================================================================================
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-QSB
___________________
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
COMMISSION FILE NUMBER 000-27548
----------------------
LIGHTPATH TECHNOLOGIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 86-0708398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6820 ACADEMY PARKWAY EAST, N.E. HTTP://WWW.LIGHT.NET 87109
ALBUQUERQUE, NEW MEXICO (ZIP CODE)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(505)342-1100
-----------------
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES __X__ NO ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date:
Common Stock, Class A, $.01 par value 4,876,512 shares
Common Stock, Class E-1, $.01 par value 1,492,480 shares
Common Stock, Class E-2, $.01 par value 1,492,480 shares
Common Stock, Class E-3, $.01 par value 994,979 shares
- --------------------------------------- --------------
Class OUTSTANDING AT APRIL 30, 1999
================================================================================
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
ITEM PAGE
- ---- ----
PART I FINANCIAL INFORMATION
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
Legal Proceedings 16
Changes in Securities and Use of Proceeds 16
Defaults Upon Senior Securities 16
Submission of Matters to a Vote of Security Holders 16
Other Information 16
Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1998
----------------------------------
UNAUDITED
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 999,271 $ 4,237,400
Trade accounts receivable - less allowance of $15,000 and $0 263,026 256,491
Inventories (NOTE 2) 589,059 488,710
Advances to employees and related parties 18,557 38,560
Prepaid expenses and other 22,715 43,629
----------------------------------
Total current assets 1,892,628 5,064,790
Property and equipment - net 864,966 723,838
Intangible assets - net 568,206 519,839
Investment in LightChip, Inc. (NOTE 3) 612,767 -
----------------------------------
Total assets $ 3,938,567 $ 6,308,467
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 155,021 $ 190,530
Accrued payroll and benefits 146,428 232,051
----------------------------------
Total current liabilities 301,449 422,581
Accrued loss of LightChip, Inc. - 921,662
Note payable to stockholder 30,000 30,000
Commitments and contingencies
Redeemable common stock
Class E-1 - performance based and redeemable common stock
1,492,480 and 1,481,584 shares issued and outstanding 14,925 14,816
Class E-2 - performance based and redeemable common stock
1,492,480 and 1,481,584 shares issued and outstanding 14,925 14,816
Class E-3 - performance based and redeemable common stock
994,978 and 987,715 issued and outstanding 9,950 9,877
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized;
Series A convertible shares, 37 and 49 issued and outstanding,
Series B convertible shares, 1 and 126 issued and outstanding,
Series C convertible shares, 152 and 361 issued and outstanding,
$1,900,000 liquidation preference at March 31, 1999 2 5
Common stock:
Class A, $.01 par value, voting; 34,500,000 shares authorized;
4,615,634 and 3,330,607 shares issued and outstanding 46,156 33,306
Additional paid-in capital 29,747,976 28,103,439
Accumulated deficit (26,226,816) (23,242,035)
----------------------------------
Total stockholders' equity 3,567,318 4,894,715
----------------------------------
Total liabilities and stockholders' equity $ 3,938,567 $ 6,308,467
==================================
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31 MARCH 31
UNAUDITED 1999 1998 1999 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Lenses and other $ 159,854 $ 113,963 $ 513,437 $ 385,651
Product development fees 131,747 10,000 223,461 110,515
-----------------------------------------------------------------
Total revenues 291,601 123,963 736,898 496,166
COSTS AND EXPENSES
Cost of goods sold 80,632 71,419 296,647 222,728
Selling, general and administrative 710,474 883,178 2,223,541 2,572,131
Research and development 200,628 122,651 501,796 447,479
----------------------------------------------------------------
Total costs and expenses 991,734 1,077,248 3,021,984 3,242,338
-----------------------------------------------------------------
Operating loss (700,133) (953,285) (2,285,086) (2,746,172)
OTHER INCOME(EXPENSE)
Investment income 13,204 54,877 83,863 110,098
Interest and other expense (441) (1,258) (10,089) (4,162)
Equity in loss of LightChip, Inc. (NOTE 3) (225,463) - (576,810) (23,720)
----------------------------------------------------------------
Net loss $(912,833) $(899,666) $(2,788,122) $(2,663,956)
================================================================
Net loss applicable to common shareholders $(950,851) $(1,429,878) $(2,984,781) $(3,926,735)
================================================================
Basic and diluted net loss per share (NOTE 5) $(.21) $(.46) $(.73) $(1.34)
================================================================
Number of shares used in per share calculation 4,602,501 3,080,463 4,091,651 2,916,691
================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
UNAUDITED 1999 1998
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,788,122) $(2,663,956)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 262,781 199,420
Allowance for doubtful accounts 15,000 -
Services provided for common stock - 11,250
Equity in loss of LightChip, Inc. 576,810 23,720
Changes in operating assets and liabilities:
Receivables, advances to employees, related parties (1,532) (46,632)
Inventories (100,349) (181,621)
Prepaid expenses and other 20,914 (1,846)
Accounts payable and accrued expenses (121,132) (186,478)
-------------------------------
Net cash used in operating activities (2,135,630) (2,846,143)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions - net (387,558) (162,134)
Costs incurred in acquiring patents (64,718) (30,409)
Investment in LightChip, Inc. (713,333) (23,720)
-------------------------------
Net cash used in investing activities (1,165,609) (216,263)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sales of Convertible Series A
and Series B preferred stock, net - 6,802,576
Proceeds from exercise of common stock options and warrants 39,950 -
Proceeds from issuance of common stock 23,160 308,206
-------------------------------
Net cash provided by financing activities 63,110 7,110,782
-------------------------------
Net (decrease) increase in cash and cash equivalents (3,238,129) 4,048,376
Cash and cash equivalents at beginning of period 4,237,400 993,505
===============================
Cash and cash equivalents at end of period $ 999,271 $5,041,881
===============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Class A common stock issued for services $ - $ 11,250
Sale of securities by LightChip, Inc. $ 1,397,906 $ -
Class E common stock issued $ 291 $ 846
Conversions of preferred stock to Class A common stock $ 12,717 $ 3,805
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 1999
ORGANIZATION
LightPath Technologies, Inc. (the Company or LightPath) was incorporated in
Delaware on June 15, 1992 as the successor to LightPath Technologies Limited
Partnership formed in 1989, and its predecessor, Integrated Solar Technologies
Corporation formed on August 23, 1985. The Company is engaged in the production
of GRADIUM(R) glass lenses and other optical materials and performs research and
development for optical solutions for the fiber telecommunications and
traditional optics markets. GRADIUM glass is an optical quality glass material
with varying refractive indices, capable of reducing optical aberrations
inherent in conventional lenses and performing with a single lens, or fewer
lenses, tasks performed by multi-element conventional lens systems and enabling
technology for emerging markets such as optoelectronics and telecommunications.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Article 310(b) of Regulation S-B and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's financial statements and related notes
included in its Form 10-KSB for the fiscal year ended June 30, 1998, as filed
with the Securities and Exchange Commission on September 17, 1998.
The information furnished, in the opinion of management, reflects all
adjustments, which include normal recurring adjustments, necessary to present
fairly the financial position, results of operations and cash flows of the
Company for the interim periods presented. Results of operations for interim
periods are not necessarily indicative of results which may be expected for the
year as a whole.
1. SUMMARY OF SIGNIFICANT ACCOUNTING MATTERS
CASH AND CASH EQUIVALENTS consist of cash in the bank and temporary investments
with maturities of ninety days or less when purchased.
INVENTORIES which consists principally of raw materials, lenses and components
are stated at the lower of cost or market, on a first-in, first-out basis.
Inventory costs include material, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to seven years.
INTANGIBLE ASSETS consisting of licenses, patents and trademarks, are recorded
at cost. Upon issuance of the license, patent or trademark, these assets are
amortized on the straight-line basis over the estimated useful lives of the
related assets from ten to seventeen years. The recoverability of carrying
values of these assets is evaluated on a recurring basis.
INVESTMENTS consists of the Company's ownership interest in LightChip Inc.
(LightChip) which is accounted for under the equity method.
INCOME TAXES are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, which requires an
asset and liability approach to financial accounting and reporting for income
taxes.
5
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based upon enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
REVENUE RECOGNITION occurs from sales of products upon shipment or as earned
under product development agreements.
