================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
QUARTERLY REPORT FOR SMALL BUSINESS ISSUERS SUBJECT
TO THE 1934 ACT REPORTING REQUIREMENTS
FORM 10-QSB
___________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE REPORT OF 1934
For the transition period from ___________ to ____________
Commission file number 000-27548
___________________
LIGHTPATH TECHNOLOGIES, INC.
___________________
(Exact name of registrant as specified in its charter)
DELAWARE 86-0708398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6820 Academy Parkway East, N.E. http://www.light.net 87109
Albuquerque, New Mexico (ZIP Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(505)342-1100
___________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES __X__ NO ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, Class A, $.01 par value 3,003,301 shares
Common Stock, Class E-1, $.01 par value 1,481,584 shares
Common Stock, Class E-2, $.01 par value 1,481,584 shares
Common Stock, Class E-3, $.01 par value 987,715 shares
- --------------------------------------- --------------
Class Outstanding at January 15, 1998
================================================================================
<PAGE>
LightPath Technologies, Inc.
Form 10-Q
Index
Item Page
Part I Financial information
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II Other information
Legal Proceedings 12
Changes in Securities and Use of Proceeds 12
Defaults Upon Senior Securities 12
Submission of Matters to a Vote of Security Holders 13
Other Information 13
Exhibits and Reports on Form 8-K 13
Signatures 14
1
<PAGE>
LightPath Technologies, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
-------------------------------------
<S> <C> <C>
Unaudited
Assets
Current assets:
Cash and cash equivalents $ 2,316,224 $ 993,505
Trade accounts receivable 231,577 167,258
Inventories 392,537 251,914
Advances to employees 31,362 2,865
Due from related parties 57,738 -
Prepaid expenses and other 42,605 38,604
-------------------------------------
Total current assets 3,072,043 1,454,146
Property and equipment - net 779,883 764,897
Intangible assets - net 502,690 490,272
Investment in LightChip, Inc. (Note 4) - -
=====================================
Total assets $ 4,354,616 $ 2,709,315
=====================================
Liabilities and Stockholders' Equity Current liabilities:
Accounts payable and accrued liabilities $ 174,408 $ 325,571
Accrued payroll and benefits 228,201 255,878
-------------------------------------
Total current liabilities 402,609 581,449
Note payable to stockholder 30,000 30,000
Redeemable common stock:
Class E-1 - performance based and redeemable common stock
1,481,584 and 1,449,942, shares issued and outstanding at
December 31, 1997 and June 30, 1997, respectively 14,816 14,499
Class E-2 - performance based and redeemable common stock
1,481,584 and 1,449,942 shares issued and outstanding at
December 31, 1997 and June 30, 1997, respectively 14,816 14,499
Class E-3 - performance based and redeemable common stock
987,715 and 966,621, issued and outstanding at December 31, 1997
and June 30, 1997, respectively 9,878 9,666
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; 3 1
Series A convertible shares, 103 and 45 issued and outstanding at
December 31, 1997 and June 30, 1997, respectively,
Series B convertible shares, 230 and 0 issued and outstanding at
December 31, 1997 and June 30, 1997, respectively
$3,330,000 liquidation preference
Common stock:
Class A, $.01 par value; 34,500,000 shares authorized, voting
2,988,746 and 2,766,185, shares issued and outstanding at
December 31, 1997 and June 30, 1997, respectively 29,887 27,662
Additional paid-in capital 22,829,413 19,244,055
Accumulated deficit (18,976,806) (17,212,516)
-------------------------------------
Total stockholders' equity 3,882,497 2,059,202
=====================================
Total liabilities and stockholders' equity $ 4,354,616 $ 2,709,315
=====================================
</TABLE>
See accompanying notes.
