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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 000-27548
LIGHTPATH TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 86-0708398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
http://www.light.net
6820 Academy Parkway East, N.E. 87109
Albuquerque, New Mexico (Zip Code)
(Address of principal executive offices)
(505)342-1100
Registrant's telephone number, including area code:
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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 value4,125,265 shares
Common Stock, Class E-1, $.01 par value1,492,480 shares
Common Stock, Class E-2, $.01 par value1,492,480 shares
Common Stock, Class E-3, $.01 par value 994,979 shares
- ------------------------ -----------------------------
CLASS OUTSTANDING AT OCTOBER 30,1998
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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 12
Other Information 12
Exhibits and Reports on Form 8-K 12
SIGNATURES 13
1
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LIGHTPATH TECHNOLOGIES, INC.
BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1998 1998
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ASSETS UNAUDITED
Current assets:
Cash and cash equivalents $ 2,598,301 $ 4,237,400
Trade accounts receivable 265,969 256,491
Inventories (NOTE 2) 539,062 488,710
Advances to employees and related parties 41,288 38,560
Prepaid expenses and other 50,013 43,629
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Total current assets 3,494,633 5,064,790
Property and equipment - net 777,866 723,838
Intangible assets - net 534,729 519,839
Investment in LightChip, Inc. (NOTE 3) 964,143 --
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Total assets $ 5,771,371 $ 6,308,467
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 140,552 $ 190,530
Accrued payroll and benefits 181,765 232,051
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Total current liabilities 322,317 422,581
Accrued loss of LightChip, Inc. -- 921,662
Note payable to stockholder 30,000 30,000
Commitments and contingencies
Redeemable common stock
Class E-1 - performance based and redeemable
common stock 1,492,480 and 1,481,584 shares
issued and outstanding 14,925 14,816
Class E-2 - performance based and redeemable
common stock 1,492,480 and 1,481,584 shares
issued and outstanding 14,925 14,816
Class E-3 - performance based and redeemable
common stock 994,978 and 987,715 issued and
outstanding 9,950 9,877
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000
shares authorized; Series A convertible
shares, 39 and 49 issued and outstanding,
Series B convertible shares, 53 and 126 issued
and outstanding,
Series C convertible shares, 319 and 361 issued
and outstanding, $4,111,000 liquidation
preference at September 30, 1998 4 5
Common stock:
Class A, $.01 par value, voting; 34,500,000
shares authorized; 3,724,306 and 3,330,607
shares issued and outstanding 37,243 33,306
Additional paid-in capital 29,546,148 28,103,439
Accumulated deficit (24,204,141) (23,242,035)
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Total stockholders' equity 5,379,254 4,894,715
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Total liabilities and stockholders' equity $ 5,771,371 $ 6,308,467
============ ============
See accompanying notes.
2
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LIGHTPATH TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30
UNAUDITED 1998 1997
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REVENUES
Lenses and other $ 152,610 $ 147,719
Product development fees 38,118 18,400
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Total revenues 190,728 166,119
COSTS AND EXPENSES
Cost of goods sold 91,840 83,442
Selling, general and administrative 753,478 849,799
Research and development 127,096 153,640
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Total costs and expenses 972,414 1,086,881
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Operating loss (781,686) (920,762)
OTHER INCOME(EXPENSE)
Investment income 45,864 19,524
Interest expense (850) (1,681)
Equity in loss of LightChip, Inc. (NOTE 3) (225,434) (9,680)
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Net loss $ (962,106) $ (912,599)
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Net loss applicable to common shareholders $(1,061,683) $(1,183,348)
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Basic and diluted net loss per share (NOTE 5) $ (.31) $ (.42)
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Number of shares used in per share calculation 3,466,062 2,796,866
=========== ===========
See accompanying notes.