RESEARCH AND DEVELOPMENT costs are expensed as incurred.
STOCK BASED EMPLOYEE COMPENSATION is accounted for under the provisions of APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which requires no
recognition of compensation expense when the exercise price of the employee's
stock option equals the market price of the underlying stock on the date of
grant.
Pro forma information required by Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, has been presented under the
fair value method using a Black-Scholes option pricing model.
PER SHARE DATA is accounted for under the provisions of the Statement of
Financial Accounting Standards No. 128 (FAS 128), EARNINGS PER SHARE. See Note
5.
MANAGEMENT USES ESTIMATES and makes assumptions during the preparation of the
Company's financial statements that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which in turn could impact the
amounts reported and disclosed herein.
FAIR VALUES OF FINANCIAL INSTRUMENTS of the Company are disclosed as required by
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUES OF FINANCIAL INSTRUMENTS. The carrying amounts of cash and cash
equivalents, trade accounts receivable, accounts payable and accrued
liabilities, and note payable to stockholder approximate fair value.
IMPAIRMENT OF LONG-LIVED ASSETS is accounted for under the provisions of
Statement of Financial Accounting Standards No. 121, IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In the event that facts and
circumstances indicate that the cost of intangible or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to fair value is required.
2. INVENTORIES
The components of inventories include the following:
March 31, June 30,
1999 1998
Finished goods and work in process $ 442,337 $ 362,176
Raw materials 146,722 126,534
----------------- ------------------
Total inventories $ 589,059 $ 488,710
================= ==================
6
<PAGE>
3. INVESTMENT IN LIGHTCHIP, INC.
During fiscal 1998, the Company applied the equity method of accounting to its
$23,720 cash investment in LightChip, a development stage company, until its
share of net losses were reduced to zero at which time the Company discontinued
applying the equity method of accounting. In June 1998, the Company committed to
purchase $1.25 million of LightChip convertible preferred stock thereby
requiring the Company to recognize a loss of $921,662 for substantially all of
LightChip's losses during fiscal 1998.
On September 9, 1998, LightPath purchased 2,266,667 shares of voting Series A
convertible preferred stock of LightChip in a private placement participating
with AT&T Ventures who acquired 9,400,000 shares of voting Series A convertible
preferred stock (Preferred Stock) for an aggregate of approximately $3.5
million. LightPath and AT&T Ventures have committed to purchase an additional
$570,000 and $2.5 million, respectively, of voting Series A1 convertible
preferred stock due upon completion of product design requirements. Each share
of Preferred Stock was issued at $.30 per share, 8% per annum dividend if
declared, noncumulative and a liquidation preference equal to the purchase price
plus any declared but unpaid dividends. In conjunction with the private
placement all the convertible bridge loans outstanding at LightChip, totaling
$890,000, converted to Preferred Stock at $.30 per share as permitted in the
debt agreement. In addition, substantially all of the warrant holders of
LightChip exercised their warrants, including 111,111 shares received upon
exercise by LightPath. In total, LightChip issued approximately 16,460,000
shares of Preferred Stock. Each share of Preferred Stock is convertible into one
share of Common Stock at (i) the option of the holder, (ii) the consent of the
majority of the outstanding Preferred Stock or (iii) an initial public offering
if gross proceeds from the offering exceed 5 times that paid by the Preferred
Stock holders.
Accordingly, the Company recognized all of LightChip's losses from July 1, 1998
through the closing of the private placement on September 9, 1998, which upon
completion, reduced the Company's voting interest to approximately 26%. From the
closing date through March 31, 1999, the Company recognized its pro-rata share
of LightChip's losses (approximately 26%). Upon completion of the sale of the
Preferred Stock by LightChip, the Company recorded an increase to additional
paid in capital of $1,397,906 which represents an amount necessary to increase
LightPath's Investment in LightChip to its pro rata share of total LightChip
equity at this date. Due to the Company's tax position, no deferred tax effects
were recognized related to this increase to stockholders' equity.
7
<PAGE>
4. STOCKHOLDERS' EQUITY
The Series A, Series B and the Series C Convertible Preferred Stock have a
stated value and liquidation preference of $10,000 per share, plus an 8% per
annum premium. The holders of the Series A, Series B and Series C Convertible
Preferred Stock are not entitled to vote or to receive dividends. Each share of
Series A, Series B and Series C Convertible Preferred Stock is convertible at
the option of the holder, into Class A common stock based on its stated value at
the conversion date divided by a conversion price. The conversion price is
defined as the lesser of $5.625, $7.2375 and $6.675 for the Series A, Series B
and Series C Convertible Preferred Stock, respectively, or 85% of the average
closing bid price of the Company's Class A common stock for the five days
preceding the conversion date. Approximately 1,272,000 shares of Class A common
stock were issued upon the conversion of 346 shares of Series A, Series B and
Series C Preferred Stock during the nine months ended March 31, 1999.
<TABLE>
<CAPTION>
Preferred Common Warrants Warrants Warrants Common
Stock -
Series Stock Class Class Class Stock
SHARES OUTSTANDING A, B & C CLASS A A & B C, E & G D, F & H OPTIONS
- ------------------ -------- ------- ----- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
June 30, 1998 536 3,330,607 4,519,000 914,068 123,345 983,875
Issuance of shares - 6,093 - - - -
Conversions (346) 1,271,670 - - - -
Option grants - - - - - 248,600
Exercise of options - 7,264 - - - (7,264)
Forfeitures - - - - - (98,700)
Outstanding at
March 31, 1999 190 4,615,634 4,519,000 914,068 123,345 1,126,511
</TABLE>
8
<PAGE>
5. NET LOSS PER SHARE
Basic and Diluted net loss per common share is computed based upon the weighted
average number of common shares outstanding during each period presented. The
computation of Diluted net loss per common share does not differ from the basic
computation because potentially issuable securities would be anti-dilutive. The
following outstanding securities were not included in the computation of diluted
earnings per share at March 31, 1999: Class A common stock options 1,126,511,
private placement warrants 1,037,413, IPO warrants 4,519,000, 605,000 Class A
shares reserved for the convertible preferred stock and the Class E common stock
that is automatically converted into Class A common stock upon attainment of
certain performance criteria. However, an eight percent premium earned by the
preferred shareholders was added to the net loss to reflect the net loss
applicable to common shareholders (see table below). In addition, net loss
applicable to common shareholders was increased by an imputed dividend in the
amount of $432,575 and $1,055,800 for the three and nine months ended March 31,
1998, respectively. The prior year imputed dividend resulted from a discount
provision included in the Series A, Series B and Series C Preferred Stock.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------- --------------- --------- -------------- --------------- ----------
Per
Income Shares Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
-------------- --------------- --------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999
- ----
Net loss $(912,833) $(2,788,122)
Less: Preferred Stock Premium (38,018) (196,659)
BASIC AND DILUTED EPS
Net loss applicable to common
shareholders $(950,851) 4,602,501 $(.21) $(2,984,781) 4,091,651 $(.73)
1998
- ----
Net loss $(899,666) $(2,663,956)
Less: Preferred Stock Premium (97,637) (206,979)
Imputed dividend on
Series A, Series B and
Series C Preferred
Stock (432,575) (1,055,800)
BASIC AND DILUTED EPS
Net loss applicable to common
shareholders $(1,429,878) 3,080,463 $(.46) $(3,926,735) 2,916,691 $(1.34)
</TABLE>
9
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------------
OPERATIONS
- ----------
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 ("THE ACT") PROVIDES A SAFE
HARBOR FOR FORWARD LOOKING STATEMENTS MADE BY OR ON BEHALF OF THE COMPANY. ALL
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT, OTHER THAN STATEMENTS
OF HISTORICAL FACTS, WHICH ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE
COMPANY EXPECTS OR ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING SUCH
THINGS AS FUTURE CAPITAL EXPENDITURES, GROWTH, PRODUCT DEVELOPMENT, SALES,
BUSINESS STRATEGY AND OTHER SUCH MATTERS ARE FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON THE COMPANY'S EXPECTATIONS AND
ASSUMPTIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF
WHICH ARE BEYOND THE COMPANY'S CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE FORWARD-LOOKING STATEMENTS SET FORTH HEREIN AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S EARLY STAGE OF
DEVELOPMENT, THE NEED FOR ADDITIONAL FINANCING, INTENSE COMPETITION IN VARIOUS
ASPECTS OF ITS BUSINESS AND OTHER RISKS DESCRIBED IN THE COMPANY'S REPORTS ON
FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. IN LIGHT OF THESE RISKS AND
UNCERTAINTIES, ALL OF THE FORWARD-LOOKING STATEMENTS MADE HEREIN ARE QUALIFIED
BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE THAT THE ACTUAL
RESULTS OR DEVELOPMENTS ANTICIPATED BY THE COMPANY WILL BE REALIZED. THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY OF THE FORWARD LOOKING
STATEMENTS CONTAINED HEREIN.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1999 ("1999") COMPARED WITH THE THREE MONTHS ENDED
MARCH 31, 1998 ("1998")
During the third quarter of fiscal 1999 the Company's management
continued its efforts for 1) the sale of collimator lenses and assemblies and
the distribution of collimator samples to potential customers for testing and 2)
the development of fiberoptic switches based on the licensing agreement with
Herzel Laor. The Company's internal focus has been on the sale and shipment of
products and samples of LightPath's newly designed single-mode fiber collimator
assembly (SMF assembly), the scale-up of manufacturing equipment to meet
anticipated volumes and the refinement of our product based on customer
feedback. The LightPath SMF assembly is approximately 50-60% smaller than the
existing collimator. This entry level product currently used by the
telecommunications industry prevents light from diverging and shepherds it into
the next piece of equipment or fiber. The Company offers three product levels,
the collimating lens, a SMF assembly and a large-beam collimating assembly. The
collimating lens can replace existing lenses with immediate improvements in
performance, repeatability and cost. The SMF assembly offers superior
performance in the areas of back reflection and insertion loss at a very
competitive price. To date in fiscal 1999, production line SMF assembly,
large-beam collimating assembly and collimating lenses were delivered for
testing to approximately 50 potential customers in the U.S. and Asia. The
Company has received mostly favorable comments on the collimating lenses due to
the improvement potential customers have noted in insertion loss and the cost
structure. The Company displayed all three products at trade shows in January
and February 1999. These shows provided the Company with the ability to deliver
additional samples and to meet with potential customers to distribute
information on our products or to discuss test results from samples previously
sent. During March 1999, the Company received over $30,000 in orders for all
three of the Company's collimator products from approximately 10 customers. The
Company believes these orders are for a second level of product testing and
could potentially lead to higher-volume production orders.
During the third quarter, the Company received, de-bugged and brought
on-line the automated laser polishing and fusion equipment used to manufacture
its collimator assemblies. This equipment, which was developed jointly with the
National Institute of Optics of Canada, is key to successful entry into the
collimator market. Utilizing this proprietary concept, the Company is entering
into this market with a low cost solution at a time when telecommunication
equipment OEMs are being forced to reduce their costs. The Company believes that
its proprietary glass and packaging technologies are well suited to provide cost
effective solutions in both the collimator and switch products, as well as
follow-on product offerings.
The Company also successfully conducted initial Bellcore testing during
the quarter on its collimator assembly products from the new production
equipment. Bellcore testing, in the form of both mechanical and environmental
reliability, is necessary for all telecommunications components.
During the third quarter, the Company pursued a partner to develop and
distribute two fiberoptic opto-mechanical switch technologies which the Company
had obtained from a December 1998 exclusive licensing agreements with Herzel
Laor. On April 27, 1999, the Company signed a joint assembly and distribution
agreement for the 2X2 and 1XN fiberoptic mechanical switches with Kaifa
Technology which is part of the larger Kaifa Group based in China. The Company
believes these agreements will accelerate its planned introduction of
10
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
fiberoptic switching products for the telecommunications market. Mr. Laor and
his businesses have been active in the development of fiberoptic switches for 20
years. The new products, for which patent applications have been filed, are
expected to enter into field trials by the end of calendar 1999. Under the terms
of the agreement with Kaifa, the two companies will jointly complete the
development of the two mechanical switches. The manufacturing and assembly will
occur in China. Both parties can market the switch products and a royalty will
be paid to LightPath for all product sold under the Kaifa name. Industry
estimates of the current market sales for the mechanical switch are
approximately $100 million. The Company anticipates sales of LightPath switches
in calendar 2000, although there can be no assurances in this regard. The
mechanical switch products are an excellent bridge to the materials development
the Company is undertaking for the more advanced optical matrix switch. It also
continues the Company's strategy of incorporating its proprietary materials
technology into an increasing number of optical telecommunication components to
achieve cost effective solutions. With follow-on products such as isolators and
amplifiers, the Company could develop its own products based on materials
enhancements or strategically partner with another company that already has such
a product offering.
The Company and the German optical products manufacturer Rodenstock
Prazisionsoptik GmbH ("Rodenstock") are proceeding with the marketing program
for the development, production and joint-distribution of GRADIUM based optical
products in Europe based upon the five year Strategic Agreement the companies
entered into in the first quarter of fiscal 1999. The Company believes the
relationship with Rodenstock may create new and sustain existing markets for
GRADIUM in Europe primarily in the area of imaging systems. The Company's
remaining distributors continue to work with existing markets for GRADIUM in
their respective countries primarily in the area of the YAG laser market.
Revenues totaled $292,000 for 1999, an increase of approximately
$168,000 or 135% over 1998. The increase was attributable to $46,000 in
additional product sales, primarily for lasers and wafer chip inspection lenses,
and $122,000 in product development/license fees. Sales of laser and wafer chip
inspection lenses during this period increased 40% which was 10% below the rate
the Company had budgeted due to reduced laser equipment sales, however, it is
stronger growth than the Company had experienced earlier in fiscal 1999. The
Company expects this trend to continue during the fourth quarter. Revenues for
government funded subcontracts in the area of optoelectronics totaled $56,000
for 1999. Development/license fees were $76,000 in 1999 versus $10,000 in 1998.
At March 31, 1999, a backlog of $95,000 existed for lens sales, $35,000 in
collimator sales and $204,000 in government project funding. In addition, the
Company's exclusive agreement with Karl Storz requires an increase in the
license fee to $20,833 per month effective January 1999. This minimum level
results in a total license fee of $250,000 for calendar year 1999.
In 1999, cost of sales was 50% of product sales, a decrease from 1998,
when cost of sales was 63% of product sales. The decrease was primarily due to
higher margins on sales to distributors during the quarter. It is anticipated
that with increased volume and the increased utilization of off-shore lens
finishers, the cost of traditional optics production could be decreased.
Selling, general and administrative costs decreased $172,704, or 20% from 1998,
primarily due to the reduction of personnel in administration and the reduction
in overhead and personnel costs associated with LightChip. Research and
development costs increased $77,977 in 1999 versus 1998. The majority of
development work consisted of expenses associated with the collimator assembly
design and manufacturing process. In addition, development work is on-going to
expand GRADIUM products to the areas of switches, interconnects and
cross-connects for the telecommunications industry.
Investment income decreased approximately $42,000 in 1999 due to the
decrease in interest earned on temporary investments as a result of a decrease
in cash balances. Interest expense was not significant in 1999 or 1998. The
Company accounts for the investment in LightChip under the equity method. The
Company's 26% share of LightChip losses was $225,463 for the quarter versus $0
in 1998.
Net loss of $912,833 in 1999 was an increase of $13,167 from 1998 of
which $225,463 relates to recognition of LightChip's loss and $40,856 due to a
decrease in other income (expense). These increased costs were partially offset
by a $121,747 increase in product development fees while the gross margin on
product sales increased $36,678. In addition, there was a $94,727 decrease in
operating costs primarily in selling, general and administrative expense. Net
loss applicable to common shareholders of $950,851 included an additional charge
of $38,018 for the 8% premium on the preferred stock. Net loss per share of $.21
was a decrease of $.25 from 1998 net loss per share of $.46 of which $.10 was
due to the increase in the number of weighted shares outstanding due to the
conversion of preferred stock. The 1998 net loss per share contains an
11
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
imputed dividend of $432,575 arising from the issuance of preferred stock and
$97,637 due to the 8% premium on the preferred stock.
