-----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, RvNuZeyqeqqMIjRte2plXfIE9qib/wecn3pqe6/6H5Iv63MBu2tAydvZeTHlKTAO 4sz3YvM+8OXp2rRT2+Lfjg== 0000950147-99-000089.txt : 19990211 0000950147-99-000089.hdr.sgml : 19990211 ACCESSION NUMBER: 0000950147-99-000089 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990210 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: 99527372 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 FOR THE QTR ENDED 12/31/98 ================================================================================ U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- 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, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 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.) http://www.light.net 6820 Academy Parkway East, N.E. Albuquerque, New Mexico 87109 - ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) 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 4,601,203 shares Common Stock, Class E-1, $.01 par value 1,492,480 shares Common Stock, Class E-2, $.01 par value 1,492,480 shares Common Stock, Class E-3, $.01 par value 994,979 shares - --------------------------------------- ---------------- Class Outstanding at January 29, 1999 ================================================================================ LIGHTPATH TECHNOLOGIES, INC. FORM 10-QSB INDEX 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 10 PART II OTHER INFORMATION Legal Proceedings 15 Changes in Securities and Use of Proceeds 15 Defaults Upon Senior Securities 15 Submission of Matters to a Vote of Security Holders 15 Other Information 15 Exhibits and Reports on Form 8-K 15 SIGNATURES 16 2 LIGHTPATH TECHNOLOGIES, INC. BALANCE SHEETS DECEMBER 31, JUNE 30, 1998 1998 ------------ ------------ ASSETS UNAUDITED Current assets: Cash and cash equivalents $ 1,709,981 $ 4,237,400 Trade accounts receivable - less allowance of $15,000 and $0 315,168 256,491 Inventories (NOTE 2) 597,521 488,710 Advances to employees and related parties 34,808 38,560 Prepaid expenses and other 38,101 43,629 ------------ ------------ Total current assets 2,695,579 5,064,790 Property and equipment - net 888,996 723,838 Intangible assets - net 569,480 519,839 Investment in LightChip, Inc. (NOTE 3) 838,230 -- ============ ============ Total assets $ 4,992,285 $ 6,308,467 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 322,955 $ 190,530 Accrued payroll and benefits 124,379 232,051 ------------ ------------ Total current liabilities 447,334 422,581 Accrued loss of LightChip, Inc. -- 921,662 Note payable to stockholder 30,000 30,000 Commitments and contingencies Redeemable common stock Class E-1 - performance based and redeemable common stock 1,492,480 and 1,481,584 shares issued and outstanding 14,925 14,816 Class E-2 - performance based and redeemable common stock 1,492,480 and 1,481,584 shares issued and outstanding 14,925 14,816 Class E-3 - performance based and redeemable common stock 994,978 and 987,715 issued and outstanding 9,950 9,877 Stockholders' equity Preferred stock, $.01 par value; 5,000,000 shares authorized; Series A convertible shares, 37 and 49 issued and outstanding, Series B convertible shares, 1 and 126 issued and outstanding, Series C convertible shares, 155 and 361 issued and outstanding, $1,930,000 liquidation preference at December 31, 1998 2 5 Common stock: Class A, $.01 par value, voting; 34,500,000 shares authorized; 4,601,203 and 3,330,607 shares issued and outstanding 46,012 33,306 Additional paid-in capital 29,705,102 28,103,439 Accumulated deficit (25,275,965) (23,242,035) ------------ ------------ Total stockholders' equity 4,475,151 4,894,715 ------------ ------------ Total liabilities and stockholders' equity $ 4,992,285 $ 6,308,467 ============ ============ SEE ACCOMPANYING NOTES 3 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31 DECEMBER 31 UNAUDITED 1998 1997 1998 1997 ---------- ----------- ----------- ----------- REVENUES Lenses and other $ 200,973 $ 123,969 $ 353,583 $ 271,688 Product development fees 53,596 82,115 91,714 100,515 ---------- ----------- ----------- ----------- Total revenues 254,569 206,084 445,297 372,203 COSTS AND EXPENSES Cost of goods sold 124,175 67,867 216,015 151,309 Selling, general and administrative 759,589 839,154 1,513,067 1,688,953 Research and development 174,072 171,188 301,168 324,828 ---------- ----------- ----------- ----------- Total costs and expenses 1,057,836 1,078,209 2,030,250 2,165,090 ---------- ----------- ----------- ----------- Operating loss (803,267) (872,125) (1,584,953) (1,792,887) OTHER INCOME(EXPENSE) Investment income 24,795 35,697 70,659 55,221 Interest and other expense (8,798) (1,223) (9,648) (2,904) Equity in loss of LightChip, Inc.(NOTE 3) (125,913) (14,040) (351,347) (23,720) ---------- ----------- ----------- ----------- Net loss $ (913,183) $ (851,691) $(1,875,289) $(1,764,290) ========== =========== =========== =========== Net loss applicable to common shareholders $ (972,247) $(1,313,509) $(2,033,930) $(2,496,856) ========== =========== =========== =========== Basic and diluted net loss per share (NOTE 5) $ (.23) $ (.46) $ (.53) $ (.88) ========== =========== =========== =========== Number of shares used in per share calculation 4,213,215 2,881,147 3,841,778 2,836,586 ========== =========== =========== =========== SEE ACCOMPANYING NOTES. 