-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KSbhItrRKt/49w4YO+1PRmHlrvTC83YavznXY3rrFUlOKjaXY8Sf9Reaxh1a6IIH HE1XbYTUp6lHKqCBGE1EJQ== 0000950147-98-000051.txt : 19980128 0000950147-98-000051.hdr.sgml : 19980128 ACCESSION NUMBER: 0000950147-98-000051 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980127 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIGHTPATH TECHNOLOGIES INC CENTRAL INDEX KEY: 0000889971 STANDARD INDUSTRIAL CLASSIFICATION: GLASS PRODUCTS, MADE OF PURCHASED GLASS [3231] IRS NUMBER: 860708398 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27548 FILM NUMBER: 98514453 BUSINESS ADDRESS: STREET 1: 6820 ACADEMY PKWY E N E STREET 2: STE 103 CITY: ALBUQUERQUE STATE: NM ZIP: 87109 BUSINESS PHONE: 5053421100 10QSB 1 QUARTERLY REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT TO THE 1934 ACT REPORTING REQUIREMENTS FORM 10-QSB ___________________ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE REPORT 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 (I.R.S. Employer incorporation or organization) Identification No.) 6820 Academy Parkway East, N.E. http://www.light.net 87109 Albuquerque, New Mexico (ZIP Code) (Address of principal executive offices) Registrant's telephone number, including area code: (505)342-1100 ___________________ 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 and 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Common Stock, Class A, $.01 par value 3,003,301 shares Common Stock, Class E-1, $.01 par value 1,481,584 shares Common Stock, Class E-2, $.01 par value 1,481,584 shares Common Stock, Class E-3, $.01 par value 987,715 shares - --------------------------------------- -------------- Class Outstanding at January 15, 1998 ================================================================================ LightPath Technologies, Inc. Form 10-Q Index Item Page Part I Financial information Balance Sheets 2 Statements of Operations 3 Statements of Cash Flows 4 Notes to Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II Other information Legal Proceedings 12 Changes in Securities and Use of Proceeds 12 Defaults Upon Senior Securities 12 Submission of Matters to a Vote of Security Holders 13 Other Information 13 Exhibits and Reports on Form 8-K 13 Signatures 14 1 LightPath Technologies, Inc. Balance Sheets
December 31, June 30, 1997 1997 ------------------------------------- Unaudited Assets Current assets: Cash and cash equivalents $ 2,316,224 $ 993,505 Trade accounts receivable 231,577 167,258 Inventories 392,537 251,914 Advances to employees 31,362 2,865 Due from related parties 57,738 - Prepaid expenses and other 42,605 38,604 ------------------------------------- Total current assets 3,072,043 1,454,146 Property and equipment - net 779,883 764,897 Intangible assets - net 502,690 490,272 Investment in LightChip, Inc. (Note 4) - - ===================================== Total assets $ 4,354,616 $ 2,709,315 ===================================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 174,408 $ 325,571 Accrued payroll and benefits 228,201 255,878 ------------------------------------- Total current liabilities 402,609 581,449 Note payable to stockholder 30,000 30,000 Redeemable common stock: Class E-1 - performance based and redeemable common stock 1,481,584 and 1,449,942, shares issued and outstanding at December 31, 1997 and June 30, 1997, respectively 14,816 14,499 Class E-2 - performance based and redeemable common stock 1,481,584 and 1,449,942 shares issued and outstanding at December 31, 1997 and June 30, 1997, respectively 14,816 14,499 Class E-3 - performance based and redeemable common stock 987,715 and 966,621, issued and outstanding at December 31, 1997 and June 30, 1997, respectively 9,878 9,666 Stockholders' equity: Preferred stock, $.01 par value; 5,000,000 shares authorized; 3 1 Series A convertible shares, 103 and 45 issued and outstanding at December 31, 1997 and June 30, 1997, respectively, Series B convertible shares, 230 and 0 issued and outstanding at December 31, 1997 and June 30, 1997, respectively $3,330,000 liquidation preference Common stock: Class A, $.01 par value; 34,500,000 shares authorized, voting 2,988,746 and 2,766,185, shares issued and outstanding at December 31, 1997 and June 30, 1997, respectively 29,887 27,662 Additional paid-in capital 22,829,413 19,244,055 Accumulated deficit (18,976,806) (17,212,516) ------------------------------------- Total stockholders' equity 3,882,497 2,059,202 ===================================== Total liabilities and stockholders' equity $ 4,354,616 $ 2,709,315 =====================================
See accompanying notes. 2 LightPath Technologies, Inc. Statements of Operations
