-----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, QLtse+rOpS0op0gKOcYYe0x7SdfBNjPtdN4FzyFZPf/ibolq5MxDUuSQhVhRPv3x Rk7VYqLHAX9iPjngEN6nyg== 0000950147-99-001243.txt : 19991115 0000950147-99-001243.hdr.sgml : 19991115 ACCESSION NUMBER: 0000950147-99-001243 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIGHTPATH TECHNOLOGIES INC CENTRAL INDEX KEY: 0000889971 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] 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: 99749783 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 9/30/99 ================================================================================ 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 September 30, 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. 87109 Albuquerque, New Mexico (Zip Code) (Address of principal executive offices) http://www.light.net 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 6,505,348 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 OCTOBER 29, 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 13 Changes in Securities and Use of Proceeds 13 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 1 LIGHTPATH TECHNOLOGIES, INC. BALANCE SHEETS (UNAUDITED)
September 30, June 30, 1999 1999 ---------------------------- ASSETS Current assets: Cash and cash equivalents $ 1,717,720 $ 413,388 Trade accounts receivable - less allowance of $15,000 229,576 335,706 Inventories (NOTE 2) 584,389 514,669 Advances to employees and related parties 20,722 17,329 Prepaid expenses and other 22,169 19,124 ------------ ------------ Total current assets 2,574,576 1,300,216 Property and equipment - net 994,145 893,537 Intangible assets - net 584,271 572,877 Investment in LightChip, Inc. (NOTE 3) 53,566 369,696 ------------ ------------ Total assets $ 4,206,558 $ 3,136,326 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 280,608 $ 167,160 Accrued payroll and benefits 132,607 131,755 ------------ ------------ Total current liabilities 413,215 298,915 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 shares issued and outstanding 14,925 14,925 Class E-2 - performance based and redeemable common stock 1,492,480 shares issued and outstanding 14,925 14,925 Class E-3 - performance based and redeemable common stock 994,979 issued and outstanding 9,950 9,950 Stockholders' equity (NOTES 4 AND 5) Preferred stock, $.01 par value; 5,000,000 shares authorized; Series A convertible shares, 2 and 37 issued and outstanding, Series B convertible shares, 1 and 1 issued and outstanding, Series C convertible shares, 0 and 84 issued and outstanding, $30,000 liquidation preference at September 30, 1999 -- 1 Common stock: Class A, $.01 par value, voting; 34,500,000 shares authorized; 6,505,348 and 4,960,703 shares issued and outstanding 65,053 49,607 Additional paid-in capital 32,058,071 29,776,918 Accumulated deficit (28,399,581) (27,058,915) ------------ ------------ Total stockholders' equity 3,723,543 2,767,611 ------------ ------------ Total liabilities and stockholders' equity $ 4,206,558 $ 3,136,326 ============ ============
See Accompanying Notes 2 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30 -------------------------- 1999 1998 ----------- ----------- REVENUES Lenses and other $ 164,182 $ 152,610 Product development fees 104,923 38,118 ----------- ----------- Total revenues 269,105 190,728 COSTS AND EXPENSES Cost of goods sold 84,821 91,840 Selling, general and administrative 672,599 753,478 Research and development 101,096 127,096 ----------- ----------- Total costs and expenses 858,516 972,414 ----------- ----------- Operating loss (589,411) (781,686) OTHER INCOME(EXPENSE) Investment income 9,212 45,864 Interest and other expense (NOTE 4) (436,179) (850) Equity in loss of LightChip, Inc. (NOTE 3) (316,130) (225,434) ----------- ----------- Net loss $(1,332,508) $ (962,106) =========== =========== Net loss applicable to common shareholders $(1,340,666) $(1,061,683) =========== =========== Basic and diluted net loss per share (NOTE 6) $ (.26) $ (.31) =========== =========== Number of shares used in per share calculation 5,222,931 3,466,062 =========== =========== See Accompanying Notes. 3 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended September 30 -------------------------- 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,332,508) $ (962,106) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 83,233 66,791 Debt discount 425,795 -- Equity in loss of LightChip 316,130 225,434 Changes in operating assets and liabilities: Receivables, advances to employees, related parties 102,737 (12,206) Inventories (69,720) (50,352) Prepaid expenses and other (3,045) (6,384) Accounts payable and accrued expenses 114,300 (100,264) ----------- ----------- Net cash used in operating activities (363,078) (839,087) CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment additions, net (178,760) (115,569) Costs incurred in acquiring patents and license agreements (16,475) (20,140) Investment in LightChip -- (713,333) ----------- ----------- Net cash used in investing activities (195,235) (849,042) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of 6% convertible debentures, net of offering costs 893,324 -- Proceeds from exercise of common stock options and warrants 960,521 39,950 Proceeds from issuance of common stock 8,800 9,080 ----------- ----------- Net cash provided by financing activities 1,862,645 49,030 ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,304,332 (1,639,099) Cash and cash equivalents at beginning of period 413,388 4,237,400 =========== =========== Cash and cash equivalents at end of period $ 1,717,720 $ 2,598,301 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Class A common stock issued upon conversion of preferred stock $ 5,355 $ 3,843 Class E common stock issued $ -- $ 291 Sale of securities by LightChip, Inc. $ -- $ 1,397,906 See Accompanying Notes. 