4 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31 UNAUDITED 1998 1997 ----------- ----------- OPERATING ACTIVITIES Net loss $(1,875,289) $(1,764,290) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 170,129 121,073 Allowance for doubtful accounts 15,000 -- Services provided for common stock -- 27,491 Equity in loss of LightChip, Inc. 351,347 23,720 Changes in operating assets and liabilities: Receivables, advances to employees, related parties (69,925) (150,554) Inventories (108,811) (140,623) Prepaid expenses and other 5,528 (4,001) Accounts payable and accrued expenses 24,753 (178,840) ----------- ----------- Net cash used in operating activities (1,487,268) (2,066,024) CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment additions - net (324,787) (129,127) Costs incurred in acquiring patents (60,141) (19,350) Investment in LightChip, Inc. (713,333) (23,720) ----------- ----------- Net cash used in investing activities (1,098,261) (172,197) 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 and warrants 39,950 -- Proceeds from issuance of common stock 18,160 291,967 ----------- ----------- Net cash provided by financing activities 58,110 3,560,940 ----------- ----------- Net (decrease) increase in cash and cash equivalents (2,527,419) 1,322,719 Cash and cash equivalents at beginning of period 4,237,400 993,505 ----------- ----------- Cash and cash equivalents at end of period $ 1,709,981 $ 2,316,224 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Class A common stock issued for services $ -- $ 27,490 Sale of securities by LightChip, Inc. $ 1,397,906 $ -- Class E common stock issued $ 291 $ 845 Conversions of preferred stock to Class A common stock $ 12,703 $ -- SEE ACCOMPANYING NOTES. 5 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED DECEMBER 31, 1998 ORGANIZATION LightPath Technologies, Inc. (the Company or LightPath) 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 other optical materials and performs research and development for optical solutions for the fiber telecommunications and traditional optics markets. 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 and enabling technology for emerging markets such as optoelectronics and telecommunications. BASIS OF PRESENTATION 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 its Form 10-KSB for the fiscal year ended June 30, 1998, as filed with the Securities and Exchange Commission on September 17, 1998. The information furnished, in the opinion of management, reflects all adjustments, which include normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. Results of operations for interim periods are not necessarily indicative of results which may be expected for the year as a whole. 1. SUMMARY OF SIGNIFICANT ACCOUNTING MATTERS CASH AND CASH EQUIVALENTS consist of cash in the bank and temporary investments with maturities of ninety days or less when purchased. INVENTORIES which consists principally of raw materials, lenses and components 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 ranging from three to seven years. INTANGIBLE ASSETS consisting of licenses, patents and trademarks, are recorded at cost. Upon issuance of the license, patent or trademark, these assets are 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. INVESTMENTS consists of the Company's ownership interest in LightChip Inc. (LightChip) which is accounted for under the equity method. 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. 6 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED 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. REVENUE RECOGNITION occurs from sales of products upon shipment or as earned under product development agreements. RESEARCH AND DEVELOPMENT costs are expensed as incurred. STOCK BASED EMPLOYEE COMPENSATION is accounted for under the provisions of APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which requires no recognition of compensation expense when the exercise price of the employee's 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 accounted for under the provisions of the Statement of Financial Accounting Standards No. 128 (FAS 128), EARNINGS PER SHARE, which was adopted by the Company on December 31, 1997. The impact of adopting FAS 128 on the calculation of earnings (loss) per share was not material, however, all prior period amounts were restated to conform to FAS 128. See Note 5. 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. FAIR VALUES OF FINANCIAL INSTRUMENTS of the Company are disclosed 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 note payable to stockholder approximate fair value. IMPAIRMENT OF LONG-LIVED ASSETS is accounted for under the provisions of 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 fair value is required. 