NINE MONTHS ENDED MARCH 31, 1999 ("1999") COMPARED WITH THE NINE MONTHS ENDED
MARCH 31, 1998 ("1998")
During the nine months ended March 31, 1999, the Company's management
focused its efforts on four key areas 1) the completion of the AT&T Ventures'
financing for the Company's affiliate LightChip, 2) the sale and distribution of
collimator lens and assembly samples to potential customers for testing, 3) the
licensing agreement for fiberoptic switches between LightPath and Herzel Laor
and 4) the implementation of the strategic plan to focus the Company as a
provider of cost effective product solutions for the telecommunication optical
components industry. On September 9, 1998, LightChip received approximately $3.5
million from AT&T Ventures and LightPath as consideration for the issuance of
its Series A convertible preferred stock. The balance of the $6.5 million
commitment ($3 million) is due upon completion of certain product design
requirements by LightChip. In addition, $890,000 of LightChip's bridge loans
converted to equity and LightChip's warrants totaling $508,333 were exercised.
LightChip has relocated to the Boston metropolitan area to begin scale-up of
their research and development efforts to meet product design milestones. The
Company believes LightChip is making significant progress in the development of
its products for next-generation wavelength division multiplexing (WDM) products
for metro and local area network applications. The Company will experience
further dilution of its ownership in LightChip when the balance of the private
placement is funded, currently anticipated to occur by the Fall 1999.
LightPath has granted to LightChip a worldwide, royalty free license
for the use of GRADIUM glass, as well as any newly developed intellectual
property, in the field of fiber-optic communication systems, components and
devices. LightPath has retained the rights to the specific areas of fiber
collimators, isolators, amplifiers, circulators, couplers, splitters and
fiber-optic switches.
The Company's internal focus, during the nine month period, has been on
the development and shipment of product samples of LightPath's newly designed
single-mode fiber collimator assembly (SMF assembly) which is approximately
50-60% smaller than the existing collimator. This entry level product currently
used by the telecommunications industry prevents light from diverging and
shepherds it into the next piece of equipment or fiber. The Company offers three
product levels, the collimating lens, a SMF assembly and a large-beam collimator
assembly. The collimating lens can replace existing lenses with immediate
improvements in performance, repeatability and cost. The SMF assembly offers
superior performance in the areas of back reflection and insertion loss. It is
also more compact and the Company believes it can be manufactured at a
significantly lower cost than the competitive products currently available in
commercial quantities. In addition, LightPath is seeking to attract customers
interested in obtaining a second source supplier since the majority of existing
collimator sales are through one manufacturer. In 1999, production line SMF
assembly and collimating lenses were delivered for testing to approximately 50
potential customers in the U.S. and Asia. The first scale-up production orders
are expected in late calendar 1999 due to the amount of testing time required by
telecommunication customers. The Company has received mostly favorable comments
from potential customers on the collimating lenses due to improved insertion
loss. The Company displayed all three products at trade shows during January and
February 1999 resulting in the shipment of testing products to other potential
customers. Based on the cost of the Company's prototypes and GRADIUM lenses, the
Company believes the profit margin in these optoelectronics products will equal
or exceed the margins historically experienced in the traditional optics
markets.
In December 1998, LightPath and Herzel Laor entered into an exclusive
licensing agreement for the commercialization of two fiberoptic opto-mechanical
switch technologies. On April 27, 1999, The Company signed a joint assembly and
distribution agreement for the 2X2 and 1XN fiberoptic mechanical switches with
Kaifa Technology which is part of the larger Kaifa Group based in China. The
Company believes these agreements will accelerate its planned introduction of
fiberoptic mechanical switching products for the telecommunications market. Mr.
Laor and his businesses have been active in the development of fiberoptic
switches for 20 years. The new products, for which patent applications have been
filed, are expected to enter into field trials in the middle of calendar 1999.
Since the license agreement was signed, the Company has been working to develop
the first products for testing and establish a partnering relationship for
assembly and distribution. The Company believes its agreement with Kaifa
Technology will accomplish this goal. Under the terms of the agreement with
Kaifa, the two companies will jointly complete the development of the two
mechanical switches. The manufacturing and assembly will occur in China. Both
parties can market the switch
12
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
products and a royalty will be paid to LightPath for all product sold under the
Kaifa name. Industry estimates of the current market sales for the mechanical
switch are approximately $100 million, and the Company anticipates sales of
LightPath switches in calendar 2000. However, the telecommunications industry is
subject to, among other risks, intense competition and rapidly changing
technology, and there can be no assurances as to the Company's ability to
anticipate and respond to the demands and competitive aspects of this industry.
Consistent with the Company's strategy to focus its efforts in the
optoelectronics and telecommunications market, it has continued to work towards
further agreements with strategic companies to distribute GRADIUM into
traditional optic products. During 1999, the Company announced a five year
Strategic Agreement with the German optical products manufacturer Rodenstock
Prazisionsoptik GmbH for the development, production and joint-distribution of
GRADIUM based optical products in Europe. Rodenstock products include high-end
camera lenses, precision optical components, medical instruments and laser and
imaging systems. During December 1998, the Company and Rodenstock held a joint
marketing meeting in Germany to kick-off the program and coordinate efforts
under the Agreement. The Company anticipates that this Agreement will provide a
vehicle to expand the presence of its products in Europe to a much higher level
without expanding its resources, although there can be no assurances in this
regard. Sales to the largest YAG laser manufacturers and suppliers in the world
continued as well as work with Karl Storz in the area of endoscopes. Although
the Company worked with Fuji to retain an exclusive agreement for television
camera lenses after the April 1998 contract expired, Fuji indicated after
further evaluation of lens data, that they will not proceed with an exclusive
agreement. The Company currently has relationships with eight industrial,
optoelectronic and medical component distributors based around the globe. The
Company believes these distributors may create new and sustain existing markets
for GRADIUM in their respective countries primarily in the area of the YAG laser
market.
Revenues totaled $737,000 for 1999, an increase of approximately
$241,000 or 49% over 1998. The increase was attributable to $128,000 in
additional lens sales, primarily for lasers and wafer chip inspection, and
$113,000 in product development/license fees. Sales of lenses during this period
increased 33% which was below the 50% growth the Company had budgeted due to
reduced laser equipment sales into Asia. The Company expects the rate of growth
for laser and wafer chip inspection lenses to continue through the fourth
quarter. Revenues for government funded subcontracts in the area of
optoelectronics totaled $146,000 for 1999 versus $68,000 for solar energy work
during 1998. The Company received $77,000 in license and development fees for
1999 versus $43,000 in development fees during 1998. At March 31, 1999, a
backlog of $95,000 existed for lens sales, $35,000 in collimator sales and
$204,000 in government project funding. In addition, the agreement with Karl
Storz requires an increase in the license fee to $20,833 per month effective
January 1999.
In 1999, cost of sales was 58% of product sales, equal to the 1998
rate. It is anticipated that with increased volume and the increased utilization
of off-shore lens finishers, the cost of traditional optics production could be
decreased. Selling, general and administrative costs in 1999 decreased $348,590,
or 14% from 1998, primarily due to the reduction of personnel in administration
and the reduction in overhead and personnel costs associated with LightChip.
Research and development costs increased $54,317 in 1999 versus 1998. The
majority of development work consisted of expenses associated with the design
and manufacturing process for telecommunications industry products.
Investment income decreased approximately $26,000 in 1999 due to the
decrease in interest earned on temporary investments primarily as a result of
the decreased cash position of the Company. Interest expense was not significant
in 1999 or 1998. The Company accounts for the investment in LightChip under the
equity method. In June 1998, the Company committed to purchase $1.25 million of
LightChip preferred stock thereby requiring the Company to recognize
substantially all of LightChip's loss until the private placement occurred. With
the completion of the September 1998 private placement, the Company's share of
LightChip losses was reduced to its ownership percentage of approximately 26%.
The Company has recognized $576,810 in LightChip losses in 1999 versus $23,720
in 1998.
