 was approximately $20.5 million, or $0.38 basic and diluted loss per share, compared to approximately $14.9 million, or $0.36 basic and diluted loss per share, for fiscal year 2025. The increase in net loss for fiscal year 2026, as compared to fiscal year 2025, is primarily attributable to the approximately $14.1 million increase in the change in fair value of acquisition liabilities, which is included in operating expenses, as well as the increase in SG&A and new product development costs, which were largely offset by the increase in gross profit.

Weighted-average common stock shares outstanding were 53,374,275 for both basic and diluted in fiscal year 2026, compared to 40,874,068 for both basic and diluted in fiscal year 2025. The increase in weighted-average basic common shares was primarily due to the December Offering and the June Offering. The increase is also attributable to: (i) the 3,468,698 shares of Class A Common Stock issued upon the exercise of warrants; (ii) the 8,692,097 shares of Class A Common Stock issued upon conversion of Series G Convertible Preferred Stock; (iii) the 524,124 shares of Class A Common Stock issued in conjunction with the acquisitions of Visimid, G5 Infrared and AML, including earnouts; and (iv) the issuance of shares of Class A Common Stock under the 2015 ESPP and underlying vested RSUs and RSAs. Potential dilutive common stock equivalents were excluded from the calculation of diluted shares for all periods presented, as their effects would have been anti-dilutive due to net losses in those periods.

Liquidity and Capital Resources

At June 30, 2026, we had working capital of approximately $103.7 million and total cash and cash equivalents of approximately $93.2 million. Approximately 4% of our total cash and cash equivalents was held by our foreign subsidiaries in China and Latvia. 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 year 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 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 years 2026 and 2025, we repatriated approximately $0.2 million and $1.2 million, respectively, from LPOIZ. As of June 30, 2026, LPOIZ had approximately $0.7 million in retained earnings available for repatriation, based on earnings accumulated through December 31, 2025, the end of the most recent statutory tax year, that remained undistributed as of June 30, 2026. In July 2026, we repatriated $0.4 million, ahead of the closing of the divestiture of LPOIZ which is expected to occur in September 2026.

Loans payable as of June 30, 2026 consisted of the 2023 Equipment Loan (as defined below).

In May 2023, ISP Latvia entered into an equipment loan with a third party financial institution (the "2023 Equipment Loan"). The 2023 Equipment Loan is collateralized by certain equipment. The initial advances under the 2023 Equipment Loan totaled 260,258 EUR (or approximately USD $0.3 million), the proceeds of which were used to make prepayments to a vendor for equipment to be delivered at a future date. The final advance for the final payment to the equipment vendor was 132,674 EUR (or approximately USD $0.1 million). The 2023 Equipment Loan is payable over 48 months, with monthly installments beginning January 1, 2024. The 2023 Equipment Loan bears interest at the six-month EURIBOR rate, plus 2.84% (5.20% as of June 30, 2026). As of June 30, 2026, the outstanding balance on the 2023 Equipment Loan was approximately 164,000 EUR (or USD $0.2 million). For additional information regarding the 2023 Equipment Loan, see Note 14, Loans Payable, to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

Equity Financing.

On June 1, 2026, we entered into a securities purchase agreement with a selling stockholder, North Run Strategic Opportunities Fund I, LP ("North Run") and certain institutional investors for the purchase and sale of an aggregate of 7,142,800 shares of Class A Common Stock at an offering price of $14.00 per share, consisting of 3,571,400 shares of Class A Common Stock sold by the Company and 3,571,400 shares of Class A Common Stock sold by North Run (the "June Offering"), resulting in gross proceeds to us of approximately $50.0 million. The June Offering closed on June 3, 2026.

On December 12, 2025, we entered into an underwriting agreement (the "Underwriting Agreement") with Canaccord Genuity LLC and Craig-Hallum Capital Group LLC, as representatives of the several underwriters named therein (the "Underwriters"), relating to an underwritten public offering (the "December Offering") of 7,750,000 shares of the Company's Class A Common Stock, at a public offering price of $7.75 per share. Pursuant to the terms of the Underwriting Agreement, we granted, and the Underwriters exercised, a 30-day option to purchase up to an additional 1,162,500 shares of Class A Common Stock in the December Offering at the public offering price. The December Offering closed on December 15, 2025.