Three Months Ended Six Months Ended December 31, December 31, Unaudited 1997 1996 1997 1996 ------------------------------------------------------------------------- Revenues Product development fees $ 82,115 $ 1,806 $ 100,515 $ 113,153 Lenses and other 123,969 26,358 271,688 38,481 -------------------------------------------------------------------------- Total revenues 206,084 28,164 372,203 151,634 Costs and expenses Cost of goods sold 67,867 17,636 151,309 30,323 Selling, general and administrative 839,154 683,530 1,688,953 1,346,280 Research and development 171,188 292,364 324,828 539,307 -------------------------------------------------------------------------- Total costs and expenses 1,078,209 993,530 2,165,090 1,915,910 -------------------------------------------------------------------------- Operating loss (872,125) (965,366) (1,792,887) (1,764,276) Other income(expense) Investment income 35,697 33,041 55,221 75,599 Interest expense (1,223) (796) (2,904) (1,573) Equity in loss of LightChip, Inc.(Note 4) (14,040) - (23,720) - -------------------------------------------------------------------------- Net loss $ (851,691) $ (933,121) $(1,764,290) $(1,690,250) ========================================================================== Net loss applicable to common shareholders (Note 5) $ (1,313,509) $ (933,121) $(2,496,856) $(1,690,250) ========================================================================== Basic net loss per share (Note 5) $(.46) $(.34) $(.88) $( .62) ========================================================================== Number of shares used in per share calculation 2,881,147 2,755,520 2,836,586 2,745,404 ==========================================================================
See accompanying notes. 3 LightPath Technologies, Inc. Statements of Cash Flows
Six Months Ended Unaudited December 31, 1997 1996 ------------------------------------ Operating activities Net loss $ (1,764,290) $ (1,690,250) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 121,073 92,070 Services provided for common stock 27,491 245,009 Equity in loss of LightChip, Inc. 23,720 - Changes in operating assets and liabilities: Receivable, advances to employees, related parties (150,554) (48,539) Inventories (140,623) (113,386) Prepaid expenses and other (4,001) 40,129 Accounts payable and accrued expenses (178,840) (52,465) ------------------------------------ Net cash used in operating activities (2,066,024) (1,527,432) Cash flows from investing activities Property and equipment additions (129,127) (365,427) Costs incurred in acquiring patents (19,350) (65,085) Investment in LightChip, Inc. (23,720) - ------------------------------------ Net cash used in investing activities (172,197) (430,512) Cash flows from financing activities Proceeds from sales of Convertible Series A and Series B preferred stock, net 3,268,973 - Proceeds from exercise of common stock options 291,967 - Repurchase of common stock - (100,000) ------------------------------------ Net cash provided by (used in) financing activities 3,560,940 (100,000) ------------------------------------ Net increase (decrease) in cash and cash equivalents 1,322,719 (2,057,944) Cash and cash equivalents at beginning of period 993,505 4,335,133 ==================================== Cash and cash equivalents at end of period $ 2,316,224 $ 2,277,189 ==================================== Supplemental disclosure of cash flow information: Class A common stock issued for services $ 27,490 $ 245,009 Class E common stock issued $ 845 -
See accompanying notes. 4 LightPath Technologies, Inc. Notes to Financial Statements - Unaudited Organization and Purpose LightPath Technologies, Inc. (the Company) was incorporated in Delaware on June 15, 1992 as the successor to LightPath Technologies Limited Partnership formed in 1989, and its predecessor, Integrated Solar Technologies Corporation formed on August 23, 1985. The Company is engaged in the production of GRADIUM(R) glass lenses and the research and development of additional GRADIUM applications. During the period from August 23, 1985 to June 30, 1996 the Company was a development stage company as defined in Statement of Financial Accounting Standards No. 7 "Development Stage Enterprises". Planned principal operations commenced during fiscal year 1997 and, accordingly, the Company is no longer considered a development stage company. GRADIUM glass is an optical quality glass material with varying refractive indices, capable of reducing optical aberrations inherent in conventional lenses and performing with a single lens, or fewer lenses, tasks performed by multi-element conventional lens systems. 1. Summary of Significant Accounting Matters The accompanying unaudited financial statements have been prepared in accordance with the instructions to Article 10 of Regulation S-X 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 generally accepted accounting principles. These financial statements should be read in conjunction with the Company's financial statements and related notes included in the Form 10-KSB as filed with the Securities and Exchange Commission on September 11, 1997. The information furnished, in the opinion of management, reflects all adjustments, which include normal recurring adjustments, necessary to present fairly the results of operations of the Company for the three month periods ended September 30, 1997 and 1996. Results of operations for interim periods are not necessarily indicative of results which may be expected for the year as a whole. Cash and cash equivalents consist of cash in the bank and temporary investments with maturities of ninety days or less when purchased. Inventories are stated at the lower of cost or market, on a first-in, first-out basis. Inventory costs include material, labor and manufacturing overhead. Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets from three to seven years. Intangible assets consisting of patents and trademarks, are recorded at cost. Upon issuance of the patent or trademark, these assets are being amortized on the straight-line basis over the estimated useful lives of the related assets from ten to seventeen years. The recoverability of carrying values of these assets is evaluated on a recurring basis. Investment consists of the Company's 51% ownership interest in LightChip Inc., which is accounted for under the equity method as the Company anticipates their equity position to fall below 50% during the current fiscal year. Income taxes are accounted for under the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based upon enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change in deferred tax assets and liabilities during the period. 