2. INVENTORIES The components of inventories include the following: December 31, June 30, 1998 1998 --------- --------- Finished goods and work in process $ 436,483 $ 362,176 Raw materials 161,038 126,534 --------- --------- Total inventories $ 597,521 $ 488,710 ========= ========= 7 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED 3. INVESTMENT IN LIGHTCHIP, INC. During fiscal 1998, the Company applied the equity method of accounting to its $23,720 cash investment in LightChip, a development stage company, until its share of net losses were reduced to zero at which time the Company discontinued applying the equity method of accounting. In June 1998, the Company committed to purchase $1.25 million of LightChip convertible preferred stock thereby requiring the Company to recognize a loss of $921,662 for substantially all of LightChip's losses during fiscal 1998. On September 9, 1998, LightPath purchased 2,266,667 shares of voting Series A convertible preferred stock of LightChip in a private placement participating with AT&T Ventures who acquired 9,400,000 shares of voting Series A convertible preferred stock (Preferred Stock) for an aggregate of approximately $3.5 million. LightPath and AT&T Ventures have committed to purchase an additional $570,000 and $2.5 million, respectively, of voting Series A1 convertible preferred stock due upon completion of product design requirements. Each share of Preferred Stock was issued at $.30 per share, 8% per annum dividend if declared, noncumulative and a liquidation preference equal to the purchase price plus any declared but unpaid dividends. In conjunction with the private placement all the convertible bridge loans outstanding at LightChip, totaling $890,000, converted to Preferred Stock at $.30 per share as permitted in the debt agreement. In addition, substantially all of the warrant holders of LightChip exercised their warrants, including 111,111 shares received upon exercise by LightPath. In total, LightChip issued approximately 16,460,000 shares of Preferred Stock. Each share of Preferred Stock is convertible into one share of Common Stock at (i) the option of the holder, (ii) the consent of the majority of the outstanding Preferred Stock or (iii) an initial public offering if gross proceeds from the offering exceed 5 times that paid by the Preferred Stock holders. Accordingly, the Company recognized all of LightChip's losses from July 1, 1998 through the closing of the private placement on September 9, 1998, which upon completion, reduced the Company's voting interest to approximately 26%. From the closing date through December 31, 1998, the Company recognized its pro-rata share of LightChip's losses (approximately 26%). Upon completion of the sale of the Preferred Stock by LightChip, the Company recorded an increase to additional paid in capital of $1,397,906 which represents an amount necessary to increase LightPath's Investment in LightChip to its pro rata share of total LightChip equity at this date. Due to the Company's tax position, no deferred tax effects were recognized related to this increase to stockholders' equity. 8 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED 4. STOCKHOLDERS' EQUITY The Series A, Series B and the Series C Convertible Preferred Stock have a stated value and liquidation preference of $10,000 per share, plus an 8% per annum premium. The holders of the Series A, Series B and Series C Convertible Preferred Stock are not entitled to vote or to receive dividends. Each share of Series A, Series B and Series C Convertible Preferred Stock is convertible at the option of the holder, into Class A common stock 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, $7.2375 and $6.675 for the Series A, Series B and Series C 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. Approximately 1,259,000 shares of Class A Common Stock were issued upon the conversion of 343 shares of Series A, Series B and Series C Preferred Stock during the six months ended December 31, 1998.
Preferred Stock - Common Warrants Warrants Warrants Common Series Stock Class Class Class Stock Shares Outstanding A, B & C Class A A & B C, E & G D, F & H Options - ------------------ -------- ------- ----- -------- -------- ------- Outstanding at June 30, 1998 536 3,330,607 4,519,000 914,068 123,345 983,875 Issuance of shares -- 4,644 -- -- -- -- Conversions (343) 1,258,688 -- -- -- -- Option grants -- -- -- -- -- 248,600 Exercise of options -- 7,264 -- -- -- (7,264) Forfeitures -- -- -- -- -- (2,200) Outstanding at December 31, 1998 193 4,601,203 4,519,000 914,068 123,345 1,223,011
9 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED 5. NET LOSS PER SHARE Basic and Diluted 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 does not differ from the basic computation because potentially issuable securities would be anti-dilutive. The following outstanding securities were not included in the computation of diluted earnings per share at December 31, 1998,: Class A common stock options 1,223,011, private placement warrants 1,037,413, IPO warrants 4,519,000, 325,000 Class A shares reserved for the convertible preferred stock and the Class E common stock that is automatically converted into Class A common stock upon attainment of certain performance criteria. However, an eight percent premium earned by the preferred shareholders was added to the net loss to reflect the net loss applicable to common shareholders (see table below). In addition, net loss applicable to common shareholders was increased by an imputed dividend in the amount of $384,575 and $623,225 for the three and six months ended December 31, 1997, respectively. The prior year imputed dividend resulted from a discount provision included in the Series A and Series B Preferred Stock.