2
<PAGE>
LightPath Technologies, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
Unaudited 1997 1996 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Product development fees $ 82,115 $ 1,806 $ 100,515 $ 113,153
Lenses and other 123,969 26,358 271,688 38,481
--------------------------------------------------------------------------
Total revenues 206,084 28,164 372,203 151,634
Costs and expenses
Cost of goods sold 67,867 17,636 151,309 30,323
Selling, general and administrative 839,154 683,530 1,688,953 1,346,280
Research and development 171,188 292,364 324,828 539,307
--------------------------------------------------------------------------
Total costs and expenses 1,078,209 993,530 2,165,090 1,915,910
--------------------------------------------------------------------------
Operating loss (872,125) (965,366) (1,792,887) (1,764,276)
Other income(expense)
Investment income 35,697 33,041 55,221 75,599
Interest expense (1,223) (796) (2,904) (1,573)
Equity in loss of
LightChip, Inc.(Note 4) (14,040) - (23,720) -
--------------------------------------------------------------------------
Net loss $ (851,691) $ (933,121) $(1,764,290) $(1,690,250)
==========================================================================
Net loss applicable to common
shareholders (Note 5) $ (1,313,509) $ (933,121) $(2,496,856) $(1,690,250)
==========================================================================
Basic net loss per share (Note 5) $(.46) $(.34) $(.88) $( .62)
==========================================================================
Number of shares used in per share
calculation 2,881,147 2,755,520 2,836,586 2,745,404
==========================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
LightPath Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
Unaudited December 31,
1997 1996
------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (1,764,290) $ (1,690,250)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 121,073 92,070
Services provided for common stock 27,491 245,009
Equity in loss of LightChip, Inc. 23,720 -
Changes in operating assets and liabilities:
Receivable, advances to employees, related parties (150,554) (48,539)
Inventories (140,623) (113,386)
Prepaid expenses and other (4,001) 40,129
Accounts payable and accrued expenses (178,840) (52,465)
------------------------------------
Net cash used in operating activities (2,066,024) (1,527,432)
Cash flows from investing activities
Property and equipment additions (129,127) (365,427)
Costs incurred in acquiring patents (19,350) (65,085)
Investment in LightChip, Inc. (23,720) -
------------------------------------
Net cash used in investing activities (172,197) (430,512)
Cash flows from financing activities
Proceeds from sales of Convertible Series A and
Series B preferred stock, net 3,268,973 -
Proceeds from exercise of common stock options 291,967 -
Repurchase of common stock - (100,000)
------------------------------------
Net cash provided by (used in) financing activities 3,560,940 (100,000)
------------------------------------
Net increase (decrease) in cash and cash equivalents 1,322,719 (2,057,944)
Cash and cash equivalents at beginning of period 993,505 4,335,133
====================================
Cash and cash equivalents at end of period $ 2,316,224 $ 2,277,189
====================================
Supplemental disclosure of cash flow information:
Class A common stock issued for services $ 27,490 $ 245,009
Class E common stock issued $ 845 -
</TABLE>
See accompanying notes.
4
<PAGE>
LightPath Technologies, Inc.
Notes to Financial Statements - Unaudited
Organization and Purpose
LightPath Technologies, Inc. (the Company) was incorporated in Delaware on June
15, 1992 as the successor to LightPath Technologies Limited Partnership formed
in 1989, and its predecessor, Integrated Solar Technologies Corporation formed
on August 23, 1985. The Company is engaged in the production of GRADIUM(R) glass
lenses and the research and development of additional GRADIUM applications.
During the period from August 23, 1985 to June 30, 1996 the Company was a
development stage company as defined in Statement of Financial Accounting
Standards No. 7 "Development Stage Enterprises". Planned principal operations
commenced during fiscal year 1997 and, accordingly, the Company is no longer
considered a development stage company.
GRADIUM glass is an optical quality glass material with varying refractive
indices, capable of reducing optical aberrations inherent in conventional lenses
and performing with a single lens, or fewer lenses, tasks performed by
multi-element conventional lens systems.
1. Summary of Significant Accounting Matters
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Article 10 of Regulation S-X and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's financial statements and related notes
included in the Form 10-KSB as filed with the Securities and Exchange Commission
on September 11, 1997.
The information furnished, in the opinion of management, reflects all
adjustments, which include normal recurring adjustments, necessary to present
fairly the results of operations of the Company for the three month periods
ended September 30, 1997 and 1996. Results of operations for interim periods are
not necessarily indicative of results which may be expected for the year as a
whole.
Cash and cash equivalents consist of cash in the bank and temporary investments
with maturities of ninety days or less when purchased.
Inventories are stated at the lower of cost or market, on a first-in, first-out
basis. Inventory costs include material, labor and manufacturing overhead.
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets from
three to seven years.
Intangible assets consisting of patents and trademarks, are recorded at cost.
Upon issuance of the patent or trademark, these assets are being amortized on
the straight-line basis over the estimated useful lives of the related assets
from ten to seventeen years. The recoverability of carrying values of these
assets is evaluated on a recurring basis.
Investment consists of the Company's 51% ownership interest in LightChip Inc.,
which is accounted for under the equity method as the Company anticipates their
equity position to fall below 50% during the current fiscal year.
Income taxes are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires an
asset and liability approach to financial accounting and reporting for income
taxes.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based upon enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period plus or minus the change in
deferred tax assets and liabilities during the period.
5
<PAGE>
LightPath Technologies, Inc.
