-----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, UsuHGKoBJElxGoiBuUuMlNV+XCw1mJTaqpMnIKTqYUrzft250emkD8VI1iQaDp9O WopG8PavZ2q4DMRNLvnGWw== 0000950147-99-000479.txt : 19990517 0000950147-99-000479.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950147-99-000479 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99622804 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 10QSB ================================================================================ U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________________ FORM 10-QSB ___________________ [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 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.) 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 ----------------- Check whether the registrant (1) 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 4,876,512 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 APRIL 30, 1999 ================================================================================ LIGHTPATH TECHNOLOGIES, INC. FORM 10-QSB 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 10 PART II OTHER INFORMATION Legal Proceedings 16 Changes in Securities and Use of Proceeds 16 Defaults Upon Senior Securities 16 Submission of Matters to a Vote of Security Holders 16 Other Information 16 Exhibits and Reports on Form 8-K 16 SIGNATURES 17 LIGHTPATH TECHNOLOGIES, INC. BALANCE SHEETS
MARCH 31, JUNE 30, 1999 1998 ---------------------------------- UNAUDITED ASSETS Current assets: Cash and cash equivalents $ 999,271 $ 4,237,400 Trade accounts receivable - less allowance of $15,000 and $0 263,026 256,491 Inventories (NOTE 2) 589,059 488,710 Advances to employees and related parties 18,557 38,560 Prepaid expenses and other 22,715 43,629 ---------------------------------- Total current assets 1,892,628 5,064,790 Property and equipment - net 864,966 723,838 Intangible assets - net 568,206 519,839 Investment in LightChip, Inc. (NOTE 3) 612,767 - ---------------------------------- Total assets $ 3,938,567 $ 6,308,467 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 155,021 $ 190,530 Accrued payroll and benefits 146,428 232,051 ---------------------------------- Total current liabilities 301,449 422,581 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, 152 and 361 issued and outstanding, $1,900,000 liquidation preference at March 31, 1999 2 5 Common stock: Class A, $.01 par value, voting; 34,500,000 shares authorized; 4,615,634 and 3,330,607 shares issued and outstanding 46,156 33,306 Additional paid-in capital 29,747,976 28,103,439 Accumulated deficit (26,226,816) (23,242,035) ---------------------------------- Total stockholders' equity 3,567,318 4,894,715 ---------------------------------- Total liabilities and stockholders' equity $ 3,938,567 $ 6,308,467 ==================================
SEE ACCOMPANYING NOTES. 2 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS
THREE MONTHS NINE MONTHS ENDED ENDED MARCH 31 MARCH 31 UNAUDITED 1999 1998 1999 1998 ---------------------------------------------------------------- REVENUES Lenses and other $ 159,854 $ 113,963 $ 513,437 $ 385,651 Product development fees 131,747 10,000 223,461 110,515 ----------------------------------------------------------------- Total revenues 291,601 123,963 736,898 496,166 COSTS AND EXPENSES Cost of goods sold 80,632 71,419 296,647 222,728 Selling, general and administrative 710,474 883,178 2,223,541 2,572,131 Research and development 200,628 122,651 501,796 447,479 ---------------------------------------------------------------- Total costs and expenses 991,734 1,077,248 3,021,984 3,242,338 ----------------------------------------------------------------- Operating loss (700,133) (953,285) (2,285,086) (2,746,172) OTHER INCOME(EXPENSE) Investment income 13,204 54,877 83,863 110,098 Interest and other expense (441) (1,258) (10,089) (4,162) Equity in loss of LightChip, Inc. (NOTE 3) (225,463) - (576,810) (23,720) ---------------------------------------------------------------- Net loss $(912,833) $(899,666) $(2,788,122) $(2,663,956) ================================================================ Net loss applicable to common shareholders $(950,851) $(1,429,878) $(2,984,781) $(3,926,735) ================================================================ Basic and diluted net loss per share (NOTE 5) $(.21) $(.46) $(.73) $(1.34) ================================================================ Number of shares used in per share calculation 4,602,501 3,080,463 4,091,651 2,916,691 ================================================================
SEE ACCOMPANYING NOTES. 3 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31 UNAUDITED 1999 1998 ------------------------------- OPERATING ACTIVITIES Net loss $(2,788,122) $(2,663,956) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 262,781 199,420 Allowance for doubtful accounts 15,000 - Services provided for common stock - 11,250 Equity in loss of LightChip, Inc. 576,810 23,720 Changes in operating assets and liabilities: Receivables, advances to employees, related parties (1,532) (46,632) Inventories (100,349) (181,621) Prepaid expenses and other 20,914 (1,846) Accounts payable and accrued expenses (121,132) (186,478) ------------------------------- Net cash used in operating activities (2,135,630) (2,846,143) CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment additions - net (387,558) (162,134) Costs incurred in acquiring patents (64,718) (30,409) Investment in LightChip, Inc. (713,333) (23,720) ------------------------------- Net cash used in investing activities (1,165,609) (216,263) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of Convertible Series A and Series B preferred stock, net - 6,802,576 Proceeds from exercise of common stock options and warrants 39,950 - Proceeds from issuance of common stock 23,160 308,206 ------------------------------- Net cash provided by financing activities 63,110 7,110,782 ------------------------------- Net (decrease) increase in cash and cash equivalents (3,238,129) 4,048,376 Cash and cash equivalents at beginning of period 4,237,400 993,505 =============================== Cash and cash equivalents at end of period $ 999,271 $5,041,881 =============================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Class A common stock issued for services $ - $ 11,250 Sale of securities by LightChip, Inc. $ 1,397,906 $ - Class E common stock issued $ 291 $ 846 Conversions of preferred stock to Class A common stock $ 12,717 $ 3,805
SEE ACCOMPANYING NOTES. 4 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED MARCH 31, 1999 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 310(b) of Regulation S-B 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. 5 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. 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: March 31, June 30, 1999 1998 Finished goods and work in process $ 442,337 $ 362,176 Raw materials 146,722 126,534 ----------------- ------------------ Total inventories $ 589,059 $ 488,710 ================= ================== 6 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 March 31, 1999, 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. 7 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 1,272,000 shares of Class A common stock were issued upon the conversion of 346 shares of Series A, Series B and Series C Preferred Stock during the nine months ended March 31, 1999.