Three Months Ended Six Months Ended December 31, December 31, --------------------------------- -------------------------------- Per Per Income Shares Share Income Shares Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ------ ----------- ------------- ------ 1998 Net loss $ (913,183) $(1,875,289) Less: Preferred Stock Premium (59,064) (158,641) BASIC AND DILUTED EPS Net loss applicable to common shareholders $ (972,247) 4,213,215 $(.23) $(2,033,930) 3,841,778 $(.53) 1997 Net loss $ (851,691) $(1,764,290) Less: Preferred Stock Premium (77,243) (109,341) Imputed dividend on Series A and Series B Preferred Stock (384,575) (623,225) BASIC AND DILUTED EPS Net loss applicable to common shareholders $(1,313,509) 2,881,147 $(.46) $(2,496,856) 2,836,586 $(.88)
10 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT, 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 SET FORTH HEREIN AS A RESULT OF A NUMBER OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S EARLY STAGE OF DEVELOPMENT, THE NEED FOR ADDITIONAL FINANCING, INTENSE COMPETITION IN VARIOUS ASPECTS OF ITS BUSINESS AND OTHER RISKS DESCRIBED IN THE COMPANY'S REPORTS ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, ALL OF THE FORWARD-LOOKING STATEMENTS MADE HEREIN 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. RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1998 ("1999") COMPARED WITH THE THREE MONTHS ENDED DECEMBER 31, 1997 ("1998") During the second quarter of fiscal 1999 the Company's management focused its efforts on 1) the distribution of collimator lens and assembly samples to potential customers for testing and 2) the licensing agreements for fiberoptic switches between the Company and Herzel Laor. The Company's internal focus has been on the development and shipment of product samples of LightPath's newly designed single-mode fiber collimator assembly (SMF assembly) and the scale-up of manufacturing equipment to meet anticipated volumes. The LightPath SMF assembly is approximately 50-60% smaller than the existing collimator. This entry level product currently used by the telecommunications industry prevents light from diverging and shepherds it into the next piece of equipment or fiber. The Company offers two product levels, the collimating lens and a SMF assembly. The collimating lens can replace existing lenses with immediate improvements in performance, repeatability and cost. The SMF assembly offers superior performance in the areas of back reflection and insertion loss. To date in fiscal 1999, production line SMF assembly and collimating lenses were delivered for testing to approximately 45 potential customers in the U.S. and Asia. The Company has received mostly favorable comments on the collimating lenses due to the improvement potential customers have noted in insertion loss. The SMF assembly is still undergoing testing and modification based on customer feedback. The Company will display both products at trade shows in late January and February 1999. These shows provide the Company with the ability to deliver additional samples and meet with potential customers to distribute information on our products or to discuss test results from samples previously sent. During December 1998, LightPath and Herzel Laor entered into exclusive licensing agreements for the commercialization of two fiberoptic opto-mechanical switch technologies. The Company believes these agreements will accelerate its planned introduction of fiberoptic switching products for the telecommunications market. Mr. Laor and his businesses have been active in the development of fiberoptic switches for 20 years. The new products, which patent applications have been filed, are expected to enter into field trials in the middle of calendar 1999. Industry estimates of the current market sales for the mechanical switch are approximately $100 million. The Company anticipates sales of LightPath switches in calendar 2000, although there can be no assurances in this regard. The mechanical switch products are an excellent bridge to the material development the Company is undertaking for the more advanced optical matrix switch. It also continues the Company's strategy of incorporating its proprietary material technology into an increasing number of optical telecommunication components. With follow-on products such as isolators and amplifiers, the Company could develop their own products or strategically partner with another company that already has a product offering. During December 1998, the Company and the German optical products manufacturer Rodenstock Prazisionsoptik GmbH ("Rodenstock") held their marketing kick-off program in Germany for the development, production and joint-distribution of GRADIUM based optical products in Europe based upon the five year Strategic Agreement the companies entered into in the first quarter of fiscal 1999. The Company believes the relationship with Rodenstock and its remaining distributors may create new and sustain existing markets for GRADIUM in their respective countries primarily in the area of the YAG laser market. 