3
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LIGHTPATH TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
SEPTEMBER 30
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UNAUDITED 1998 1997
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OPERATING ACTIVITIES
Net loss $ (962,106) $ (912,599)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 66,791 59,001
Services provided for common stock -- 18,408
Equity in loss of LightChip, Inc. 225,434 9,680
Changes in operating assets and liabilities:
Receivables, advances to employees, related
parties (12,206) (52,309)
Inventories (50,352) (56,543)
Prepaid expenses and other (6,384) (273)
Accounts payable and accrued expenses (100,264) (46,719)
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Net cash used in operating activities (839,087) (981,354)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (115,569) (102,681)
Costs incurred in acquiring patents (20,140) (10,000)
Investment in LightChip, Inc. (713,333) (23,720)
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Net cash used in investing activities (849,042) (136,401)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of Convertible Series A and
Series B preferred stock, net -- 3,272,835
Proceeds from exercise of common stock options
and warrants 39,950 --
Proceeds from issuance of common stock 9,080 178,405
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Net cash provided by financing activities 49,030 3,451,240
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Net (decrease) increase in cash and cash
equivalents (1,639,099) 2,333,485
Cash and cash equivalents at beginning of period 4,237,400 993,505
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Cash and cash equivalents at end of period $ 2,598,301 $3,326,990
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Sale of securities by LightChip, Inc. $ 1,397,906 $ --
Class E common stock issued $ 291 $ 752
Conversion of preferred stock to Class A
common stock $ 3,843 $ --
See accompanying notes.
4
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LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30,1998
ORGANIZATION
LightPath Technologies, Inc. (the Company or LightPath) was incorporated in
Delaware on June 15, 1992 as the successor to LightPath Technologies Limited
Partnership formed in 1989, and its predecessor, Integrated Solar Technologies
Corporation formed on August 23, 1985. The Company is engaged in the production
of GRADIUM(R) glass lenses and other optical materials and performs research and
development for optical solutions for the fiber telecommunications and
traditional optics markets. GRADIUM glass is an optical quality glass material
with varying refractive indices, capable of reducing optical aberrations
inherent in conventional lenses and performing with a single lens, or fewer
lenses, tasks performed by multi-element conventional lens systems and enabling
technology for emerging markets such as optoelectronics and telecommunications.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Article 10 of Regulation S-X and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's financial statements and related notes
included in its Form 10-KSB for the fiscal year ended June 30, 1998, as filed
with the Securities and Exchange Commission on September 17, 1998.
The information furnished, in the opinion of management, reflects all
adjustments, which include normal recurring adjustments, necessary to present
fairly the financial position, results of operations and cash flows of the
Company for the interim periods presented. Results of operations for interim
periods are not necessarily indicative of results which may be expected for the
year as a whole.
1. SUMMARY OF SIGNIFICANT ACCOUNTING MATTERS
CASH AND CASH EQUIVALENTS consist of cash in the bank and temporary investments
with maturities of ninety days or less when purchased.
INVENTORIES which consists principally of raw materials, lenses and components
are stated at the lower of cost or market, on a first-in, first-out basis.
Inventory costs include material, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to seven years.
INTANGIBLE ASSETS consisting of 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.
INVESTMENTS consists of the Company's ownership interest in LightChip Inc.
(LightChip) which is accounted for under the equity method.
INCOME TAXES are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, which requires an
asset and liability approach to financial accounting and reporting for income
taxes.
5
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LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based upon enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. 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.
REVENUE RECOGNITION occurs from sales of products upon shipment or as earned
under product development agreements.
RESEARCH AND DEVELOPMENT costs are expensed as incurred.
STOCK BASED EMPLOYEE COMPENSATION is accounted for under the provisions of APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which requires no
recognition of compensation expense when the exercise price of the employee's
stock option equals the market price of the underlying stock on the date of
grant.
Pro forma information required by Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, has been presented under the
fair value method using a Black-Scholes option pricing model.
PER SHARE DATA is accounted for under the provisions of the Statement of
Financial Accounting Standards No. 128 (FAS 128), EARNINGS PER SHARE, which was
adopted by the Company on December 31, 1997. The impact of adopting FAS 128 on
the calculation of earnings (loss) per share was not material, however, all
prior period amounts were restated to conform to FAS 128. See Note 5.