Preferred Common Warrants Warrants Warrants Common Stock - 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 - 6,093 - - - - Conversions (346) 1,271,670 - - - - Option grants - - - - - 248,600 Exercise of options - 7,264 - - - (7,264) Forfeitures - - - - - (98,700) Outstanding at March 31, 1999 190 4,615,634 4,519,000 914,068 123,345 1,126,511
8 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 March 31, 1999: Class A common stock options 1,126,511, private placement warrants 1,037,413, IPO warrants 4,519,000, 605,000 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 $432,575 and $1,055,800 for the three and nine months ended March 31, 1998, respectively. The prior year imputed dividend resulted from a discount provision included in the Series A, Series B and Series C Preferred Stock.
Three Months Ended Nine Months Ended March 31, March 31, -------------- --------------- --------- -------------- --------------- ---------- Per Income Shares Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount -------------- --------------- --------- -------------- --------------- ---------- 1999 - ---- Net loss $(912,833) $(2,788,122) Less: Preferred Stock Premium (38,018) (196,659) BASIC AND DILUTED EPS Net loss applicable to common shareholders $(950,851) 4,602,501 $(.21) $(2,984,781) 4,091,651 $(.73) 1998 - ---- Net loss $(899,666) $(2,663,956) Less: Preferred Stock Premium (97,637) (206,979) Imputed dividend on Series A, Series B and Series C Preferred Stock (432,575) (1,055,800) BASIC AND DILUTED EPS Net loss applicable to common shareholders $(1,429,878) 3,080,463 $(.46) $(3,926,735) 2,916,691 $(1.34)
9 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 MARCH 31, 1999 ("1999") COMPARED WITH THE THREE MONTHS ENDED MARCH 31, 1998 ("1998") During the third quarter of fiscal 1999 the Company's management continued its efforts for 1) the sale of collimator lenses and assemblies and the distribution of collimator samples to potential customers for testing and 2) the development of fiberoptic switches based on the licensing agreement with Herzel Laor. The Company's internal focus has been on the sale and shipment of products and samples of LightPath's newly designed single-mode fiber collimator assembly (SMF assembly), the scale-up of manufacturing equipment to meet anticipated volumes and the refinement of our product based on customer feedback. 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 three product levels, the collimating lens, a SMF assembly and a large-beam collimating 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 at a very competitive price. To date in fiscal 1999, production line SMF assembly, large-beam collimating assembly and collimating lenses were delivered for testing to approximately 50 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 and the cost structure. The Company displayed all three products at trade shows in January and February 1999. These shows provided the Company with the ability to deliver additional samples and to meet with potential customers to distribute information on our products or to discuss test results from samples previously sent. During March 1999, the Company received over $30,000 in orders for all three of the Company's collimator products from approximately 10 customers. The Company believes these orders are for a second level of product testing and could potentially lead to higher-volume production orders. During the third quarter, the Company received, de-bugged and brought on-line the automated laser polishing and fusion equipment used to manufacture its collimator assemblies. This equipment, which was developed jointly with the National Institute of Optics of Canada, is key to successful entry into the collimator market. Utilizing this proprietary concept, the Company is entering into this market with a low cost solution at a time when telecommunication equipment OEMs are being forced to reduce their costs. The Company believes that its proprietary glass and packaging technologies are well suited to provide cost effective solutions in both the collimator and switch products, as well as follow-on product offerings. The Company also successfully conducted initial Bellcore testing during the quarter on its collimator assembly products from the new production equipment. Bellcore testing, in the form of both mechanical and environmental reliability, is necessary for all telecommunications components. During the third quarter, the Company pursued a partner to develop and distribute two fiberoptic opto-mechanical switch technologies which the Company had obtained from a December 1998 exclusive licensing agreements with Herzel Laor. On April 27, 1999, the Company signed a joint assembly and distribution agreement for the 2X2 and 1XN fiberoptic mechanical switches with Kaifa Technology which is part of the larger Kaifa Group based in China. The Company believes these agreements will accelerate its planned introduction of 10 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, for which patent applications have been filed, are expected to enter into field trials by the end of calendar 1999. Under the terms of the agreement with Kaifa, the two companies will jointly complete the development of the two mechanical switches. The manufacturing and assembly will occur in China. Both parties can market the switch products and a royalty will be paid to LightPath for all product sold under the Kaifa name. 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 materials development the Company is undertaking for the more advanced optical matrix switch. It also continues the Company's strategy of incorporating its proprietary materials technology into an increasing number of optical telecommunication components to achieve cost effective solutions. With follow-on products such as isolators and amplifiers, the Company could develop its own products based on materials enhancements or strategically partner with another company that already has such a product offering. The Company and the German optical products manufacturer Rodenstock Prazisionsoptik GmbH ("Rodenstock") are proceeding with the marketing program 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 may create new and sustain existing markets for GRADIUM in Europe primarily in the area of imaging systems. The Company's remaining distributors continue to work with existing markets for GRADIUM in their respective countries primarily in the area of the YAG laser market. Revenues totaled $292,000 for 1999, an increase of approximately $168,000 or 135% over 1998. The increase was attributable to $46,000 in additional product sales, primarily for lasers and wafer chip inspection lenses, and $122,000 in product development/license fees. Sales of laser and wafer chip inspection lenses during this period increased 40% which was 10% below the rate the Company had budgeted due to reduced laser equipment sales, however, it is stronger growth than the Company had experienced earlier in fiscal 1999. The Company expects this trend to continue during the fourth quarter. Revenues for government funded subcontracts in the area of optoelectronics totaled $56,000 for 1999. Development/license fees were $76,000 in 1999 versus $10,000 in 1998. At March 31, 1999, a backlog of $95,000 existed for lens sales, $35,000 in collimator sales and $204,000 in government project funding. In addition, the Company's exclusive agreement with Karl Storz requires an increase in the license fee to $20,833 per month effective January 1999. This minimum level results in a total license fee of $250,000 for calendar year 1999. In 1999, cost of sales was 50% of product sales, a decrease from 1998, when cost of sales was 63% of product sales. The decrease was primarily due to higher margins on sales to distributors during the quarter. 