Notes to Financial Statements - Unaudited
Revenue recognition occurs upon shipment of products or as earned under product
development agreements.
Research and development costs are expensed as incurred.
Stock based employee compensation is accounted for under the provision of APB
Opinion No. 25, Accounting for Stock Issued to Employees, which requires no
recognition of compensation expense when the exercise price of the employees
stock option equals the market price of the underlying stock on the date of
grant.
Pro forma information required by Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, has been presented under the
fair value method using a Black-Scholes option pricing model.
Per share data is computed using the weighted average number of common shares
and dilutive potential common shares outstanding during each period. Restricted
Class E common shares and stock options for the purchase of Class E common
shares are considered contingently issuable and, accordingly, are excluded
because all necessary conditions have not been satisfied.
The Company has adopted Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, on December 31, 1997. The impact of Statement 128
on the calculation of earnings (loss) per share was not material.
Management uses estimates and makes assumptions during the preparation of the
Company's financial statements that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which in turn could impact the
amounts reported and disclosed herein.
Financial instruments of the Company are valued as required by Statement of
Financial Accounting Standards No. 107, Disclosures about Fair Values of
Financial Instruments. The carrying amounts of cash and cash equivalents, trade
accounts receivable, accounts payable and accrued liabilities, and notes payable
to stockholder approximate fair value.
Impairment of long-lived assets was adopted for the fiscal year 1997 by the
Company as required by Statement of Financial Accounting Standards No. 121,
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. In
the event that facts and circumstances indicate that the cost of intangible or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required. Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.
2. Inventories
The components of inventories include the following:
December 31,
1997
Finished goods and work in process $ 283,952
Raw materials 108,585
================
Total inventories $ 392,537
================
6
<PAGE>
LightPath Technologies, Inc.
Notes to Financial Statements - Unaudited
3. Stockholders' Equity
Authorized 5,000,000 shares of preferred stock; no par value. In June 1997 the
Board of Directors designated 250 shares as Series A Convertible Preferred
Stock; $.01 par value. The Company entered into a private placement transaction
which provided proceeds on the sale of 180 shares of Series A Preferred Stock
totaling $1,800,000, less issuance costs of approximately $203,711, resulting in
net proceeds of approximately $1,596,289 by the final closing date, July 25,
1997. In September 1997 the Board of Directors designated 300 shares as Series B
Convertible Preferred Stock; $.01 par value. The Company entered into a private
placement transaction which provided proceeds on the sale of 230 shares of
Series B Preferred Stock totaling $2,300,000, less issuance costs of
approximately $232,000 resulting in net proceeds of approximately $2,068,000 by
the final closing date, October 2, 1997.
The Series A and the Series B Convertible Preferred Stock has a stated value and
liquidation preference of $10,000 per share, plus an 8% per annum premium. The
holders of the Series A and Series B Convertible Preferred Stock are not
entitled to vote or to receive dividends. Each share of Series A and Series B
Convertible Preferred Stock is convertible into Class A common stock at the
option of the holder, with volume limitations during the first 9 months after
the final closing date, based on its stated value at the conversion date divided
by a conversion price. Approximately 141,000 shares of Class A Common Stock was
issued upon the conversion of 77 shares of Series A Preferred Stock during the
period ending December 31, 1997. The conversion price is defined as the lesser
of $5.625 and $7.2375 for the Series A and Series B Convertible Preferred Stock,
respectively, or 85% of the average closing bid price of the Company's Class A
common stock for the five days preceding the conversion date. The discount
provision in both the Series A and Series B Preferred Stock is recognized as an
imputed deemed dividend in the amount of $318,200 and $406,700, respectively,
reducing income available to common shareholders on a pro rata basis from the
date of issuance to the first date that conversion can occur.
Designations, rights, and preferences related to the remaining preferred shares
may be determined by the Board of Directors. The terms of any series of
preferred stock may include priority claims to assets and dividends and voting
or other rights.
Warrants
Approximately 27,000 shares of Class A Common Stock was issued upon the
conversion of 87,695 Class C and Class D warrants during the period ending
December 31, 1997. Class E and Class F warrants were issued in connection with
the private placement of Series B Convertible Preferred Stock which was
completed by October 2, 1997. A total of 317,788 Class E warrants were granted
to the Series B preferred stockholders which entitles the holder to purchase one
share of Class A common stock at an exercise price of $7.24 until September
2000. A total of 47,668 Class F warrants were granted to the placement agent
which entitles the holder to purchase one share of Class A common stock at an
exercise price defined as $7.24. The Company registered the Class A common stock
underlying the Series B Preferred Stock and the Class E and Class F warrants on
Form S-3 which became effective November 13, 1997.