On February 18, 2025, we announced the closing of the acquisition of G5 Infrared and the related financing, including the issuance of shares of Series G Convertible Preferred Stock. For additional information, refer to Note 3, Acquisitions and Note 8, Stockholders' Equity, to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K.

In the short term, we have sufficient capital to fund the continued expansion of our operations. In the longer term, we may identify opportunities for additional acquisitions and other strategic transactions to expand and further enhance our business that may require that we raise additional capital should we elect to pursue any of such transactions.

Cash Flows -Operating.

Cash used in operations was $10.2 million for fiscal 2026, compared to approximately $8.3 million for fiscal year 2025. The cash used in operations for fiscal 2026 was primarily due to the following: (i) payment of the first earnout payment for the acquisition of G5 Infrared, of which $3.8 million was classified in operating activities, representing the amount in excess of the contingent consideration liability recognized as of the acquisition date; and (ii) investments in working capital of $9.6 million, largely driven by accounts receivable and inventory due to the growth in revenue, as well as supplier prepayments for critical materials with long lead times. The cash used in operations during fiscal year 2025 was driven by the net loss, after considering non-cash items, which was partially driven by significant legal and consulting expenses related to the acquisition of G5 Infrared. In addition, inventory increased $1.4 million (net of inventory included in the acquisition of G5 Infrared), while the increase in accounts receivable was largely offset by increases in accounts payable and accrued liabilities.

We anticipate continued improvement in our cash flows provided by operations in future years and as we continue to focus on managing our receivables, payables and inventory, while continuing to grow our sales and improve gross margins, with moderate increases in general, administrative, sales and marketing and new product development costs.

Cash Flows -Investing.

During fiscal years 2026 and 2025, we expended approximately $7.0 million and $18.5 million, net, to acquire AML and G5 Infrared respectively, as disclosed in Note 3, Acquisitions, in the Consolidated Financial Statements in this Annual Report on Form 10-K. During fiscal 2026, we expended approximately $6.3 million for capital equipment, as compared to approximately $1.3 million during fiscal year 2025. During fiscal years 2026 and 2025 our capital expenditures were primarily related to expansion of our glass fabrication capacity, as well as metrology and infrared coating equipment.

We anticipate a higher level of capital expenditures during fiscal year 2027, to support the demand currently in backlog and to enhance our capacity and capabilities; however, the total amount expended will depend on sales growth opportunities and other circumstances.

Cash Flows -Financing.

Net cash provided by financing activities was approximately $111.0 million for fiscal year 2026, compared to approximately $29.3 million in fiscal year 2025. Cash provided by financing activities for fiscal year 2026 reflects approximately $120.2 million in net proceeds from public and private equity placements, offset by $5.7 million in principal payments on loans and finance leases. Cash provided by financing activities for fiscal year 2025 reflects approximately $29.8 million from financing related to the acquisition of G5 Infrared, offset by $0.4 million in principal payments on loans and finance leases.

How We Operate

We have continuing sales of two basic types: (i) sales of standard product configurations and (ii) sales of customized products or products developed specifically for a certain customer. In this latter type of business, we work with customers to help them determine optical specifications and then create certain optical designs for them, including complex multi-component, optical system or sub-system designs that we call "engineered solutions." This is followed by "sampling" or prototyping 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 and longer-term revenue planning, as compared to the turns business, which is unpredictable and uneven. 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 the design and new product development capability, including a high-quality and responsive optical design engineering staff, opto-mechanical engineering, and all related disciplines;
	●	The fact that as our customers take products of this nature into higher volume, commercial production they begin to work seriously to reduce costs - which may lead them to turn to larger producers, domestic or overseas, 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 market to our current and potential customers looking for specific solutions to their needs. 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 critical component(s) from foreign sources. For information regarding revenue recognition related to our various revenue streams, refer to Critical Accounting Policies and Estimates in this Annual Report on Form 10-K.