5 LightPath Technologies, Inc. Notes to Financial Statements - Unaudited Revenue recognition occurs upon shipment of products or as earned under product development agreements. Research and development costs are expensed as incurred. Stock based employee compensation is accounted for under the provision of APB Opinion No. 25, Accounting for Stock Issued to Employees, which requires no recognition of compensation expense when the exercise price of the employees stock option equals the market price of the underlying stock on the date of grant. Pro forma information required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, has been presented under the fair value method using a Black-Scholes option pricing model. Per share data is computed using the weighted average number of common shares and dilutive potential common shares outstanding during each period. Restricted Class E common shares and stock options for the purchase of Class E common shares are considered contingently issuable and, accordingly, are excluded because all necessary conditions have not been satisfied. The Company has adopted Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, on December 31, 1997. The impact of Statement 128 on the calculation of earnings (loss) per share was not material. Management uses estimates and makes assumptions during the preparation of the Company's financial statements that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which in turn could impact the amounts reported and disclosed herein. Financial instruments of the Company are valued as required by Statement of Financial Accounting Standards No. 107, Disclosures about Fair Values of Financial Instruments. The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable and accrued liabilities, and notes payable to stockholder approximate fair value. Impairment of long-lived assets was adopted for the fiscal year 1997 by the Company as required by Statement of Financial Accounting Standards No. 121, Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In the event that facts and circumstances indicate that the cost of intangible or other assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is required. Adoption of this Statement did not have a material impact on the Company's financial position, results of operations, or liquidity. 2. Inventories The components of inventories include the following: December 31, 1997 Finished goods and work in process $ 283,952 Raw materials 108,585 ================ Total inventories $ 392,537 ================ 6 LightPath Technologies, Inc. Notes to Financial Statements - Unaudited 3. Stockholders' Equity Authorized 5,000,000 shares of preferred stock; no par value. In June 1997 the Board of Directors designated 250 shares as Series A Convertible Preferred Stock; $.01 par value. The Company entered into a private placement transaction which provided proceeds on the sale of 180 shares of Series A Preferred Stock totaling $1,800,000, less issuance costs of approximately $203,711, resulting in net proceeds of approximately $1,596,289 by the final closing date, July 25, 1997. In September 1997 the Board of Directors designated 300 shares as Series B Convertible Preferred Stock; $.01 par value. The Company entered into a private placement transaction which provided proceeds on the sale of 230 shares of Series B Preferred Stock totaling $2,300,000, less issuance costs of approximately $232,000 resulting in net proceeds of approximately $2,068,000 by the final closing date, October 2, 1997. The Series A and the Series B Convertible Preferred Stock has a stated value and liquidation preference of $10,000 per share, plus an 8% per annum premium. The holders of the Series A and Series B Convertible Preferred Stock are not entitled to vote or to receive dividends. Each share of Series A and Series B Convertible Preferred Stock is convertible into Class A common stock at the option of the holder, with volume limitations during the first 9 months after the final closing date, based on its stated value at the conversion date divided by a conversion price. Approximately 141,000 shares of Class A Common Stock was issued upon the conversion of 77 shares of Series A Preferred Stock during the period ending December 31, 1997. The conversion price is defined as the lesser of $5.625 and $7.2375 for the Series A and Series B Convertible Preferred Stock, respectively, or 85% of the average closing bid price of the Company's Class A common stock for the five days preceding the conversion date. The discount provision in both the Series A and Series B Preferred Stock is recognized as an imputed deemed dividend in the amount of $318,200 and $406,700, respectively, reducing income available to common shareholders on a pro rata basis from the date of issuance to the first date that conversion can occur. Designations, rights, and preferences related to the remaining preferred shares may be determined by the Board of Directors. The terms of any series of preferred stock may include priority claims to assets and dividends and voting or