4. Investment in LightChip, Inc.
The Company applied the equity method of accounting for its investment in
LightChip, Inc. until its share of net losses reduced the investment to zero.
The Company shall resume applying the equity method once the Company's share of
net income equals the share of net losses not recognized during the period the
equity method was suspended.
5. Net Loss Per Share
Basic net loss per common share is computed based upon the weighted average
number of common shares outstanding during each period presented. The
computation of diluted net loss per common share is not presented as the effect
was antidilutive for the assumed conversion at December 31, 1997 of outstanding
approximately, Class A options 809,175, private placement warrants 661,761, IPO
warrants 2,679,000 and 1,704,578 Class A shares reserved for the convertible
preferred stock. However, the eight percent premium earned by the preferred
shareholders was added to the net loss for computation purposes increasing the
net loss per common share by $.03 and $.04 for the three month and six month
periods ending December 31, 1997 respectively. In addition, net
7
<PAGE>
LightPath Technologies, Inc.
Notes to Financial Statements - Unaudited
loss applicable to common shareholders was increased by an imputed deemed
dividend in the amount of $384,575 or $.13 per share and $623,225 or $.22 per
share for the three months and six months ended December 31, 1997, respectively.
The imputed deemed dividend resulted from a discount provision included in the
Series A Preferred Stock issued on July 25, 1997 and the Series B Preferred
Stock issued on October 2, 1997. The unamortized imputed deemed dividend on
Series B Preferred Stock will be recognized in subsequent quarters.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------------------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997
- ----
Net loss $(851,691) $(1,764,290)
Less: Preferred Stock Premium (77,243) (109,341)
Imputed dividend on Series A (384,575) (623,225)
and Series B Preferred Stock
Basic EPS
Net loss applicable to common shareholders $(1,313,509 2,881,147 $(.46) $(2,496,856) 2,836,586 $(.88)
1996
- ----
Net loss $(933,121) $(1,690,250)
Less: Preferred Stock Premium - -
Imputed dividend on Series A - -
and Series B Preferred Stock
Basic EPS
Net loss applicable to common shareholders $(933,121) 2,755,520 $(.34) $(1,690,250) 2,745,404 $(.62)
</TABLE>
8
<PAGE>
LightPath Technologies, Inc.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
Results of Operations
- ---------------------
The Private Securities Litigation Reform Act of 1995 ("the Act")
provides a safe harbor for forward looking statements made by or on behalf of
the Company. All statements, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures, growth, product development, sales, business strategy and
other such matters are forward-looking statements. These forward-looking
statements are based largely on the Company's expectations and assumptions and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from the
forward-looking statements as a result of a number of factors, including, but
not limited to, the Company's early state of development, the need for
additional financing, and intense competition in various aspects of its
business. In light of these risks and uncertainties, all of the forward-looking
statements made are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized. The Company undertakes no obligation to update or revise any
of the forward looking statements contained herein.
Three months ended December 31, 1997,("1998") compared with three months ended
December 31,1996,("1997")
Revenues totaled $206,084 for the second quarter of 1998, an increase
of approximately $178,000 or 632% over 1997. The increase was attributable to an
increase of $98,000 in lens sales and an increase of $80,000 in product
development/license fees. The Company's increase in lens sales is primarily due
to sales for lasers, distributors and wafer chip inspection markets. The
Company's efforts in targeting laser applications, an area where GRADIUM's
lenses ability to increase the quality of YAG laser beams and reduce the focal
spot size, has received increasing market acceptance. The Company received a
$30,000 licensing fee from CHUGAI BOYEKI (AMERICA) CORP. "CBC" , which is a
wholly-owned subsidiary of CHUGAI BOYEKI CO., Ltd., for the exclusive right to
use GRADIUM glass in CBC product lines. The option expires on March 31, 1998, at
which time CBC will have the right to engage in a long-term license and purchase
agreement with LightPath. The Company provided The Fuji Photo Optical Co., Ltd.
("Fuji"), which is a subsidiary of Fuji Photo Film Co., GRADIUM profiles under
the terms of an exclusive agreement whereby Fuji will evaluate the lenses in its
TV broadcast systems. The initial agreement expired in November 1997, however,
Fuji requested an extension to the agreement for the evaluation of another glass
profile which the Company provided them in December for an additional fee of
$25,000. The current extension will expire in late April 1998 at which time Fuji
will have the right to engage in a long-term license and purchase agreement with
LightPath. Revenues for government funded subcontracts in the area of solar
energy totaled $49,000 for 1998 versus $0 in l997. This concludes the second
phase of funding under the Company's original solar project. At December 31,
1997, a backlog of $180,000 existed for lens sales.
