XML 23 R10.htm IDEA: XBRL DOCUMENT v3.26.1
Note 4 - Acquisition of G5 Infrared
 9 Months Ended
Mar. 31, 2026
G5 Infrared [Member]  
Notes to Financial Statements  
Business Combination [Text Block]

4. Acquisition of G5 Infrared

 

In February 2025, the Company acquired G5 Infrared LLC, a New Hampshire limited liability company (“G5 Infrared”), pursuant to a Membership Interest Purchase Agreement (the “G5 MIPA”) by and among the Company, G5 Infrared, the members of G5 Infrared (collectively, the “G5 Sellers”), and Kenneth R. Greenslade, solely in his capacity as G5 Sellers’ Representative. The Company has acquired from the G5 Sellers all of the issued and outstanding membership interests of G5 Infrared, which closed on February 18, 2025 (the “G5 Acquisition Date”).

 

Net assets and results of operations of G5 Infrared are reflected in our financial results commencing on the G5 Acquisition Date. Revenue generated by G5 Infrared is included in our infrared components and assemblies and modules product groups.

 

We accounted for the acquisition of G5 Infrared using the acquisition method of accounting, which required us to measure identifiable assets acquired and liabilities assumed in the acquiree at their fair values as of the G5 Acquisition Date, with the excess of the consideration transferred over those fair values recorded as goodwill.

 

The fair value of the aggregate consideration was approximately $27.1 million which consisted of (i) $20.3 million in cash, (ii) 1,972,501 shares of the Common Stock (at a value of $2.47 per share, which was the closing price on the G5 Acquisition Date), and (iii) potential earnout consideration paid annually in fiscal years 2026 and 2027 subject to achievement of certain revenue and EBITDA targets set forth in the G5 MIPA. As of the G5 Acquisition Date, the fair value of consideration transferred consisted of the following:

 

  

February 18,

 

Description

 

2025

 

Cash consideration

 $20,250,000 

Net working capital adjustment

  (423,871)

Equity portion of consideration

  4,872,066 

Earnout portion of consideration

  3,536,471 

Revenue clawback

  (1,104,471)

Fair value of consideration transferred

 $27,130,195 

 

The fair value of the equity portion of the consideration was determined by multiplying the number of shares issued, 1,972,501, by the fair value of the Common Stock on the G5 Acquisition Date, which was $2.47. The initial cash consideration at closing was subject to a net working capital adjustment, which was settled in June 2025. The G5 MIPA also included a provision for a clawback amount if G5 Infrared’s actual revenue for the 2024 calendar year was less than $17.3 million. This clawback amount was settled in June 2025 and is reflected in the determination of the purchase price.

 

Earnout payments of an aggregate of up to $23.0 million of additional consideration may be paid annually in fiscal years 2026 and 2027 subject to achievement of certain minimum EBITDA and revenue targets for the one and two-year periods beginning on the first full calendar month commencing after the G5 Acquisition Date, as set forth in the G5 MIPA. If the targets are achieved during the respective periods, LightPath will (i) issue an aggregate number of shares Common Stock equal to 30% of the earnout payment divided by the average close price for the ten trading days immediately prior to the first anniversary of the earnout commencement date, as defined in the G5 MIPA, and (ii) pay additional cash consideration in an amount equal to 70% of the earnout payment, in each case to the former G5 Infrared members. The earnout is considered contingent consideration and is accounted for as a liability initially measured at fair value, with changes during each reporting period recognized in earnings. The portion of the earnout that will be settled in stock will also be accounted for as a liability since the achievement of targets adjusts the number of shares to be issued at settlement based on a variable other than the Company’s Common Stock, and therefore it does not meet the criteria in ASC 480, Distinguishing Liabilities from Equity. The fair value of the earnout in the accompanying unaudited Condensed Consolidated Balance Sheet is calculated using a Monte Carlo valuation method, which involves assumptions of revenue and EBITDA forecasts, discount rates and revenue volatility. Significant increases or decreases in any of those assumptions in isolation could result in a significantly higher or lower fair value measurement. The earnout liability is subject to fair value measurement each reporting period. During the quarter ended March 31, 2026, the first earnout period ended and based on the targets achieved, the first earnout payment was made to the G5 Sellers for $7.3 million in cash and $3.2 million in shares of Common Stock (297,445 shares). As of March 31, 2026, the remaining earnout liability was increased to $6.7 million, resulting in a total charge of $12.2 million since  June 30, 2025, which is included in the “Change in fair value of acquisition liabilities” in the accompanying unaudited Condensed Consolidated Statement of Comprehensive Income (Loss). Subsequently, on April 16, 2026, we executed a side letter agreement with the G5 Sellers which set the year two earnout payment amount and accelerated the payment timeline. Pursuant to the agreement, the earnout amount will be $9 million, comprised of $6.3 million in cash and $2.7 million in shares of Common Stock, to be paid after January 1, 2027 and on or before January 15, 2027.

