9. Income Taxes

For financial reporting purposes, income (loss) before income taxes includes the following components:

The components of the provision for income taxes are as follows:

The table below provides the updated requirements of ASU 2023-09 for the year ended June 30, 2026. See section Recent Accounting Pronouncements for additional details on the adoption of ASU 2023-09.

The reconciliation of income tax computed at the U.S. federal statutory rates to the total income tax provision is as follows:

As previously disclosed for the year ended June 30, 2025, prior to the adoption of ASU 2023-09, the reconciliation of income tax computed at the U.S. federal statutory rates to the total income tax provision is as follows:

Cash Paid for Income Taxes

Cash taxes paid by the Company during the year ended June 30, 2026 were as follows:

Income Tax Law of the People’s Republic of China

The Company’s Chinese subsidiary, LPOIZ, is governed by the Income Tax Law of the People’s Republic of China concerning the privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. For both the years ended June 30, 2026 and 2025, the tax rate for LPOIZ was 15%, in accordance with an incentive program for technology companies. The net deferred tax liability for LPOIZ is approximately $0.1 million and $0.2 million as of June 30, 2026 and 2025, respectively, primarily related to timing differences related to accelerated depreciation on fixed assets.

Historically, the Company considered unremitted earnings held by its foreign subsidiaries to be permanently reinvested. However, during fiscal year 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 year 2020 the Company began to accrue for these taxes on the portion of historical earnings that it intends to repatriate.

During the years ended June 30, 2026 and 2025, the Company declared and paid intercompany dividends of $0.2 million and $1.1 million, respectively, from LPOIZ, payable to the Company as its parent company. Accordingly, the Company paid and recorded income tax expense for Chinese withholding taxes of approximately $0.02 million and $0.1 million associated with these dividends during fiscal years 2026 and 2025, respectively. Accrued and unpaid withholding taxes were less than $0.1 million as of both June 30, 2026 and 2025. Other than these withholding taxes, these intercompany dividends have no impact on the Consolidated Financial Statements. We also paid Chinese withholding taxes of $0.04 million and $0.03 on payments from LPOIZ to LightPath for administrative services rendered during fiscal years 2026 and 2025, respectively.

Law of Corporate Income Tax of Latvia

The Company’s Latvian subsidiary, ISP Latvia, is governed by the Law of Corporate Income Tax of Latvia. Until December 31, 2017, ISP Latvia was subject to a statutory income tax rate of 15%. 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 tax rate was changed to 20%; however, distribution amounts are first divided by 0.8 to arrive at the taxable amount of profit, resulting in an effective tax rate of 25%. As a transitional measure, distributions made from earnings prior to January 1, 2018, distributed prior to December 31, 2019, 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. The Company currently does not intend to distribute any current earnings generated after January 1, 2018. If, in the future, the Company changes such intention, distribution taxes, if any, will be accrued as profits are generated.

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows as of June 30, 2026 and 2025, with certain fiscal year 2025 amounts reclassified from those previously reported to conform to current classification:

In assessing the potential future recognition of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not 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. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company’s largest deferred tax asset is related to its U.S. federal net operating loss (“NOL”) carryforwards. As of June 30, 2026, the Company has federal NOL carryforwards of approximately $42.0 million, of which $14.0 million expire from 2027 to 2034. Federal NOL carryforwards generated after 2021 of $28.0 million are carried forward indefinitely and are subject to an 80% limitation on taxable income. The Company also has state NOL carryforwards of approximately $33.3 million, of which $14.7 million begin expiring in 2027 and approximately $18.6 million have an indefinite life.

Based on the weight of the available evidence, management has provided for a valuation allowance against the deferred tax assets of approximately $17.8 million at June 30, 2026, an increase of approximately $3.8 million as compared to June 30, 2025. The increase in the valuation allowance for deferred tax assets as compared to the prior year is primarily the result of the various movements in the current year deferred items. The U.S. net deferred tax asset of approximately $0.1 million results from federal and state tax credits with indefinite carryover periods. State income tax expense disclosed on the effective tax rate reconciliation above includes state deferred taxes that are offset by a full valuation allowance.

The utilization of the Company’s NOL carryforwards may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Section 382 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of NOL carryforwards in future years and possibly the expiration of certain NOL carryforwards before their utilization. The Company has performed a Sec. 382 study and concluded that there is no limitation under Section 382 as of June 30, 2026.

At June 30, 2026, in addition to NOL carryforwards, the Company also has research and development and other credit carryforwards of approximately $1.9 million, which will expire from 2026 through 2045.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable. There are currently no pending tax examinations. The Company is no longer subject to U.S. federal and state tax examinations for fiscal years through June 2021, nor to corporate tax examination for through calendar year 2014 in China, and for fiscal years through June 2017 in Latvia. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period.

As required by the uncertain tax position guidance in ASC No. 740, Income Taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance to all tax positions for which the statute of limitations remained open. The Company has not recognized a liability for uncertain tax positions. The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.

On July 4, 2025, the One Big Beautiful Bill was enacted (“OBBBA”), introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of 100% accelerated tax depreciation on qualifying property including expansion to cover qualified production property. Another major aspect incudes the return to immediate expensing of domestic research and experimental expenditures (“R&E”) which in some cases may include retroactive application back to 2021 for businesses with gross receipts of less than $31 million or accelerated tax deductions of R&E that was previously capitalized for larger businesses. The legislation also reinstates EBITDA-based interest deductions for tax purposes and makes several business tax incentives permanent. Less favorable business provisions include limitations on tax deductions for charitable contributions.

The OBBBA modified the U.S. International Tax provisions for Global Intangible Low-Taxed Income (“GILTI”), Foreign-Derived Intangible Income (“FDII”), and the Base-erosion Anti-abuse Tax (“BEAT”) effective for tax years starting after December 31, 2025. The tax rate on GILTI, now renamed to Net CFC Tested Income (“NCTI”), is now 12.6%. The FDII rules, now renamed to Foreign Derived Deduction Eligible Income (“FDDEI”), now carry a 14% tax rate on FDDEI eligible income. The OBBB Act increases the BEAT rate from 10% to 10.5%.

The Company is currently assessing the potential impact of this legislation on its future financial position, results of operations, and cash flows. In accordance with U.S. GAAP, the effects will be recognized in the period of enactment.