Our Key Performance Indicators

Usually on a weekly basis, management reviews several performance indicators. Some of these indicators are qualitative and others are quantitative. These indicators change from time to time as the opportunities and challenges in the business change. They are mostly non-financial indicators, such as units of shippable output by product line, production yield rates by major product line, and the output and yield data from significant intermediary manufacturing processes that support the production of the finished shippable product. These indicators can be used to calculate such other related indicators as fully yielded unit production per-shift, which varies by the product and our state of automation in production of that product at any given time. Higher unit production per shift means lower unit cost, and, therefore, improved margins or improved ability to compete, where desirable, for price sensitive customer applications. The data from these reports is 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 usually reviewed at the same time include the major elements of the micro-level business cycle:

	●	sales backlog;
	●	revenue by product group;
	●	inventory levels;
	●	accounts receivable levels and quality;
	●	EBITDA and Adjusted EBITDA; and
	●	other key indicators.

These indicators are similarly used to determine tactical operating actions and changes and are discussed in more detail below. Management will evaluate these key indicators as we transition to our new strategic plan to determine whether any changes or updates to our key indicators are warranted.

Sales Backlog.

We believe sales growth has been and continues to be a key 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. We monitor and evaluate 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.

Quarterly backlog levels for fiscal years 2026 and 2025 are as follows:

										Change From
		Total Backlog				Change From				Prior Quarter
Quarter		($ 000)				Prior Year End				End
Q1 2025		$	20,542				7	%			7	%
Q2 2025		$	19,767				3	%			(4	)%
Q3 2025		$	27,423				42	%			39	%
Q4 2025		$	37,390				94	%			36	%
Q1 2026		$	86,043				130	%			130	%
Q2 2026		$	97,837				162	%			14	%
Q3 2026		$	110,557				196	%			13	%
Q4 2026		$	110,943				197	%			0	%

Of the total backlog of $110.9 million as of June 30, 2026, approximately $85.6 million is requested by the customer for delivery within one year, which is expected to be converted into revenues during fiscal year 2027.

The increase in total backlog from June 30, 2025 to June 30, 2026 of $73.6 million includes approximately $58.0 million in orders from a leading global technology customer for advanced infrared camera systems expected to ship in calendar year 2026 and 2027, as well as several other multi-million dollar orders from other customers. During fiscal 2026, we received a significant contract renewal for advanced infrared optics for a critical international military program. The acquisition of AML also added backlog of $1.1 million as of March 31, 2026. The timing of multi-year contract renewals are not always consistent and, thus, backlog levels may increase substantially when annual and multi-year orders are received, and decrease as shipments are made against these orders. We anticipate that our existing annual and multi-year contracts will be renewed in future quarters.

Markets continue to experience growing demand for infrared products used in the defense, security, industrial and first responder sectors. Demand for infrared products, including assemblies and cameras, continues to be fueled by interest in lenses made with our BD6 glass and our new BDNL materials. With the global supply of germanium concentrated in Russia and China, recent global events and increases in restrictions on the sourcing of these materials are generating high levels of interest in germanium alternatives such as our proprietary BlackDiamond materials, AML's AMTIR materials and other materials we are currently developing under an exclusive license with the Naval Research Lab.

Revenue by Product Group.

The following table sets forth revenue dollars by our four product groups for the three months and year ended June 30, 2026 and 2025, with certain fiscal year 2025 amounts reclassified from infrared components to assemblies and modules to conform to current classification:

		(unaudited)
		Three Months Ended												Year Ended
		June 30,								Quarter				June 30,								Year-to-date
		2026				2025				% Change				2026				2025				% Change
Revenue
Infrared components		$	7,095,963			$	4,542,306				56	%		$	21,196,156			$	13,905,784				52	%
Visible components			4,238,317				2,835,474				49	%			15,492,707				11,736,549				32	%
Assemblies and modules			9,051,215				4,569,737				98	%			31,879,418				8,373,101				281	%
Engineering services			776,857				262,276				196	%			3,153,818				3,187,196				(1	)%
Total revenue		$	21,162,352			$	12,209,793				73	%		$	71,722,099			$	37,202,630				93	%

Three months ended June 30, 2026 compared to three months ended June 30, 2025.

Our revenue increased by $9.0 million in the fourth quarter of fiscal year 2026, as compared to the same quarter of the prior fiscal year, primarily driven by increases in infrared components and assemblies and modules.