other rights. Warrants Approximately 27,000 shares of Class A Common Stock was issued upon the conversion of 87,695 Class C and Class D warrants during the period ending December 31, 1997. Class E and Class F warrants were issued in connection with the private placement of Series B Convertible Preferred Stock which was completed by October 2, 1997. A total of 317,788 Class E warrants were granted to the Series B preferred stockholders which entitles the holder to purchase one share of Class A common stock at an exercise price of $7.24 until September 2000. A total of 47,668 Class F warrants were granted to the placement agent which entitles the holder to purchase one share of Class A common stock at an exercise price defined as $7.24. The Company registered the Class A common stock underlying the Series B Preferred Stock and the Class E and Class F warrants on Form S-3 which became effective November 13, 1997. 4. Investment in LightChip, Inc. The Company applied the equity method of accounting for its investment in LightChip, Inc. until its share of net losses reduced the investment to zero. The Company shall resume applying the equity method once the Company's share of net income equals the share of net losses not recognized during the period the equity method was suspended. 5. Net Loss Per Share Basic net loss per common share is computed based upon the weighted average number of common shares outstanding during each period presented. The computation of diluted net loss per common share is not presented as the effect was antidilutive for the assumed conversion at December 31, 1997 of outstanding approximately, Class A options 809,175, private placement warrants 661,761, IPO warrants 2,679,000 and 1,704,578 Class A shares reserved for the convertible preferred stock. However, the eight percent premium earned by the preferred shareholders was added to the net loss for computation purposes increasing the net loss per common share by $.03 and $.04 for the three month and six month periods ending December 31, 1997 respectively. In addition, net 7 LightPath Technologies, Inc. Notes to Financial Statements - Unaudited loss applicable to common shareholders was increased by an imputed deemed dividend in the amount of $384,575 or $.13 per share and $623,225 or $.22 per share for the three months and six months ended December 31, 1997, respectively. The imputed deemed dividend resulted from a discount provision included in the Series A Preferred Stock issued on July 25, 1997 and the Series B Preferred Stock issued on October 2, 1997. The unamortized imputed deemed dividend on Series B Preferred Stock will be recognized in subsequent quarters.
Three Months Ended Six Months Ended December 31, December 31, -------------------------------------------------------------------------------- Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount -------------------------------------------------------------------------------- 1997 - ---- Net loss $(851,691) $(1,764,290) Less: Preferred Stock Premium (77,243) (109,341) Imputed dividend on Series A (384,575) (623,225) and Series B Preferred Stock Basic EPS Net loss applicable to common shareholders $(1,313,509 2,881,147 $(.46) $(2,496,856) 2,836,586 $(.88) 1996 - ---- Net loss $(933,121) $(1,690,250) Less: Preferred Stock Premium - - Imputed dividend on Series A - - and Series B Preferred Stock Basic EPS Net loss applicable to common shareholders $(933,121) 2,755,520 $(.34) $(1,690,250) 2,745,404 $(.62)
8 LightPath Technologies, Inc. Management's Discussion and Analysis of Financial Condition And Results of Operations Results of Operations - --------------------- The Private Securities Litigation Reform Act of 1995 ("the Act") provides a safe harbor for forward looking statements made by or on behalf of the Company. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures, growth, product development, sales, business strategy and other such matters are forward-looking statements. These forward-looking statements are based largely on the Company's expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond the Company's control. Actual results could differ materially from the forward-looking statements as a result of a number of factors, including, but not limited to, the Company's early state of development, the need for additional financing, and intense competition in various aspects of its business. In light of these risks and uncertainties, all of the forward-looking statements made are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized. The Company undertakes no obligation to update or revise any of the forward looking statements contained herein. Three months ended December 31, 1997,("1998") compared with three months ended December 31,1996,("1997") Revenues totaled $206,084 for the second quarter of 1998, an increase of approximately $178,000 or 632% over 1997. The increase was attributable to an increase of $98,000 in lens sales and an increase of $80,000 in product development/license fees. The Company's increase in lens sales is primarily due to sales for lasers, distributors and wafer chip inspection markets. The Company's efforts in targeting laser applications, an area where GRADIUM's lenses ability to increase the quality of YAG laser beams and reduce the focal spot size, has received increasing market acceptance. The Company received a $30,000 licensing fee from CHUGAI BOYEKI (AMERICA) CORP. "CBC" , which is a wholly-owned subsidiary of CHUGAI BOYEKI