Net loss of $2,788,122 in 1999 was an increase of $124,166 from 1998 of
which $553,090 relates to recognition of LightChip's loss and the decrease in
other income (expense) of $32,162. The remaining decrease of $461,086 was due to
a $112,946 increase in product development fees, the increase in gross margin on
product sales of $53,867 and decreases in selling, general and administrative
costs, and lower research and development costs totaling $294,273. Net loss
applicable to common shareholders of $2,984,781 included additional charges of
$196,659 for the 8% premium on the preferred stock. Net loss per share of $.73
was a
13
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
decrease of $.61 from 1998 net loss per share of $1.34 of which $.29 was due to
the increase in weighted shares due to the conversion of preferred stock. The
1998 net loss applicable to common shareholders of $3,926,735 contains an
imputed dividend of $1,055,800 arising from the issuance of preferred stock and
$206,979 due to the 8% premium on the preferred stock.
FINANCIAL RESOURCES AND LIQUIDITY
- ---------------------------------
LightPath had previously financed its operations through private
placements of equity, or debt until February 1996 when the IPO generated net
proceeds of approximately $7.2 million. From June 1997 through February 1998,
the Company completed three preferred stock private placements which generated
total net proceeds of approximately $7.2 million. The Company intends to
continue to explore additional funding opportunities in fiscal year 1999,
although it currently has no commitments for such funding. Cash used in
operations for the first three quarters of fiscal 1999 totaled approximately
$2,136,000, a decrease of $710,000 from fiscal 1998, due in part to
administrative cost reductions. The Company expects to continue to incur losses
until such time, if ever, as it obtains market acceptance for its products at
sale prices and volumes which provide adequate gross revenues to offset its
operating costs. During fiscal 1999, the Company has expended for capital
equipment and patent protection approximately $453,000 and has outstanding
commitments for an additional $100,000. The majority of the capital expenditures
during the year were for equipment used to expand the Company's manufacturing
facilities for collimator production.
The Company purchased its 51% of the voting stock of LightChip for
$23,720 in 1998. In September 1998, LightChip obtained a significant equity
commitment of $6.5 million from the sale of convertible preferred stock to
LightPath ($1.25 million) and AT&T Ventures ($5.25 million). In September 1998,
phase one or approximately $3.5 million was received and the balance is due at
the next stage of product development, currently anticipated to occur in the
fall of 1999. In addition, debt holders of LightChip converted all of their
outstanding balances to preferred stock and exercised substantially all of the
outstanding warrants as part of the equity investment. As a result of these
transactions, the Company currently holds approximately 26% of LightChip's
voting stock.
The Company believes that projected product sales and proceeds from the
sale of its Series C Convertible Preferred Stock will provide adequate working
capital for the remainder of fiscal 1999. Such sales will depend on the extent
that the SMF assembly, collimating lenses and GRADIUM glass become commercially
accepted and at levels sufficient to sustain its operations. There can be no
assurance that the Company will generate sufficient revenues to fund its future
operations and growth strategies. At this time the Company does not believe
product sales will reach the level required to sustain its operations and growth
plans into fiscal 2000, therefore, the Company is actively pursuing additional
financing. If financing is not available, the Company may not be able to fund
its obligation to LightChip which would further dilute the ownership interest in
LightChip. The Company may also be required to alter its business plan in the
event of delays for commercial production orders or unanticipated expenses. The
Company currently has no credit facility with a bank or other financial
institution. There also can be no assurance that any additional financing will
be available if needed, or, if available, will be on terms acceptable to the
Company. In the event necessary financing is not obtained, the Company's
business and results of operations will be materially adversely affected and the
Company may have to cease or substantially reduce its operations. Any commercial
financing obtained by the Company in the future is likely to impose certain
financial and other restrictive covenants upon the Company and result in
additional interest expense. Further, any issuance of additional equity or debt
securities could result in further dilution to the Company's existing investors.
YEAR 2000 RISKS; INFLATION; SEASONALITY
- ---------------------------------------
Some computer applications were originally designed to recognize
calendar years by their last two digits. As a result, calculations performed
using these truncated fields will not work properly with dates from the year
2000 and beyond. This problem is commonly referred to as the "Year 2000 Issue".
The Company has determined that its internal computer systems, manufacturing
equipment and software products were produced in compliance with the Year 2000
Issue and no material remediation costs have been incurred or are expected to
14
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
be incurred by the Company. During the third quarter, the Company has confirmed
in writing whether the internal business operations of third parties with whom
it has a material relationship will be affected by the Year 2000 Issue. The
Company's assessment of third parties is complete and based on their response,
the Company believes its material third parties will not be adversely impacted
by Year 2000. The Company will continue to assess third parties through out the
remainder of 1999 and develop contingency plans if a third party is subsequently
found to be non-compliant.
The Company has not been significantly impacted by inflation in 1999
due to the nature of its product components and in prior years the Company was
principally engaged in basic research and development. The Company does not
believe that seasonal factors will have a significant impact on its business.
15
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LIGHTPATH TECHNOLOGIES, INC.
PART II
-------
ITEM 1. LEGAL PROCEEDINGS
There have been no material developments in any legal actions since the
period reported as to in the Company's Form 10-KSB for the year ended June 30,
1998. In addition, LightPath is subject to various claims and lawsuits in the
ordinary course of its business, none of which are considered material to the
Company's financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During 1997 the Company adopted a policy whereby employees may purchase
Class A common stock of the company at fair market value as payroll deduction.
During fiscal 1999 two employees have elected to make stock purchases of 6,093
shares at an average price of $3.80 per share. All of these shares were issued
in a private offering pursuant to Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). In relying upon Section 4(2) of the Act, the Company
limited its offering of the shares solely to the Employees. No other public
offering or advertisement was conducted. In addition, the Company relied upon
certain representations made by the Employees with respect to their
understanding of the Company's business and financial condition, and future
business prospects, and their intent to acquire the shares for their own
investment purposes and not with a view to resale. The resale of these shares
has been restricted and appropriate legends have been placed on the certificates
representing such restrictions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
During the third quarter, the title and responsibilities of Ms. Leslie
Danziger were changed from Executive Chairwoman of the Board of Directors to a
Non-Executive status. This modification reflects a change from a full time to a
part time status and Ms. Danziger's employment contract has been modified
accordingly.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 10.1 - Employment/Severance agreement between
Registrant and Leslie A. Danziger 1
Exhibit 11 - Computation of Net Loss Per Share 1
Exhibit 27 - Financial Data Schedule 1
1. Filed herewith.
b) No reports on Form 8-K were filed under the Securities Exchange Act of 1934
during the quarter ended March 31, 1999.
16
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LIGHTPATH TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed in its behalf by the
undersigned, thereunto duly authorized.
LIGHTPATH TECHNOLOGIES, INC.
By: /S/ Donald Lawson May 11, 1999
----------------------------------
Donald Lawson Date
Chief Executive Officer
17
EXHIBIT 10.1
------------
AGREEMENT
This Agreement ("AGREEMENT") by and between Leslie A. Danziger
(hereinafter referred to as "DANZIGER") and LightPath Technologies, Inc., a
Delaware corporation (hereinafter referred to as the "COMPANY"), shall become
effective on January 1, 1999. The Company and Danziger shall hereinafter be
referred to collectively as the "PARTIES."
WHEREAS, Danziger and the Company previously entered into that certain
Employment Agreement dated as of November 8, 1995 (as such agreement may have
been amended or supplemented, the "EMPLOYMENT AGREEMENT"), pursuant to which the
Company agreed to retain Danziger, and Danziger agreed to serve, as the
President and Chief Executive Officer of the Company.
WHEREAS, Danziger voluntarily and of her own free will irrevocably and
unconditionally resigned as Chief Executive Officer of the Company on or about
April 18, 1998, and Danziger voluntarily and of her own free will irrevocably
and unconditionally resigned her position as President of the Company on or
about October 12, 1997;
WHEREAS, the Company and Danziger desire to enter into this Agreement
to memorialize certain terms and conditions relating to Danziger's resignation
and to forever and finally settle certain claims arising therefrom;
NOW, THEREFORE, for and in consideration of the acts, payments,
covenants and mutual agreements herein described and agreed to be performed, the
Parties agree as follows:
A. COMPANY OBLIGATIONS
1. MONETARY PAYMENTS.
(a) During the period commencing on January 1, 1999 and
terminating on October 31, 1999 (the "TERMINATION DATE"), the Company shall
compensate Danziger in accordance with the following schedule:
MONTH(S) MONTHLY COMPENSATION
-------- --------------------
January 1999 $12,500
February 1999 10,417
March 1999 8,333
April 1 through October 31, 1999 6,250
(b) In addition to the amounts set forth in Section A1.(a),
the Company shall pay Danziger a lump sum cash payment equal to $54,650,
representing deferred salary compensation. Such amount shall be due and payable
on October 31, 1999.