Cost of sales during the second quarter of 1998 was 55% of product
sales, a significant decrease from the second quarter of 1997 when cost of sales
equaled 67% of product sales. The decrease was primarily due to reductions in
outside finishing expenses and more efficient production techniques. It is
anticipated that with increased volume and the increased utilization of
off-shore lens finishers, the cost of production could be decreased further.
Administrative costs increased $155,624, or 23% from 1997, primarily due to the
addition of personnel in sales and marketing, administration and operations
along with increased overhead in these areas. Research and development costs
decreased $121,176 in 1998 versus 1997. During the second quarter of 1997, the
Company issued stock worth approximately $118,000 on a benchmarking and
prediction analysis of technologies related to the Company's proprietary
processes in the manufacturing of GRADIUM glass. These costs were not recurring.
In addition, several members of the research department staff have been
dedicated to work on LightChip, Inc. ("LightChip") projects and their costs are
being reimbursed by the subsidiary.
Investment income increased approximately $2,000 in 1998. Interest
expense was not significant in 1998 or 1997. The Company has accounted for the
investment in LightChip under the equity method and recognized a loss of $14,040
in 1998.
Net loss of $851,691 in 1998 was a decrease of $81,430 from 1997 due to
improved gross margin of $127,689 and lower research and development costs of
$121,176, which were offset by increases in selling, general and administrative
costs of $155,624 and the decrease in other income(expense) of $11,811. Net loss
applicable to common shareholders of $1,313,509 included additional charges of
$384,575 for the imputed deemed dividend and $77,243 for the 8% preferred stock
premium on the Series A and Series B Preferred stock. Basic net loss per share
of $.46 was an increase of $.12 of which $.16 was due to the imputed deemed
dividend and the 8% preferred stock premium on the Series A and Series B
Preferred Stock and the remaining $.04
9
<PAGE>
LightPath Technologies, Inc.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
decrease was due to improved gross margin and reduced research and development
expenses of $.08 which were offset by an increase in selling, general and
administrative costs and a decrease in other income of $.04.
Six months ended December 31, 1997, ("1998") compared with six months ended
December 31,1996,("1997")
Revenues totaled $372,203 for 1998, an increase of approximately
$221,000 or 145% over 1997. The increase was attributable to an increase of
$136,000 in lens sales which was offset by a decrease of $13,000 in product
development/license fees. The Company's increase in lens sales is primarily due
to sales for lasers, distributors and wafer chip inspection markets. During the
first quarter of 1998, the Company filled a production order from Karl Storz for
500 lenses and anticipates more significant production orders in 1998 after they
have evaluated their product, and the Company received a production order for
$80,000 in catalog lenses from a U.S. distributor for their international
catalog. During the second quarter of 1998, the Company entered into an
evaluation option with CBC for $30,000 until March 31, 1998 and agreed to a
contract extension with Fuji until ate April 1998. Revenues for government
funded subcontracts in the area of solar energy totaled $68,000 for 1998 versus
$112,000 in l997. This billing concludes phase 2 funding for the solar energy
subcontract and phase 3 funding has not yet been approved for this project. At
December 31, 1997, a backlog of $180,000 existed for lens sales.
The Company continues to work with a number of OEM's towards the
completion of projects which may result in production orders for LightPath. The
first quarter of 1998 saw the addition of a Vice President of Marketing and
Sales who's goal is to expand the Company's presence in traditional optics and
develop emerging markets such as optoelectronics, photonics and solar. The
Company formalized relationships with four additional foreign distributors in
1998 bringing its total to eight industrial, optoelectronic and medical
component distributors based around the globe. The Company believes these
distributors may create new markets for GRADIUM in their countries primarily in
the area of sales into the YAG laser market.
Cost of sales during the six month period of fiscal year 1998 was 56%
of product sales, a significant decrease from the six month period of fiscal
year 1997 when cost of sales was 79% product sales. The decrease was primarily
due to reductions in outside finishing expenses and more efficient production
techniques. It is anticipated that with increased volume and the increased
utilization of off-shore lens finishers, the cost of production could be
decreased further. Administrative costs increased $342,673, or 26% from 1997,
primarily due to the addition of personnel in sales and marketing,
administration and operations along with increased overhead in these areas. The
Company's public awareness campaign, through print advertising, web site and
trade shows continues to generate inquiries. Research and development costs
decreased $214,479 in 1998 versus 1997. During 1997, the Company issued shares
of Class A Common Stock worth approximately $238,000 on a benchmarking and
prediction analysis of technologies related to the Company's proprietary
processes in the manufacturing of GRADIUM glass. These costs were not recurring.