CO., Ltd., for the exclusive right to use GRADIUM glass in CBC product lines. The option expires on March 31, 1998, at which time CBC will have the right to engage in a long-term license and purchase agreement with LightPath. The Company provided The Fuji Photo Optical Co., Ltd. ("Fuji"), which is a subsidiary of Fuji Photo Film Co., GRADIUM profiles under the terms of an exclusive agreement whereby Fuji will evaluate the lenses in its TV broadcast systems. The initial agreement expired in November 1997, however, Fuji requested an extension to the agreement for the evaluation of another glass profile which the Company provided them in December for an additional fee of $25,000. The current extension will expire in late April 1998 at which time Fuji will have the right to engage in a long-term license and purchase agreement with LightPath. Revenues for government funded subcontracts in the area of solar energy totaled $49,000 for 1998 versus $0 in l997. This concludes the second phase of funding under the Company's original solar project. At December 31, 1997, a backlog of $180,000 existed for lens sales. Cost of sales during the second quarter of 1998 was 55% of product sales, a significant decrease from the second quarter of 1997 when cost of sales equaled 67% of product sales. The decrease was primarily due to reductions in outside finishing expenses and more efficient production techniques. It is anticipated that with increased volume and the increased utilization of off-shore lens finishers, the cost of production could be decreased further. Administrative costs increased $155,624, or 23% from 1997, primarily due to the addition of personnel in sales and marketing, administration and operations along with increased overhead in these areas. Research and development costs decreased $121,176 in 1998 versus 1997. During the second quarter of 1997, the Company issued stock worth approximately $118,000 on a benchmarking and prediction analysis of technologies related to the Company's proprietary processes in the manufacturing of GRADIUM glass. These costs were not recurring. In addition, several members of the research department staff have been dedicated to work on LightChip, Inc. ("LightChip") projects and their costs are being reimbursed by the subsidiary. Investment income increased approximately $2,000 in 1998. Interest expense was not significant in 1998 or 1997. The Company has accounted for the investment in LightChip under the equity method and recognized a loss of $14,040 in 1998. Net loss of $851,691 in 1998 was a decrease of $81,430 from 1997 due to improved gross margin of $127,689 and lower research and development costs of $121,176, which were offset by increases in selling, general and administrative costs of $155,624 and the decrease in other income(expense) of $11,811. Net loss applicable to common shareholders of $1,313,509 included additional charges of $384,575 for the imputed deemed dividend and $77,243 for the 8% preferred stock premium on the Series A and Series B Preferred stock. Basic net loss per share of $.46 was an increase of $.12 of which $.16 was due to the imputed deemed dividend and the 8% preferred stock premium on the Series A and Series B Preferred Stock and the remaining $.04 9 LightPath Technologies, Inc. Management's Discussion and Analysis of Financial Condition And Results of Operations decrease was due to improved gross margin and reduced research and development expenses of $.08 which were offset by an increase in selling, general and administrative costs and a decrease in other income of $.04. Six months ended December 31, 1997, ("1998") compared with six months ended December 31,1996,("1997") Revenues totaled $372,203 for 1998, an increase of approximately $221,000 or 145% over 1997. The increase was attributable to an increase of $136,000 in lens sales which was offset by a decrease of $13,000 in product development/license fees. The Company's increase in lens sales is primarily due to sales for lasers, distributors and wafer chip inspection markets. During the first quarter of 1998, the Company filled a production order from Karl Storz for 500 lenses and anticipates more significant production orders in 1998 after they have evaluated their product, and the Company received a production order for $80,000 in catalog lenses from a U.S. distributor for their international catalog. During the second quarter of 1998, the Company entered into an evaluation option with CBC for $30,000 until March 31, 1998 and agreed to a contract extension with Fuji until ate April 1998. Revenues for government funded subcontracts in the area of solar energy totaled $68,000 for 1998 versus $112,000 in l997. This billing concludes phase 2 funding for the solar energy subcontract and phase 3 funding has not yet been approved for this project. At December 31, 1997, a backlog of $180,000 existed for lens sales. The Company continues to work with a number of OEM's towards the completion of projects which may result in production orders for LightPath. The first quarter of 1998 saw the addition of a Vice President of Marketing and Sales who's goal is to expand the Company's presence in traditional optics and develop emerging markets such as optoelectronics, photonics and solar. The Company formalized relationships with four additional foreign distributors in 1998 bringing its total to eight industrial, optoelectronic and medical component distributors based around the globe. The Company believes these