<PAGE>
(c) All amounts payable pursuant to this Section A shall be
made in accordance with the Company's regular payroll policies in effect from
time to time, excluding the withholding of applicable Federal, state or other
taxes (collectively, "Taxes") based on Danziger's income hereunder. Danziger
shall have the sole responsibility for paying such Taxes.
2. STOCK OPTIONS. The parties acknowledge that Danziger has previously
been granted options to purchase shares of the Company's common stock (the
"COMMON STOCK"). In connection therewith, the parties agree that (i) the vesting
schedule for certain options held by Danziger to purchase 50,000 shares of
Common Stock, which is currently November 20, 1999, shall be accelerated such
that the vesting date for such options shall be the date of this Agreement, and
(ii) the expiration date for all options held by Danziger and fully vested as of
the date of this Agreement (including the options referred to in the preceding
clause (i)) shall be extended to January __, 2002, provided, however, that the
options granted to Danziger pursuant to that certain Stock Option Agreement,
dated March 11, 1994, shall expire by their terms. All other options to purchase
Common Stock held by Danziger that are not vested as of the date hereof shall
terminate. The parties acknowledge that the agreement set forth in the preceding
sentence may have the effect of causing certain incentive stock options held by
Danziger to constitute non-statutory stock options, and Danziger shall be
responsible for any tax liability to her resulting therefrom.
3. CONTINUED BENEFITS. The Company shall maintain in full force and
effect for Danziger's continued benefit and the benefit of her eligible
beneficiaries, until October 31, 1999, such benefits as are provided from time
to time to non-employee directors of the Company together with the payment of
health and dental insurance coverage as provided by COBRA.
4. EXPENSE REIMBURSEMENT. The Company shall reimburse Danziger for
reasonable travel and other out-of-pocket expenses incurred by her in the
performance of her duties hereunder, upon presentation of appropriate
documentation in compliance with the Company's policies and procedures relating
thereto.
B. WAIVER OF CLAIMS
In exchange for the agreements reflected in Section A above and the
other terms and considerations, Danziger and the Company hereby agree to the
following:
1. DANZIGER RELEASE. Danziger does hereby knowingly, voluntarily, and
irrevocably release and discharge the Company, its stockholders, officers,
directors, partners, agents, representatives, attorneys, employees, contractors,
managers, predecessors, successors, subsidiaries, parents, divisions, other
corporate affiliates, assigns and all other persons or entities acting by,
through, under, or in concert with any of them (hereafter collectively referred
to as "RELEASED PARTIES") from any and all claims, demands, liabilities,
judgments, damages, expenses, or causes of action of any kind or nature
whatsoever which Danziger, her heirs, personal representatives, and assigns, and
each of them, may now or hereafter have or assert, whether now known or unknown,
arising out of her employment relationship with the Company and her resignation
and termination therefrom. The claims which are waived, released and discharged
include, but are not limited to, breach of express or implied contract; breach
2
<PAGE>
of the covenant of good faith and fair dealing; wrongful discharge; public
policy torts of any kind or nature; discrimination on the basis of age, sex,
religion, disability, race, or any other reason prohibited by applicable law;
claims under the Civil Rights Act of 1991; the Labor Management Relations Act;
the Family and Medical Leave Act; Title VII of the Civil Rights Act of 1964; the
Equal Pay Act; the Employee Retirement Income Security Act of 1974; the
Americans with Disabilities Act; or the Age Discrimination in Employment Act,
all as amended, or any state or local law; tort claims of any kind whatsoever,
any other common law or statutory claims; claims for salary, wages, vacation
pay, severance pay, bonus payments, or earnings of any kind, fringe benefits,
medical or hospital expenses or benefits, litigation expenses, attorneys' fees,
employment reinstatement, compensatory damages of any kind, liquidated or
statutory damages, and any other amounts; any and all other damages arising out
of or connected in any way whatsoever with the employment of Danziger by the
Company at any time before the date of this Agreement, or with the separation of
such employment, whether known by the Parties at the time of the execution of
this Agreement or not.
Danziger acknowledges that the considerations afforded her under this
Agreement, including the payments described in Section A above, are in full and
complete satisfaction of any claims Danziger may have, or may have had, arising
out of her employment with the Company, or the termination thereof.
2. COMPANY RELEASE. The Company does hereby knowingly, voluntarily, and
irrevocably release and discharge Danziger, her agents, representatives,
attorneys, successors, assigns and all other persons acting by, through, under,
or in concert with any of them from any and all claims, demands, liabilities,
judgments, damages, expenses, or causes of action of any kind or nature
whatsoever which the Company and its successors and assigns, and each of them,
may now have or hereafter assert, which are either known by the Company as of
the date of this Agreement or which the Company should have known or discovered
upon reasonable inquiry, arising out of Danziger's employment relationship with
the Company and her resignation and termination therefrom. Notwithstanding
anything in this Section B.2. to the contrary, the Company shall not be deemed
to have released Danziger from any claims the Company may have or may hereafter
assert against Danziger for any theft or misappropriation of Inventions (as
defined below), Proprietary Information ( as defined below) or Developments (as
defined below) of the Company.
3. NO LITIGATION. Danziger agrees not to initiate, or cause to be
initiated against the Company any complaint, review, suit, investigation, or
proceeding of any kind individually or as a member of a class, pertaining in any
way to the matters released in this Agreement.
C. CONTINUED CONSULTING SERVICES
1. SCOPE OF SERVICES. During the period commencing on the date hereof
and ending on October 31, 1999, Danziger shall serve as a member of the board of
directors of the Company and, until a replacement is selected by the board of
directors, shall serve as Non-Executive Chairwoman of the board of directors.
Danziger hereby also agrees to make herself available upon Company's request,
from time to time, on a schedule acceptable to the Company for up to an average
of 40 hours per month during the term of the Agreement, including, without
3
<PAGE>
limitation, as a representative of the Company on the Board of Directors of
LightChip. Any travel time incurred by Danziger in the performance of her duties
hereunder shall not be included in the determination of the 40 hours stated in
the immediately preceding sentence. All of the services shall be rendered
pursuant to the reasonable instructions of the Company's Board of Directors or
Chief Executive Officer. Danziger shall be compensated for all of the services
to be rendered by Danziger pursuant to this Section C.1 in accordance with
Section A of this Agreement. Danziger shall use all of her best efforts to
reasonably complete the duties assigned her under this Agreement.
Notwithstanding the foregoing, in the event the Company shall not request
Danziger's services as provided in this Section C.1., Danziger shall remain
entitled to receive the compensation set forth in this Agreement.
2. NO EMPLOYMENT CONTRACT. Danziger acknowledges that this Agreement
does not constitute a contract of employment.
D. COMPANY PROPERTY
1. RETURN OF PROPERTY. Danziger shall return all Company property,
including handbooks or manuals, building or office access cards, keys and credit
cards immediately upon May 1, 1999. Danziger shall promptly return all computer
equipment immediately prior to the close of business on October 31, 1999.
2. INVENTIONS AND PROPRIETARY INFORMATION.
INVENTIONS.
-----------
(a) All inventions, discoveries, computer programs, data,
technology, designs, innovations and improvements, among other things,
(whether or not patentable and whether or not copyrightable)
("INVENTIONS") related to the business of the Company, including,
without limitation which are made, conceived, reduced to practice,
created, written, designed or developed by Danziger, solely or jointly
with others and whether during normal business hours or otherwise,
during the period of Danziger's employment by the Company prior to
execution of this Agreement through the Termination Date or thereafter
if resulting or directly derived from Proprietary Information (as
defined below) or if resulting or directly derived through work, time
and effort for which the Company compensated Danziger, shall be the
sole property of the Company. Danziger will not disclose any
Proprietary Information to any person or entity other than employees of
the Company who have a need to know such information or use the same
for any purposes (other than in the performance of her duties as an
employee of the Company) without written approval by an officer of the
Company, either during or after her employment with the Company, unless
and until such Proprietary Information has become public knowledge
without fault by Danziger.