4 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED SEPTEMBER 30, 1999 ORGANIZATION LightPath Technologies, Inc. (the Company) was incorporated in Delaware on June 15, 1992 as the successor to LightPath Technologies Limited Partnership formed in 1989, and its predecessor, Integrated Solar Technologies Corporation formed on August 23, 1985. The Company is engaged in the production of GRADIUM(R) glass lenses, collimator products and other optical component products for the telecommunications market. The Company also performs research and development for optical solutions for the fiber telecommunications and traditional optics market. 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, 1999, as filed with the Securities and Exchange Commission on September 9, 1999. 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, collimators 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 being amortized on the straight-line basis over the estimated useful lives of the related assets ranging from ten to seventeen years. The recoverability of the carrying values of these assets are evaluated on a recurring basis. INVESTMENTS consists of the Company's 26% ownership interest in LightChip Inc. (LightChip) which is accounted for under the equity method. 5 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED INCOME TAXES are accounted for under the provisions of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based upon enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. 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 COMPENSATION is accounted for using the intrinsic value method as prescribed by APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, under which no compensation expense is recognized when the exercise price of the employees stock option equals or exceeds 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. MANAGEMENT MAKES ESTIMATES and 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 notes 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. 6 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED 2. INVENTORIES The components of inventories include the following at: September 30 June 30 1999 1999 -------- -------- Raw materials $ 86,863 $ 50,736 Boules and blanks in process 95,677 97,321 Finished goods 401,849 366,612 -------- -------- Total inventories $584,389 $514,669 ======== ======== 3. INVESTMENT IN LIGHTCHIP, INC. During fiscal 2000, the Company applied the equity method of accounting to its investment in LightChip, a development stage company to recognize its pro-rata share of LightChip's losses (approximately 26%) and recognized a loss of $316,130 for the quarter ended September 30, 1999. In October 1999, LightChip issued additional shares of voting convertible preferred stock for $3 million, of which the Company funded $570,000 as required, upon completion of product development requirements, by the September 1998 agreement with LightChip. The Company's voting interest decreased to approximately 24% after the issuance. 4. CONVERTIBLE DEBENTURES On July 28, 1999, LightPath completed a private placement for $1,000,000 of 6% Convertible Debentures (the "Debentures"). The Debentures were immediately convertible into shares of Class A common stock at a conversion price of $1.76. Debenture holders also received warrants to acquire 427,350 shares of Class A common stock. The warrant agreement provides for a conversion price of $2.20 per share. The warrants are immediately exercisable and have a five year life. On September 24, 1999 all of the debentures and the related warrants were converted into 997,151 shares of Class A common stock. Interest of $9,370 was paid to the debenture holders. LightPath recognized an interest charge of $381,869 in the first quarter of fiscal year 2000 for the "beneficial conversion feature" associated with the Debentures and $43,926 of the remaining discount was amortized from the issuance through the conversion date. LightPath issued 150,000 warrants to the placement agent, with terms identical to those issued to the Debenture holders none of which have been exercised. 5. 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. Also, 535,487 shares of Class A common stock were issued upon the conversion of 119 shares of Series A and Series C Preferred Stock during the three months ended September 30, 1999. 7 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED
Preferred Common Warrants Warrants Warrants Common Stock - Series Stock Class Class Class Stock A, B & C Class A A & B C, E ,G & I D, F, H & J Options -------- ------- ----- ----------- ----------- ------- Outstanding at June 30, 1999 122 4,960,703 4,519,000 914,068 123,345 1,244,851 Issuance of Warrants -- -- 100 427,350 150,000 -- Issuance of shares -- 3,937 -- -- -- -- Conversions (119) 1,535,708 (100) (427,350) (8,000) -- Option grants -- -- -- -- -- 50,000 Exercise of options -- 5,000 -- -- -- (5,000) Forfeitures -- -- -- -- -- (2,835) Outstanding at September 30, 1999 3 6,505,348 4,519,000 914,068 265,345 1,287,016