MANAGEMENT USES ESTIMATES and makes assumptions during the preparation of the
Company's financial statements that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which in turn could impact the
amounts reported and disclosed herein.
FAIR VALUES OF FINANCIAL INSTRUMENTS of the Company are disclosed as required by
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUES OF FINANCIAL INSTRUMENTS. The carrying amounts of cash and cash
equivalents, trade accounts receivable, accounts payable and accrued
liabilities, and 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.
2. INVENTORIES
The components of inventories include the following:
September 30, June 30,
1998 1998
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Finished goods and work in process $ 418,817 $ 362,176
Raw materials 120,245 126,534
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Total inventories $ 539,062 $ 488,710
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6
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
3. INVESTMENT IN LIGHTCHIP, INC.
During fiscal 1998, the Company applied the equity method of accounting to its
$23,720 cash investment in LightChip, a development stage company, until its
share of net losses were reduced to zero at which time the Company discontinued
applying the equity method of accounting. In June 1998, the Company committed to
purchase $1.25 million of LightChip convertible preferred stock thereby
requiring the Company to recognize a loss of $921,662 for substantially all of
LightChip's losses during fiscal 1998.
On September 9, 1998, LightPath purchased 2,266,667 shares of voting Series A
convertible preferred stock of LightChip in a private placement participating
with AT&T Ventures who acquired 9,400,000 shares of voting Series A convertible
preferred stock (Preferred Stock) for an aggregate of approximately $3.5
million. LightPath and AT&T Ventures have committed to purchase an additional
$570,000 and $2.5 million, respectively, of voting Series A1 convertible
preferred stock due upon completion of product design requirements. Each share
of Preferred Stock was issued at $.30 per share, 8% per annum dividend if
declared, noncumulative and a liquidation preference equal to the purchase price
plus any declared but unpaid dividends. In conjunction with the private
placement all the convertible bridge loans outstanding at LightChip, totaling
$890,000, converted to Preferred Stock at $.30 per share as permitted in the
debt agreement. In addition, substantially all of the warrant holders of
LightChip exercised their warrants, including 111,111 shares received upon
exercise by LightPath. In total, LightChip issued approximately 16,460,000
shares of Preferred Stock. Each share of Preferred Stock is convertible into one
share of Common Stock at (i) the option of the holder, (ii) the consent of the
majority of the outstanding Preferred Stock or (iii) an initial public offering
if gross proceeds from the offering exceed 5 times that paid by the Preferred
Stock holders.
Accordingly, the Company recognized all of LightChip's losses from July 1, 1998
through the closing of the private placement on September 9, 1998, which upon
completion, reduced the Company's voting interest to approximately 26%. From the
closing date through September 30, 1998, the Company recognized its pro-rata
share of LightChip's losses (approximately 26%). Upon completion of the sale of
the Preferred Stock by LightChip, the Company recorded an increase to additional
paid in capital of $1,397,906 which represents an amount necessary to increase
LightPath's Investment in LightChip to its pro rata share of total LightChip
equity at this date. Due to the Company's tax position, no deferred tax effects
were recognized related to this increase to stockholders' equity.
4. STOCKHOLDERS' EQUITY
The Series A, Series B and the Series C Convertible Preferred Stock have a
stated value and liquidation preference of $10,000 per share, plus an 8% per
annum premium. The holders of the Series A, Series B and Series C Convertible
Preferred Stock are not entitled to vote or to receive dividends. Each share of
Series A, Series B and Series C Convertible Preferred Stock is convertible 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
384,000 shares of Class A Common Stock were issued upon the conversion of 10
shares of Series A Preferred Stock, 73 shares of Series B Preferred Stock and 42
shares of Series C Preferred Stock during the three months ended September 30,
1998. 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.