(b) Danziger agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, laboratory notebooks,
program listings, or other written, photographic, or other tangible
material containing Proprietary Information, whether created by
Danziger or others, which shall come into her custody or possession,
shall be and are the exclusive property of the Company to be used by
4
<PAGE>
Danziger only in the performance of her duties for the Company. All
such materials or copies thereof and all tangible property of the
Company in the custody or possession of Danziger shall be delivered to
the Company, upon the earlier of (i) a request by the Company or (ii)
termination of her employment. After such delivery, Danziger shall not
retain any such materials or copies thereof or any such tangible
property.
(c) Danziger agrees that her obligation not to disclose or to
use information and materials of the types set forth in paragraphs (a)
and (b) above, and her obligation to return materials and tangible
property, set forth in paragraph (b) above, also extends to such types
of information, materials and tangible property of customers of the
Company or suppliers to the Company or other third parties who may have
disclosed or entrusted the same to the Company or to Danziger.
(d) For purposes of this Agreement, "PROPRIETARY INFORMATION"
means and includes the following: the identity of clients or customers
or potential clients or customers of the Company or its affiliates; any
written, typed or printed lists, or other materials identifying the
clients or customers of the Company or its affiliates; any financial or
other information supplied by clients or customers of the Company or
its affiliates; any and all data or information involving the Company,
its affiliates, programs, methods, or contacts employed by the Company
or its affiliates in the conduct of their business; any lists,
documents, manuals, records, forms, or other material used by the
Company or its affiliates in the conduct of their business; and any
other secret or confidential information concerning the Company's or
its affiliates' business or affairs. The terms "list," "document" or
other equivalents, as used in this subparagraph (d), are not limited to
a physical writing or compilation but also include any and all
information whatsoever regarding the subject matter of the "list" or
"document," whether or not such compilation has been reduced to
writing. "Proprietary Information" shall not include any information
which: (i) is or becomes publicly available through no act or failure
of Danziger; (ii) was or is rightfully learned by Danziger from a
source other than the Company before being received from the Company;
or (iii) becomes independently available to Danziger as a matter of
right from a third party. If only a portion of the Proprietary
Information is or becomes publicly available, then only that portion
shall not be Proprietary Information hereunder.
2.2. DEVELOPMENTS.
(a) Danziger will make full and prompt disclosure to the
Company of all Inventions, improvements, discoveries, methods,
developments, software, and works of authorship, whether patentable or
not, which are created, made, conceived or reduced to practice by her
or under her direction or jointly with others during her employment by
the Company and during the term of this Agreement, whether or not
during normal working hours or on the premises of the Company (all of
which are collectively referred to in this Agreement as
"DEVELOPMENTS.")
(b) Danziger agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all her
right, title and interest in and to all Developments and all related
5
<PAGE>
patents, patent applications, copyrights and copyright applications.
However, this paragraph 2.2(b) shall not apply to Developments which do
not relate to the present or planned business or research and
development of the Company and which are made and conceived by Danziger
not during normal working hours, not on the Company's premises and not
using the Company's tools, devices, equipment or Proprietary
Information. Danziger understands that, to the extent this Agreement
shall be construed in accordance with the laws of any state which
precludes a requirement in an employee agreement to assign certain
classes of inventions made by an employee, this paragraph 2.2(b) shall
be interpreted not to apply to any invention which a court rules and/or
the Company agrees falls within such classes. Danziger also hereby
waives all claims to moral rights in any Developments.
(c) Danziger agrees to cooperate fully with the Company, both
during and after her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and
other intellectual property rights (both in the United States and
foreign countries) relating to Developments. Danziger shall sign all
papers, including, without limitation, copyright applications, patent
applications, declarations, oaths, formal assignments, assignments of
priority rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in
any Development. Danziger further agrees that if the Company is unable,
after reasonable effort, to secure the signature of Danziger on any
such papers, any executive officer of the Company shall be entitled to
execute any such papers as the agent and the attorney-in-fact of
Danziger, and Danziger hereby irrevocably designates and appoints each
executive officer of the Company (whether now employed by the Company
or hereafter employed) as her agent and attorney-in-fact to execute any
such papers on her behalf, and to take any and all actions as the
Company may deem necessary or desirable in order to protect its rights
and interests in any Development, under the conditions described in
this sentence.
E. NO DISPARAGEMENT
The Parties agree that, as part of the consideration for this
Agreement, and as an expression of their desire to obtain an amicable
termination of their employment and business relationship, neither party will
make disparaging or derogatory statements, whether oral or written, about the
other party, or in the case of the Company, its subsidiaries, affiliates,
officers, directors, employees or agents, for a five (5) year period effective
at the date of execution of this Agreement unless required to by a court of law.
F. CONFIDENTIALITY
1. NONDISCLOSURE. Danziger shall keep confidential the terms and
existence of this Agreement and the negotiations that led to its creation and
execution to any third party or parties for a five (5) year period effective at
the date of execution of this Agreement unless required to by a court of law.
Any breach of this paragraph, including the disclosure of the foregoing
confidentiality provision, shall be deemed a material breach of this Agreement.
6
<PAGE>
2. CONFIDENTIAL MATERIAL. In the course of Danziger's employment by the
Company, Danziger had access to secret or confidential technical and commercial
information, business plans and strategies, financial information, financial
forecasts, business records, information regarding key business relationships,
records, data, specifications, systems, methods, plans, designs, policies,
inventions, material and other knowledge ("CONFIDENTIAL MATERIAL"), whether or
not copyrighted, owned by the Company and its subsidiaries. Danziger recognizes
and acknowledges that the Confidential Material is valuable, special and unique
to the Company's business. All such Confidential Material shall be and remain
the property of the Company. Danziger hereby affirms that during the course of
her employment with the Company she has not disclosed any Confidential
Information to any third party except in good faith and in the course of
fulfilling her assigned responsibilities. Except as required by her duties to
the Company under Section C, Danziger shall not, directly or indirectly, either
during the term of the Agreement under Section C, or at any time thereafter,
disclose or disseminate to anyone or make use of, for any purpose whatsoever,
any Confidential Material. Danziger shall not be deemed to have breached this
Section F if Danziger shall be specifically compelled by lawful order of any
judicial, legislative, or administrative authority or body to disclose any
Confidential Material or else face civil or criminal penalty or sanction. The
term "Confidential Material" does not include information which (i) is currently
or becomes generally available to the public other than as a result of a
disclosure by Danziger or (ii) becomes available to Danziger on a
nonconfidential basis from a source other than the Company or its
representatives provided that such source is not bound, to Danziger's knowledge
after due inquiry, by a confidentiality agreement with respect to such
information.
3. REMEDIES. Danziger hereby agrees that damages and any other remedy
available at law would be inadequate to redress or remedy any loss or damage
suffered by the Company upon any breach of the terms of this Section F by
Danziger, and Danziger therefore agrees that the Company, in addition to
recovering on any claim for damages or obtaining any other remedy available at
law, also may enforce the terms of this Section F by injunction or specific
performance, and may obtain any other appropriate remedy available in equity.
G. NON-COMPETE
1. NO COMPETITION. Danziger agrees that, for the term of this Agreement
and for a period of two (2) years commencing on the Termination Date, except in
accordance with her duties under this Agreement on behalf of the Company, she
shall not engage in, plan for, organize, work for, or assist, directly or
indirectly, any business that is competitive, directly or indirectly, with the
Company's business, nor solicit participants in or customers of the Company's
products and services, nor use Danziger's knowledge of the Company or its
business in any manner that competes, directly or indirectly, with the Company.
Danziger expressly understands that the Company has a legitimate business
purpose in requiring Danziger to abide by all of the restrictions described in
this paragraph. Danziger acknowledges that the services she rendered, and may
render, to the Company, the information exchanged between all parties in
connection with rendering those services, and Danziger's and the Company's
relationships with the Company's customers, consultants, employees, vendors,
banks, accountants, and any other Company product or service participants,
purchasers and suppliers are each of a unique and valuable character. Danziger
acknowledges that the market for the Company's products and services is national
and international in scope, and that any competition by Danziger for a two (2)
year period following the Termination Date would materially and unfairly harm
the Company's ability to carry out its business.