distributors may create new markets for GRADIUM in their countries primarily in the area of sales into the YAG laser market. Cost of sales during the six month period of fiscal year 1998 was 56% of product sales, a significant decrease from the six month period of fiscal year 1997 when cost of sales was 79% product sales. The decrease was primarily due to reductions in outside finishing expenses and more efficient production techniques. It is anticipated that with increased volume and the increased utilization of off-shore lens finishers, the cost of production could be decreased further. Administrative costs increased $342,673, or 26% from 1997, primarily due to the addition of personnel in sales and marketing, administration and operations along with increased overhead in these areas. The Company's public awareness campaign, through print advertising, web site and trade shows continues to generate inquiries. Research and development costs decreased $214,479 in 1998 versus 1997. During 1997, the Company issued shares of Class A Common Stock worth approximately $238,000 on a benchmarking and prediction analysis of technologies related to the Company's proprietary processes in the manufacturing of GRADIUM glass. These costs were not recurring. The research department staff has increased to approximately 6 full time equivalents, however, several staff members are being charged to LightChip 100% and their costs are being reimbursed by the subsidiary. The focus of the development efforts has been to expand GRADIUM product lines to the areas of multiplexers and interconnects for the telecommunications field, the addition of the crown glass product line to supplement its existing flint products, and the development of acrylic axial gradient material to extend the product range. Investment income decreased approximately $20,000 in 1998 due to the decrease in interest earned on temporary investments as cash levels declined. Interest expense was not significant in 1998 or 1997. The Company funded its portion of LightChip during 1998 and announced the hiring of LightChip's CEO. The Company has accounted for the investment in LightChip under the equity method and recognized a loss of $23,720 in 1998. Net loss of $1,764,290 in 1998 was an increase of $74,040 from 1997 due to increases in selling, general and administrative costs of $342,673 and the decrease in other income(expense) of $45,429 which are offset by improved gross margin of $99,583 and lower research and development costs of $214,479. Net loss applicable to common shareholders of $2,496,856 included additional charges of $623,225 for the imputed deemed dividend and $109,341 for the 8% preferred stock premium on the Series A and Series B Preferred stock. Basic net loss per share of $.88 was an increase of $.26 all of which was due to the imputed deemed dividend and the 8% preferred stock premium on the Series A and Series B Preferred Stock. The improved gross margin and reduced research and development expenses of $.14 were offset by increases in selling, general and administrative costs and the decrease in other income of $.14. 10 LightPath Technologies, Inc. Management's Discussion and Analysis of Financial Condition And Results of Operations Financial Resources and Liquidity - --------------------------------- LightPath had financed its operations through private placements of equity, or debt until February 1996 when the IPO generated net proceeds of approximately $7,200,000. In July 1997 the Company completed a preferred stock private placement which generated net proceeds of approximately $1,600,000. Some of the Series A Preferred Stock investors entered into a second private placement in September 1997 which generated net proceeds of approximately $2,100,000 when completed on October 2, 1997. The Company intends to continue to explore additional funding opportunities in fiscal year 1998. The Company expects to continue to incur losses until such time, if ever, as it obtains market acceptance for its products at sale prices and volumes which provide adequate gross revenues to offset its operating costs. The Company has budgeted operating and research cash requirements for fiscal 1998 at $3,000,000 which is comparable to the actual results for fiscal year 1997. Included in the cash requirements is $700,000 to continue its research and development efforts in fiscal year 1998. For the second quarter 1998, the Company expended less than the quarterly budget by approximately $65,000. For 1998, the Company has exceeded the fiscal budget by approximately $118,000. During fiscal 1998, the Company projects approximately $500,000 will be expended for capital equipment and patent protection. To date, actual expenditures were approximately $148,000. The majority of the capital expenditures during the quarter were for additional computers and equipment to expand its manufacturing facilities. The Company purchased its 51% share in LightChip for $23,720. LightChip completed $405,000 of bridge financing in December 1997 from a syndicated group of accredited investors and continues to seek a significant equity investment in LightChip in the second half of 1998. The Company believes that projected product sales and proceeds from the Series A and Series B Convertible Preferred Stock private placements will be sufficient to cover the fiscal 1998 operating and capital budget. The Company's capital requirements after such period will be satisfied by revenues generated from