The research department staff has increased to approximately 6 full time
equivalents, however, several staff members are being charged to LightChip 100%
and their costs are being reimbursed by the subsidiary. The focus of the
development efforts has been to expand GRADIUM product lines to the areas of
multiplexers and interconnects for the telecommunications field, the addition of
the crown glass product line to supplement its existing flint products, and the
development of acrylic axial gradient material to extend the product range.
Investment income decreased approximately $20,000 in 1998 due to the
decrease in interest earned on temporary investments as cash levels declined.
Interest expense was not significant in 1998 or 1997. The Company funded its
portion of LightChip during 1998 and announced the hiring of LightChip's CEO.
The Company has accounted for the investment in LightChip under the equity
method and recognized a loss of $23,720 in 1998.
Net loss of $1,764,290 in 1998 was an increase of $74,040 from 1997 due
to increases in selling, general and administrative costs of $342,673 and the
decrease in other income(expense) of $45,429 which are offset by improved gross
margin of $99,583 and lower research and development costs of $214,479. Net loss
applicable to common shareholders of $2,496,856 included additional charges of
$623,225 for the imputed deemed dividend and $109,341 for the 8% preferred stock
premium on the Series A and Series B Preferred stock. Basic net loss per share
of $.88 was an increase of $.26 all of which was due to the imputed deemed
dividend and the 8% preferred stock premium on the Series A and Series B
Preferred Stock. The improved gross margin and reduced research and development
expenses of $.14 were offset by increases in selling, general and administrative
costs and the decrease in other income of $.14.
10
<PAGE>
LightPath Technologies, Inc.
Management's Discussion and Analysis of Financial Condition
And Results of Operations
Financial Resources and Liquidity
- ---------------------------------
LightPath had financed its operations through private placements of
equity, or debt until February 1996 when the IPO generated net proceeds of
approximately $7,200,000. In July 1997 the Company completed a preferred stock
private placement which generated net proceeds of approximately $1,600,000. Some
of the Series A Preferred Stock investors entered into a second private
placement in September 1997 which generated net proceeds of approximately
$2,100,000 when completed on October 2, 1997. The Company intends to continue to
explore additional funding opportunities in fiscal year 1998. The Company
expects to continue to incur losses until such time, if ever, as it obtains
market acceptance for its products at sale prices and volumes which provide
adequate gross revenues to offset its operating costs. The Company has budgeted
operating and research cash requirements for fiscal 1998 at $3,000,000 which is
comparable to the actual results for fiscal year 1997. Included in the cash
requirements is $700,000 to continue its research and development efforts in
fiscal year 1998. For the second quarter 1998, the Company expended less than
the quarterly budget by approximately $65,000. For 1998, the Company has
exceeded the fiscal budget by approximately $118,000. During fiscal 1998, the
Company projects approximately $500,000 will be expended for capital equipment
and patent protection. To date, actual expenditures were approximately $148,000.
The majority of the capital expenditures during the quarter were for additional
computers and equipment to expand its manufacturing facilities. The Company
purchased its 51% share in LightChip for $23,720. LightChip completed $405,000
of bridge financing in December 1997 from a syndicated group of accredited
investors and continues to seek a significant equity investment in LightChip in
the second half of 1998.
The Company believes that projected product sales and proceeds from the
Series A and Series B Convertible Preferred Stock private placements will be
sufficient to cover the fiscal 1998 operating and capital budget. The Company's
capital requirements after such period will be satisfied by revenues generated
from product sales. Such sales will depend on the extent that GRADIUM glass
becomes commercially accepted and the success of the Company's sales program in
generating sales sufficient to sustain its operations. Although lens sales for
1998 have increased seven times 1997 levels, there can be no assurance that the
Company will generate sufficient revenues to fund its future operations and
growth strategies. In addition, the Company may be required to seek additional
financing or alter its business plan in the event of delays for commercial
production orders or unanticipated expenses. The Company currently has no credit
facility with a bank or other financial institution. There also can be no
assurance that any additional financing will be available if needed, or, if
available, will be on terms acceptable to the Company. In the event necessary
financing is not obtained, the Company will be materially adversely affected and
have to cease or substantially reduce its operations. Any commercial financing
obtained by the Company in the future is likely to impose certain financial and
other restrictive covenants upon the Company and result in additional interest
expense. Further, any issuance of additional equity or debt securities could
result in further dilution to the existing investors.
The Company has not been significantly impacted by inflation due to the
nature of its product components and in prior years the Company was principally
engaged in basic research and development. The Company does not believe that
seasonality will have a significant impact on its business.