7
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
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 does not differ from the basic
computation because potentially issuable securities would be anti-dilutive. The
following outstanding securities were not included in the computation of diluted
earnings per share at September 30, 1998, (approximate): Class A common stock
options 1,079,000, private placement warrants 1,037,000, IPO warrants 4,519,000,
600,000 Class A shares reserved for the convertible preferred stock and the
Class E common stock that is automatically converted into Class A common stock
upon attainment of certain performance criteria. However, the eight percent
premium earned by the preferred shareholders of $99,577 and $32,099 was added to
the net loss for computation purposes for the three months ended September 30,
1998 and 1997, respectively. In addition, net loss applicable to common
shareholders was increased by an imputed dividend in the amount of $238,650 for
the three months ended September 30, 1997. The prior year imputed dividend
resulted from a discount provision included in the Series A Preferred Stock.
Three Months Ended September 30,
--------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
1998
Net loss $ (962,106)
Less: Preferred Stock Premium (99,577)
BASIC EPS
Net loss applicable to common
shareholders $(1,061,683) 3,466,062 $(.31)
1997
Net loss $ (912,599)
Less: Preferred Stock Premium (32,099)
Imputed dividend on Series A (238,650)
BASIC EPS
Net loss applicable to common
shareholders $(1,183,348) 2,796,866 $(.42)
8
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 ("THE ACT") PROVIDES A SAFE
HARBOR FOR FORWARD LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY. ALL
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT, OTHER THAN STATEMENTS
OF HISTORICAL FACTS, WHICH ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE
COMPANY EXPECTS OR ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING SUCH
THINGS AS FUTURE CAPITAL EXPENDITURES, GROWTH, PRODUCT DEVELOPMENT, SALES,
BUSINESS STRATEGY AND OTHER SUCH MATTERS ARE FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON THE COMPANY'S EXPECTATIONS AND
ASSUMPTIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF
WHICH ARE BEYOND THE COMPANY'S CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE FORWARD-LOOKING STATEMENTS SET FORTH HEREIN AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S EARLY STAGE OF
DEVELOPMENT, THE NEED FOR ADDITIONAL FINANCING, INTENSE COMPETITION IN VARIOUS
ASPECTS OF ITS BUSINESS AND OTHER RISKS DESCRIBED IN THE COMPANY'S REPORTS ON
FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, ALL OF THE FORWARD-LOOKING STATEMENTS MADE HEREIN ARE QUALIFIED
BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE THAT THE ACTUAL
RESULTS OR DEVELOPMENTS ANTICIPATED BY THE COMPANY WILL BE REALIZED. THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY OF THE FORWARD LOOKING
STATEMENTS CONTAINED HEREIN.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 ("1999") COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1997 ("1998")
During the first quarter of fiscal 1999 the Company's management
focused its efforts on two key areas 1) the completion of the AT&T Ventures'
financing for the Company's subsidiary LightChip and 2) the distribution of
collimator samples to potential customers for testing. On September 9, 1998,
LightChip received approximately $3.5 million from AT&T Ventures and LightPath
as consideration for the issuance of Series A Convertible Preferred Stock. The
balance of the $6.5 million commitment ($3 million) is due upon completion of
certain product design requirements by LightChip. In addition, $890,000 of
LightChip's bridge loans converted to equity and LightChip's warrants totaling
$508,333 were exercised. LightChip leased office space and moved key personnel
to the Boston metro area to begin scale-up of their research and development
efforts to meet product design milestones. The Company believes LightChip is
making significant progress in the development of its products which will
include GRADIUM glass for next-generation wavelength division multiplexing (WDM)
products for metro and local area network applications. The Company will
experience further dilution of its ownership in LightChip when the balance of
the private placement is funded, currently anticipated to occur in fiscal 1999.
