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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-1
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
COMMISSION FILE NUMBER 000-27548
LIGHTPATH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0708398
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6820 Academy Parkway EasT, N.E. http://www.light.net 87109
Albuquerque, New Mexico (Zip Code)
(Address of principal executive offices)
(505)342-1100
Registrant's telephone number, including area code:
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:
Class Outstanding At December 14, 1999
- ----- --------------------------------
Common Stock, Class A, $.01 par value 7,009,441 shares
Common Stock, Class E-1, $.01 par value 1,492,480 shares
Common Stock, Class E-2, $.01 par value 1,492,480 shares
Common Stock, Class E-3, $.01 par value 994,979 shares
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<PAGE>
EXPLANATORY NOTE
LightPath Technologies, Inc. hereby amends its Quarterly Report on Form
10-QSB for the quarter ended September 30, 1999. This amendment is prompted by
the restatement of LightPath Technologies, Inc. financial statements for the
year ended June 30, 1999. The financial information contained in such report has
been restated to give effect to the reversal of a $1,397,907 increase to
additional paid in capital and to the investment in LightChip following the sale
of preferred stock by LightChip. The adjustment was recorded in LightPath's Form
10-KSB/A-2 for the year ended June 30, 1999, which was filed with the Commission
on December 20, 1999. Additionally, LightPath's net loss for the three months
ended September 30, 1999 has been decreased by $316,130, from the previously
reported $1,332,508 ($.26 per share - basic and diluted) to $1,016,378 ($.20 per
share - basic and diluted). The adjustment reflects the reversal of equity in
loss of LightChip during the three months ended September 30, 1999.
The summarized adjusted balances are reflected in the table below.
LIGHTPATH TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS AND
CONDENSED BALANCE SHEETS
Summary Financial Data Three Months Ended
(Unaudited) September 30, 1999
----------------------------
OPERATIONS As Reported As Amended
----------- -----------
Revenues $ 269,105 $ 269,105
Operating loss (589,411) (589,411)
Equity in losses of LightChip, Inc. (316,130) --
Net loss $(1,332,508) $(1,016,378)
=========== ===========
Net loss applicable to common
shareholders $(1,340,666) $(1,024,536)
=========== ===========
Basic and diluted net loss per share $ (.26) $ (.20)
Number of shares used in per share
calculation 5,222,931 5,222,931
=========== ===========
BALANCE SHEETS
Total Assets $ 4,206,558 $ 4,152,992
=========== ===========
Total Liabilities 443,215 1,013,215
Total Stockholders' Equity 3,723,543 3,099,977
Total Liabilities and
Stockholders' Equity $ 4,206,558 $ 4,152,992
=========== ===========
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
FORM 10-QSB/A-1
INDEX
Item Page
- ---- ----
PART I FINANCIAL INFORMATION
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
Legal Proceedings 13
Changes in Securities and Use of Proceeds 13
Defaults Upon Senior Securities 15
Submission of Matters to a Vote of Security Holders 15
Other Information 15
Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,717,720 $ 413,388
Trade accounts receivable - less allowance of $15,000 229,576 335,706
Inventories (NOTE 2) 584,389 514,669
Advances to employees and related parties 20,722 17,329
Prepaid expenses and other 22,169 19,124
------------ ------------
Total current assets 2,574,576 1,300,216
Property and equipment - net 994,145 893,537
Intangible assets - net 584,271 572,877
------------ ------------
Total assets $ 4,152,992 $ 2,766,630
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 280,608 $ 167,160
Accrued payroll and benefits 132,607 131,755
------------ ------------
Total current liabilities 413,215 298,915
Accrued loss of LightChip, Inc. (NOTE 3) 570,000 570,000
Note payable to stockholder 30,000 30,000
Commitments and contingencies
Redeemable common stock
Class E-1 - performance based and redeemable common
stock 1,492,480 shares issued and outstanding 14,925 14,925
Class E-2 - performance based and redeemable common
stock 1,492,480 shares issued and outstanding 14,925 14,925
Class E-3 - performance based and redeemable common
stock 994,979 issued and outstanding 9,950 9,950
Stockholders' equity (NOTES 4 AND 5)
Preferred stock, $.01 par value; 5,000,000 shares authorized;
Series A convertible shares, 2 and 37 issued and outstanding,
