-----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, IJjFOPqYKVRrJDkpGD0yd8rtbHL5jSOzDdtRadOweUKwBZGMpZvO6e3k6c5wijqi ORAjxEPpDbdG0VHhZ0jdUw== 0000950147-99-001458.txt : 19991221 0000950147-99-001458.hdr.sgml : 19991221 ACCESSION NUMBER: 0000950147-99-001458 CONFORMED SUBMISSION TYPE: 10KSB40/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991220 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: 10KSB40/A SEC ACT: SEC FILE NUMBER: 000-27548 FILM NUMBER: 99777676 BUSINESS ADDRESS: STREET 1: 6820 ACADEMY PKWY E N E STREET 2: STE 103 CITY: ALBUQUERQUE STATE: NM ZIP: 87109 BUSINESS PHONE: 5053421100 10KSB40/A 1 AMENDMENT NO. 2 TO FORM 10-KSB ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB/A-2 AMENDMENT NO. 2 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the Fiscal Year Ended June 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, NE http://www.light.net Albuquerque, New Mexico 87109 (Address of principal executive offices) (Zip Code) (505)342-1100 Registrant's telephone number, including area code: Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Class A Common Stock, $.01 Par Value, Units, Class A Warrants and Class B Warrants Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] The registrant's operating revenue for its most recent fiscal year. $1,086,126 The aggregate market value of the registrant's voting stock held by non-affiliates (based on the closing sale price of the registrant's Common Stock on the Nasdaq SmallCap Market, and for the purpose of this computation only, on the assumption that all of the registrant's directors and officers are affiliates) was approximately $8,395,994 on August 13, 1999. The number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Class Outstanding at December 14, 1999 ----- -------------------------------- Common Stock, Class A, $.01 par value 7,009,441 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 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the 1999 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. ================================================================================ EXPLANATORY NOTE LightPath Technologies, Inc. hereby amends its Annual Report on Form 10-KSB for the year ended June 30, 1999. This amendment is prompted by the restatement of LightPath Technologies, Inc. financial statements for the year ended June 30, 1999. LightPath's net loss for 1999 has been decreased by $458,211, from the previously reported $3,592,229 ($.89 per share - basic and diluted) to $3,134,018 ($.79 per share - basic and diluted). Additional paid in capital has been reduced by $1,397,907 from the previously reported $29,776,918 to $28,379,011. The Company's 1999 financial statements have been restated to give effect to the reversal of a $1,397,907 increase to additional paid in capital and to the investment in LightChip under SEC Staff Accounting Bulletin No. 51, and the reversal of $458,211 equity in loss of LightChip during fiscal 1999. The summarized adjusted balances are reflected in the table below. LIGHTPATH TECHNOLOGIES, INC. CONDENSED STATEMENTS OF OPERATIONS AND CONDENSED BALANCE SHEETS SUMMARY FINANCIAL DATA YEAR ENDED JUNE 30, 1999, ------------------------------ OPERATIONS AS REPORTED AS AMENDED ----------- ---------- Revenues $ 1,086,126 $ 1,086,126 Operating loss (2,856,846) (2,856,846) Equity in losses of LightChip, Inc. (819,882) (361,671) Net loss $(3,592,229) $(3,134,018) =========== =========== Net loss applicable to common shareholders $(3,816,880) $(3,358,669) =========== =========== Basic and diluted net loss per share $ (.89) $ (.79) Number of shares used in per share calculation 4,271,313 4,271,313 =========== =========== BALANCE SHEETS Total Assets $ 3,136,326 $ 2,766,630 =========== =========== Total Liabilities 328,915 898,915 Total Stockholders' Equity 2,767,611 1,827,915 Total Liabilities and Stockholders' Equity $ 3,136,326 $ 2,766,630 =========== =========== 1 ITEM 6. 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. During the year ended June 30, 1999, the Company's management focused its efforts on the following 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 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 and 5) obtaining financing to implement the growth plan outlined in the strategic plan. 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 received $508,333 from the exercise of warrants. 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 in calendar 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 fiscal year 1999, 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 collimators. 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 introduced three product levels in fiscal 1999: 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. The Company has received follow-on production orders from two key customers in July 1999, which the Company believes are representative of market acceptance for the products. 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 in July 1999 was acquired by E-TEK Dynamics also of San Jose, California. Kaifa will remain as a separate business unit of E-TEK and 2 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. 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. 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 help accomplish this goal. Under the terms of the agreement with Kaifa, the two companies will jointly complete the development of the 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 annually, and the Company anticipates sales of LightPath switches will begin 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. Subsequent to 1999 fiscal year end, the Company completed a private placement for $1 million in 6% Convertible Debentures. Additionally, the Debenture holders and the placement agent each received warrants to acquire Class A common stock totaling 427,350 and 150,000 shares, respectively. In connection therewith, the Company will recognize in addition to the coupon rate of 6%, approximately $835,000 of interest expense over the three-year life of the debentures. Additionally, the Company will recognize an additional interest charge of approximately $382,000 in the first quarter of fiscal year 2000 for the "beneficial conversion feature" associated with the debentures. In addition, the Company continues to work with a financial advisor to assist the Company in evaluation of various options including capital fund raising, mergers, acquisitions, dispositions and consolidations. 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. The Agreement calls for joint marketing and coordinated efforts to sell into these markets. The Company anticipates that this Agreement will provide a vehicle to expand the presence of its products in Europe to a higher level, although there can be no assurances in this regard. In 1999 lens sales to large YAG laser manufacturers continued. 