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 $172,704, or 20% 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 $77,977 in 1999 versus 1998. The majority of development work consisted of expenses associated with the collimator assembly design and manufacturing process. In addition, development work is on-going to expand GRADIUM products to the areas of switches, interconnects and cross-connects for the telecommunications industry. Investment income decreased approximately $42,000 in 1999 due to the decrease in interest earned on temporary investments as a result of a decrease in cash balances. Interest expense was not significant in 1999 or 1998. The Company accounts for the investment in LightChip under the equity method. The Company's 26% share of LightChip losses was $225,463 for the quarter versus $0 in 1998. Net loss of $912,833 in 1999 was an increase of $13,167 from 1998 of which $225,463 relates to recognition of LightChip's loss and $40,856 due to a decrease in other income (expense). These increased costs were partially offset by a $121,747 increase in product development fees while the gross margin on product sales increased $36,678. In addition, there was a $94,727 decrease in operating costs primarily in selling, general and administrative expense. Net loss applicable to common shareholders of $950,851 included an additional charge of $38,018 for the 8% premium on the preferred stock. Net loss per share of $.21 was a decrease of $.25 from 1998 net loss per share of $.46 of which $.10 was due to the increase in the number of weighted shares outstanding due to the conversion of preferred stock. The 1998 net loss per share contains an 11 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS imputed dividend of $432,575 arising from the issuance of preferred stock and $97,637 due to the 8% premium on the preferred stock. NINE MONTHS ENDED MARCH 31, 1999 ("1999") COMPARED WITH THE NINE MONTHS ENDED MARCH 31, 1998 ("1998") During the nine months ended March 31, 1999, the Company's management focused its efforts on four key areas 1) the completion of the AT&T Ventures' financing for the Company's affiliate LightChip, 2) the sale and distribution of collimator lens and assembly samples to potential customers for testing, 3) the licensing agreement for fiberoptic switches between LightPath and Herzel Laor and 4) the implementation of the strategic plan to focus the Company as a provider of cost effective product solutions for the telecommunication optical components industry. On September 9, 1998, LightChip received approximately $3.5 million from AT&T Ventures and LightPath as consideration for the issuance of its 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 metropolitan 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 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 by the Fall 1999. LightPath has granted to LightChip a worldwide, royalty free license for the use of GRADIUM glass, as well as any newly developed intellectual property, in the field of fiber-optic communication systems, components and devices. LightPath has retained the rights to the specific areas of fiber collimators, isolators, amplifiers, circulators, couplers, splitters and fiber-optic switches. The Company's internal focus, during the nine month period, 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 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 three product levels, the collimating lens, a SMF assembly and a large-beam collimator 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 50 potential customers in the U.S. and Asia. The first scale-up production orders are expected in late calendar 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 Company displayed all three products at trade shows during January and February 1999 resulting in the shipment of testing products to other potential customers. 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 opto-mechanical switch technologies. On April 27, 1999, The Company signed a joint assembly and distribution agreement for the 2X2 and 1XN fiberoptic mechanical switches with Kaifa Technology which is part of the larger Kaifa Group based in China. The Company believes these agreements will accelerate its planned introduction of fiberoptic mechanical 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, for which patent applications have been filed, are expected to enter into field trials in the middle of calendar 1999. Since the license agreement was signed, the Company has been working to develop the first products for testing and establish a partnering relationship for assembly and distribution. The Company believes its agreement with Kaifa Technology will accomplish this goal. Under the terms of the agreement with Kaifa, the two companies will jointly complete the development of the two mechanical switches. The manufacturing and assembly will occur in China. Both parties can market the switch 12 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS products and a royalty will be paid to LightPath for all product sold under the Kaifa name. 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 manufacturers 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 $737,000 for 1999, an increase of approximately $241,000 or 49% over 1998. The increase was attributable to $128,000 in additional lens sales, primarily for lasers and wafer chip inspection, and $113,000 in product development/license fees. Sales of lenses during this period increased 33% which was below the 50% growth the Company had budgeted due to reduced laser equipment sales into Asia. The Company expects the rate of growth for laser and wafer chip inspection lenses to continue through the fourth quarter. Revenues for government funded subcontracts in the area of optoelectronics totaled $146,000 for 1999 versus $68,000 for solar energy work during 1998. The Company received $77,000 in license and development fees for 1999 versus $43,000 in development fees during 1998. At March 31, 1999, a backlog of $95,000 existed for lens sales, $35,000 in collimator sales and $204,000 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. In 1999, cost of sales was 58% of product sales, equal to the 1998 rate. 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 $348,590, or 14% 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 $54,317 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 decreased approximately $26,000 in 1999 due to the decrease in interest earned on temporary investments primarily as a result of the decreased cash position of the Company. 