Series B convertible shares, 1 and 1 issued and outstanding,
Series C convertible shares, 0 and 84 issued and outstanding,
$30,000 liquidation preference at September 30, 1999 -- 1
Common stock:
Class A, $.01 par value, voting; 34,500,000 shares authorized;
6,505,348 and 4,960,703 shares issued and outstanding 65,053 49,607
Additional paid-in capital 30,660,164 28,379,011
Accumulated deficit (27,625,240) (26,600,704)
------------ ------------
Total stockholders' equity 3,099,977 1,827,915
------------ ------------
Total liabilities and stockholders' equity $ 4,152,992 $ 2,766,630
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
September 30
---------------------------
1999 1998
----------- -----------
REVENUES
Lenses and other $ 164,182 $ 152,610
Product development fees 104,923 38,118
----------- -----------
Total revenues 269,105 190,728
COSTS AND EXPENSES
Cost of goods sold 84,821 91,840
Selling, general and administrative 672,599 753,478
Research and development 101,096 127,096
----------- -----------
Total costs and expenses 858,516 972,414
----------- -----------
Operating loss (589,411) (781,686)
OTHER INCOME(EXPENSE)
Investment income 9,212 45,864
Interest and other expense (NOTE 4) (436,179) (850)
Equity in loss of LightChip, Inc. (NOTE 3) -- (225,434)
----------- -----------
Net loss $(1,016,378) $ (962,106)
=========== ===========
Net loss applicable to common shareholders $(1,024,536) $(1,061,683)
=========== ===========
Basic and diluted net loss per share (NOTE 6) $ (.20) $ (.31)
=========== ===========
Number of shares used in per share calculation 5,222,931 3,466,062
=========== ===========
See accompanying notes.
3
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,016,378) $ (962,106)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 83,233 66,791
Debt discount 425,795 --
Equity in loss of LightChip -- 225,434
Changes in operating assets and liabilities:
Receivables, advances to employees, related parties 102,737 (12,206)
Inventories (69,720) (50,352)
Prepaid expenses and other (3,045) (6,384)
Accounts payable and accrued expenses 114,300 (100,264)
----------- -----------
Net cash used in operating activities (363,078) (839,087)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions, net (178,760) (115,569)
Costs incurred in acquiring patents and license agreements (16,475) (20,140)
Investment in LightChip -- (713,333)
----------- -----------
Net cash used in investing activities (195,235) (849,042)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 6% convertible debentures,
net of offering costs 893,324 --
Proceeds from exercise of common stock options and warrants 960,521 39,950
Proceeds from issuance of common stock 8,800 9,080
----------- -----------
Net cash provided by financing activities 1,862,645 49,030
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,304,332 (1,639,099)
Cash and cash equivalents at beginning of period 413,388 4,237,400
=========== ===========
Cash and cash equivalents at end of period $ 1,717,720 $ 2,598,301
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Class A common stock issued upon conversion
of preferred stock $ 5,355 $ 3,843
Class E common stock issued $ -- $ 291
</TABLE>
See accompanying notes.
4
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 1999
ORGANIZATION
LightPath Technologies, Inc. (the Company) was incorporated in Delaware on June
15, 1992 as the successor to LightPath Technologies Limited Partnership formed
in 1989, and its predecessor, Integrated Solar Technologies Corporation formed
on August 23, 1985. The Company is engaged in the production of GRADIUM(R) glass
lenses, collimator products and other optical component products for the
telecommunications market. The Company also performs research and development
for optical solutions for the fiber telecommunications and traditional optics
market. GRADIUM glass is an optical quality glass material with varying
refractive indices, capable of reducing optical aberrations inherent in
conventional lenses and performing with a single lens, or fewer lenses, tasks
performed by multi-element conventional lens systems and enabling technology for
emerging markets such as optoelectronics and telecommunications.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Article 310(b) of Regulation S-B and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. These financial statements should be
read in conjunction with the Company's financial statements and related notes
included in its Form 10-KSB/A-2 for the fiscal year ended June 30, 1999, as
filed with the Securities and Exchange Commission on December 20, 1999.