 

The following table summarizes the preliminary allocation of the fair value of consideration transferred to assets acquired and liabilities assumed as of the G5 Acquisition Date and the adjustments recognized during the measurement period:

 

      

Measurement

     
  

Preliminary as of

  

Period

  

Final as of

 
  

March 31,

  

Adjustments

  

June 30,

 

Description

 

2025

  

Net

  

2025

 

Assets:

            

Accounts receivable

 $1,897,098  $—  $1,897,098 

Inventory

  5,065,451   —   5,065,451 

Prepaid expenses and other current assets

  363,413   —   363,413 

Property and equipment

  1,542,707   —   1,542,707 

Operating lease right-of-use asset

  463,985   —   463,985 

Goodwill

  2,977,344   4,012,450   6,989,794 

Other intangible assets

  19,295,000   (5,543,000)  13,752,000 

Other assets

  21,748   —   21,748 

Total assets acquired

 $31,626,746  $(1,530,550) $30,096,196 

Liabilities:

            

Accounts payable

  1,981,164   —   1,981,164 

Accrued liabilities

  336,263   —   336,263 

Operating lease liabilities, current

  268,972   —   268,972 

Deferred tax liabilities, noncurrent

  1,174,650   (1,037,668)  136,982 

Operating lease liabilities, noncurrent

  242,620   —   242,620 

Total liabilities assumed

 $4,003,669  $(1,037,668) $2,966,001 

Net assets acquired

 $27,623,077  $(492,882) $27,130,195 

 

Measurement period adjustments include fair value adjustments during the fiscal quarter ended June 30, 2025, primarily related to refined assumptions in the valuation of the earnout consideration, and intangible assets such as backlog, customer relationships and know-how intangible assets. Deferred tax liabilities were adjusted for the revised intangible asset values, and for the refined tax rate apportionment calculation. The net impact of the aforementioned adjustments resulted in an increase to goodwill. There have been no further adjustments since June 30, 2025.

 

Intangible assets – All intangible assets acquired in the acquisition of G5 Infrared are subject to amortization. The fair value of identifiable intangible assets acquired as of the G5 Acquisition Date is as follows:

 

      

Useful Lives

 

Intangible Asset

 

Total

  

(Years)

 

Backlog

 $361,000   1 

Know-how

  4,801,000   10 

Tradename

  3,450,000   15 

Customer relationships

  5,140,000   15 

Total

 $13,752,000     

 

The fair value of intangible assets is estimated using the multi-period excess earnings approach for acquired customer relationships and the relief from royalty method for the acquired trade names and know-how. All of these Level 3 fair value methods are income-based valuation approaches, which require judgment to estimate appropriate discount rates, revenue forecasts, useful lives, royalty rates related to the trade names and know-how intangible assets, and profitability assumptions related to customer relationships. The acquired intangible assets are not expected to be deductible for New Hampshire state income tax purposes, which resulted in a deferred tax liability of $0.1 million.

 

Goodwill – The $7.0 million of goodwill recognized is attributable to G5 Infrared’s market presence, the assembled workforce and established operating infrastructure. The acquired goodwill is expected to be deductible for Federal income tax purposes. See Note 9, Goodwill and Intangible Assets, in these Notes to these unaudited Condensed Consolidated Financial Statements for further information.