6. NET LOSS PER SHARE Basic net loss per common share is computed based upon the weighted average number of common shares outstanding during each period presented. The computation of Diluted net loss per common share 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 September 30, 1999: Class A common stock options 1,287,016, private placement warrants 1,179,413, IPO warrants 7,186,649 (includes 2,667,649 of Class B warrants available upon exercise of the Class A warrants), IPO Unit Purchase Option to acquire (i) 160,000 shares of Class A common stock, (ii) 160,000 Class A warrants, and (iii) 320,000 Class B warrants (includes 160,000 available upon exercise of the Class A warrants), 10,780 Class A shares issuable upon the conversion of convertible preferred stock (minimum of 6,000 shares based on the fixed conversion price at closing) and 3,979,939 shares issuable from the Class E redeemable common stock that is automatically converted into Class A common stock upon attainment of certain performance criteria. An eight percent premium earned by the preferred shareholders of $8,158 and $99,577 increased the net loss applicable to common shareholders for the three months ended September 30, 1999 and 1998, respectively. Three Months Ended September 30, --------------------------------------- Per Income Shares Share (Numerator) (Denominator) Amount ----------- ------------- ------ 1999 Net loss $(1,332,508) Less: Preferred Stock Premium (8,158) BASIC AND DILUTED EPS Net loss applicable to common shareholders $(1,340,666) 5,222,931 $ (.26) 1998 Net loss $ (962,106) Less: Preferred Stock Premium (99,577) BASIC AND DILUTED EPS Net loss applicable to common shareholders $(1,061,683) 3,466,062 $ (.31) 8 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - UNAUDITED 7. SEGMENT INFORMATION Optoelectronics and Fiber Telecommunications (optoelectronics), which represents 12% of total revenues of the Company, and Traditional Optics, which represents 88% of total revenues, are the Company's reportable segments under SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information (SFAS 131). The optoelectronics segment is based primarily on the development and sale of fiber collimators, fiber-optic switches and other related passive component products for the optoelectronics segment of the telecommunications industry while the traditional optics segment provides for the development and sale of GRADIUM glass in the form of lenses, blanks and development fees for the general optics markets. Summarized financial information concerning the Company's reportable segments for the quarters ended September 30, is shown in the following table. During fiscal 1999, the Company changed its primary marketing objectives from primarily traditional optics products to the development and marketing of passive components for the optoelectronics segment of the telecommunications industry and laser based products in the general optics product arena. Opto- Traditional Corporate Segment Information Electronics Optics And other (1) Total - ------------------- ----------- ------ ------------- ----- Revenues (2) 1999 $ 32,564 236,541 -- $ 269,105 1998 -- 190,728 -- 190,728 Segment operating loss (3) 1999 $(237,172) (27,352) (324,887) $(589,411) 1998 (313,715) (169,502) (360,230) (781,686) (1) Corporate functions include certain members of executive management, the corporate accounting and finance function and other typical administrative functions which are not allocated to segments. (2) There were no inter-segment sales during the quarters ended September 30, 1999 and 1998. (3) In addition to unallocated corporate functions, management does not allocate interest expense, interest income, and other non-operating income and expense amounts in the determination of the operating performance of the reportable segments. 8. SUBSEQUENT EVENT On November 2, 1999, LightPath completed a private placement for $4,080,000 of Series F Preferred Stock (the "Preferred Stock"). The Preferred Stock is convertible into shares of Class A common stock, at a conversion price which is equal to the lower of $5.00 or 80% of the five day average closing bid price of the Company's Class A common stock at the conversion date. Each share of Preferred Stock is convertible into Class A common stock at the option of holder, subject to certain volume limitations during the first 9 months. Preferred stockholders also received warrants to acquire 489,600 shares of Class A common stock in addition to the modification of terms on warrants outstanding from prior private placements. The warrant agreement provides for a conversion price of $5.00 per share. The warrants are immediately exercisable and have a three year life. LightPath issued 125,000 warrants to the placement agent, with terms identical to those issued to the Preferred Stock holders. Finally, LightPath will recognize an aggregate imputed dividend of approximately $2 million during the second and third quarters of fiscal year 2000 for the "beneficial conversion feature" associated with the Preferred Stock. 