7
<PAGE>
2. LIMITATION OF ACTIVITIES. Danziger agrees that, during the term of
this Agreement and for a period of two (2) years after the Termination Date,
except in accordance with her duties under this Agreement on behalf of the
Company, the foregoing restrictions shall be understood to prohibit Danziger
from participating in the following non-exclusive list of activities.
(a) Participate in, be employed in any capacity by, serve as
director, consultant, agent or representative for, or have any
interest, directly or indirectly, in any enterprise which is engaged in
a business competitive to any products or services of the Company or
any of its subsidiaries, affiliates or joint ventures existing or
proposed, or at the locations at which any of such entities is
providing services or proposes to provide services at any time during
the term of this Agreement, or which are competitive to any products
and services offered or being actively developed by the Company to
Danziger's knowledge, with the bona fide intent to market same.
(b) In addition, Danziger agrees that she shall observe the
covenants set forth in this Section G and shall not own, either
directly or indirectly or through or in conjunction with one or more
members of her family or her spouse's family or through any trust or
other contractual arrangement, a greater than five percent (5%)
interest in, or otherwise control either directly or indirectly, any
partnership, corporation, or other entity which has products and
services that are competitive to any products and services being
developed or otherwise offered by the Company during the term of this
Agreement or being actively developed by the Company during the term of
this Agreement with a bona fide intent to market same. Danziger further
agrees, for such two-year period following the Effective Date, to
refrain from directly or indirectly soliciting the Company's vendors,
customers or employees, except that the Danziger may solicit the
Company's vendors or customers in connection with a business that does
not compete with the Company.
(c) Danziger agrees not to provide services as an employee or
as a consultant to any entity that is competitive, directly or
indirectly, with the Company or its products and services.
3. REMEDIES. Danziger hereby agrees that damages and any other remedy
available at law would be inadequate to redress or remedy any loss or damage
suffered by the Company upon any breach of the terms of this Section G by
Danziger, and Danziger therefore agrees that the Company, in addition to
recovering on any claim for damages or obtaining any other remedy available at
law, also may enforce the terms of this Section G by injunction or specific
performance, and may obtain any other appropriate remedy available in equity,
without the need to post a bond or other security.
8
<PAGE>
If any provision of this Section G is deemed, as a matter of law, to be
unreasonable as to time, area, or scope by any court or arbitrator, then such
court or arbitrator shall have authority to modify this paragraph as to time,
area or scope, but only to the limited extent necessary to make this paragraph
reasonable and in a manner intended to preserve the relative expectations,
benefits and intents of the parties hereto.
H. REPRESENTATIONS OF EMPLOYEE
Danziger, by her execution of this Agreement, represents and warrants
that the following statements are true:
1. That she has been given a fair and reasonable opportunity to read
this entire Agreement, that this Agreement is written in a manner that is
understandable to her and she has read and has had all questions regarding its
meaning and content answered to her satisfaction;
2. That she fully understands the contents of this Agreement and
understands that it is a full waiver of all claims against the Company;
3. That this full waiver of all claims is given in return for valuable
consideration, as provided under the terms of this Agreement;
4. That she entered into this Agreement knowingly and voluntarily in
exchange for the promises referenced in this Agreement, and that no other
representations have been made to her to induce or influence her to execute this
Agreement; and
5. That she has been advised that she may consult with counsel of her
own choosing before signing this Agreement.
I. MISCELLANEOUS
1. PENDING OBLIGATIONS. This Agreement and all provisions thereof,
including all representations and promises contained herein, are contractual and
not a mere recital and shall continue in permanent force and effect.
2. ENTIRE AGREEMENT. This Agreement constitutes the sole and entire
agreement of the Parties with respect to the subject matter hereof, and there
are no agreements of any nature whatsoever between the Parties hereto regarding
the subject matter hereof. The Parties expressly acknowledge and agree that that
certain Employment Agreement, upon execution of this Agreement, be of no further
force or effect. No provision of this Agreement shall be amended, waived or
modified except by an instrument in writing, signed by the Parties hereto.
3. NO VIOLATION OF LAW, ETC. It is understood and agreed that the
execution of this Agreement by the Company is not to be construed as an
admission of any violation of any statute, law or regulation or breach of any
contract or agreement or other liability on its part to Danziger other than to
comply with the terms of this Agreement.
4. ENFORCEABILITY. This Agreement may be enforced in any jurisdiction
within or outside the United States and this Agreement shall constitute a
severable and enforceable agreement in each of such jurisdictions,
notwithstanding any contrary choice of law or venue
9
<PAGE>
provisions set forth herein. In the event that any portion of this
Agreement is found to be invalid, illegal or unenforceable for any reason
whatsoever, that portion shall be considered to be severable and the remainder
of this Agreement shall continue to be in full force and effect. The parties
shall negotiate in good faith to preserve each partner's anticipated benefits
hereunder.
5. GOVERNING LAW. This Agreement shall be governed in all respects,
whether as to validity, construction, capacity, performance, or otherwise, by
the laws of the State of New Mexico, without regard to conflict of law
principles. The parties hereto hereby consent to personal jurisdiction in any
court of appropriate subject matter jurisdiction located in New Mexico County in
which the Company's principal executive officers are situated.
6. REMEDIES. In the event of default or breach set forth in the above
paragraphs are intended to be non-exclusive, and either party may, in addition
to such remedies, seek any additional remedies available either in law or in
equity.
7. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled by arbitration in Albuquerque,
New Mexico in accordance with the rules of the American Arbitration Association.
Judgement may be entered on the arbitrator's award in any court having
jurisdiction over this Agreement. The nonprevailing party shall pay the fees,
costs, and expenses of the arbitration proceeding (including reasonable
attorneys' fees).
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the dates get forth below.
DATED this 29 day of January, 1999.
/s/ Leslie A. Danziger
---------------------------
LESLIE A. DANZIGER
DATED this 29 day of January, 1999.
LIGHTPATH TECHNOLOGIES, INC.
By: /s/ Donald E. Lawson
------------------------
Name: Donald E. Lawson
Title: President & CEO
---------------------------
EXHIBIT 11
----------
COMPUTATION OF NET LOSS PER SHARE
FOR THE THREE MONTHS
ENDED MARCH 31
------------- -------------
1999 1998
---- ----
Net loss $ (912,833) $ (899,666)
Preferred stock 8% premium (38,018) (97,637)
Imputed dividend on Series A, Series B
and Series C Preferred Stock - (432,575)
------------- -------------
Net loss applicable to common shareholders $ (950,851) $ (1,429,878)
------------- -------------
Weighted average common shares outstanding 4,602,501 3,080,463
============= =============
Basic and Diluted net loss per common share $ (.21) $ (.46)
============= =============
FOR THE NINE MONTHS
ENDED MARCH 31
------------- -------------
1999 1998
---- ----
Net loss $(2,788,122) $ (2,663,956)
Preferred stock 8% premium (196,659) (206,979)
Imputed dividend on Series A, Series B
and Series C Preferred Stock - (1,055,800)
------------- -------------
Net loss applicable to common shareholders $(2,984,781) $ (3,926,735)
------------- -------------
Weighted average common shares outstanding 4,091,651 2,916,691
============= =============
Basic and Diluted net loss per common share $ (.73) $ (1.34)
============= =============
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB for the nine month period ended March 31, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 999,271
<SECURITIES> 0
<RECEIVABLES> 278,026
<ALLOWANCES> 15,000
<INVENTORY> 589,059
<CURRENT-ASSETS> 1,892,628
<PP&E> 1,941,962
<DEPRECIATION> 1,076,996
<TOTAL-ASSETS> 3,938,567
<CURRENT-LIABILITIES> 301,449
<BONDS> 0
0
2
<COMMON> 46,156
<OTHER-SE> 29,747,976
<TOTAL-LIABILITY-AND-EQUITY> 3,938,567
<SALES> 513,437
<TOTAL-REVENUES> 736,898
<CGS> 296,647
<TOTAL-COSTS> 296,647
<OTHER-EXPENSES> 7,933
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,146
<INCOME-PRETAX> (2,788,122)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,788,122)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,788,122)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