Revenue generated by the infrared components product group for the fourth quarter of fiscal year 2026 was $7.1 million, an increase of 56%, as compared to the same quarter of the prior fiscal year. AML, which was acquired during the quarter of fiscal 2026, contributed $1.1 million in sales of infrared materials during the fourth quarter of fiscal 2026. The remaining $1.5 million increase in revenue is primarily due to increases in sales to defense and industrial customers in the U.S. and Europe.

Revenue from the visible components product group for the fourth quarter of fiscal year 2026 was $4.2 million, an increase of 49% as compared to the same quarter of the prior fiscal year. The increase was driven by sales to industrial customers in Asia and Europe, as well as U.S. defense customers and distributors. In July 2026, we announced the divestiture of LPOIZ, our Chinese subsidiary, which will reduce our revenue from visible components following the closing of the transaction, which is expected to occur in September 2026.

Revenue from assemblies and modules was $9.1 million, an increase of 98%, as compared to the same quarter of the prior fiscal year. This increase is primarily driven by sales of G5 Infrared sales of cameras and modules, including the previously announced program with a large global technology customer and other defense and security customers, primarily for border patrol and C-UAS systems.

Revenue from engineering services increased by $0.5 million for the fourth quarter of fiscal 2026, as compared to the same quarter of the prior fiscal year. This increase was primarily driven by Visimid's contract with Lockheed Martin, where the timing and dollar value of deliverables is not always consistent, which causes revenue for this product group to fluctuate from period to period. For the fourth quarter of fiscal 2026, the revenue recognized against this contract was more than in the fourth quarter of fiscal 2025. Management expects that the engineering revenue from a current Lockheed Martin program will decline, as the program transitions from development into production, yet other new programs that are starting now will generate comparable or higher engineering services revenue.

Year ended June 30, 2026 compared to year ended June 30, 2025.

Our revenue increased by approximately 93%, for fiscal year 2026, as compared to the prior fiscal year, primarily driven by increases in infrared components and assemblies and modules. Note that fiscal 2026 includes G5 Infrared for a full year, whereas the prior year included less than five months. In addition, we acquired AML during fiscal 2026, which contributed to infrared components since acquisition in January.

Revenue generated by the infrared components product group for fiscal year 2026 was $21.2 million, an increase of approximately 52%, as compared to the prior fiscal year. Of this increase, approximately $1.3 million is due to an increase in G5 Infrared sales of coating services. AML contributed $2.2 million to the increase in sales of infrared components for fiscal year 2026. The remaining $3.8 million increase in revenue is primarily due to increases in sales to defense and industrial customers in the U.S. and Europe.

Revenue from the visible components product group for fiscal year 2026 was $15.5 million, an increase of 32%, as compared to the prior fiscal year. The increase was primarily driven by sales to industrial customers in Asia, as well as in the U.S. and Europe. In July 2026, we announced the divestiture of LPOIZ, which will reduce our revenue from visible components following the closing of the transaction, which is expected to occur in September 2026.

Revenue from assemblies and modules for fiscal year 2026 was $31.9 million, an increase of $23.5 million, or 281%, as compared to the prior fiscal year. Of this increase, approximately $23.1 million is due to an increase in G5 Infrared sales of cameras and modules, including the previously announced program with a large global technology customer as well as other defense and security customers.

Revenue from engineering services for fiscal year 2026 was nearly flat, as compared to the prior fiscal year. Revenue from Visimid's contract with Lockheed Martin was less than in the prior fiscal year, due to timing, partially offset by a non-recurring engineering project for another defense customer. The timing and dollar value of deliverables is not always consistent, which causes revenue for this product group to fluctuate from period to period. Projects related to this product group are expected to drive sales growth in the other product groups over time, as these new products transition to from development and prototyping to production.

Inventory Levels.