11 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Revenues totaled $255,000 for 1999, an increase of approximately $48,000 or 24% over 1998. The increase was attributable to $77,000 in additional product sales, primarily for lasers and wafer chip inspection, and a decrease of $29,000 in product development/license fees. Sales of laser lenses during this period did not grow at the rate the Company had projected due to reduced laser equipment sales into Asia. The Company expects this trend of relatively flat laser lens sales to continue for fiscal 1999. Sales for wafer chip inspection lenses increased slightly over 1998 levels. Revenues for government funded subcontracts in the area of optoelectronics totaled $51,000 for 1999 versus $49,000 for solar energy work and $33,000 in development fees in 1998. At December 31, 1998, a backlog of $120,000 existed for lens sales and $261,000 in government project funding. In addition, an agreement with Karl Storz requires an increase in the license fee to $20,833 per month effective January 1999. In 1999, cost of sales was 62% of product sales, an increase from 1998, when cost of sales was 55% of product sales. The increase was primarily due to lower margins in sales to the wafer chip inspection markets and some large scale laser optics. It is anticipated that with increased volume and the increased utilization of off-shore lens finishers, the cost of traditional optics production could be decreased. Selling, general and administrative costs decreased $79,565, or 9% from 1998, primarily due to the reduction of personnel in administration and the reduction in overhead and personnel costs associated with LightChip. Research and development costs increased $2,884 in 1999 versus 1998. The majority of development work consisted of expenses associated with the SMF assembly design and manufacturing process. In addition, development work is on-going to expand GRADIUM products to the areas of multiplexers, interconnects and cross-connects for the telecommunications industry. Investment income decreased approximately $11,000 in 1999 due to the decrease in interest earned on temporary investments as a result of a decrease in cash reserves. Interest expense was not significant in 1999 or 1998. The Company incurred a loss of approximately $8,000 on the disposal of property used in California for a government contract. The Company accounts for the investment in LightChip under the equity method. The Company's 26% share of LightChip losses was $125,913 for the quarter versus $14,040 in 1998. Net loss of $913,183 in 1999 was an increase of $61,492 from 1998 of which $111,873 relates to recognition of LightChip's loss, $28,519 due to a decrease in product development fees while the gross margin on product sales increased $20,969, and $18,477 due to a decrease in other income (expense). These increased costs were offset by a $76,681, decrease in operating costs primarily in selling, general and administrative expense. Net loss applicable to common shareholders of $972,247 included an additional charge of $59,064 for the 8% premium on the preferred stock. Net loss per share of $.23 was a decrease of $.23 from 1998 net loss per share of $.46 of which $.11 was due to the increase in the number of weighted shares outstanding due to the conversion of Preferred Stock. The 1999 net loss per share was negatively impacted by $.03 due to LightChip's losses and $.01 due to the 8% premium on the preferred stock. The 1998 net loss per share contains an imputed dividend of $.13 arising from the issuance of preferred stock and $.03 due to the 8% premium on the preferred stock. SIX MONTHS ENDED DECEMBER 31, 1998 ("1999") COMPARED WITH THE SIX MONTHS ENDED DECEMBER 31, 1997 ("1998") During the six months ended December 31, 1998, the Company's management focused its efforts on three key areas 1) the completion of the AT&T Ventures' financing for the Company's subsidiary LightChip, 2) the distribution of collimator lens and assembly samples to potential customers for testing and 3) the licensing agreement for fiberoptic switches between LightPath and Herzel Laor. On September 9, 1998, LightChip received approximately $3.5 million from AT&T Ventures and LightPath as consideration for the issuance of Series A Convertible Preferred Stock. The balance of the $6.5 million commitment ($3 million) is due upon completion of certain product design requirements by LightChip. In addition, $890,000 of LightChip's bridge loans converted to equity and LightChip's warrants totaling $508,333 were exercised. LightChip has relocated to the Boston metro area to begin scale-up of their research and development efforts to meet product design milestones. The Company believes LightChip is making significant progress in the development of its products which will include GRADIUM glass for next-generation wavelength division multiplexing (WDM) products for metro and local area network applications. The Company will experience further dilution of its ownership in LightChip when the balance of the private placement is funded, currently anticipated to occur in fiscal 1999. The Company's internal focus has been on the development and shipment of product samples of LightPath's newly designed single-mode fiber collimator assembly (SMF assembly) which is approximately 50-60% smaller than 12 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS the existing collimator. This entry level product currently used by the telecommunications industry prevents light from diverging and shepherds it into the next piece of equipment or fiber. The Company offers two product levels, the collimating lens and a SMF assembly. The collimating lens can replace existing lenses with immediate improvements in performance, repeatability and cost. The SMF assembly