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 substantially 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 $576,810 in LightChip losses in 1999 versus $23,720 in 1998. Net loss of $2,788,122 in 1999 was an increase of $124,166 from 1998 of which $553,090 relates to recognition of LightChip's loss and the decrease in other income (expense) of $32,162. The remaining decrease of $461,086 was due to a $112,946 increase in product development fees, the increase in gross margin on product sales of $53,867 and decreases in selling, general and administrative costs, and lower research and development costs totaling $294,273. Net loss applicable to common shareholders of $2,984,781 included additional charges of $196,659 for the 8% premium on the preferred stock. Net loss per share of $.73 was a 13 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS decrease of $.61 from 1998 net loss per share of $1.34 of which $.29 was due to the increase in weighted shares due to the conversion of preferred stock. The 1998 net loss applicable to common shareholders of $3,926,735 contains an imputed dividend of $1,055,800 arising from the issuance of preferred stock and $206,979 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 three quarters of fiscal 1999 totaled approximately $2,136,000, a decrease of $710,000 from fiscal 1998, due in part 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 has expended for capital equipment and patent protection approximately $453,000 and has outstanding commitments for an additional $100,000. The majority of the capital expenditures during the year 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 the fall of 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 holds 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 for the remainder of fiscal 1999. 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. At this time the Company does not believe product sales will reach the level required to sustain its operations and growth plans into fiscal 2000, therefore, the Company is actively pursuing additional financing. If financing is not available, the Company may not be able to fund its obligation to LightChip which would further dilute the ownership interest in LightChip. The Company may also be required to 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 14 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS be incurred by the Company. During the third quarter, the Company has confirmed 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 complete and based on their response, the Company believes its material third parties will not be adversely impacted by Year 2000. The Company will continue to assess third parties through out the remainder of 1999 and develop contingency plans if a third party is subsequently found to be non-compliant. 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 During 1997 the Company adopted a policy whereby employees may purchase Class A common stock of the company at fair market value as payroll deduction. During fiscal 1999 two employees have elected to make stock purchases of 6,093 shares at an average price of $3.80 per share. All of these shares were issued in a private offering pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"). In relying upon Section 4(2) of the Act, the Company limited its offering of the shares solely to the Employees. No other public offering or advertisement was conducted. In addition, the Company relied upon certain representations made by the Employees with respect to their understanding of the Company's business and financial condition, and future business prospects, and their intent to acquire the shares for their own investment purposes and not with a view to resale. The resale of these shares has been restricted and appropriate legends have been placed on the certificates representing such restrictions. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION During the third quarter, the title and responsibilities of Ms. Leslie Danziger were changed from Executive Chairwoman of the Board of Directors to a Non-Executive status. This modification reflects a change from a full time to a part time status and Ms. Danziger's employment contract has been modified accordingly. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit 10.1 - Employment/Severance agreement between Registrant and Leslie A. Danziger 1 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 Exchange Act of 1934 during the quarter ended March 31, 1999. 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 May 11, 1999 ---------------------------------- Donald Lawson Date Chief Executive Officer 17 EX-10.1 2 DANZIGER SEVERENCE AGREEMENT EXHIBIT 10.1 ------------ AGREEMENT This Agreement ("AGREEMENT") by and between Leslie A. Danziger (hereinafter referred to as "DANZIGER") and LightPath Technologies, Inc., a Delaware corporation (hereinafter referred to as the "COMPANY"), shall become effective on January 1, 1999. The Company and Danziger shall hereinafter be referred to collectively as the "PARTIES." WHEREAS, Danziger and the Company previously entered into that certain Employment Agreement dated as of November 8, 1995 (as such agreement may have been amended or supplemented, the "EMPLOYMENT AGREEMENT"), pursuant to which the Company agreed to retain Danziger, and Danziger agreed to serve, as the President and Chief Executive Officer of the Company. WHEREAS, Danziger voluntarily and of her own free will irrevocably and unconditionally resigned as Chief Executive Officer of the Company on or about April 18, 1998, and Danziger voluntarily and of her own free will irrevocably and unconditionally resigned her position as President of the Company on or about October 12, 1997; WHEREAS, the Company and Danziger desire to enter into this Agreement to memorialize certain terms and conditions relating to Danziger's resignation and to forever and finally settle certain claims arising therefrom; NOW, THEREFORE, for and in consideration of the acts, payments, covenants and mutual agreements herein described and agreed to be performed, the Parties agree as follows: A. COMPANY OBLIGATIONS 1. MONETARY PAYMENTS. (a) During the period commencing on January 1, 1999 and terminating on October 31, 1999 (the "TERMINATION DATE"), the Company shall compensate Danziger in accordance with the following schedule: MONTH(S) MONTHLY COMPENSATION -------- -------------------- January 1999 $12,500 February 1999 10,417 March 1999 8,333 April 1 through October 31, 1999 6,250 (b) In addition to the amounts set forth in Section A1.(a), the Company shall pay Danziger a lump sum cash payment equal to $54,650, representing deferred salary compensation. Such amount shall be due and payable on October 31, 1999. (c) All amounts payable pursuant to this Section A shall be made in accordance with the Company's regular payroll policies in effect from time to time, excluding the withholding of applicable Federal, state or other taxes (collectively, "Taxes") based on Danziger's income hereunder. Danziger shall have the sole responsibility for paying such Taxes. 