11
<PAGE>
LightPath Technologies, Inc.
PART II
-------
Item 1. Legal Proceedings
There have been no material developments in any legal actions since the
period reported as to in the Company's Form 10-KSB for the year ended June 30,
1997. LightPath is subject to various claims and lawsuits in the ordinary course
of business, none of which are considered material to the Company's financial
condition and results of operations.
Item 2. Changes in Securities and Use of Proceeds
The issuance of Series A and Series B Convertible Preferred Stock
(collectively the "Preferred Stock") by the Company limits the rights of the
Company's Common Stock in the following manner. Each share of Preferred Stock
has a stated value and liquidation preference of $10,000, plus an 8% per annum
premium. The holders of the Preferred Stock are not entitled to vote or to
receive dividends. In the event of liquidation of the Company or a Liquidation
Event (as defined in the Certificate of Designation) holders of the Preferred
Stock are entitled to receive distributions prior to any distribution to holders
of the Company's Common Stock. Conversion of the Preferred Stock could
potentially have a material dilutive effect upon shares of Common stock
outstanding at the time of such conversion. A full description of the rights and
preferences of the Preferred Stock have been included in previous filings,
Series A, Form 10KSB and Series B, Form 10QSB which are herein incorporated by
reference.
The Company completed the private placement which began June 30, 1997
for an aggregate of 180 shares of Series A Convertible Preferred Stock (the
"Series A Stock") and 320,000 attached Class C warrants on July 25, 1997. Each
share of Series A Stock is convertible into Class A Common Stock at the option
of holder, with volume limitations during the first 9 months, based on its
stated value at the conversion date divided by a conversion price. The
conversion price is defined as the lesser of $5.625 or 85% of the average
closing bid price of the Company's Class A Common Stock for the five days
preceding the conversion date. Each Class C Warrant entitles the holder to
purchase one share of Class A Common Stock at $5.63 per share at any time
through July 2000. The gross amount received for the private placement of Series
A Stock was $1,800,000, less placement fees and related expenses resulting in
net proceeds of $1,586,454. In addition, the placement agent was granted 64,000
Class D warrants to purchase shares of the Company's Class A common stock at a
price of $5.63 per share at any time through July 2002.
The Company completed a private placement for an aggregate of 230
shares of Series B Convertible Preferred Stock (the "Series B Stock") and
317,788 attached Class E warrants on October 2, 1997. Each share of Series B
Stock is convertible into Class A Common Stock at the option of holder, with
volume limitations during the first 9 months, based on its stated value at the
conversion date divided by a conversion price. The conversion price is defined
as the lesser of $7.2375 or 85% of the average closing bid price of the
Company's Class A Common Stock for the five days preceding the conversion date.
Each Class E Warrant entitles the holder to purchase one share of Class A Common
Stock at $7.24 per share at any time through September 2000. The gross amount
received for the private placement of Series B Stock was $2,300,000, less
placement fees and related expenses resulting in net proceeds of approximately
$2,068,000. In addition, the placement agent was granted 47,668 Class F warrants
to purchase shares of the Company's Class A common stock at a price of $7.24 per
share at any time through September 2002.
All of the Preferred Stock, Class C, Class D, Class E and Class F
Warrants were issued to accredited investors in private placements pursuant to
Rule 506 of Regulation D promulgated under the Securities Act of 1933, as
amended. Restrictions have been imposed on the resale of such securities,
including the placement of legends thereon noting such restrictions, and written
disclosure of such restrictions were made prior to issuance of the securities.
Item 3. Defaults Upon Senior Securities
None
12
<PAGE>
LightPath Technologies, Inc.
Item 4. Submission of Matters to a Vote of Security Holders
LightPath Technologies, Inc. conducted its regular 1997 Annual Meeting
of Stockholders on October 13, 1997. Actions concluded at the meeting through
submission of matters to a vote by stockholders was conducted by proxy and
included the following:
1. Election of one Class II Director to hold office until the
Annual Meeting of Stockholders in 1999 and his successor
is elected and qualified. The election of Mr. Dr. Milton
Klein as Class II Director of the Company was approved by
the stockholders by a vote of 5,434,335 FOR and 8,483
ABSTENTIONS. The terms of the Company's Class I Directors,
Leslie A. Danziger and Haydock H. Miller, Jr. and of its
Class III Directors, Louis Leeburg continued after the
date of the Annual Meeting.
2. Ratification of the selection of KPMG Peat Marwick LLP as
independent accounts for the Company for the fiscal year
ending June 30, 1998 was approved by the stockholders by a
vote of 5,537,814 FOR, 47,473 AGAINST and 2,468
ABSTENTIONS.