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 $1,086,000 for 1999, an increase of approximately $328,000 or 43% over 1998. The increase was attributable to growth in product sales of $183,000, primarily for lenses used in lasers and wafer chip inspection, and telecom products as well as the increase of $145,000 in product development/license fees. Sales of lenses during this period increased 35% which was below the rate of growth the Company had projected due to reduced laser equipment sales into Asia. The Company expects the rate of growth for laser and wafer chip inspection lenses to continue into fiscal 2000. Revenues for government funded subcontracts in the area of optoelectronics totaled $231,000 for 1999 versus $68,000 for solar energy work during 1998. The Company received $143,000 in license and development fees for 1999 versus $161,000 for such fees during 1998. The license fee agreement with Karl Storz was increased to $20,833 per month effective January 1999 for the calendar year versus $16,667 per month in fiscal 1998. At June 30, 1999, a backlog of $45,000 existed for lens and collimator sales and $150,000 in government project funding. In 1999, cost of goods sold was 57% of product sales which approximates the 55% rate from 1998. 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. The Company believes the profit margin from expected sales of optoelectronics products in fiscal 2000 will equal or exceed the margins historically experienced in the traditional optics markets. Selling, general and administrative costs in 1999 decreased $538,000 or 16% 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 $51,000 or 9% in 1999 versus 1998. The majority of development work in 1999 consisted of expenses associated with the design and manufacturing process for telecommunications industry products. Investment income decreased approximately $77,000 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 3 substantially all of LightChip's loss until the private placement occurred in September 1998. With the completion of the September 1998 private placement, the Company's share of LightChip losses was reduced to its pro-rata share of LightChip's losses (approximately 15% based on its pro-rata investment in LightChip preferred stock) to the extent of its cash investment in LightChip plus its remaining preferred stock purchase commitment of $570,000. At June 30, 1999, the Company's pro-rata share of losses that had not been recognized totaled approximately $172,000. The Company has recognized $361,671 in LightChip losses in 1999 versus $945,382 in 1998. Net loss of $3,134,018 in 1999 was a decrease of $1,197,272 from 1998 of which $583,711 relates to reduced equity method losses of LightChip offset in part by the decrease in other income (expense) of $82,625. The remaining decrease of $696,186 was due to a $144,895 increase in product development fees, the increase in gross margin on product sales of $63,500 and a decrease in selling, general and administrative costs of $538,383 offset in part by an increase in research and development costs of $50,592. Net loss applicable to common shareholders of $3,358,669 included additional charges of $224,651 for the 8% premium on the preferred stock. Net loss per share of $.79 was a decrease of $1.21 from the 1998 net loss per share of $2.00, of which $.38 was due to the increase in weighted shares outstanding due to the conversion of preferred stock in 1999. The 1998 net loss applicable to common shareholders of $6,029,519 contains an imputed dividend of $1,386,700 arising from the issuance of preferred stock and $311,529 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 to the Company 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. Subsequent to June 30, 1999, the Company completed a private placement for $1 million in 6% Convertible Debentures and related warrants. 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 fiscal 1999 totaled approximately $2,662,000, a decrease of $930,000 from fiscal 1998, due primarily 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 expended approximately $516,000, net, for capital equipment and patent protection. 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 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 for 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, of which the Company's portion was $713,333, was completed 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 67% of LightChip's common stock and 15% of LightChip's preferred stock, for total holdings of approximately 26% of LightChip's voting stock. Projected product sales as well as the proceeds from the July 1999 sale of 6% Convertible Debentures and related warrants will be used for working capital for fiscal 2000. 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 beyond the near term; therefore, the Company is actively pursuing additional financing. If financing is not available, the Company may not be able to fund its $570,000 remaining commitment 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. 4 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 product shipments. The Company plans on having adequate inventory levels to minimize such impact, if any. The Company will continue to monitor third parties 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 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. Recent Accounting Pronouncements Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued in June 1998. This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The provisions of SFAS No. 133, as amended, are effective for financial statements for fiscal years beginning after June 15, 2000, although early adoption is permitted. We have not determined the potential financial impact of adopting SFAS 133. ITEM 7. FINANCIAL STATEMENTS The responses to this item are submitted in a separate section of this Annual Report on Form 10-KSB/A-2. See Index to the Financial Statements on page F-1. 5 ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits Exhibit Number Description ------ ----------- 3.1 Certificate of Incorporation of Registrant, as amended (1) 3.2 Certificate of Designations filed November 10, 1995 with the Secretary of State of the State of Delaware (1) 3.3 Bylaws of Registrant (1) 3.4 Certificate of Designation filed February 6, 1998 with the Secretary of State of the State of Delaware (2) 9.0 Form of Voting Trust Agreement dated January 10, 1996, among certain stockholders of the Registrant (1) 9.1 Rights Agreement dated May 1, 1998 (3) 10.1 Employment Agreement between Registrant and Leslie A. Danziger (1) 10.3 Employment Agreement between Registrant and Donald E. Lawson (5) 10.4 Product Development and License Agreement between Registrant and Karl Storz GMBH & Co. dated December 22, 1994 (1) 10.6 Omnibus Incentive Plan (4) 10.7 Directors Stock Option Plan (6) 10.8 Amended Omnibus Incentive Plan (6) 11 Computation of Net Loss Per Share * 23.1 Consent of KPMG LLP * 27 Financial Data Schedule * - ---------- 1. This exhibit was filed as an exhibit to the Company's Registration Statement on Form SB-2 (File No: 33-80119) and is incorporated herein by reference thereto. 2. This exhibit was filed as an exhibit to the Company's Registration Statement on Form S-3 (File No: 333-47905) dated March 13, 1998 and is incorporated herein by reference thereto. 3. This exhibit was filed as an exhibit to the Company's Registration Statement on Form 8-A (File No: 000-27548, respectively) dated April 28, 1998 and is incorporated herein by reference thereto. 4. This exhibit was filed as an exhibit to the Company's Registration Statement on Form S-8 (File No: 333-23515 and 333-23511, respectively) dated March 18, 1997 and is incorporated herein by reference thereto. 5. This exhibit was filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended June 30, 1998 dated September 17, 1998 and is incorporated herein by reference thereto. 