The information furnished, in the opinion of management, reflects all
adjustments, which include normal recurring adjustments, necessary to present
fairly the financial position, results of operations and cash flows of the
Company for the interim periods presented. Results of operations for interim
periods are not necessarily indicative of results which may be expected for the
year as a whole.
1. SUMMARY OF SIGNIFICANT ACCOUNTING MATTERS
CASH AND CASH EQUIVALENTS consist of cash in the bank and temporary investments
with maturities of ninety days or less when purchased.
INVENTORIES which consists principally of raw materials, lenses, collimators and
components are stated at the lower of cost or market, on a first-in, first-out
basis. Inventory costs include material, labor and manufacturing overhead.
PROPERTY AND EQUIPMENT are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets
ranging from three to seven years.
INTANGIBLE ASSETS consisting of licenses, patents and trademarks, are recorded
at cost. Upon issuance of the license, patent or trademark, these assets are
being amortized on the straight-line basis over the estimated useful lives of
the related assets ranging from ten to seventeen years. The recoverability of
the carrying values of these assets are evaluated on a recurring basis.
INVESTMENTS consists of the Company's 26% voting interest (comprised of both
interests in common stock and convertible preferred stock) in LightChip Inc.
(LightChip) which is accounted for under the equity method.
5
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
INCOME TAXES are accounted for under the provisions of Statement of Financial
Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES, which requires an
asset and liability approach to financial accounting and reporting for income
taxes.
Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result
in taxable or deductible amounts in the future based upon enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
REVENUE RECOGNITION occurs from sales of products upon shipment or as earned
under product development agreements.
RESEARCH AND DEVELOPMENT costs are expensed as incurred.
STOCK BASED COMPENSATION is accounted for using the intrinsic value method as
prescribed by APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
under which no compensation expense is recognized when the exercise price of the
employees stock option equals or exceeds the market price of the underlying
stock on the date of grant.
Pro forma information required by Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, has been presented under the
fair value method using a Black-Scholes option pricing model.
PER SHARE DATA is accounted for under the provisions of the Statement of
Financial Accounting Standards No. 128 (FAS 128), EARNINGS PER SHARE.
MANAGEMENT MAKES ESTIMATES and assumptions during the preparation of the
Company's financial statements that affect amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions could change
in the future as more information becomes known, which in turn could impact the
amounts reported and disclosed herein.
FAIR VALUES OF FINANCIAL INSTRUMENTS of the Company are disclosed as required by
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUES OF FINANCIAL INSTRUMENTS. The carrying amounts of cash and cash
equivalents, trade accounts receivable, accounts payable and notes payable to
stockholder approximate fair value.
IMPAIRMENT OF LONG-LIVED ASSETS is accounted for under the provisions of
Statement of Financial Accounting Standards No. 121, IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. In the event that facts and
circumstances indicate that the cost of intangible or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to fair value is required.
6
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
2. INVENTORIES
The components of inventories include the following at:
September 30 June 30
1999 1999
-------- --------
Raw materials $ 86,863 $ 50,736
Boules and blanks in process 95,677 97,321
Finished goods 401,849 366,612
======== ========
Total inventories $584,389 $514,669
======== ========
3. INVESTMENT IN LIGHTCHIP, INC.
During fiscal 1999, the Company discontinued application of the equity method of
accounting to its investment in LightChip, a development stage company, since
its pro-rata share of LightChip's losses (approximately 15% based on its
pro-rata investment in LightChip preferred stock) had reduced the investment to
its remaining contractually committed obligation for future funding of $570,000.
At September 30, 1999, the Company's pro-rata share of LightChip losses which
had not been recognized totaled approximately $350,000. In October 1999,
LightChip issued additional shares of voting convertible preferred stock for $3
million, of which the Company funded $570,000 as required, upon completion of
product development requirements, by the September 1998 agreement with
LightChip. The Company's combined common stock and preferred stock voting
interest decreased to approximately 24% after the issuance.