2. STOCK OPTIONS. The parties acknowledge that Danziger has previously been granted options to purchase shares of the Company's common stock (the "COMMON STOCK"). In connection therewith, the parties agree that (i) the vesting schedule for certain options held by Danziger to purchase 50,000 shares of Common Stock, which is currently November 20, 1999, shall be accelerated such that the vesting date for such options shall be the date of this Agreement, and (ii) the expiration date for all options held by Danziger and fully vested as of the date of this Agreement (including the options referred to in the preceding clause (i)) shall be extended to January __, 2002, provided, however, that the options granted to Danziger pursuant to that certain Stock Option Agreement, dated March 11, 1994, shall expire by their terms. All other options to purchase Common Stock held by Danziger that are not vested as of the date hereof shall terminate. The parties acknowledge that the agreement set forth in the preceding sentence may have the effect of causing certain incentive stock options held by Danziger to constitute non-statutory stock options, and Danziger shall be responsible for any tax liability to her resulting therefrom. 3. CONTINUED BENEFITS. The Company shall maintain in full force and effect for Danziger's continued benefit and the benefit of her eligible beneficiaries, until October 31, 1999, such benefits as are provided from time to time to non-employee directors of the Company together with the payment of health and dental insurance coverage as provided by COBRA. 4. EXPENSE REIMBURSEMENT. The Company shall reimburse Danziger for reasonable travel and other out-of-pocket expenses incurred by her in the performance of her duties hereunder, upon presentation of appropriate documentation in compliance with the Company's policies and procedures relating thereto. B. WAIVER OF CLAIMS In exchange for the agreements reflected in Section A above and the other terms and considerations, Danziger and the Company hereby agree to the following: 1. DANZIGER RELEASE. Danziger does hereby knowingly, voluntarily, and irrevocably release and discharge the Company, its stockholders, officers, directors, partners, agents, representatives, attorneys, employees, contractors, managers, predecessors, successors, subsidiaries, parents, divisions, other corporate affiliates, assigns and all other persons or entities acting by, through, under, or in concert with any of them (hereafter collectively referred to as "RELEASED PARTIES") from any and all claims, demands, liabilities, judgments, damages, expenses, or causes of action of any kind or nature whatsoever which Danziger, her heirs, personal representatives, and assigns, and each of them, may now or hereafter have or assert, whether now known or unknown, arising out of her employment relationship with the Company and her resignation and termination therefrom. The claims which are waived, released and discharged include, but are not limited to, breach of express or implied contract; breach 2 of the covenant of good faith and fair dealing; wrongful discharge; public policy torts of any kind or nature; discrimination on the basis of age, sex, religion, disability, race, or any other reason prohibited by applicable law; claims under the Civil Rights Act of 1991; the Labor Management Relations Act; the Family and Medical Leave Act; Title VII of the Civil Rights Act of 1964; the Equal Pay Act; the Employee Retirement Income Security Act of 1974; the Americans with Disabilities Act; or the Age Discrimination in Employment Act, all as amended, or any state or local law; tort claims of any kind whatsoever, any other common law or statutory claims; claims for salary, wages, vacation pay, severance pay, bonus payments, or earnings of any kind, fringe benefits, medical or hospital expenses or benefits, litigation expenses, attorneys' fees, employment reinstatement, compensatory damages of any kind, liquidated or statutory damages, and any other amounts; any and all other damages arising out of or connected in any way whatsoever with the employment of Danziger by the Company at any time before the date of this Agreement, or with the separation of such employment, whether known by the Parties at the time of the execution of this Agreement or not. Danziger acknowledges that the considerations afforded her under this Agreement, including the payments described in Section A above, are in full and complete satisfaction of any claims Danziger may have, or may have had, arising out of her employment with the Company, or the termination thereof. 2. COMPANY RELEASE. The Company does hereby knowingly, voluntarily, and irrevocably release and discharge Danziger, her agents, representatives, attorneys, successors, assigns and all other persons acting by, through, under, or in concert with any of them from any and all claims, demands, liabilities, judgments, damages, expenses, or causes of action of any kind or nature whatsoever which the Company and its successors and assigns, and each of them, may now have or hereafter assert, which are either known by the Company as of the date of this Agreement or which the Company should have known or discovered upon reasonable inquiry, arising out of Danziger's employment relationship with the Company and her resignation and termination therefrom. Notwithstanding anything in this Section B.2. to the contrary, the Company shall not be deemed to have released Danziger from any claims the Company may have or may hereafter assert against Danziger for any theft or misappropriation of Inventions (as defined below), Proprietary Information ( as defined below) or Developments (as defined below) of the Company. 3. NO LITIGATION. Danziger agrees not to initiate, or cause to be initiated against the Company any complaint, review, suit, investigation, or proceeding of any kind individually or as a member of a class, pertaining in any way to the matters released in this Agreement. C. CONTINUED CONSULTING SERVICES 1. SCOPE OF SERVICES. During the period commencing on the date hereof and ending on October 31, 1999, Danziger shall serve as a member of the board of directors of the Company and, until a replacement is selected by the board of directors, shall serve as Non-Executive Chairwoman of the board of directors. Danziger hereby also agrees to make herself available upon Company's request, from time to time, on a schedule acceptable to the Company for up to an average of 40 hours per month during the term of the Agreement, including, without 3 limitation, as a representative of the Company on the Board of Directors of LightChip. Any travel time incurred by Danziger in the performance of her duties hereunder shall not be included in the determination of the 40 hours stated in the immediately preceding sentence. All of the services shall be rendered pursuant to the reasonable instructions of the Company's Board of Directors or Chief Executive Officer. Danziger shall be compensated for all of the services to be rendered by Danziger pursuant to this Section C.1 in accordance with Section A of this Agreement. Danziger shall use all of her best efforts to reasonably complete the duties assigned her under this Agreement. Notwithstanding the foregoing, in the event the Company shall not request Danziger's services as provided in this Section C.1., Danziger shall remain entitled to receive the compensation set forth in this Agreement. 