6. This exhibit was filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended June 30, 1999dated August 20, 1999 and is incorporated herein by reference thereto. * Filed herewith. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarterly period ended June 30, 1999. 6 LIGHTPATH TECHNOLOGIES, INC. INDEX TO FINANCIAL STATEMENTS Report of KPMG LLP, Independent Auditors ................................ F-2 Audited Financial Statements Balance Sheets........................................................... F-3 Statements of Operations................................................. F-4 Statements of Stockholders' Equity....................................... F-5 Statements of Cash Flows................................................. F-6 Notes to Financial Statements............................................ F-7 F-1 REPORT OF KPMG LLP, INDEPENDENT AUDITORS The Board of Directors LightPath Technologies, Inc.: We have audited the accompanying balance sheets of LightPath Technologies, Inc., as of June 30, 1999 and 1998, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the finanical statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the finanical statements referred to above present fairly, in all material respects, the financial position of LightPath Technologies, Inc., as of June 30, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles, after the restatement discussed in Note 5. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in the notes to the financial statements, the Company's recurring losses from operations and resulting continued dependence on external sources of capital raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in the notes. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ KPMG LLP Albuquerque, New Mexico August 1, 1999, except for Note 5 which is as of December 14, 1999 F-2 LIGHTPATH TECHNOLOGIES, INC. BALANCE SHEETS
JUNE 30, JUNE 30, 1999 1998 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 413,388 $ 4,237,400 Trade accounts receivable - less allowance of $15,000 and $0 335,706 256,491 Inventories (NOTE 2) 514,669 407,061 Advances to employees and related parties 17,329 38,560 Prepaid expenses and other 19,124 43,629 ------------ ------------ Total current assets 1,300,216 4,983,141 Property and equipment - net (NOTE 3) 893,537 805,487 Intangible assets - net (NOTE 4) 572,877 519,839 ------------ ------------ Total assets $ 2,766,630 $ 6,308,467 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 167,160 $ 190,530 Accrued payroll and benefits (NOTE 7) 131,755 232,051 ------------ ------------ Total current liabilities 298,915 422,581 Accrued loss of LightChip, Inc. (NOTE 5) 570,000 921,662 Note payable to stockholder (NOTE 6) 30,000 30,000 Commitments and contingencies (NOTE 13) Redeemable common stock (NOTE 10) 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 994,979 and 987,715 issued and outstanding 9,950 9,877 Stockholders' equity (NOTES 9 AND 10) 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, 84 and 361 issued and outstanding, $1,220,000 liquidation preference at June 30, 1999 1 5 Common stock: Class A, $.01 par value, voting; 34,500,000 shares authorized; 4,960,703 and 3,330,607 shares issued and outstanding 49,607 33,306 Additional paid-in capital 28,379,011 28,103,439 Accumulated deficit (26,600,704) (23,242,035) ------------ ------------ Total stockholders' equity 1,827,915 4,894,715 ------------ ------------ Total liabilities and stockholders' equity $ 2,766,630 $ 6,308,467 ============ ============
See accompanying notes. F-3 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS YEAR ENDED JUNE 30 -------------------------- 1999 1998 ----------- ----------- REVENUES Lenses and other $ 712,317 $ 529,318 Product development fees 373,809 228,914 ----------- ----------- Total revenues 1,086,126 758,232 COSTS AND EXPENSES Cost of goods sold 409,417 289,918 Selling, general and administrative 2,918,184 3,456,567 Research and development 615,371 564,779 ----------- ----------- Total costs and expenses 3,942,972 4,311,264 ----------- ----------- Operating loss (2,856,846) (3,553,032) OTHER INCOME(EXPENSE) Investment income 95,362 172,341 Interest and other expense (10,863) (5,217) Equity in loss of LightChip, Inc. (NOTE 5) (361,671) (945,382) ----------- ----------- Net loss $(3,134,018) $(4,331,290) =========== =========== Net loss applicable to common shareholders (NOTE 11) $(3,358,669) $(6,029,519) =========== =========== Basic and diluted net loss per share (NOTE 11) $ (.79) $ (2.00) =========== =========== Number of shares used in per share calculation 4,271,313 3,010,861 =========== =========== See accompanying notes. F-4 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A COMMON STOCK PREFERRED ------------------- ADDITIONAL STOCK NUMBER OF PAID-IN ACCUMULATED AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL ------ ------ ------ ------- ------- ----- Balances at June 30, 1997 $ 1 2,766,185 $27,662 $19,244,055 $(17,212,516) $ 2,059,202 Issuance of 135 shares Series A, 230 shares Series B and 375 shares Series C convertible preferred stock, net 7 -- -- 6,798,598 -- 6,798,605 Issuance of common stock -- 3,588 36 26,289 -- 26,325 Exercise of stock options -- 46,994 470 251,397 -- 251,867 Exercise of warrants -- 46,890 469 78,287 -- 78,756 Issuance of common stock upon conversion of 131 shares Series A, 104 shares Series B and 14 shares Series C convertible preferred stock to common stock (3) 456,853 4,568 (4,565) -- -- Common stock issued for services 10,097 101 11,149 -- 11,250 Imputed dividend on Series A ,Series B and Series C convertible preferred stock -- -- -- 1,386,700 (1,386,700) -- 8% premium on Series A , Series B and Series C convertible preferred stock -- -- -- 311,529 (311,529) -- Net loss -- -- -- -- (4,331,290) (4,331,290) ------- --------- ------- ----------- ------------ ----------- Balances at June 30, 1998 $ 5 3,330,607 $33,306 $28,103,439 $(23,242,035) $ 4,894,715 Issuance of common stock -- 8,344 83 27,476 -- 27,559 Exercise of stock options -- 7,264 73 39,586 -- 39,659 Issuance of common stock upon conversion of 12 shares Series A, 103 shares Series B and 277 shares Series C convertible preferred stock to common stock (4) 1,614,488 16,145 (16,141) -- -- 8% premium on Series A, Series B and Series C convertible preferred stock -- -- -- 224,651 (224,651) -- Net loss -- -- -- -- (3,134,018) (3,134,018) ------- --------- ------- ----------- ------------ ----------- Balances at June 30, 1999 $ 1 4,960,703 $49,607 $28,379,011 $(26,600,704) $ 1,827,915 ======= ========= ======= =========== ============ ===========