We manage inventory levels to minimize investment in working capital but still have the flexibility to meet customer demand to a reasonable degree. We review our inventory for obsolete items quarterly. While the mix of inventory is an important factor, including adequate safety stocks of long lead-time materials, an important aggregate measure of inventory in all phases of production is the quarter's ending inventory expressed as a number of days' worth of the quarter's cost of sales, also known as "days cost of sales in inventory," or "DCSI." It is calculated by dividing the quarter's ending inventory by the quarter's cost of goods sold, multiplied by 365 and divided by 4. Generally, a lower DCSI measure equates to a lesser investment in inventory, and, therefore, more efficient use of capital. The table below shows our DCSI for the immediately preceding eight fiscal quarters:

Fiscal Quarter	Ended	DCSI (days)
Q4-2026	6/30/2026	128
Q3-2026	3/31/2026	100
Q2-2026	12/31/2025	119
Q1-2026	9/30/2025	111
Fiscal Year 2026 Average		115
Q4-2025	6/30/2025	123
Q3-2025	3/31/2025	178
Q2-2025	12/31/2024	107
Q1-2025	9/30/2024	112
Fiscal Year 2025 Average		130

Our average DCSI for fiscal year 2026 was 115, compared to 130 for fiscal year 2025. The decrease in average DCSI is driven by the increase in sales, while managing inventory levels to support our growing backlog. We strive to maintain DCSI of 110 to 120 days.

Accounts Receivable Levels and Quality.

Similarly, we manage our accounts receivable to minimize investment in working capital. We measure the quality of receivables by the proportions of the total that are at various increments past due from our normally extended terms, which are generally 30 days. The most important aggregate measure of accounts receivable is the quarter's ending balance of net accounts receivable expressed as a number of days' worth of the quarter's net revenues, also known as "days sales outstanding," or "DSO." It is calculated by dividing the quarter's ending net accounts receivable by the quarter's net revenues, multiplied by 365 and divided by 4. Generally, a lower DSO measure equates to a lesser investment in accounts receivable and, therefore, more efficient use of capital. The table below shows our DSO for the preceding eight fiscal quarters:

Fiscal Quarter	Ended	DSO (days)
Q4-2026	6/30/2026	65
Q3-2026	3/31/2026	51
Q2-2026	12/31/2025	48
Q1-2026	9/30/2025	58
Fiscal Year 2026 Average		56
Q4-2025	6/30/2025	71
Q3-2025	3/31/2025	76
Q2-2025	12/31/2024	65
Q1-2025	9/30/2024	56
Fiscal Year 2025 Average		67

Our average DSO for fiscal year 2026 was 56, compared to 67 for fiscal year 2025. The decrease in average DSO for fiscal year 2026 is due to higher than normal DSO in fiscal year 2025. This was due to the addition of G5 Infrared revenue, which had a higher concentration of shipments in the third month of the third and fourth fiscal quarters of 2025 which drove the accounts receivable balance up disproportionately to sales. We strive to maintain a DSO of less than 60, which we achieved for fiscal year 2026.

Other Key Indicators.

Other key indicators include various operating metrics, some of which are qualitative and others are quantitative. These indicators change from time to time as the opportunities and challenges in the business change. They are mostly non-financial indicators, such as on time delivery trends, units of shippable output by major product line, production yield rates by major product line, and the output and yield data from significant intermediary manufacturing processes that support the production of the finished shippable product. These indicators can be used to calculate such other related indicators as fully-yielded unit production per-shift, which varies by the particular product and our state of automation in production of that product at any given time. Higher unit production per shift means lower unit cost, and, therefore, improved margins or improved ability to compete where desirable for price sensitive customer applications. The data from these reports is used to determine tactical operating actions and changes. Management also assesses business performance and makes business decisions regarding our operations using certain non-GAAP measures. These non-GAAP measures are described in more detail below under the heading "Non-GAAP Financial Measures".

Non-GAAP Financial Measures

We report our historical results in accordance with GAAP; however, our management also assesses business performance and makes business decisions regarding our operations using certain non-GAAP financial measures. We believe these non-GAAP financial measures provide useful information to management and investors that is supplementary to our financial condition and results of operations computed in accordance with GAAP; however, we acknowledge that our non-GAAP financial measures have a number of limitations. As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.

EBITDA and Adjusted EBITDA.

EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management, lenders, and certain investors as a supplemental measure in the evaluation of some aspects of a corporation's financial position and core operating performance. Investors sometimes use EBITDA as it allows for some level of comparability of profitability trends between those businesses differing as to capital structure and capital intensity by removing the impacts of depreciation and amortization. EBITDA also does not include changes in major working capital items, such as receivables, inventory, and payables, which can also indicate a significant need for, or source of, cash. Since decisions regarding capital investment and financing and changes in working capital components can have a significant impact on cash flow, EBITDA is not a good indicator of a business's cash flows. We use EBITDA for evaluating the relative underlying performance of our core operations and for planning purposes. We calculate EBITDA by adjusting net income to exclude net interest expense, income tax expense or benefit, depreciation, and amortization, thus the term "Earnings Before Interest, Taxes, Depreciation and Amortization" and the acronym "EBITDA."