The Company's internal focus has been on the development and shipment of product
samples of LightPath's newly designed single-mode fiber collimator assembly (SMF
assembly). The LightPath SMF assembly is approximately 50-60% smaller than the
existing collimator. This entry level product currently used by the
telecommunications industry prevents light from diverging and shepherds it into
the next piece of equipment or fiber. The Company offers two product levels, the
collimating lens and a SMF assembly. The collimating lens can replace existing
lenses with immediate improvements in performance, repeatability and cost. The
SMF assembly offers superior performance in the areas of back reflection and
insertion loss. 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. During the
first quarter of 1999, production line SMF assembly and collimating lenses were
delivered for testing to approximately 30 potential customers in the U.S. and
Asia. The first scale-up production orders are expected in late calendar 1998
due to the amount of testing time required by telecommunication customers. Based
on the cost of the Company's prototypes and GRADIUM lenses, the Company believes
the profit margin in these optoelectronics products will equal or exceed the
margins historically experienced in the traditional optics markets. However,
this industry is subject to, among other risks, intense competition and rapidly
changing technology, and there can be no assurances as to the Company's ability
to anticipate and respond to the demands and competitive aspects of this
industry.
Consistent with the Company's strategy to focus its efforts in the
optoelectronics and telecommunications market, it has continued to work towards
further agreements with strategic companies to distribute GRADIUM into
traditional optic products. During 1999, the Company announced a five year
Strategic Agreement with the German optical products manufacturer Rodenstock
Prazisionsoptik GmbH for the development, production and joint-distribution of
GRADIUM based optical products in Europe. Rodenstock products include high-end
camera lenses, precision optical components, medical instruments and laser and
imaging systems. The Company anticipates that this Agreement will provide a
vehicle to expand the presence of its products in Europe to a much higher level
9
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
without expanding its resources, although there can be no assurances in this
regard. First quarter sales to the largest YAG laser manufacturers and suppliers
in the world, Lumonics Corporation and Rofin-Sinar GmbH, continued as well as
work with Karl Storz in the area of endoscopes. Although the Company worked with
Fuji to retain an exclusive agreement for television camera lenses after the
April 1998 contract expired, Fuji indicated after further evaluation of lens
data, that they will not proceed with an exclusive agreement. The Company
currently has relationships with eight industrial, optoelectronic and medical
component distributors based around the globe. The Company believes these
distributors may create new and sustain existing markets for GRADIUM in their
respective countries primarily in the area of the YAG laser market. For example,
Permanova Lasersystems AB of Sweden, which completed lengthy trials in 1998 and
qualified GRADIUM YAG lenses into systems produced by Rofin-Sinar GmbH, a major
high-powered CO2 and YAG laser OEM headquartered in Germany.
Revenues totaled $191,000 for 1999, an increase of approximately
$25,000 or 15% over 1998. The increase was attributable to $5,000 in additional
lens sales, primarily for lasers and wafer chip inspection, and an increase of
$20,000 in product development/license fees. Sales of laser lenses during this
period did not grow at the rate the Company had projected due to reduced laser
equipment sales into Asia. The Company expects this trend of relatively flat
laser lens sales to continue for fiscal 1999. Sales for wafer chip inspection
lenses increased to prior levels in the quarter after a 1998 downturn due to
problems with the Asian economy. Revenues for government funded subcontracts in
the area of optoelectronics totaled $38,000 for 1999 versus $18,000 for solar
energy work in 1998. At September 30, 1998, a backlog of $120,000 existed for
lens sales and $312,000 in government project funding.
In 1999, cost of sales was 60% of product sales, a slight increase from
1998, when cost of sales was 56% of product sales. The increase was primarily
due to lower margins in sales to the wafer chip inspection markets. It is
anticipated that with increased volume and the increased utilization of
off-shore lens finishers, the cost of traditional optics production could be
decreased. Selling, general and administrative costs decreased $96,321, or 11%
from 1998, primarily due to the reduction of personnel in administration and the
reduction in overhead and personnel costs associated with LightChip. Research
and development costs decreased $26,544 in 1999 versus 1998. The majority of
development work consisted of expenses associated with the SMF assembly design
and manufacturing process. In addition, development work is on-going to expand
GRADIUM products to the areas of multiplexers, interconnects and cross-connects
for the telecommunications industry.