See accompanying notes. F-5 LIGHTPATH TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS YEAR ENDED JUNE 30, ------------------------- 1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(3,134,018) $(4,331,290) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 375,358 302,507 Provision for uncollectible receivables 15,000 -- Services provided for common stock -- 11,250 Equity in loss of LightChip 361,671 945,382 Changes in operating assets and liabilities: Receivables, advances to employees, related parties (72,984) (124,928) Inventories (107,608) (231,302) Prepaid expenses and other 24,505 (5,025) Accounts payable and accrued expenses (123,666) (158,868) ----------- ----------- Net cash used in operating activities (2,661,742) (3,592,274) CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment additions, net (437,223) (250,857) Costs incurred in acquiring patents and license agreements (79,223) (45,652) Investment in LightChip (713,333) (23,720) ----------- ----------- Net cash used in investing activities (1,229,779) (320,229) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sales of Convertible Series A, Series B and Series C preferred stock, net -- 6,798,605 Proceeds from exercise of common stock options and warrants 39,950 331,468 Proceeds from issuance of common stock 27,559 26,325 ----------- ----------- Net cash provided by financing activities 67,509 7,156,398 ----------- ----------- Net (decrease) increase in cash and cash equivalents (3,824,012) 3,243,895 Cash and cash equivalents at beginning of period 4,237,400 993,505 ----------- ----------- Cash and cash equivalents at end of period $ 413,388 $ 4,237,400 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Class A common stock issued for services $ -- $ 11,250 Class E common stock issued $ 291 $ 845 Class A common stock issued upon conversion of preferred stock $ 16,145 $ 4,568 See accompanying notes. F-6 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 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 materials. 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 Company has incurred substantial losses since inception. During fiscal year 1996 the Company completed an initial public offering ("IPO") and in fiscal year 1997 and 1998 the Company completed three private placements of convertible preferred stock to raise additional capital to further fund research, development and commercialization of GRADIUM glass with the objective of developing products that will achieve market acceptance. Management intends to utilize the net proceeds from a private placement of convertible debentures completed in July 1999 (see Note 16) and cash flows from projected product sales to finance the Company's working capital and other requirements for fiscal year 2000. However, without additional sources of capital or increased sales of GRADIUM glass and optoelectronic products, there is substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments to reflect the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty. 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 ownership interest in LightChip Inc. (LightChip) which is accounted for under the equity method. The Company's voting interest (comprised of both interests in common stock and convertible preferred stock) decreased to 26% in September 1998 due to the sale of voting convertible preferred stock by LightChip as well as the conversion and exercise of outstanding debentures and warrants. F-7 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED 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. See Note 11. 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. RECLASSIFICATION of certain amounts in the 1998 financial statements has been made to conform to the 1999 financial statement presentation. F-8 LIGHTPATH TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS - CONTINUED 2. INVENTORIES The components of inventories include the following at June 30: 1999 1998 -------- -------- Raw materials $ 50,736 $ 44,885 Boules and blanks in process 97,321 83,530 Finished goods 366,612 278,646 -------- -------- Total inventories $514,669 $407,061 ======== ======== 3. PROPERTY AND EQUIPMENT Property and equipment consist of the following at June 30: 1999 1998 ---------- ---------- Manufacturing equipment $1,536,525 $1,132,167 Computer equipment and software 299,085 294,361 Furniture and fixtures 117,885 123,176 Leasehold improvements 99,134 117,227 ---------- ---------- 2,052,629 1,666,931 Less accumulated depreciation 1,159,092 861,444 ---------- ---------- $ 893,537 $ 805,487 ========== ========== 4. INTANGIBLE ASSETS Intangible assets consist of the following at June 30: 1999 1998 -------- -------- Patents and trademarks granted $397,652 $309,385 License agreements 40,000 -- Patent applications in process 216,959 266,003 -------- -------- 654,611 575,388 Less accumulated amortization 81,734 55,549 -------- -------- $572,877 $519,839 ======== ======== 5. 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 an additional 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 purchase price 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 upon completion of certain 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 F-9 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 of Preferred Stock received upon the exercise of warrants 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 holders of the outstanding Preferred Stock or (iii) an initial public offering if gross proceeds from the offering exceed 5 times that paid by holders of the Preferred Stock. 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% (approximately 67% of LightChip's common stock and 15% of LightChip's preferred stock). From the closing date through June 30, 1999, the Company recognized its pro-rata share of LightChip's losses (approximately 15% based on its pro-rata investment in LightChip preferred stock) to the extent of its cash investment in LightChip plus its remaining preferred stock purchase commitment of $570,000. At June 30, 1999, the Company's pro-rata share of LightChip losses which had not been recognized totaled approximately $172,000. The Company's 1999 financial statements have been restated to give effect to the reversal of a $1,397,907 increase to additional paid in capital and to the investment in LightChip previously recognized based on SEC Staff Accounting Bulletin No. 51, and the reversal of $458,211 equity in loss of LightChip during fiscal 1999 as a result of the adjustment to the carrying value of the investment in LightChip. As a result of this restatement, LightPath's net loss for the year ended June 30, 1999 has been decreased by $458,211 ($.10 per common share - basic and diluted) and additional paid in capital at June 30, 1999 has been decreased by $1,397,907 from the amounts previously reported. Summarized financial information of LightChip as of and for the periods ended June 30, 1999 and 1998 follows: LightChip Inc. Summarized financial information June 30, 1999 June 30, 1998 ------------- ------------- Assets Current assets $ 1,604,994 $ 18,011 Property and equipment - net 512,110 134,144 ----------- ----------- Total assets $ 2,117,104 $ 152,155 =========== =========== Liabilities and Equity Current liabilities $ 304,936 $ 183,817 Debt 429,659 890,000 ----------- ----------- Total liabilities 734,595 1,073,817 Shareholders' Capital 4,910,502 46,045 Accumulated deficit (3,527,993) (967,707) ----------- ----------- Total shareholders' equity 1,382,509 (921,662) ----------- ----------- Total liabilities and shareholders' equity $ 2,117,104 $ 152,155 =========== =========== For fiscal years ended June 30, 1999 and 1998 Net loss during development stage $(2,560,286) $ (967,707) =========== =========== 6. NOTE PAYABLE TO STOCKHOLDER At June 30, 1999 and 1998, the Company has a note payable to a stockholder of $30,000, which bears interest at 10.28%, payable monthly. The stockholder has agreed to accept repayment of the remaining balance contingent upon the Company meeting the conditions for conversion of the Class E-1 common stock into Class A common stock. Interest of $2,930 and $5,217 was paid in 1999 and 1998, respectively. F-10 7. DEFERRED EMPLOYEE SALARIES In November 1993, the Company implemented a plan for the deferral of a portion of all employees' salaries. The salaries not paid were accrued as a continuing obligation of the Company. As of June 30, 1999 and 1998, the total deferred amounts were $72,524 and $153,435, respectively. Certain key officers of the Company have agreed to make repayment of such deferred amounts contingent upon the Company meeting the conditions for conversion of the Class E-1 common stock into Class A common stock. 