product sales. Such sales will depend on the extent that GRADIUM glass becomes commercially accepted and the success of the Company's sales program in generating sales sufficient to sustain its operations. Although lens sales for 1998 have increased seven times 1997 levels, there can be no assurance that the Company will generate sufficient revenues to fund its future operations and growth strategies. In addition, the Company may be required to seek additional financing or alter its business plan in the event of delays for commercial production orders or unanticipated expenses. The Company currently has no credit facility with a bank or other financial institution. There also can be no assurance that any additional financing will be available if needed, or, if available, will be on terms acceptable to the Company. In the event necessary financing is not obtained, the Company will be materially adversely affected and have to cease or substantially reduce its operations. Any commercial financing obtained by the Company in the future is likely to impose certain financial and other restrictive covenants upon the Company and result in additional interest expense. Further, any issuance of additional equity or debt securities could result in further dilution to the existing investors. The Company has not been significantly impacted by inflation due to the nature of its product components and in prior years the Company was principally engaged in basic research and development. The Company does not believe that seasonality will have a significant impact on its business. 11 LightPath Technologies, Inc. PART II ------- Item 1. Legal Proceedings There have been no material developments in any legal actions since the period reported as to in the Company's Form 10-KSB for the year ended June 30, 1997. LightPath is subject to various claims and lawsuits in the ordinary course of business, none of which are considered material to the Company's financial condition and results of operations. Item 2. Changes in Securities and Use of Proceeds The issuance of Series A and Series B Convertible Preferred Stock (collectively the "Preferred Stock") by the Company limits the rights of the Company's Common Stock in the following manner. Each share of Preferred Stock has a stated value and liquidation preference of $10,000, plus an 8% per annum premium. The holders of the Preferred Stock are not entitled to vote or to receive dividends. In the event of liquidation of the Company or a Liquidation Event (as defined in the Certificate of Designation) holders of the Preferred Stock are entitled to receive distributions prior to any distribution to holders of the Company's Common Stock. Conversion of the Preferred Stock could potentially have a material dilutive effect upon shares of Common stock outstanding at the time of such conversion. A full description of the rights and preferences of the Preferred Stock have been included in previous filings, Series A, Form 10KSB and Series B, Form 10QSB which are herein incorporated by reference. The Company completed the private placement which began June 30, 1997 for an aggregate of 180 shares of Series A Convertible Preferred Stock (the "Series A Stock") and 320,000 attached Class C warrants on July 25, 1997. Each share of Series A Stock is convertible into Class A Common Stock at the option of holder, with volume limitations during the first 9 months, based on its stated value at the conversion date divided by a conversion price. The conversion price is defined as the lesser of $5.625 or 85% of the average closing bid price of the Company's Class A Common Stock for the five days preceding the conversion date. Each Class C Warrant entitles the holder to purchase one share of Class A Common Stock at $5.63 per share at any time through July 2000. The gross amount received for the private placement of Series A Stock was $1,800,000, less placement fees and related expenses resulting in net proceeds of $1,586,454. In addition, the placement agent was granted 64,000 Class D warrants to purchase shares of the Company's Class A common stock at a price of $5.63 per share at any time through July 2002. The Company completed a private placement for an aggregate of 230 shares of Series B Convertible Preferred Stock (the "Series B Stock") and 317,788 attached Class E warrants on October 2, 1997. Each share of Series B Stock is convertible into Class A Common Stock at the option of holder, with volume limitations during the first 9 months, based on its stated value at the conversion date divided by a conversion price. The conversion price is defined as the lesser of $7.2375 or 85% of the average closing bid price of the Company's Class A Common Stock for the five days preceding the conversion date. Each Class E Warrant entitles the holder to purchase one share of Class A Common Stock at $7.24 per share at any time through September 2000. The gross amount received for the private placement of Series B Stock was $2,300,000, less placement fees and related expenses resulting in net proceeds of approximately $2,068,000. In addition, the placement agent was granted 47,668 Class F warrants to purchase shares of the Company's Class A common stock at a price of $7.24 per share at any time through September 2002. All of the Preferred Stock, Class C, Class D, Class E and Class F Warrants were issued to accredited investors in private placements pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. Restrictions have been