offers superior performance in the areas of back reflection and insertion loss. It is also more compact and the Company believes it can be manufactured at a significantly lower cost than the competitive products currently available in commercial quantities. In addition, LightPath is seeking to attract customers interested in obtaining a second source supplier since the majority of existing collimator sales are through one manufacturer. In 1999, production line SMF assembly and collimating lenses were delivered for testing to approximately 45 potential customers in the U.S. and Asia. The first scale-up production orders are expected in early 1999 due to the amount of testing time required by telecommunication customers. The Company has received mostly favorable comments from potential customers on the collimating lenses due to improved insertion loss. The SMF assembly is still undergoing testing and modification based on customer feedback. The Company will display both products at trade shows during January and February 1999. Based on the cost of the Company's prototypes and GRADIUM lenses, the Company believes the profit margin in these optoelectronics products will equal or exceed the margins historically experienced in the traditional optics markets. In December 1998, LightPath and Herzel Laor entered into an exclusive licensing agreement for the commercialization of two fiberoptic switch technologies. The Company believes these agreements will accelerate its planned introduction of fiberoptic switching products for the telecommunications market. Mr. Laor and his businesses have been active in the development of fiberoptic switches for 20 years. The new products, which patent applications have been filed, are expected to enter into field trials in the middle of calendar 1999. Industry estimates of the current market sales for the mechanical switch are approximately $100 million, and the Company anticipates sales of LightPath switches in calendar 2000. However, the telecommunications industry is subject to, among other risks, intense competition and rapidly changing technology, and there can be no assurances as to the Company's ability to anticipate and respond to the demands and competitive aspects of this industry. Consistent with the Company's strategy to focus its efforts in the optoelectronics and telecommunications market, it has continued to work towards further agreements with strategic companies to distribute GRADIUM into traditional optic products. During 1999, the Company announced a five year Strategic Agreement with the German optical products manufacturer Rodenstock Prazisionsoptik GmbH for the development, production and joint-distribution of GRADIUM based optical products in Europe. Rodenstock products include high-end camera lenses, precision optical components, medical instruments and laser and imaging systems. During December 1998, the Company and Rodenstock held a joint marketing meeting in Germany to kick-off the program and coordinate efforts under the Agreement. The Company anticipates that this Agreement will provide a vehicle to expand the presence of its products in Europe to a much higher level without expanding its resources, although there can be no assurances in this regard. Sales to the largest YAG laser manufactures and suppliers in the world continued as well as work with Karl Storz in the area of endoscopes. Although the Company worked with Fuji to retain an exclusive agreement for television camera lenses after the April 1998 contract expired, Fuji indicated after further evaluation of lens data, that they will not proceed with an exclusive agreement. The Company currently has relationships with eight industrial, optoelectronic and medical component distributors based around the globe. The Company believes these distributors may create new and sustain existing markets for GRADIUM in their respective countries primarily in the area of the YAG laser market. Revenues totaled $445,000 for 1999, an increase of approximately $73,000 or 20% over 1998. The increase was attributable to $82,000 in additional lens sales, primarily for lasers and wafer chip inspection, and a decrease of $9,000 in product development/license fees. Sales of laser lenses during this period did not grow at the rate the Company had projected due to reduced laser equipment sales into Asia. The Company expects this trend of relatively flat laser lens sales to continue for fiscal 1999. Sales for wafer chip inspection lenses increased to 1998 levels in the second quarter of fiscal 1999. Revenues for government funded subcontracts in the area of optoelectronics totaled $90,000 for 1999 versus $68,000 for solar energy work and $33,000 in development fees during 1998. At December 31, 1998, a backlog of $120,000 existed for lens sales and $261,000 in government project funding. In addition, the agreement with Karl Storz requires an increase in the license fee to $20,833 per month effective January 1999. 