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Income Taxes | 6 Months Ended
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Dec. 31, 2024
Income Taxes |
Income Taxes | 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, 2024 and 2023 is as follows:
|  | Three Months Ended December 31, |  |  | Six Months Ended December 31, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Loss before income taxes |  | $ | (2,567,472 | ) |  | $ | (1,637,605 | ) |  | $ | (4,174,581 | ) |  | $ | (2,940,435 | )
Income tax provision |  | $ | 44,525 |  |  | $ | 76,058 |  |  | $ | 60,161 |  |  | $ | 115,604 |
Effective income tax rate |  |  | -2 | % |  |  | -5 | % |  |  | -1 | % |  |  | -4 | %
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. Effective February 28, 2023, the legal entities of LightPath Optical Instrumentation (Shanghai) Co., Ltd. (“LPOI”) and LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”) were merged, with LPOIZ as the surviving company and the operations of the two companies were merged. For the three and six months ended December 31, 2024 and 2023, income tax expense was primarily related to income taxes from our operations in China, including accruals for withholding taxes on intercompany dividends declared by LPOIZ, and paid or payable to LightPath, its parent company, as well as withholding taxes on payments from LPOIZ to LightPath for administrative services rendered. 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. 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, 2024 and June 30, 2024, our net deferred tax assets are related to the U.S. jurisdiction and we have provided a valuation allowance to reduce the deferred tax assets to the net amount we estimate is more-likely-than-not to be realized. Our net deferred tax assets as of December 31, 2024 and June 30, 2024 consist primarily of 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 expense or benefit is expected to be recorded on pre-tax income or losses generated in the U.S. Income Tax Law of the People’s Republic of China Our Chinese subsidiary, LPOIZ, is governed by the Income Tax Law of the People’s Republic of China. As of December 31, 2024, LPOIZ was subject to a statutory income tax rate of 15%. The net deferred tax liabilities included in these unaudited Condensed Consolidated Balance Sheets as of December 31, 2024 and June 30, 2024 are related to LPOIZ, and primarily consist of timing differences related to depreciation. The Company routinely declares intercompany dividends to remit a portion of the earnings of its foreign subsidiaries to the U.S. parent company. The Company also intends to reinvest a portion of the earnings generated by its foreign subsidiaries. The Company accrues withholding taxes on the portion of LPOIZ’s earnings that it intends to repatriate. Accrued and unpaid withholding taxes were approximately $32,000 as of both December 31, 2024 and June 30, 2024. Other than these withholding taxes, these intercompany dividends have no impact on the unaudited condensed consolidated financial statements. 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 not 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 were not subject to tax if declared prior to December 31, 2019. ISP Latvia declared an intercompany dividend to be paid to ISP Optics Corporation (“ISP”), its U.S. parent company, for the full amount of earnings accumulated prior to January 1, 2018. Distributions of this dividend have been fully settled as of June 30, 2024 and 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.

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