2. NO EMPLOYMENT CONTRACT. Danziger acknowledges that this Agreement does not constitute a contract of employment. D. COMPANY PROPERTY 1. RETURN OF PROPERTY. Danziger shall return all Company property, including handbooks or manuals, building or office access cards, keys and credit cards immediately upon May 1, 1999. Danziger shall promptly return all computer equipment immediately prior to the close of business on October 31, 1999. 2. INVENTIONS AND PROPRIETARY INFORMATION. INVENTIONS. ----------- (a) All inventions, discoveries, computer programs, data, technology, designs, innovations and improvements, among other things, (whether or not patentable and whether or not copyrightable) ("INVENTIONS") related to the business of the Company, including, without limitation which are made, conceived, reduced to practice, created, written, designed or developed by Danziger, solely or jointly with others and whether during normal business hours or otherwise, during the period of Danziger's employment by the Company prior to execution of this Agreement through the Termination Date or thereafter if resulting or directly derived from Proprietary Information (as defined below) or if resulting or directly derived through work, time and effort for which the Company compensated Danziger, shall be the sole property of the Company. Danziger will not disclose any Proprietary Information to any person or entity other than employees of the Company who have a need to know such information or use the same for any purposes (other than in the performance of her duties as an employee of the Company) without written approval by an officer of the Company, either during or after her employment with the Company, unless and until such Proprietary Information has become public knowledge without fault by Danziger. (b) Danziger agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings, or other written, photographic, or other tangible material containing Proprietary Information, whether created by Danziger or others, which shall come into her custody or possession, shall be and are the exclusive property of the Company to be used by 4 Danziger only in the performance of her duties for the Company. All such materials or copies thereof and all tangible property of the Company in the custody or possession of Danziger shall be delivered to the Company, upon the earlier of (i) a request by the Company or (ii) termination of her employment. After such delivery, Danziger shall not retain any such materials or copies thereof or any such tangible property. (c) Danziger agrees that her obligation not to disclose or to use information and materials of the types set forth in paragraphs (a) and (b) above, and her obligation to return materials and tangible property, set forth in paragraph (b) above, also extends to such types of information, materials and tangible property of customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to Danziger. (d) For purposes of this Agreement, "PROPRIETARY INFORMATION" means and includes the following: the identity of clients or customers or potential clients or customers of the Company or its affiliates; any written, typed or printed lists, or other materials identifying the clients or customers of the Company or its affiliates; any financial or other information supplied by clients or customers of the Company or its affiliates; any and all data or information involving the Company, its affiliates, programs, methods, or contacts employed by the Company or its affiliates in the conduct of their business; any lists, documents, manuals, records, forms, or other material used by the Company or its affiliates in the conduct of their business; and any other secret or confidential information concerning the Company's or its affiliates' business or affairs. The terms "list," "document" or other equivalents, as used in this subparagraph (d), are not limited to a physical writing or compilation but also include any and all information whatsoever regarding the subject matter of the "list" or "document," whether or not such compilation has been reduced to writing. "Proprietary Information" shall not include any information which: (i) is or becomes publicly available through no act or failure of Danziger; (ii) was or is rightfully learned by Danziger from a source other than the Company before being received from the Company; or (iii) becomes independently available to Danziger as a matter of right from a third party. If only a portion of the Proprietary Information is or becomes publicly available, then only that portion shall not be Proprietary Information hereunder. 2.2. DEVELOPMENTS. (a) Danziger will make full and prompt disclosure to the Company of all Inventions, improvements, discoveries, methods, developments, software, and works of authorship, whether patentable or not, which are created, made, conceived or reduced to practice by her or under her direction or jointly with others during her employment by the Company and during the term of this Agreement, whether or not during normal working hours or on the premises of the Company (all of which are collectively referred to in this Agreement as "DEVELOPMENTS.") (b) Danziger agrees to assign and does hereby assign to the Company (or any person or entity designated by the Company) all her right, title and interest in and to all Developments and all related 5 patents, patent applications, copyrights and copyright applications. However, this paragraph 2.2(b) shall not apply to Developments which do not relate to the present or planned business or research and development of the Company and which are made and conceived by Danziger not during normal working hours, not on the Company's premises and not using the Company's tools, devices, equipment or Proprietary Information. Danziger understands that, to the extent this Agreement shall be construed in accordance with the laws of any state which precludes a requirement in an employee agreement to assign certain classes of inventions made by an employee, this paragraph 2.2(b) shall be interpreted not to apply to any invention which a court rules and/or the Company agrees falls within such classes. Danziger also hereby waives all claims to moral rights in any Developments. (c) Danziger agrees to cooperate fully with the Company, both during and after her employment with the Company, with respect to the procurement, maintenance and enforcement of copyrights, patents and other intellectual property rights (both in the United States and foreign countries) relating to Developments. Danziger shall sign all papers, including, without limitation, copyright applications, patent applications, declarations, oaths, formal assignments, assignments of priority rights, and powers of attorney, which the Company may deem necessary or desirable in order to protect its rights and interests in any Development. Danziger further agrees that if the Company is unable, after reasonable effort, to secure the signature of Danziger on any such papers, any executive officer of the Company shall be entitled to execute any such papers as the agent and the attorney-in-fact of Danziger, and Danziger hereby irrevocably designates and appoints each executive officer of the Company (whether now employed by the Company or hereafter employed) as her agent