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 SIMILAR MATTERS ARE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON THE COMPANY'S CURRENT 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 SEPTEMBER 30, 1999 ("2000") COMPARED WITH THE THREE MONTHS ENDED SEPTEMBER 30, 1998 ("1999") During the first quarter of fiscal 2000 the Company's optoelectronics and fiber telecommunications segment continued its efforts to 1) increase the sale of collimator assemblies and lenses and the distribution of collimator samples to potential customers for testing 2) develop fiberoptic switches and 3) obtain patent protection for its proprietary telecommunications products and processes. The Company's internal focus has been on the sale and shipment of products and samples of LightPath's single-mode fiber collimator assembly (SMF assembly). The Company currently offers three telecom product levels, the collimating lens, a SMF assembly and a large-beam collimating assembly. The Company displayed all three of these products at industry trade shows in early calendar 1999. These shows allow the Company 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. Based on the results of the customers' testing, the Company believes higher-volume production orders will develop in the future. The Company anticipates such orders to be received in response to customer use that confirms the SMF assembly offers superior performance in the areas of back reflection and insertion loss at a very competitive price. The Company believes that its increased sales for the first quarter reflect this positive feedback. Collimator product sales increased to $32,564, plus the backlog for these products increased to $66,000, when combined, the amount exceeds the entire telecom revenues of $57,029 in fiscal 1999. A key OEM represents $54,000 or 82% of the sales backlog. The Company has completed the installation of a clean room in its manufacturing area to meet anticipated future customer demands and is currently adding additional manufacturing collimator production lines. During the first quarter, the Company continued the fiberoptic, mechanical switch development process with Kaifa Technology. Kaifa, which in July 1999 was acquired by E-TEK Dynamics, will remain as a separate business unit of E-TEK. LightPath anticipates that the mechanical switch project will remain on schedule. The Company believes these agreements will accelerate its planned introduction of fiberoptic mechanical switching products for the telecommunications market. During the first quarter, the Company was notified that its patent application for its proprietary process to fuse fibers directly to a larger optical component such as the collimator lens has been allowed. At September 30,1999 the Company had a backlog of $66,000 in telecom orders for all three of the Company's collimator products as compared to $10,000 at June 30, 1999. 10 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The sales cycle, for acceptance by a telecom customer, of component products is rigorous and consists of multiple steps. Therefore, all of the Company's products are subject to Bellcore testing in addition to meeting the customer's specifications. The Company has sold product or sent samples of collimators to approximately 90 actual or potential customers over the past twelve months. After the products are qualified some of these targeted customers purchase a larger quantity to perform additional testing. After successful testing and evaluation of the product many customers then require some customization of the collimator. Finally the Company will receive a request for quotation on production size quantities prior to receiving manufacturing orders. Our current OEM order of $54,000 reflects such a process. The Company believes that it will be a qualified vendor to this OEM and that the collimator product will be successful in becoming incorporated into their production. The Company is at various stages in this process with a number of customers. During the first quarter of fiscal 2000, the majority of the Company's sales to the traditional optics segment were comprised of laser optic lenses. Revenues of $236,541 for the first quarter included $62,500 in license fees and $42,424 in revenues for government funded subcontracts utilizing GRADIUM glass in optoelectronics application. 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. 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. At September 30,1999, the Company had a backlog of $120,000 in lens products as compared to $35,000 at June 30, 1999. Both the overall dollar sales and total number of customers placing orders during this period exceeded those occurring during any other quarter to date. Sales revenues from orders will be recognized in future quarters as the products are shipped. The Company's revenues totaled $269,000 for 2000, an increase of approximately $78,000 or 41% over 1999. The increase was attributable to $11,000 in additional product sales, primarily for telecom products, and $67,000 in product development/license fees. At September 30, 1999, the Company's backlog consisted of $120,000 for lens sales, $66,000 for collimator sales and $50,000 for government project funding. In addition, the Company's exclusive agreement with Karl Storz entitles the Company to receive a license fee of $20,833 per month through December 1999. In 2000, cost of sales was 52% of product sales, a decrease from 1999, when cost of sales was 60% of product sales. The decrease was primarily due to higher margins on telecom products and sales to traditional optics distributors during the quarter. It is anticipated that the Company's telecom products will continue to maintain a lower cost of sales than its traditional optics products. Additionally, 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 by $80,879, or 11% to $672,599 from 1999, primarily due to the reduction of personnel in administration. Research and development costs decreased by $26,000 to $101,096 in 2000 versus 1999. 