Investment income increased approximately $26,000 in 1999 due to the
increase in interest earned on temporary investments primarily as a result of
increased cash due to the 1998 private placements of convertible preferred
stock. Interest expense was not significant in 1999 or 1998. The Company
accounts for the investment in LightChip under the equity method. In June 1998,
the Company committed to purchase $1.25 million of LightChip preferred stock
thereby requiring the Company to recognize approximately all of LightChip's loss
until the private placement occurred. With the completion of the September 1998
private placement, the Company's share of LightChip losses was reduced to its
ownership percentage of approximately 26%.
Net loss of $962,106 in 1999 was an increase of $49,507 from 1998 of
which $215,754 relates to recognition of LightChip's loss. The remaining
decrease of $166,243 was due to an increase in gross margin of $16,211,
decreases in selling, general and administrative costs, and lower research and
development costs totaling $122,865 and the increase in net interest income of
$27,171. Net loss applicable to common shareholders of $1,061,683 included
additional charges of $99,577 for the 8% premium on the preferred stock. Net
loss per share of $.31 was a decrease of $.11 from 1998 net loss per share of
$.42. The 1999 net loss per share was negatively impacted by $.07 due to
LightChip's losses and $.03 due to the 8% premium on the preferred stock. The
1998 net loss per share contains an imputed dividend of $.09 arising from the
issuance of preferred stock and $.01 due to the 8% premium on the preferred
stock.
FINANCIAL RESOURCES AND LIQUIDITY
LightPath had previously financed its operations through private
placements of equity, or debt until February 1996 when the IPO generated net
proceeds of approximately $7.2 million. From June 1997 through February 1998,
the Company completed three preferred stock private placements which generated
total net proceeds of approximately $7.2 million. The Company intends to
continue to explore additional funding opportunities in fiscal year 1999,
although it currently has no commitments for such funding. Cash used in
operations for the first quarter fiscal 1999 totaled approximately $839,000, a
decrease of $142,000 from fiscal 1998, primarily due to administrative cost
reductions. The Company expects to continue to incur losses until such time, if
10
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ever, as it obtains market acceptance for its products at sale prices and
volumes which provide adequate gross revenues to offset its operating costs.
During fiscal 1999, the Company currently anticipates that approximately
$500,000 will be expended for capital equipment and patent protection. To date,
actual expenditures were approximately $136,000 and commitments for $200,000 are
outstanding. The majority of the capital expenditures during the quarter were
for equipment used to expand the Company's manufacturing facilities for
collimator production.
The Company purchased its 51% of the voting stock of LightChip for
$23,720 in 1998. In September 1998, LightChip obtained a significant equity
commitment of $6.5 million from the sale of convertible preferred stock to
LightPath ($1.25 million) and AT&T Ventures ($5.25 million). Phase one of the
funding, resulting in approximately $3.5 million, was received in September and
the balance is due at the next stage of product development, currently
anticipated to occur in fiscal 1999. In addition, debt holders of LightChip
converted all of their outstanding balances to preferred stock and exercised
substantially all of the outstanding warrants as part of the equity investment.
As a result of these transactions, the Company controls approximately 26% of
LightChip's voting stock at September 30, 1998.
The Company believes that projected product sales and proceeds from the
sale of its Series C Convertible Preferred Stock will provide adequate working
capital into fiscal 1999 and will be used primarily to assist the Company's
entrance into optoelectronics products development and sales. The Company
intends to satisfy its fiscal 1999 obligation to purchase preferred stock in
LightChip and other capital requirements by revenues generated from projected
future product sales, and the reduction of operating expenses. Such sales will
depend on the extent that the SMF assembly, collimating lenses and GRADIUM glass
become commercially accepted and at levels sufficient to sustain its operations.