and attorney-in-fact to execute any such papers on her behalf, and to take any and all actions as the Company may deem necessary or desirable in order to protect its rights and interests in any Development, under the conditions described in this sentence. E. NO DISPARAGEMENT The Parties agree that, as part of the consideration for this Agreement, and as an expression of their desire to obtain an amicable termination of their employment and business relationship, neither party will make disparaging or derogatory statements, whether oral or written, about the other party, or in the case of the Company, its subsidiaries, affiliates, officers, directors, employees or agents, for a five (5) year period effective at the date of execution of this Agreement unless required to by a court of law. F. CONFIDENTIALITY 1. NONDISCLOSURE. Danziger shall keep confidential the terms and existence of this Agreement and the negotiations that led to its creation and execution to any third party or parties for a five (5) year period effective at the date of execution of this Agreement unless required to by a court of law. Any breach of this paragraph, including the disclosure of the foregoing confidentiality provision, shall be deemed a material breach of this Agreement. 6 2. CONFIDENTIAL MATERIAL. In the course of Danziger's employment by the Company, Danziger had access to secret or confidential technical and commercial information, business plans and strategies, financial information, financial forecasts, business records, information regarding key business relationships, records, data, specifications, systems, methods, plans, designs, policies, inventions, material and other knowledge ("CONFIDENTIAL MATERIAL"), whether or not copyrighted, owned by the Company and its subsidiaries. Danziger recognizes and acknowledges that the Confidential Material is valuable, special and unique to the Company's business. All such Confidential Material shall be and remain the property of the Company. Danziger hereby affirms that during the course of her employment with the Company she has not disclosed any Confidential Information to any third party except in good faith and in the course of fulfilling her assigned responsibilities. Except as required by her duties to the Company under Section C, Danziger shall not, directly or indirectly, either during the term of the Agreement under Section C, or at any time thereafter, disclose or disseminate to anyone or make use of, for any purpose whatsoever, any Confidential Material. Danziger shall not be deemed to have breached this Section F if Danziger shall be specifically compelled by lawful order of any judicial, legislative, or administrative authority or body to disclose any Confidential Material or else face civil or criminal penalty or sanction. The term "Confidential Material" does not include information which (i) is currently or becomes generally available to the public other than as a result of a disclosure by Danziger or (ii) becomes available to Danziger on a nonconfidential basis from a source other than the Company or its representatives provided that such source is not bound, to Danziger's knowledge after due inquiry, by a confidentiality agreement with respect to such information. 3. REMEDIES. Danziger hereby agrees that damages and any other remedy available at law would be inadequate to redress or remedy any loss or damage suffered by the Company upon any breach of the terms of this Section F by Danziger, and Danziger therefore agrees that the Company, in addition to recovering on any claim for damages or obtaining any other remedy available at law, also may enforce the terms of this Section F by injunction or specific performance, and may obtain any other appropriate remedy available in equity. G. NON-COMPETE 1. NO COMPETITION. Danziger agrees that, for the term of this Agreement and for a period of two (2) years commencing on the Termination Date, except in accordance with her duties under this Agreement on behalf of the Company, she shall not engage in, plan for, organize, work for, or assist, directly or indirectly, any business that is competitive, directly or indirectly, with the Company's business, nor solicit participants in or customers of the Company's products and services, nor use Danziger's knowledge of the Company or its business in any manner that competes, directly or indirectly, with the Company. Danziger expressly understands that the Company has a legitimate business purpose in requiring Danziger to abide by all of the restrictions described in this paragraph. Danziger acknowledges that the services she rendered, and may render, to the Company, the information exchanged between all parties in connection with rendering those services, and Danziger's and the Company's relationships with the Company's customers, consultants, employees, vendors, banks, accountants, and any other Company product or service participants, purchasers and suppliers are each of a unique and valuable character. Danziger acknowledges that the market for the Company's products and services is national and international in scope, and that any competition by Danziger for a two (2) year period following the Termination Date would materially and unfairly harm the Company's ability to carry out its business. 7 2. LIMITATION OF ACTIVITIES. Danziger agrees that, during the term of this Agreement and for a period of two (2) years after the Termination Date, except in accordance with her duties under this Agreement on behalf of the Company, the foregoing restrictions shall be understood to prohibit Danziger from participating in the following non-exclusive list of activities. (a) Participate in, be employed in any capacity by, serve as director, consultant, agent or representative for, or have any interest, directly or indirectly, in any enterprise which is engaged in a business competitive to any products or services of the Company or any of its subsidiaries, affiliates or joint ventures existing or proposed, or at the locations at which any of such entities is providing services or proposes to provide services at any time during the term of this Agreement, or which are competitive to any products and services offered or being actively developed by the Company to Danziger's knowledge, with the bona fide intent to market same. (b) In addition, Danziger agrees that she shall observe the covenants set forth in this Section G and shall not own, either directly or indirectly or through or in conjunction with one or more members of her family or her spouse's family or through any trust or other contractual arrangement, a greater than five percent (5%) interest in, or otherwise control either directly or indirectly, any partnership, corporation, or other entity which has products and services that are competitive to any products and services being developed or otherwise offered by the Company during the term of this Agreement or being actively developed by the Company during the term of this Agreement with a bona fide intent to market same. Danziger further agrees, for such two-year period following the Effective Date, to refrain from directly or indirectly soliciting the Company's vendors, customers or employees, except that the Danziger may solicit the Company's vendors or customers in connection with a business that does not compete with the Company. (c) Danziger agrees not to provide services as an employee or as a consultant to any entity that is competitive, directly or indirectly, with the Company or its products and services. 