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 the Company's products to the areas of switches, interconnects and cross-connects for the telecommunications industry. Investment income decreased approximately $37,000 in 2000 due to the decrease in interest earned on temporary investments as a result of a decrease in cash balances. In July 1999, the Company issued $1,000,000 aggregate principal amount of 6% convertible debentures and paid approximately $10,000 of interest expense. Interest expense was not significant in 1999. LightPath recognized an interest charge of $381,869 in the first quarter of fiscal year 2000 for the "beneficial conversion feature" associated with the Debentures and $43,926 of the remaining debt discount was amortized from the issuance date 11 LIGHTPATH TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS through September 24, 1999 when all of the Debentures were converted and related warrants were exercised into approximately one million shares of Class A Common Stock. The Company accounts for its investment in LightChip under the equity method. As a result, the Company recognized its 26% pro rata share of LightChip losses, or $316,130 for the 2000 quarter versus $225,434 in 1999. Net loss of $1,332,508 in 2000 was an increase of $370,000 from 1999 of which $435,000 relates to recognition of charges associated with the debenture issuance, $91,000 is due to the Company's share of LightChip's loss, and $36,000 due to a reduction in interest income. These increased costs were partially offset by a $78,000 increase in total revenues, $7,000 reduction in cost of sales and a $107,000 decrease in operating costs primarily in selling, general and administrative expense. Net loss applicable to common shareholders of $1,340,666 included an additional charge of $8,158 attributable to the 8% premium on the Company's outstanding preferred stock. Net loss per share of $.26 was a decrease of $.05 from 1999 net loss per share of $.31 of which $.13 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 contains $99,577 attributable to the 8% premium on the preferred stock. FINANCIAL RESOURCES AND LIQUIDITY LightPath financed its initial operations through private placements of equity, or debt until February 1996 when its initial public offering of units of common stock and Class A and B Warrants 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. In July 1999 the Company issued convertible debentures with attached warrants resulting in net proceeds of approximately $893,000. In September 1999 all of the debentures were converted to shares of common stock and all of the associated warrants were exercised resulting in additional net proceeds of $940,170. In November 1999 the Company issued 408 shares of its Series F Preferred Stock and attached warrants in a private placement. Net proceeds from the private placement were approximately $3.9 million. The Company intends to continue to explore additional funding opportunities in fiscal year 2000, although it currently has no commitments for such funding. Cash used in operations for the first quarter of fiscal 2000 totaled approximately $363,000, a decrease of $476,000 from fiscal 1999, due to increased sales and administrative cost reductions. The Company expects to continue to incur net 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 2000, the Company expended approximately $200,000 for capital equipment and patent protection and has outstanding commitments for an additional $250,000. The majority of the capital expenditures during the year were related to the development of its clean room and equipment used to expand the Company's manufacturing facilities for collimator production. In addition, in October 1999, the Company expended the remaining $570,000 of its financing commitment to LightChip upon completion of the product development requirements in the September 1998 agreement. Projected product sales as well as the proceeds from the July 1999 sale of 6% Convertible Debentures and related warrants exercised will be used for working capital for fiscal 2000. Proceeds from the November 1999 Series F Preferred Stock of approximately $3.9 million will be used to expand collimator production, development of the optical switch and working capital. The Company's ability to complete these future 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 beyond the near term; therefore, the Company is actively pursuing additional financing. The Company may also be required to alter its business plan in the event of delays 12 LIGHTPATH TECHNOLOGIES, INC. 