We also calculate an adjusted EBITDA, which excludes: (1) stock compensation expenses; (2) the loss on extinguishment of debt; (3) the effect of the non-cash income or expense associated with the mark-to-market adjustments, related to the warrants; (4) the effect of non-cash income or expenses associated with the fair value adjustments related to the acquisition earnout liabilities; (5) acquisition costs, including legal fees and due diligence; and (6) the effect of foreign exchange gains or losses. Management uses adjusted EBITDA to evaluate our underlying operating performance and for planning and forecasting future business operations.

The fair value of the warrants was re-measured each reporting period until the warrants were reclassified from liabilities to equity as a result of the action taken at a special meeting of the stockholders on June 16, 2025. The change in the fair value of the warrants was either recognized as a non-cash expense or non-cash income each reporting period from February 18, 2025, the date of issuance, through June 16, 2025, when the liability was reclassified to equity. The change in the fair value of the warrants was not impacted by our actual operations but was instead strongly tied to the change in the market value of our Class A Common Stock. Please refer to Note 8, Stockholders' Equity, in the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for additional information.

We believe EBITDA and Adjusted EBITDA are helpful for investors to better understand our underlying business operations. The following table adjusts net income to EBITDA and Adjusted EBITDA for the three months and year ended June 30, 2026 and 2025:

		(unaudited)
		Three Months Ended June 30,								Year Ended June 30,
		2026				2025				2026				2025
Net loss		$	(4,140,865	)		$	(7,055,980	)		$	(20,545,563	)		$	(14,873,182	)
Depreciation and amortization			1,320,375				792,488				5,038,066				4,149,240
Income tax provision			111,497				(122,402	)			314,713				37,790
Interest (income) expense			(298,238	)			312,967				(16,003	)			1,118,213
EBITDA		$	(3,007,231	)		$	(6,072,927	)		$	(15,208,787	)		$	(9,567,939	)
Stock-based compensation			1,600,218				298,309				2,861,795				1,043,464
Loss on extinguishment of debt			-				-				506,280				418,502
Change in fair value of warrant liability			-				2,224,270				-				1,353,716
Change in fair value of acquisition liabilities			3,401,807				1,430,000				15,636,336				1,560,445
Acquisition costs			70,273				-				290,448				-
Foreign exchange loss			30,796				141,583				146,060				129,882
Adjusted EBITDA		$	2,095,863			$	(1,978,765	)		$	4,232,132			$	(5,061,930	)
% of revenue			10	%			-16	%			6	%			-14	%

Our adjusted EBITDA for the quarter ended June 30, 2026 was approximately $2.1 million, compared to a loss of $2.0 million for the same period of the prior fiscal year. The increase in adjusted EBITDA in the fourth quarter of fiscal year 2026 is primarily attributable to higher sales and gross margin, partially offset by higher SG&A costs.

Our adjusted EBITDA for fiscal year 2026 was approximately $4.2 million, compared to a loss of $5.1 million for fiscal year 2025. The increase in adjusted EBITDA for fiscal year 2026 is primarily attributable to higher sales and gross margin, partially offset by higher SG&A and new product development costs.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expense during the reporting periods presented. Our critical estimates include the allowance for trade receivables, which is made up of allowances for credit losses, allowances for obsolete inventory, valuation of compensation expense on stock-based awards and accounting for income taxes. Although we believe that these estimates are reasonable, actual results could differ from those estimates given a change in conditions or assumptions that have been consistently applied. We also have other policies that we consider key accounting policies, such as our policy for revenue recognition, however, the application of these policies does not require us to make significant estimates or judgments that are difficult or subjective.