3. Ratification of the proposal to increase the number of
shares of Common Stock which may be issued upon exercise
of options granted under the Company's 1992 Omnibus
Incentive Plan from 325,000 to 1,825,000 was approved by
the stockholders by a vote of 3,767,817 FOR, 468,812
AGAINST, 88,109 ABSTENTIONS and 1,434,350 BROKER
NON-VOTES.
4. Ratification of the proposal to amend the Company's
Certificate of Incorporation to extend the amount of time
by which the Company must meet the performance thresholds
for holders of Class E-2 and Class E-3 Common Stock to
convert such shares into Class A Common Stock was approved
by the Class A stockholders by a vote of 944,107 FOR,
25,714 AGAINST and 19,324 ABSTENTIONS. The Class A and
Class E shareholders approved the proposal by a vote of
4,142,141FOR, 82,672 AGAINST and 42,165 ABSTENTIONS. There
were 1,434,350 BROKER NON-VOTES for this proposal.
Item 5. Other Information
D.H. Blair & Co., Inc., ("Blair & Co.") is a selling group member which
distributed a substantial portion of the Company's original IPO Units. Blair &
Co. currently makes a market in the Company's securities. On January 9, 1998
Blair & Co. announced that its brokerage service assets would be acquired by
Barington Capital Group L.P. , a New York investment bank. The Company is unable
to determine what impact, if any, such acquisition will have upon the Company's
securities.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C> <C>
a) Exhibits
Exhibit 3.4 - Certificate of Designation filed July 9, 1997 with the
Secretary of State of the State of Delaware 2
Exhibit 3.1 - Certificate of Designation as amended filed November 13, 1997
with the Secretary of State of Delaware 3
Exhibit 11 - Computation of Net Loss Per Share 1
Exhibit 27 - Financial Data Schedule 1
1. Filed herewith.
2. The exhibit was filed as an exhibit to the Company's Form 10KSB dated September 2, 1997 and is
incorporated herein.
3. The exhibit was filed as an exhibit to the Company's Form 10QSB dated November 12, 1997 and is
incorporated herein.
b) No reports on Form 8-K were filed under the Securities and Exchange Act of 1934 during the quarter
ended December 31, 1997.
</TABLE>
13
<PAGE>
LightPath Technologies, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed in its behalf by the
undersigned, thereunto duly authorized.
LIGHTPATH TECHNOLOGIES, INC.
By: /s/ Donald Lawson January 23, 1998
---------------------------------------
Donald Lawson Date
President and Treasurer
14
Exhibit 11
----------
Computation of Net Loss Per Share
<TABLE>
<CAPTION>
For the Three Months
Ended December 31
---------------- -----------------
1997 1996
---- ----
<S> <C> <C>
Net loss $(851,691) $ (933,121)
Preferred stock 8% premium (77,243) -
Imputed dividend on Series A and Series B
Preferred Stock (384,575) -
---------------- -----------------
Net loss applicable to common shareholders $ (1,313,509) $ (933,121)
---------------- -----------------
Weighted average common shares outstanding 2,881,147 2,755,520
================ =================
Net loss per common share $ (.46) $ (.34)
================ =================
For the Six Months
Ended December 31
---------------- -----------------
1997 1996
---- ----
Net loss $(1,764,290) $(1,690,250)
Preferred stock 8% premium (109,341) -
Imputed dividend on Series A and Series B
Preferred Stock (623,225) -
---------------- -----------------
Net loss applicable to common shareholders $ (2,496,856) $ (1,690,250)
---------------- -----------------
Weighted average common shares outstanding 2,836,586 2,745,404
================ =================
Net loss per common share $ (.88) $ (.62)
================ =================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from the Form 10-QSB for the
six month period ended December 31, 1997 and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,316,224
<SECURITIES> 0
<RECEIVABLES> 231,577
<ALLOWANCES> 0
<INVENTORY> 392,537
<CURRENT-ASSETS> 3,072,043
<PP&E> 1,494,243
<DEPRECIATION> 714,360
<TOTAL-ASSETS> 4,354,616
<CURRENT-LIABILITIES> 402,609
<BONDS> 0
0
3
<COMMON> 29,887
<OTHER-SE> 22,829,887
<TOTAL-LIABILITY-AND-EQUITY> 4,354,616
<SALES> 271,688
<TOTAL-REVENUES> 372,203
<CGS> 151,309
<TOTAL-COSTS> 151,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,904
<INCOME-PRETAX> (1,764,290)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,764,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1764,290)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> (.88)
</TABLE>