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 to be Year 2000 compliant and no material remediation costs have been incurred or are expected to be incurred by the Company. During the third quarter of fiscal 1999, the Company 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 responses, the Company believes its material third party relationships will not be adversely impacted by the Year 2000 Issue barring any unforeseen circumstances. Under a worst case scenario the Company may experience delays in receiving products and services thereby impacting its ability to make product shipments. The Company plans on having adequate inventory levels to minimize such impact, if any. The Company will continue to monitor third parties with whom it has a material relationship throughout the remainder of calendar 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 2000 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. PART II ITEM 1. LEGAL PROCEEDINGS 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. 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, 1999. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS EMPLOYEE STOCK PURCHASES. During 1997 the Company adopted a policy whereby employees may purchase shares of its Class A common stock at fair market value using payroll deductions. During the first quarter of fiscal 2000 one employee elected to purchase 3,937 shares at an average price of $2.24 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 its 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 risks associated with the Company's business and financial condition, and future business prospects, and their intent to acquire the shares for their own investment purposes only 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. 6% CONVERTIBLE DEBENTURES. On July 28, 1999, the Company issued $1,000,000 aggregate principal amount of 6% Convertible Debentures (the "Debentures") due July 2002 and 427,350 attached Class I warrants. The Debentures are immediately convertible at any time prior to maturity into shares of Class A common stock, 13 LIGHTPATH TECHNOLOGIES, INC. at a conversion price which is equal to the lower of 80% of the five day average closing bid price of the Company's Class A common stock at (i) the date of closing ($1.76) or (ii) the conversion date. Each Class I warrant entitles the holder to purchase one share of Class A common stock at $2.20 per share at any time through July 2004. In addition, the placement agent received 150,000 Class J warrants to purchases shares of the Company's Class A common stock at $2.20 per share at any time through July 2004. In addition, the investors of the Debentures are entitled to receive additional shares of Class A Common Stock in the event the Company issues additional shares of its Class A Common Stock or securities convertible into such class of securities at any time prior to July 28, 2001 under certain circumstances. All of the Debentures, Class I and Class J Warrants (such Debentures, Class I and Class J warrants are collectively referred to as the "Securities") were issued in a private placement exempt from registration pursuant to Rule 506 of Regulation D promulgated under the Act. In relying upon such exemption, the Company limited its offering of the Securities to persons whom it reasonably believed to be "accredited investors" and did not conduct any general solicitation or advertising. In addition, each investor confirmed in writing that it was acquiring the Securities for its own account and appropriate restrictive legends were placed on each certificate representing the Securities. The Debentures and attached Class I Warrants were sold for aggregate consideration of $1 million and resulted in net proceeds to the Company of approximately $893,000 after deducting the cash fee paid to the placement agent as well as the Company's legal and other associated costs. The Company has filed a registration statement on Form S-3 (SEC File No. 333-86185) covering the resale of up to 2,684,500 shares of Class A Common Stock underlying the Debentures, Class I and Class J Warrants. The registration statement was declared effective by the SEC on September 24, 1999. Additional information concerning the Securities is included in that filing. On September 24, 1999, all of the Debentures were converted into, and the Class I Warrants were exercised for, 569,801 and 427,350 shares, respectively, of Class A Common Stock. The Company received $940,170 upon exercise of the Class I Warrants. SERIES F PREFERRED STOCK. On November 2, 1999, LightPath completed a private placement of 408 shares of its Series F Preferred Stock (the "Series F Preferred Stock"). The Series F Preferred Stock is convertible into shares of Class A common stock, at a conversion price which is equal to the lower of $5.00 or 80% of the five day average closing bid price of the Company's Class A common stock at the conversion date. Each share of Preferred Stock is convertible into Class A Common Stock at the option of holder, subject to certain volume limitations during the first 9 months. Holders of Series F Preferred Stock also received Class K warrants to acquire a total of 489,600 shares of Class A common stock in addition to the modification of terms on warrants outstanding from prior private placements. The Class K Warrants may be exercised at any time prior to expiration on November 2, 2002 at a price of $5.00 per share. Each of the investors in the Series F Preferred Stock has previously invested in the Company's Series A, B and/or C Preferred Stock (see Note 5). In order to induce them to invest in the Series F Preferred Stock, the Company agreed to reduce the applicable exercise prices and extend the applicable expiration dates of all outstanding warrants issued in connection with the sale of such Series A, B and C Preferred Stock. See "Changes in Securities and Use of Proceeds" in