Management has discussed the selection of critical accounting policies and estimates with our Board, and the Board has reviewed our disclosure relating to critical accounting policies and estimates in this Annual Report on Form 10-K. The critical accounting policies used by management and the methodology for its estimates and assumptions are as follows:

Inventory obsolescence allowance is calculated by reserving 100% for items that have not been sold in two years or that have not been purchased in two years. These items, as identified, are allowed for at 100%, as well as allowing 50% for other items deemed to be slow moving within the last twelve months and allowing 25% for items deemed to have low material usage within the last six months. Items of which we have excess supply are also reserved at 25% to 100%, depending on usage rates. The parts identified are adjusted for recent order and quote activity to determine the final inventory allowance. To date, our actual results have been materially consistent with our estimates, and we expect such estimates to continue to be materially consistent in the future.

Revenue is generally recognized upon transfer of control, including the risks and rewards of ownership, of products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The performance obligations for the sale of optical components and assemblies are satisfied at a point in time. 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. Revenues from product development agreements are recognized as performance obligations are met in accordance with the terms of the agreements and upon transfer of control of products, reports or designs to the customer. 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. Invoiced amounts for VAT related to sales are posted to the balance sheet and are not included in revenue.

Stock-based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee's requisite service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes-Merton pricing model. Our directors, officers, and key employees were 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"). Most options granted under the Omnibus Plan and the SICP vest ratably over two to four years and generally have ten-year contract lives. The volatility rate is based on four-year historical trends in common stock closing prices and the expected term was determined based primarily on historical experience of previously outstanding options. The interest rate used is the U.S. Treasury interest rate for constant maturities. The likelihood of meeting targets for option grants that are performance based are evaluated each quarter. If it is determined that meeting the targets is probable, then the compensation expense will be amortized over the remaining vesting period.

Goodwill and amortizable intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods. Purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets are carried at cost, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally two to fifteen years. We periodically reassess the useful lives of intangible assets when events or circumstances indicate that useful lives have significantly changed from the previous estimate. Amortizable intangible assets consist primarily of customer relationships, developed technology and tradenames. They are generally valued as the present value of estimated cash flows expected to be generated from the asset using a risk-adjusted discount rate. When determining the fair value of our intangible assets, estimates and assumptions about future expected revenue and remaining useful lives are used. Goodwill and intangible assets are tested for impairment on an annual basis and during the period between annual tests if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable.

We assess the qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment analysis. If we determine that it is more likely than not that its fair value is less than its carrying amount, then the goodwill impairment test is performed. The fair value of the reporting unit is compared to its carrying amount, and if the carrying amount exceeds its fair value, then an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, up to the total amount of goodwill allocated to that reporting unit.

Accounting for income taxes requires estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities, which arise from differences in the timing of the recognition of revenue and expense for tax and financial statement purposes. We assessed the likelihood of the realization of deferred tax assets and concluded that a valuation allowance is needed to reserve the amount of the deferred tax assets that may not be realized due to the uncertainty of the timing and amount of taxable income in certain jurisdictions. In reaching our conclusion, we evaluated certain relevant criteria, including the amount of pre-tax income generated during the current and prior two years, as adjusted for non-recurring items, the existence of deferred tax liabilities that can be used to realize deferred tax assets, the taxable income in prior carryback years in the impacted jurisdictions that can be used to absorb net operating losses and taxable income in future years. Our judgments regarding future profitability may change due to future market conditions, changes in U.S. or international tax laws and other factors. These changes, if any, may require material adjustments to these deferred tax assets, resulting in a reduction in net income or an increase in net loss in the period when such determinations are made, which, in turn, may result in an increase or decrease to our tax provision in a subsequent period.

In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of cost reimbursement and royalty arrangements among related entities, which could impact our income or loss in each jurisdiction in which we operate. Although we believe our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions and accruals. In the event our assumptions are incorrect, the differences could have a material impact on our income tax provision and operating results in the period in which such determination is made. In addition to the factors described above, our current and expected effective tax rate is based on then-current tax law. Significant changes during the year in enacted tax law could affect these estimates.

Impact of recently issued accounting pronouncements that have recently been issued but have not yet been implemented by us are described in Note 2, Summary of Significant Accounting Policies, to the Notes to the Consolidated Financial Statements to this Annual Report on Form 10-K, which describes the potential impact that these pronouncements are expected to have on our financial condition, results of operations and cash flows.