8. INCOME TAXES Temporary differences between the net operating losses for financial reporting and income tax purposes primarily relate to the use of the cash method of accounting and deferral of research and development and start-up expenses for tax purposes. Research and development and start-up expenses previously capitalized for tax purposes are being amortized over a five year period commencing July 1, 1996. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes. Significant components of the Company's deferred tax assets are as follows at June 30: 1999 1998 ----------- ----------- Deferred tax assets: Start-up expenses, net $ 1,197,000 $ 1,792,000 Research and development expenses 719,000 685,000 Net operating loss carryforwards 6,001,000 3,894,000 Research and development credit carryforwards 224,000 193,000 Other (216,000) (233,000) ----------- ----------- Total deferred tax assets 7,925,000 6,331,000 Valuation allowance for deferred tax assets (7,925,000) (6,331,000) ----------- ----------- $ -- $ -- =========== =========== The valuation allowance has increased by $1,594,000 and $1,350,000 during the years ended June 30, 1999 and 1998, respectively, as a result of increased deferred tax assets created principally by the operating losses and the deferral of research and development expenses for tax purposes. The reconciliation of income tax attributable to operations computed at the U.S. federal statutory tax rates and the actual tax provision of zero results from the increased valuation allowance. At June 30, 1999, the Company has net operating loss carryforwards for federal income tax purposes of approximately $15 million which will begin to expire in 2009 if not previously utilized. The Company also has research and development credit carryforwards of approximately $224,000 which will begin to expire in 2009, if not previously utilized. Approximately $1 million of the net operating loss carryforward and the majority of the research and development credit carryforwards are subject to certain limitations of the Internal Revenue Code which restrict their annual utilization. F-11 9. EMPLOYEE AND DIRECTOR STOCK OPTION PLANS At June 30, 1999 the Company has three stock based compensation plans which are described below. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. No compensation costs have been recognized for its fixed stock options plans where fair market value of the underlying stock equaled the option price at the date of grant. In June 1992, the Company implemented the Omnibus Incentive Plan (the "Incentive Plan"), and the Directors Stock Option Plan (the "Directors Plan"). The Company's has reserved 1,825,000 shares of common stock for awards under the Incentive Plan. The number of shares reserved for award by the Directors Plan was increased from 125,000 to 350,000 shares of common stock in 1999. The Incentive Plan authorizes the Company to grant various awards using common stock, and cash to officers, key employees and consultants of the Company. To date only incentive stock options have been issued under the plan with an average vesting period of four years. The term of the options granted under the Incentive Plan cannot exceed ten years and grants to stockholders with 10% or more of the Company's stock cannot exceed five years from the date of grant. Options issued prior to the IPO are bundled into an option for the purchase of one share of Class A common stock, 1.5 shares each of Class E-1 and E-2 common stock and one share of Class E-3 common stock. Options under the Incentive Plan available for grant at June 30, 1999 were 826,126 shares of Class A common stock. The Directors Plan authorizes the Company to grant awards to certain eligible nonemployee directors of the Company using common stock. Under the plan formula each nonemployee director receives options to purchase shares of the Company's common stock. The director's option vest ratably over their three year term. Each option granted under the Directors Plan will be granted at a price equal to the fair market value of the underlying stock on the date the options are granted with a term of ten years. Options issued prior to the IPO are bundled into an option for the purchase of one share of Class A common stock, 1.5 shares each of Class E-1 and E-2 common stock and one share of Class E-3 common stock. Options under the Director Plan available for grant at June 30, 1999 were 143,951 shares of Class A common stock. In addition, the Company has issued nonqualified options to certain directors and consultants to the Company not covered by the Incentive or Directors Plans. The Company did not issue any nonqualified options in 1999 or 1998. Options issued prior to the IPO are bundled into an option for the purchase of one share of Class A common stock, 1.5 shares each of Class E-1 and E-2 common stock and one share of Class E-3 common stock. A summary of the status of the stock option plans as of June 30, 1999 and 1998 and changes during the years ended is presented below:
Weighted-Avg. Shares under option: Incentive Plan Directors Plan Nonqualified Exercise Price - -------------------- -------------- -------------- ------------ -------------- Outstanding at June 30, 1997 229,475 25,500 49,694 $7.52 Granted 698,000 49,000 -- $7.62 Exercised (41,701) (3,000) (2,293) $5.44 Lapsed or canceled (20,800) -- -- $5.68 -------- -------- ------- ----- Outstanding at June 30, 1998 864,974 71,500 47,401 $7.61 Granted 266,600 167,880 -- $3.52 Exercised -- -- (7,264) $5.50 Lapsed or canceled (132,700) (33,331) (209) $6.49 -------- -------- ------- ----- Outstanding at June 30, 1999 998,874 206,049 39,928 $6.29 ======== ======== ======= ===== Options exercisable: June 30, 1999 502,891 115,464 39,928 $7.16 ======== ======== ======= =====
F-12 The following table summarizes information about fixed stock options outstanding at June 30, 1999:
Options Outstanding Options Exercisable --------------------------------------------- ------------------------------ Weighted-Avg. Number Remaining Number Range of outstanding at Contractual Weighted-Avg. Exercisable at Weighted-Avg. Exercise Prices June 30,1999 Life Exercise Price June 30, 1999 Exercise Price - --------------- ------------ ---- -------------- ------------- -------------- $ 3 to 6 572,414 8.7 Years $ 4.05 218,829 $ 4.42 $ 6 to 11 657,034 6.9 $ 7.51 424,051 $ 7.47 $27 to 52 15,403 4.2 $37.60 15,403 $37.60 --------- ------- $ 3 to 52 1,244,851 7.7 $ 6.29 658,283 $ 7.16 ========= =======
Had compensation costs for the Company's stock based compensation plans been determined consistent with FASB Statement No. 123, the Company's net loss would have been increased to the pro forma amounts indicated below:
1999 1998 ----------- ----------- Net loss applicable to common shareholders, as reported $(3,816,880) $(6,029,519) =========== =========== Net loss applicable to common shareholders, pro forma $(4,833,880) $(6,707,519) =========== =========== Basic and diluted net loss per share, as reported $ (.89) $ (2.00) ----------- ----------- Basic and diluted net loss per share, pro forma $ (1.13) $ (2.23) ----------- -----------
The weighted-average fair value of options granted during the years ended June 30, 1999 and 1998 was $2.27 and $4.05, respectively. The fair value of each incentive option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 1999: dividend yield of 0%; expected volatility of 100% (75% for fiscal 1998); risk free interest rate of 7%; and expected lives of 3 years. F-13 10. STOCKHOLDERS' EQUITY The Company completed an IPO on February 22, 1996 for the sale of 1,840,000 units at an initial public offering price of $5.00. Each unit consisted of one share of Class A common stock, one Class A warrant and one Class B warrant. Common Stock - the Company's common stock consists of the following: * Authorized 34,500,000 shares of Class A common stock, $.01 par value. The stockholders of Class A common stock are entitled to one vote for each share held. * Authorized 2,000,000 shares of Class E-1 common stock, $.01 par value. The stockholders of Class E-1 common stock are entitled to one vote for each share held. Each Class E-1 share will automatically convert into one share of Class A common stock in the event that the Company's income before provision of income taxes and extraordinary items or any charges which result from the conversion of the Class E common stock is equal to or exceeds approximately $13.5 million in fiscal 2000. Conversion provisions related to the Company's bid price per share and acquisition or merger expired on February 22, 1999 without being met. * Authorized 2,000,000 shares of Class E-2 common stock, $.01 par value. The stockholders of Class E-2 common stock are entitled to one vote for each share held. Each Class E-2 share will automatically convert into one share of Class A common stock in the event that the Company's income before provision of income taxes and extraordinary items or any charges which result from the conversion of the Class E common stock is at least $18 million in fiscal 2000. Conversion provision related to the Company's acquisition or merger expired on February 22, 1999 without being met. * Authorized 1,500,000 shares of Class E-3 common stock, $.01 par value. The stockholders of Class E-3 common stock are entitled to one vote for each share held. Each Class E-3 share will automatically convert into one share of Class A common stock in the event that the Company's income before the provision of income taxes and extraordinary items or any charges which result from the conversion of the Class E common stock is equal to or exceeds $37 million in fiscal 2000. Conversion provision related to the Company's acquisition or merger expired February 22, 1999 without being met. The shares of Class E common stock will be redeemed on September 30, 2000 by the Company for $.0001 per share and will be canceled by the Company without further obligation to the stockholders if such earnings levels are not achieved. The pretax minimum performance milestones are increased proportionately with the issuance of additional shares of common stock or convertible securities after the IPO. The above milestones have been adjusted to reflect stock issuances during the year ended June 30, 1999. The Class E common stock performance shares have the characteristics of escrowed shares; therefore, such shares owned by key officers, employees, directors or consultants of the Company are subject to variable plan compensation accounting. In the event the Company attains any of the remaining earnings thresholds required for the conversion of Class E common stock by such stockholders, the Company will be required to recognize compensation expense in the periods in which the stated criteria for conversion are probable of being met. Preferred Stock - the Company's preferred stock consists of the following: Authorized 5,000,000 shares of preferred stock. In June 1997, the Board of Directors designated 250 shares as Series A Convertible Preferred Stock; $.01 par value. The Company entered into a private placement transaction which provided proceeds on the sale of 180 shares of Series A Preferred Stock totaling $1,800,000, less issuance costs of approximately $204,000, resulting in net proceeds of approximately $1,596,000 by the final closing date, July 25, 1997. In September 1997, the Board of Directors designated 300 shares as Series B Convertible Preferred Stock; $.01 par value. The Company entered into a private placement transaction which provided proceeds on the sale of 230 shares of F-14 Series B Preferred Stock totaling $2,300,000, less issuance costs of approximately $232,000 resulting in net proceeds of approximately $2,064,000 by the final closing date, October 2, 1997. In January 1998, the Board of Directors designated 500 shares as Series C Convertible Preferred Stock; $.01 par value. The Company entered into a private placement transaction which provided proceeds on the sale of 375 shares of Series C Preferred Stock totaling $3,750,000, less issuance costs of approximately $215,000 resulting in net proceeds of approximately $3,530,000 by the final closing date, February 9, 1998. The Series A, Series B and the Series C Convertible Preferred Stock has a stated value and liquidation preference of $10,000 per share, plus an 8% per annum premium. The holders of the Series A, 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 into Class A common stock at the option of the holder, with volume limitations during the first 9 months after the respective final closing date, based on its stated value at the conversion date divided by a conversion price. Approximately 1,614,000 shares of Class A common stock were issued upon the conversion of 12 shares of Series A Preferred Stock, 125 shares of Series B Preferred Stock and 277 shares of Series C Preferred Stock during fiscal 1999. 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. The discount provision in each of the Series A, Series B and Series C Preferred Stock was recognized as an imputed dividend in the amount of $318,200, $406,700, and $661,800, respectively, increasing net loss applicable to common shareholders on a pro rata basis from the date of issuance to the first date that conversion can occur. All of these imputed dividends were recognized prior to June 30, 1998. Designations, rights, and preferences related to the remaining preferred shares may be determined by the Board of Directors. The terms of any series of preferred stock may include priority claims to assets and dividends and voting or other rights. WARRANTS Each Class A warrant entitles the holder to purchase one share of Class A common stock and one Class B warrant at an exercise price of $6.50 until February 2001. Each Class B warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $8.75 until February 2001. The warrants are redeemable by the Company on 30 day's written notice at a redemption price of $.05 per warrant if the closing price of the Class A common stock for any 30 consecutive