13 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In 1999, cost of sales was 61% of product sales, an increase from 1998, when cost of sales was 56% of product sales. The increase was primarily due to lower margins in sales to the wafer chip inspection markets and some large laser optics. It is anticipated that with increased volume and the increased utilization of off-shore lens finishers, the cost of traditional optics production could be decreased. Selling, general and administrative costs in 1999 decreased $175,886, or 10% from 1998, primarily due to the reduction of personnel in administration and the reduction in overhead and personnel costs associated with LightChip. Research and development costs decreased $23,660 in 1999 versus 1998. The majority of development work consisted of expenses associated with the design and manufacturing process for telecommunications industry products. Investment income increased approximately $15,000 in 1999 due to the increase in interest earned on temporary investments primarily as a result of increased cash due to the 1998 private placements of convertible preferred stock. Interest expense was not significant in 1999 or 1998. The Company accounts for the investment in LightChip under the equity method. In June 1998, the Company committed to purchase $1.25 million of LightChip preferred stock thereby requiring the Company to recognize approximately all of LightChip's loss until the private placement occurred. With the completion of the September 1998 private placement, the Company's share of LightChip losses was reduced to its ownership percentage of approximately 26%. The Company has recognized $351,347 in LightChip losses in 1999 versus $23,720 in 1998. Net loss of $1,875,289 in 1999 was an increase of $110,999 from 1998 of which $327,627 relates to recognition of LightChip's loss. The remaining decrease of $216,628 was due to a $8,801 decrease in product development fees while the gross margin on product sales increased $17,189 and decreases in selling, general and administrative costs, and lower research and development costs totaling $199,546 and the increase in other income (expense) of $8,694. Net loss applicable to common shareholders of $2,033,930 included additional charges of $158,641 for the 8% premium on the preferred stock. Net loss per share of $.53 was a decrease of $.35 from 1998 net loss per share of $.88 of which $.19 was due to the increase is weighted shares due to conversion of Preferred Stock. The 1999 net loss per share was negatively impacted by $.09 due to LightChip's losses and $.04 due to the 8% premium on the preferred stock. The 1998 net loss per share contains an imputed dividend of $.22 arising from the issuance of preferred stock and $.04 due to the 8% premium on the preferred stock. FINANCIAL RESOURCES AND LIQUIDITY LightPath had previously financed its operations through private placements of equity, or debt until February 1996 when the IPO generated net proceeds of approximately $7.2 million. From June 1997 through February 1998, the Company completed three preferred stock private placements which generated total net proceeds of approximately $7.2 million. The Company intends to continue to explore additional funding opportunities in fiscal year 1999, although it currently has no commitments for such funding. Cash used in operations for the first quarter fiscal 1999 totaled approximately $1,487,000, a decrease of $579,000 from fiscal 1998, primarily due to administrative cost reductions. 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. During fiscal 1999, the Company currently anticipates that approximately $500,000 will be expended for capital equipment and patent protection. To date, actual expenditures were approximately $325,000 and commitments for $100,000 are outstanding. The majority of the capital expenditures during the quarter were for equipment used to expand the Company's manufacturing facilities for collimator production. The Company purchased its 51% of the voting stock of LightChip for $23,720 in 1998. In September 1998, LightChip obtained a significant equity commitment of $6.5 million from the sale of convertible preferred stock to LightPath ($1.25 million) and AT&T Ventures ($5.25 million). In September 1998, Phase one or approximately $3.5 million was received and the balance is due at the next stage of product development, currently anticipated to occur in fiscal 1999. In addition, debt holders of LightChip converted all of their outstanding balances to preferred stock and exercised substantially all of the outstanding warrants as part of the equity investment. As a result of these transactions, the Company currently controls approximately 26% of LightChip's voting stock. The Company believes that projected product sales and proceeds from the sale of its Series C Convertible Preferred Stock will provide adequate working capital into fiscal 1999 and will be used primarily to assist the Company's entrance into optoelectronics products development and sales. The Company 14 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS intends to satisfy its obligation to purchase preferred stock in LightChip, which should occur in the fall of calendar 1999, and other capital requirements by revenues generated from projected future product sales, and the reduction of operating expenses. Such sales will depend on the extent that the SMF assembly, collimating lenses and GRADIUM glass become commercially accepted and at levels sufficient to sustain its operations. 