There can be no assurance that the Company will generate sufficient revenues to
fund its future operations and growth strategies. In addition, the Company may
be required to seek additional financing to fund its obligation to provide
future capital investments in LightChip or alter its business plan in the event
of delays for commercial production orders or unanticipated expenses. The
Company currently has no credit facility with a bank or other financial
institution. There also can be no assurance that any additional financing will
be available if needed, or, if available, will be on terms acceptable to the
Company. In the event necessary financing is not obtained, the Company's
business and results of operations will be materially adversely affected and the
Company may have to cease or substantially reduce its operations. Any commercial
financing obtained by the Company in the future is likely to impose certain
financial and other restrictive covenants upon the Company and result in
additional interest expense. Further, any issuance of additional equity or debt
securities could result in further dilution to the Company's existing investors.
YEAR 2000 RISKS; INFLATION; SEASONALITY
Some computer applications were originally designed to recognize
calendar years by their last two digits. As a result, calculations performed
using these truncated fields will not work properly with dates from the year
2000 and beyond. This problem is commonly referred to as the "Year 2000 Issue".
The Company has determined that its internal computer systems, manufacturing
equipment and software products were produced in compliance with the Year 2000
Issue and no material remediation costs have been incurred or are expected to be
incurred by the Company. The Company has undertaken to confirm in writing
whether the internal business operations of third parties with whom it has a
material relationship will be affected by the Year 2000 Issue. The Company's
assessment of third parties is not yet complete and the Company projects the
assessment process will be completed prior to March 31, 1999. Given the status
of our assessment a formal contingency plan has not yet been established for
non-compliant third parties.
The Company has not been significantly impacted by inflation in 1999
due to the nature of its product components and in prior years the Company was
principally engaged in basic research and development. The Company does not
believe that seasonal factors will have a significant impact on its business.
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,
1998. In addition, LightPath is subject to various claims and lawsuits in the
ordinary course of its business, none of which are considered material to the
Company's financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Katherine E. Dietze joined the Board of Directors on October 19, 1998.
Ms. Dietze is currently employed as Managing Director in the Global
Telecommunications and Media Group in the investment banking department of
Credit Suisse First Boston, a leading global investment bank. . Ms. Dietze was
nominated by the other Directors to fill the vacancy left by Milton Klein, M.D.
who resigned his position on October 19, 1998, after serving on the board since
the Company's inception, due to professional and personal commitments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Net Loss Per Share 1
Exhibit 27 - Financial Data Schedule 1
1. Filed herewith.
b) No reports on Form 8-K were filed under the Securities and Exchange
Act of 1934 during the quarter ended September 30, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed in its behalf by the
undersigned, thereunto duly authorized.
LIGHTPATH TECHNOLOGIES, INC.
By: /s/ Donald Lawson November 4, 1998
------------------------------------
Donald Lawson Date
Chief Executive Officer
13
EXHIBIT 11
COMPUTATION OF NET LOSS PER SHARE
FOR THE THREE MONTHS
ENDED SEPTEMBER 30
---------------------------
1998 1997
---- ----
Net loss $ (962,106) $ (912,599)
Preferred stock 8% premium (99,577) (32,099)
Imputed dividend on Series A Preferred Stock -- (238,650)
----------- -----------
Net loss applicable to common shareholders $(1,061,683) $(1,183,348)
----------- -----------
Weighted average common shares outstanding 3,466,062 2,796,866
=========== ===========
Basic and Diluted net loss per common share $ (.31) $ (.42)
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 19998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 2,598,301
<SECURITIES> 0
<RECEIVABLES> 265,969
<ALLOWANCES> 0
<INVENTORY> 539,062
<CURRENT-ASSETS> 3,494,633
<PP&E> 1,700,852
<DEPRECIATION> 922,986
<TOTAL-ASSETS> 5,771,371
<CURRENT-LIABILITIES> 322,317
<BONDS> 0
0
4
<COMMON> 37,243
<OTHER-SE> 29,546,148
<TOTAL-LIABILITY-AND-EQUITY> 5,771,371
<SALES> 152,610
<TOTAL-REVENUES> 190,728
<CGS> 91,840
<TOTAL-COSTS> 91,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 850
<INCOME-PRETAX> (962,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (962,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (962,106)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
</TABLE>