imposed on the resale of such securities, including the placement of legends thereon noting such restrictions, and written disclosure of such restrictions were made prior to issuance of the securities. Item 3. Defaults Upon Senior Securities None 12 LightPath Technologies, Inc. Item 4. Submission of Matters to a Vote of Security Holders LightPath Technologies, Inc. conducted its regular 1997 Annual Meeting of Stockholders on October 13, 1997. Actions concluded at the meeting through submission of matters to a vote by stockholders was conducted by proxy and included the following: 1. Election of one Class II Director to hold office until the Annual Meeting of Stockholders in 1999 and his successor is elected and qualified. The election of Mr. Dr. Milton Klein as Class II Director of the Company was approved by the stockholders by a vote of 5,434,335 FOR and 8,483 ABSTENTIONS. The terms of the Company's Class I Directors, Leslie A. Danziger and Haydock H. Miller, Jr. and of its Class III Directors, Louis Leeburg continued after the date of the Annual Meeting. 2. Ratification of the selection of KPMG Peat Marwick LLP as independent accounts for the Company for the fiscal year ending June 30, 1998 was approved by the stockholders by a vote of 5,537,814 FOR, 47,473 AGAINST and 2,468 ABSTENTIONS. 3. Ratification of the proposal to increase the number of shares of Common Stock which may be issued upon exercise of options granted under the Company's 1992 Omnibus Incentive Plan from 325,000 to 1,825,000 was approved by the stockholders by a vote of 3,767,817 FOR, 468,812 AGAINST, 88,109 ABSTENTIONS and 1,434,350 BROKER NON-VOTES. 4. Ratification of the proposal to amend the Company's Certificate of Incorporation to extend the amount of time by which the Company must meet the performance thresholds for holders of Class E-2 and Class E-3 Common Stock to convert such shares into Class A Common Stock was approved by the Class A stockholders by a vote of 944,107 FOR, 25,714 AGAINST and 19,324 ABSTENTIONS. The Class A and Class E shareholders approved the proposal by a vote of 4,142,141FOR, 82,672 AGAINST and 42,165 ABSTENTIONS. There were 1,434,350 BROKER NON-VOTES for this proposal. Item 5. Other Information D.H. Blair & Co., Inc., ("Blair & Co.") is a selling group member which distributed a substantial portion of the Company's original IPO Units. Blair & Co. currently makes a market in the Company's securities. On January 9, 1998 Blair & Co. announced that its brokerage service assets would be acquired by Barington Capital Group L.P. , a New York investment bank. The Company is unable to determine what impact, if any, such acquisition will have upon the Company's securities. Item 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibit 3.4 - Certificate of Designation filed July 9, 1997 with the Secretary of State of the State of Delaware 2 Exhibit 3.1 - Certificate of Designation as amended filed November 13, 1997 with the Secretary of State of Delaware 3 Exhibit 11 - Computation of Net Loss Per Share 1 Exhibit 27 - Financial Data Schedule 1 1. Filed herewith. 2. The exhibit was filed as an exhibit to the Company's Form 10KSB dated September 2, 1997 and is incorporated herein. 3. The exhibit was filed as an exhibit to the Company's Form 10QSB dated November 12, 1997 and is incorporated herein. b) No reports on Form 8-K were filed under the Securities and Exchange Act of 1934 during the quarter ended December 31, 1997.
13 LightPath Technologies, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed in its behalf by the undersigned, thereunto duly authorized. LIGHTPATH TECHNOLOGIES, INC. By: /s/ Donald Lawson January 23, 1998 --------------------------------------- Donald Lawson Date President and Treasurer 14 EX-11 2 STATEMENT RE: COMPUTATION OF NET LOSS PER SHARE Exhibit 11 ---------- Computation of Net Loss Per Share
For the Three Months Ended December 31 ---------------- ----------------- 1997 1996 ---- ---- Net loss $(851,691) $ (933,121) Preferred stock 8% premium (77,243) - Imputed dividend on Series A and Series B Preferred Stock (384,575) - ---------------- ----------------- Net loss applicable to common shareholders $ (1,313,509) $ (933,121) ---------------- ----------------- Weighted average common shares outstanding 2,881,147 2,755,520 ================ ================= Net loss per common share $ (.46) $ (.34) ================ ================= For the Six Months Ended December 31 ---------------- ----------------- 1997 1996 ---- ---- Net loss $(1,764,290) $(1,690,250) Preferred stock 8% premium (109,341) - Imputed dividend on Series A and Series B Preferred Stock (623,225) - ---------------- ----------------- Net loss applicable to common shareholders $ (2,496,856) $ (1,690,250) ---------------- ----------------- Weighted average common shares outstanding 2,836,586 2,745,404 ================ ================= Net loss per common share $ (.88) $ (.62) ================ =================
EX-27 3 FDS --
5 This schedule contains summary financial information extracted from the Form 10-QSB for the six month period ended December 31, 1997 and is qualified in its entirety by reference to such financial statements. 1 U.S. DOLLARS 6-MOS JUN-30-1998 DEC-31-1997 1 2,316,224 0 231,577 0 392,537 3,072,043 1,494,243 714,360 4,354,616 402,609 0 0 3 29,887 22,829,887 4,354,616 271,688 372,203 151,309 151,309 0 0 2,904 (1,764,290) 0 (1,764,290) 0 0 0 (1764,290) (.88) (.88)
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