Part II of this Report. LightPath also issued 125,000 Class L warrants to the placement agent, with terms identical to Class K Warrants. AMENDMENTS TO OUTSTANDING CLASS C, E AND G WARRANTS. The Company has previously filed registration statements on Form S-3 covering the resale of shares of its Class A Common Stock underlying the Company's Series A, B and C Preferred Stock and associated C, E and G warrants. As discussed above, certain terms of such warrants were amended in connection with the issuance of the Series F Preferred Stock. These amendments, which are hereby incorporated by reference into each such respective registration statement, are as follows: The Company has filed a registration statement on Form S-3 covering the resale of up to 1,000,000 shares of Class A Common Stock underlying the Company's Series A Preferred Stock, attached Class C Warrants and Class D 14 LIGHTPATH TECHNOLOGIES, INC. Warrants. This registration Statement (SEC File No. 333-37443) was declared effective by the SEC on October 30, 1997. As of November 2, 1999, there were 231,111 Class C Warrants unexercised. Effective as of such date, all of such unexercised warrants were amended so as to (i) extend their expiration date to July 27, 2003 and (ii) reduce the exercise price to $4.50 per share. As a result of such amendments, the Company will receive aggregate gross proceeds of up to $1,040,000 upon exercise of the currently unexercised warrants. Previously 88,889 Class C Warrants were exercised on a cashless basis. The amendments do not affect Class C Warrants exercised prior to November 2, 1999, or any of the Series A Preferred Stock, and Class D Warrants. The Company has filed a registration statement on Form S-3 covering the resale of up to 1,500,000 shares of Class A Common Stock underlying the Company's Series B Preferred Stock, attached Class E Warrants and Class F Warrants. This registration Statement (SEC File No. 333-39641) was declared effective by the SEC on November 13, 1997. As of November 2, 1999, there were 317,788 Class E Warrants unexercised. Effective as of such date, all of such unexercised warrants were amended so as to (i) extend their expiration date to October 2, 2005 and (ii) reduce the exercise price to $5.79 per share. As a result of such amendments, the Company will receive aggregate gross proceeds of up to $1,839,993 upon exercise of the currently unexercised warrants. The amendments do not affect Class E Warrants exercised prior to November 2, 1999, or any of the Series B Preferred Stock, and Class F Warrants. The Company has filed a registration statement on Form S-3 covering the resale of up to 1,758,490 shares of Class A Common Stock underlying the Company's Series C Preferred Stock, attached Class G Warrants and Class H Warrants. This registration Statement (SEC File No. 333-47905) was declared effective by the SEC on March 31, 1998. As of November 2, 1999, there were 365,169 Class G Warrants unexercised. Effective as of such date, all of such unexercised warrants were amended so as to (i) extend their expiration date to February 6, 2004 and (ii) reduce the exercise price to $5.34 per share. As a result of such amendments, the Company will receive aggregate gross proceeds of up to $1,950,002 upon exercise of the currently unexercised warrants. The amendments do not affect Class G Warrants exercised prior to November 2, 1999, or any of the Series C Preferred Stock, and Class H Warrants. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION On September 16, 1999 Louis Leeburg was elected to serve as Chairman of the Board of Directors effective immediately. Mr. Leeburg has been a Director of the Company since May 1996. Mr. Leeburg replaces Leslie Danziger, who will remain a Director of the Company. Pursuant to its terms, that certain Voting Trust dated January 10, 1996, was terminated as a result of Ms. Danziger ceasing to serve as Chairperson. As a result of such termination, Ms. Danziger no longer has the right to vote the 1,127,243 shares previously subject to that agreement. Instead, these shares will now be voted directly by their respective beneficial owners. 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 Exchange Act of 1934 during the quarter ended September 30, 1999. 15 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 November 8, 1999 ---------------------------------------- Donald Lawson Date Chief Executive Officer 16 EX-11 2 COMPUTATION OF NET LOSS PER SHARE LIGHTPATH TECHNOLOGIES, INC. EXHIBIT 11 COMPUTATION OF NET LOSS PER SHARE For the Three Months Ended September 30 ---------------------------- 1999 1998 ----------- ----------- Net loss $(1,332,508) $ (962,106) Preferred stock 8% premium (8,158) (99,577) ----------- ----------- Net loss applicable to common shareholders $(1,340,666) $(1,061,683) ----------- ----------- Weighted average common shares outstanding 5,222,931 3,466,062 =========== =========== Basic and Diluted net loss per common share $ (.26) $ (.31) =========== =========== EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-QSB FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS JUN-30-2000 SEP-30-1999 1,717,720 0 244,576 15,000 584,389 2,574,576 2,231,387 1,237,242 4,206,558 413,215 0 0 0 65,053 32,058,071 4,206,558 164,182 269,105 84,821 84,821 773,695 0 436,179 (1,332,508) 0 (1,332,508) 0 0 0 (1,332,508) (.26) (.26)
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