 

Acquisition Financing

 

In conjunction with the financing of the acquisition of G5 Infrared, the Company designated a new series of preferred stock, “Series G Convertible Preferred Stock”, which is convertible into shares of Common Stock. Concurrent with the entry into the G5 MIPA on February 13, 2025, we entered into (i) a Securities Purchase Agreement (the “Securities Purchase Agreement”) by and among the Company and North Run Capital, AIGH Investment Partners, LP, WVP Emerging Manager Offshore Fund LLC, the Lytton-Kambara Foundation and Alice W. Lytton Family LLC (collectively, the “Series G Purchasers”), (ii) a Class A Common Securities Purchase Agreement by and between the Company and Lytton-Kambara Foundation (the “Class A Purchaser”), and (iii) two senior secured promissory notes in an aggregate principal amount of $5.2 million (the “Acquisition Notes”)(see Note 14, Loans Payable) for total proceeds of approximately $32.2 million, inclusive of the conversion of the bridge promissory note (the “Bridge Note”) (see Note 14, Loans Payable), and before deducting offering expenses of $2.2 million incurred by the Company, which was used to fund, in part, the cash consideration payable in connection with the acquisition of G5 Infrared. Pursuant to the Securities Purchase Agreement, the Series G Purchasers purchased from the Company (i) an aggregate of approximately 24,956 shares of Series G Convertible Preferred Stock, (ii) warrants to purchase an aggregate of 4,352,774 shares of Common Stock, with an exercise price of $2.58 per share (the “Series G Purchasers Warrants”), and (iii) the Acquisition Notes, which were convertible into shares of Series G Convertible Preferred Stock limited to failure to achieve a certain EBITDA threshold. The Securities Purchase Agreement closed on February 18, 2025. As discussed further in Note 14, Loans Payable, each of the Acquisition Notes and the Bridge Note were paid in full as of December 31, 2025.

 

Each share of Series G Convertible Preferred Stock has an initial stated value of $1,000.00 per share, and bears dividends at a per annum rate of 6.5%. With respect to dividends, distributions and payments upon liquidation, dissolution or winding up of the Company, the Series G Convertible Preferred Stock ranks senior to all classes of the Common Stock, unless the Lead Investor (as defined in the Securities Purchase Agreement) consents to the creation of parity or senior securities. Each holder may convert shares of Series G Convertible Preferred Stock into shares of Common Stock at a conversion rate equal to the conversion amount divided by the conversion price. The initial conversion price is $2.15 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions and similar events as provided in the Certificate of Designation. Based on an analysis of the Series G Convertible Preferred Stock, it was concluded that they are more akin to an equity-type instrument. Economic characteristics and risks of an equity-linked conversion option are clearly and closely related to an equity-type host; thus, the conversion option embedded in the Series G Convertible Preferred Stock do not require bifurcation or liability classification under ASC 815, Derivatives and Hedging. It also does not meet the definition of being mandatorily redeemable under ASC 480-10-20 because it does not embody an unconditional obligation to redeem the instrument. The Series G Convertible Preferred Stock is redeemable at the option of the holder after the 5 year Guaranteed Term, thus, it should be classified as mezzanine equity, outside of permanent equity. The Series G Convertible Preferred was valued using a Binomial Lattice Model which considers the ability of the investor to convert the instrument into Common Stock at any time, and for the Company's call option and the investor's put option which are available after 5 years. The model incorporates transaction details such as stock price, contractual conversion price, dividend yield, discount rates, expected volatility, market credit spread, estimated yield and investor exercise behavior. The Company elected to recognize any redemption value changes immediately as they occur and adjust the carrying amount to equal the redemption value at each reporting period.

 

Unaudited supplemental pro forma information

 

The following table presents unaudited pro forma financial results of the operations acquired with G5 Infrared and AML. The pro forma results include adjustments to remove costs directly attributable to the acquisition, such as transaction-related costs and the loss on extinguishment of debt (as described in Note 14, Loans Payable, to these Consolidated Financial Statements). The pro forma results were prepared as if the acquisition of G5 Infrared was completed on the first day of our fiscal 2024, July 1, 2023, and as if the acquisition of AML was completed on the first day of our fiscal year 2025, July 1, 2024. The pro forma results do not include any integration synergies and are not necessarily indicative of our results of operations that actually would have been obtained had the acquisitions of G5 Infrared and AML been completed for the periods presented, or which may be realized in the future.

 

  

Three Months Ended March 31,

  

Nine Months Ended March 31,

 
  

2026

  

2025

  

2026

  

2025

 

Revenue

 $19,186,814  $11,277,802  $52,117,840  $39,261,202 
                 

Loss before income taxes

 $(3,788,897) $(3,103,705) $(15,630,482) $(5,869,058)