trading days ending within 15 days of the notice averages in excess of $9.10 per share for Class A warrants and $12.25 per share for Class B warrants. All Class B warrants must be redeemed if any are redeemed. All of the Class A common stock underlying the Class A and Class B warrants is registered and contractual restrictions on trading have expired. Class C, Class E and Class G warrants were issued in connection with the private placements of Series A, Series B and Series C Convertible Preferred Stock which were completed during fiscal 1998. A total of 320,000 Class C, 317,788 Class E and 365,169 Class G warrants were granted to the preferred stockholders which entitle the holder to purchase one share of Class A common stock at an exercise price of $5.63, $7.24 and $6.68, respectively, expiring from July 2000 to February 2001. A total of 64,000 Class D, 47,668 Class F and 58,427 Class H warrants were granted to the placement agent for each private placement which entitles the holder to purchase one share of Class A common stock at an exercise price of $5.63, $7.24 and $6.68 respectively, expiring from July 2002 until February 2003. The Company registered the resale of the Class A common stock underlying the Series A, Series B, and Series C Preferred Stock and the associated warrants on individual Form S-3's which became effective during fiscal 1998. In connection with the IPO, the underwriter received a Unit Purchase Option to acquire up to 160,000 IPO Units at an exercise price of $6.75 per unit. Each IPO unit consists of one Class A common share, one Class A warrant to acquire a share of Class A common stock and a Class B warrant, and one Class B warrant. The Unit Purchase Option is exercisable until February 2001 and as of June 30, 1999, none of the units have been exercised. F-15 The following table provides information on preferred stock and warrants activity during fiscal 1999 and 1998. Warrants Preferred -------------------------------------- Stock - Series Class Class Class Shares Outstanding A, B & C A & B C, E & G D, F & H - ------------------ -------- ----- -------- -------- June 30, 1997 45 4,519,000 -- -- Issuance of securities 740 11,251 1,002,957 170,095 Conversions and exercises (249) (11,251) (88,889) (46,750) ---- ---------- ---------- -------- June 30, 1998 536 4,519,000 914,068 123,345 Conversions (414) -- -- -- June 30, 1999 122 4,519,000 914,068 123,345 ==== ========== ========== ======== 11. 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 June 30, 1999: Class A common stock options 1,244,851, private placement warrants 1,037,413, IPO warrants 7,186,749 (includes 2,667,749 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), 937,399 Class A shares issuable upon the conversion of convertible preferred stock (minimum of 220,000 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 (see Note 10). An eight percent premium earned by the preferred shareholders of $224,651 and $311,529 increased the net loss applicable to common shareholders for the years ended June 30, 1999 and 1998, respectively. In addition, net loss applicable to common shareholders was increased by an imputed dividend in the amount of $1,386,700 during the year ended June 30, 1998. The imputed dividend resulted from a discount provision included in the Series A, Series B and Series C Preferred Stock issued in fiscal 1998. Loss Shares Per Share Year Ended June 30, (Numerator) (Denominator) Amount - ------------------- ----------- ------------- ------ 1999 Net loss $(3,134,018) Less: Preferred Stock Premium (224,651) ----------- BASIC AND DILUTED EPS Net loss applicable to common shareholders $(3,358,669) 4,271,313 $ (.79) =========== ========= ======= 1998 Net loss $(4,331,290) Less: Preferred Stock Premium (311,529) Imputed dividend on Series A, Series B and Series C Preferred Stock (1,386,700) ----------- BASIC AND DILUTED EPS Net loss applicable to common shareholders $(6,029,519) 3,010,861 $ (2.00) =========== ========= ======= F-16 11. PENSION PLAN The Company implemented a defined contribution plan on January 1, 1997 covering substantially all employees. Annual discretionary contributions, if any, are made by the Company to match a portion of the funds employees contribute, however, there were no Company contributions during the fiscal years ended June 30, 1999 and 1998. 13. COMMITMENTS AND CONTINGENCIES The Company has operating leases for office equipment and office space. Effective April 1, 1996, the Company entered into a 5 year lease (with a three year renewal option) agreement for a 13,300 square foot manufacturing and office facility in Albuquerque, New Mexico. Rent expense recognized for the years ended June 30, 1999 and 1998 was $108,317 and $113,407, respectively. Commitments under noncancelable operating leases are $98,500 for 2000; and $76,500 for 2001. The Company has employment agreements, which expire in April 2001 and March 2002, with two officers which provide for a combined payment of salaries of $275,000 annually. The Company has outstanding purchase commitments for approximately $100,000 at June 30, 1999 for manufacturing collimators, lens finishing and advertising. The Company is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their outcome will not have a significant effect on the Company's financial statements. 14. RELATED PARTY TRANSACTIONS During the fiscal years ended June 30, 1999 and 1998, current directors (or their firms) of the Company, provided legal and consulting services to the Company for which they billed the Company approximately $127,000 and $145,000, respectively. In addition, the Company retained the legal services of a stockholder for licensing work performed during fiscal 1998 valued at $11,250, which was paid for in Class A common stock. In June 1997 the Company entered into a one year Strategic Alliance Agreement with Invention Machine Corporation to create LightChip to develop and manufacture wavelength division multiplexing systems for use by telecommunication carriers, and network system integrators. Under the terms of the agreement, LightChip utilized office equipment, office space and some personnel at no charge from LightPath in fiscal year 1998, estimated value of these contributed services was approximately $137,000. In addition, LightChip reimbursed LightPath for personnel, services and working capital provided during fiscal year 1998 totaling approximately $161,000, the balance $10,446 was paid during the year ended June 30, 1999. 15. SEGMENT INFORMATION Optoelectronics and Fiber Telecommunications (optoelectronics), which represents 5% of total revenues of the Company, and Traditional Optics, which represents 95% 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. During fiscal 1999 approximately $78,000 in sales were derived from one wafer chip inspection customer and approximately $72,000 of lens sales were derived from one YAG laser customer. During fiscal 1998, approximately $135,000 of lens sales were derived from one YAG laser customer. F-17 Summarized financial information concerning the Company's reportable segments for the respective years ended June 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. Prior period information has been conformed to the segments described above, where applicable, which are based on the structure and internal organization of the Company at June 30, 1999.