3. REMEDIES. Danziger hereby agrees that damages and any other remedy available at law would be inadequate to redress or remedy any loss or damage suffered by the Company upon any breach of the terms of this Section G by Danziger, and Danziger therefore agrees that the Company, in addition to recovering on any claim for damages or obtaining any other remedy available at law, also may enforce the terms of this Section G by injunction or specific performance, and may obtain any other appropriate remedy available in equity, without the need to post a bond or other security. 8 If any provision of this Section G is deemed, as a matter of law, to be unreasonable as to time, area, or scope by any court or arbitrator, then such court or arbitrator shall have authority to modify this paragraph as to time, area or scope, but only to the limited extent necessary to make this paragraph reasonable and in a manner intended to preserve the relative expectations, benefits and intents of the parties hereto. H. REPRESENTATIONS OF EMPLOYEE Danziger, by her execution of this Agreement, represents and warrants that the following statements are true: 1. That she has been given a fair and reasonable opportunity to read this entire Agreement, that this Agreement is written in a manner that is understandable to her and she has read and has had all questions regarding its meaning and content answered to her satisfaction; 2. That she fully understands the contents of this Agreement and understands that it is a full waiver of all claims against the Company; 3. That this full waiver of all claims is given in return for valuable consideration, as provided under the terms of this Agreement; 4. That she entered into this Agreement knowingly and voluntarily in exchange for the promises referenced in this Agreement, and that no other representations have been made to her to induce or influence her to execute this Agreement; and 5. That she has been advised that she may consult with counsel of her own choosing before signing this Agreement. I. MISCELLANEOUS 1. PENDING OBLIGATIONS. This Agreement and all provisions thereof, including all representations and promises contained herein, are contractual and not a mere recital and shall continue in permanent force and effect. 2. ENTIRE AGREEMENT. This Agreement constitutes the sole and entire agreement of the Parties with respect to the subject matter hereof, and there are no agreements of any nature whatsoever between the Parties hereto regarding the subject matter hereof. The Parties expressly acknowledge and agree that that certain Employment Agreement, upon execution of this Agreement, be of no further force or effect. No provision of this Agreement shall be amended, waived or modified except by an instrument in writing, signed by the Parties hereto. 3. NO VIOLATION OF LAW, ETC. It is understood and agreed that the execution of this Agreement by the Company is not to be construed as an admission of any violation of any statute, law or regulation or breach of any contract or agreement or other liability on its part to Danziger other than to comply with the terms of this Agreement. 4. ENFORCEABILITY. This Agreement may be enforced in any jurisdiction within or outside the United States and this Agreement shall constitute a severable and enforceable agreement in each of such jurisdictions, notwithstanding any contrary choice of law or venue 9 provisions set forth herein. In the event that any portion of this Agreement is found to be invalid, illegal or unenforceable for any reason whatsoever, that portion shall be considered to be severable and the remainder of this Agreement shall continue to be in full force and effect. The parties shall negotiate in good faith to preserve each partner's anticipated benefits hereunder. 5. GOVERNING LAW. This Agreement shall be governed in all respects, whether as to validity, construction, capacity, performance, or otherwise, by the laws of the State of New Mexico, without regard to conflict of law principles. The parties hereto hereby consent to personal jurisdiction in any court of appropriate subject matter jurisdiction located in New Mexico County in which the Company's principal executive officers are situated. 6. REMEDIES. In the event of default or breach set forth in the above paragraphs are intended to be non-exclusive, and either party may, in addition to such remedies, seek any additional remedies available either in law or in equity. 7. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled by arbitration in Albuquerque, New Mexico in accordance with the rules of the American Arbitration Association. Judgement may be entered on the arbitrator's award in any court having jurisdiction over this Agreement. The nonprevailing party shall pay the fees, costs, and expenses of the arbitration proceeding (including reasonable attorneys' fees). 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates get forth below. DATED this 29 day of January, 1999. /s/ Leslie A. Danziger --------------------------- LESLIE A. DANZIGER DATED this 29 day of January, 1999. LIGHTPATH TECHNOLOGIES, INC. By: /s/ Donald E. Lawson ------------------------ Name: Donald E. Lawson Title: President & CEO --------------------------- EX-11 3 COMPUTATION OF NET LOSS PER SHARE EXHIBIT 11 ---------- COMPUTATION OF NET LOSS PER SHARE FOR THE THREE MONTHS ENDED MARCH 31 ------------- ------------- 1999 1998 ---- ---- Net loss $ (912,833) $ (899,666) Preferred stock 8% premium (38,018) (97,637) Imputed dividend on Series A, Series B and Series C Preferred Stock - (432,575) ------------- ------------- Net loss applicable to common shareholders $ (950,851) $ (1,429,878) ------------- ------------- Weighted average common shares outstanding 4,602,501 3,080,463 ============= ============= Basic and Diluted net loss per common share $ (.21) $ (.46) ============= ============= FOR THE NINE MONTHS ENDED MARCH 31 ------------- ------------- 1999 1998 ---- ---- Net loss $(2,788,122) $ (2,663,956) Preferred stock 8% premium (196,659) (206,979) Imputed dividend on Series A, Series B and Series C Preferred Stock - (1,055,800) ------------- ------------- Net loss applicable to common shareholders $(2,984,781) $ (3,926,735) ------------- ------------- Weighted average common shares outstanding 4,091,651 2,916,691 ============= ============= Basic and Diluted net loss per common share $ (.73) $ (1.34) ============= ============= 18 EX-27 4 FDS --
5 This schedule contains summary financial information extracted from the Form 10-QSB for the nine month period ended March 31, 1999 and is qualified in its entirety by reference to such financial statements. 1 U.S. DOLLARS 9-MOS JUN-30-1999 MAR-31-1999 1 999,271 0 278,026 15,000 589,059 1,892,628 1,941,962 1,076,996 3,938,567 301,449 0 0 2 46,156 29,747,976 3,938,567 513,437 736,898 296,647 296,647 7,933 0 2,146 (2,788,122) 0 (2,788,122) 0 0 0 (2,788,122) (.73) (.73)
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