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 to fund its obligation to provide future capital investments in LightChip 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's business and results of operations will be materially adversely affected and the Company may 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 Company's existing investors. YEAR 2000 RISKS; INFLATION; SEASONALITY Some computer applications were originally designed to recognize calendar years by their last two digits. As a result, calculations performed using these truncated fields will not work properly with dates from the year 2000 and beyond. This problem is commonly referred to as the "Year 2000 Issue". The Company has determined that its internal computer systems, manufacturing equipment and software products were produced in compliance with the Year 2000 Issue and no material remediation costs have been incurred or are expected to be incurred by the Company. The Company has undertaken to confirm in writing whether the internal business operations of third parties with whom it has a material relationship will be affected by the Year 2000 Issue. The Company's assessment of third parties is not yet complete and the Company projects the assessment process will be completed prior to March 31, 1999. Given the status of our assessment a formal contingency plan has not yet been established for non-compliant third parties. The Company has not been significantly impacted by inflation in 1999 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 seasonal factors will have a significant impact on its business. 15 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, 1998. In addition, LightPath is subject to various claims and lawsuits in the ordinary course of its 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 None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS LightPath Technologies, Inc. conducted its regular 1998 Annual Meeting of Stockholders on October 19, 1998. 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 three Class I Directors to hold office until the Annual Meeting of Stockholders in 2001. The election of Ms. Leslie Danziger, Mr. Haydock H. Miller, Jr. and Mr. James A. Wimbush as Class I Director of the Company was approved by the stockholders by a vote of 6,040,778 FOR and 31,446 WITHHOLD AUTHORITY. The terms of the Company's Class II Directors, James L. Adler, Jr. and Dr. Milton Klein and of its Class III Directors, Louis Leeburg and Donald Lawson continued after the date of the Annual Meeting. After the Annual Meeting Dr. Klein resigned his position after serving on the board since the Company's inception, due to professional and personal commitments. Katerine Dietze was nominated by the other Directors to fill the vacancy 2. Ratification of the selection of KPMG Peat Marwick LLP as independent accountants for the Company for the fiscal year ending June 30, 1999 was approved by the stockholders by a vote of 6,022,372 FOR, 42,937 AGAINST and 3,415 ABSTENTIONS. ITEM 5. OTHER INFORMATION Katherine E. Dietze joined the Board of Directors on October 19, 1998. Ms. Dietze is currently employed as Managing Director in the Global Telecommunications and Media Group in the investment banking department of Credit Suisse First Boston, a leading global investment bank. Ms. Dietze was nominated by the other Directors to fill the vacancy left by Milton Klein, M.D. who resigned his position on October 19, 1998, after serving on the board since the Company's inception, due to professional and personal commitments. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit 11 - Computation of Net Loss Per Share 1 Exhibit 27 - Financial Data Schedule 1 1. Filed herewith. b) No reports on Form 8-K were filed under the Securities and Exchange Act of 1934 during the quarter ended December 31, 1998. 16 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 29, 1999 ----------------------------------- Donald Lawson Date Chief Executive Officer 17 EX-11 2 COMPUTATION OF NET LOSS PER SHARE EXHIBIT 11 COMPUTATION OF NET LOSS PER SHARE FOR THE THREE MONTHS ENDED DECEMBER 31 ------------------------------- 1998 1997 ---- ---- Net loss $ (913,183) $ (851,691) Preferred stock 8% premium (59,064) (77,243) Imputed dividend on Series A and Series B Preferred Stock -- (384,575) ----------- ----------- Net loss applicable to common shareholders $ (972,247) $(1,313,509) ----------- ----------- Weighted average common shares outstanding 4,213,215 2,881,147 =========== =========== Basic and Diluted net loss per common share $ (.23) $ (.46) =========== =========== FOR THE SIX MONTHS ENDED DECEMBER 31 ------------------------------- 1998 1997 ---- ---- Net loss $(1,875,289) $(1,764,290) Preferred stock 8% premium (158,641) (109,341) Imputed dividend on Series A and Series B Preferred Stock -- (623,225) ----------- ----------- Net loss applicable to common shareholders $(2,033,930) $(2,496,856) ----------- ----------- Weighted average common shares outstanding 3,841,778 2,836,586 =========== =========== Basic and Diluted net loss per common share $ (.53) $ (.88) =========== =========== EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-QSB FOR THE SIX MONTH PERIOD ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 6-MOS JUN-30-1999 DEC-31-1998 1,709,981 0 330,168 15,000 597,521 2,695,579 1,884,238 995,242 4,992,285 447,334 0 0 2 46,012 29,705,102 4,992,285 353,583 445,297 216,015 216,015 7,933 0 1,715 (1,875,289) 0 (1,875,289) 0 0 0 (1,872,289) (.53) (.53)
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