Opto- Traditional Corporate Segment Information Electronics Optics and other (1) Total - ------------------- ----------- ------ ------------- ----- Revenues (2) 1999 $ 57,029 1,029,097 -- $ 1,086,126 1998 4,500 753,732 -- 758,232 Segment operating loss (3) 1999 $(1,172,653) (211,218) (1,472,975) $(2,856,846) 1998 (498,755) (1,216,687) (1,837,590) (3,553,032) Depreciation and amortization 1999 $ 72,337 224,445 78,576 $ 375,358 1998 -- 217,363 85,144 302,507 Capital Expenditures for segment assets 1999 $ 389,709 47,514 -- $ 437,223 1998 -- 250,857 -- 250,857 Total Assets 1999 $ 410,473 1,755,326 600,831 $ 2,766,630 1998 4,500 1,762,464 4,541,503 6,308,467 =========== ========== ========== =========== Other United Foreign Geographic Information States Germany Countries Total - ---------------------- ------ ------- --------- ----- Revenues (4) 1999 $ 678,746 168,205 239,175 $ 1,086,126 1998 438,258 139,636 180,338 758,232
- ---------- (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. Corporate assets include cash and cash equivalents, advances, prepaid expenses and unallocated property and equipment. (2) There were no inter-segment sales during the years ended June 30, 1999 or 1998. (3) In addition to unallocated corporate functions, management does not allocate interest expense, interest income, other non-operating income and expense amounts in the determination of the operating performance of the reportable segments (4) Revenues attributed to foreign countries are export sales, and are based on the destination of the shipment. The Company has no long lived assets in a foreign country. F-18 16. SUBSEQUENT EVENT On July 28, 1999, LightPath completed a private placement for $1,000,000 of 6% Convertible Debentures (the "Debentures"). The Debentures are immediately convertible into approximately 570,000 shares of Class A common stock, 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, until maturity July 2002. The Debentures may be redeemed by the Company at 115% of the balance of the outstanding principal plus accrued interest with 10 days notice to the holders. 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. Additionally, LightPath issued 150,000 warrants to the placement agent, with terms identical to those issued to the Debenture holders. The value of the warrants, aggregating approximately $835,000, will be recognized as an increase to additional paid-in capital and as interest expense over the life of the Debentures. Finally, LightPath will recognize an additional interest charge of approximately $382,000 in the first quarter of fiscal year 2000 for the "beneficial conversion feature" associated with the Debentures. F-19 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. LIGHTPATH TECHNOLOGIES, INC. By: /s/ Donald E. Lawson December 20, 1999 ----------------------------------------------------- Donald E. Lawson Date Chief Executive Officer, President In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Donald E. Lawson December 20, 1999 - ------------------------------------------------------------- Donald E. Lawson Chief Executive Officer, President and Treasurer, Director (Principal Executive Officer and Principal Financial Officer)
/s/ Robert Ripp December 20, 1999 /s/ James L. Adler Jr. December 20, 1999 - ---------------------------------------- -------------------------------------------- Robert Ripp James L. Adler Jr. Chairman of the Board Director /s/Katherine Dietze December 20, 1999 /s/ Louis Leeburg December 20, 1999 - ---------------------------------------- -------------------------------------------- Katherine Dietze Louis Leeburg Director Director /s/ Leslie Danziger December 15, 1999 /s/ James A. Wimbush December 15, 1999 - ---------------------------------------- -------------------------------------------- Leslie Danziger James A. Wimbush Director Director
7 EX-11 2 COMPUTATION OF NET LOSS PER SHARE LIGHTPATH TECHNOLOGIES, INC. COMPUTATION OF NET LOSS PER SHARE FOR THE YEAR ENDED JUNE 30, ----------------------------- 1999 1998 ----------- ----------- Net loss $(3,134,018) $(4,331,290) Preferred stock 8% premium (224,651) (311,529) Imputed dividend on Series A, Series B and Series C Preferred Stock -- (1,386,700) ----------- ----------- Net loss applicable to common shareholders $(3,358,669) $(6,029,519) ----------- ----------- Weighted average common shares outstanding 4,271,313 3,010,861 =========== =========== Basic and Diluted net loss per common share $ (.79) $ (2.00) =========== =========== EX-23.1 3 CONSENT OF KPMG LLP CONSENT OF KPMG LLP, INDEPENDENT AUDITORS The Board of Directors LightPath Technologies, Inc. We consent to incorporation by reference in the registration statements (No.'s 333-23511, 333-23515, 333-41705 and 333-92017) on Form S-8 and (No.'s 333-37443, 333-39641, 333-47905 and 333-86185) on Form S-3 of LightPath Technologies, Inc. of our report dated August 10, 1999, except for Note 5 which is as of December 14, 1999, relating to the balance sheets of LightPath Technologies, Inc. as of June 30, 1999 and 1998, and the related statements of operations, stockholders' equity and cash flows for the years then ended, which report appears in the June 30, 1999, annual report on Form 10-KSB/A-2 of LightPath Technologies, Inc.. Our report dated August 10, 1999, except for Note 5 which is as of December 14, 1999, contains an explanatory paragraph that states that the Company has suffered recurring losses from operations and is dependent on external sources of capital, which raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty. KPMG LLP Albuquerque, New Mexico December 20, 1999 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-KSB/A-2 FOR THE YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS JUN-30-1999 JUN-30-1999 413,388 0 350,706 15,000 514,669 1,300,216 2,052,629 1,159,092 2,766,630 298,915 0 0 1 49,607 28,379,011 2,766,630 712,317 1,086,126 409,417 409,417 3,533,555 0 2,930 (3,134,018) 0 (3,134,018) 0 0 0 (3,134,018) (.79) (.79)
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