4. CONVERTIBLE DEBENTURES
On July 28, 1999, LightPath completed a private placement for $1,000,000 of 6%
Convertible Debentures (the "Debentures"). The Debentures were immediately
convertible into shares of Class A common stock at a conversion price of $1.76.
Debenture holders also received warrants to acquire 427,350 shares of Class A
common stock. The warrant agreement provides for a conversion price of $2.20 per
share. The warrants are immediately exercisable and have a five year life. On
September 24, 1999 all of the debentures and the related warrants were converted
into 997,151 shares of Class A common stock. Interest of $9,370 was paid to the
debenture holders. LightPath recognized an interest charge of $381,869 in the
first quarter of fiscal year 2000 for the "beneficial conversion feature"
associated with the Debentures and $43,926 of the remaining discount was
amortized from the issuance through the conversion date.
LightPath issued 150,000 warrants to the placement agent, with terms identical
to those issued to the Debenture holders none of which have been exercised.
5. STOCKHOLDERS' EQUITY
The Series A, Series B and the Series C Convertible Preferred Stock have a
stated value and liquidation preference of $10,000 per share, plus an 8% per
annum premium. The holders of the Series A, Series B and Series C Convertible
Preferred Stock are not entitled to vote or to receive dividends. Each share of
Series A, Series B and Series C Convertible Preferred Stock is convertible at
the option of the holder, into Class A common stock based on its stated value at
the conversion date divided by a conversion price. The conversion price is
defined as the lesser of $5.625, $7.2375 and $6.675 for the Series A, Series B
and Series C Convertible Preferred Stock, respectively, or 85% of the average
closing bid price of the Company's Class A common stock for the five days
preceding the conversion date. Also, 535,487 shares of Class A common stock were
issued upon the conversion of 119 shares of Series A and Series C Preferred
Stock during the three months ended September 30, 1999.
7
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
<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 & I D, F, H & J Options
- ------------------ -------- ------- ----- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
June 30, 1999 122 4,960,703 4,519,000 914,068 123,345 1,244,851
Issuance of Warrants -- -- 100 427,350 150,000 --
Issuance of shares -- 3,937 -- -- -- --
Conversions (119) 1,535,708 (100) (427,350) (8,000) --
Option grants -- -- -- -- -- 50,000
Exercise of options -- 5,000 -- -- -- (5,000)
Forfeitures -- -- -- -- -- (2,835)
----- --------- --------- ------- ------- ---------
Outstanding at
September 30, 1999 3 6,505,348 4,519,000 914,068 265,345 1,287,016
===== ========= ========= ======= ======= =========
</TABLE>
6. NET LOSS PER SHARE
Basic net loss per common share is computed based upon the weighted average
number of common shares outstanding during each period presented. The
computation of Diluted net loss per common share does not differ from the basic
computation because potentially issuable securities would be anti-dilutive. The
following outstanding securities were not included in the computation of diluted
earnings per share at September 30, 1999: Class A common stock options
1,287,016, private placement warrants 1,179,413, IPO warrants 7,186,649
(includes 2,667,649 of Class B warrants available upon exercise of the Class A
warrants), IPO Unit Purchase Option to acquire (i) 160,000 shares of Class A
common stock, (ii) 160,000 Class A warrants, and (iii) 320,000 Class B warrants
(includes 160,000 available upon exercise of the Class A warrants), 10,780 Class
A shares issuable upon the conversion of convertible preferred stock (minimum of
6,000 shares based on the fixed conversion price at closing) and 3,979,939
shares issuable from the Class E redeemable common stock that is automatically
converted into Class A common stock upon attainment of certain performance
criteria. An eight percent premium earned by the preferred shareholders of
$8,158 and $99,577 increased the net loss applicable to common shareholders for
the three months ended September 30, 1999 and 1998, respectively.
Three Months Ended
September 30,
----------------------------------------
Per
Income Shares Share
(Numerator) (Denominator) Amount
----------- ------------- ------
1999
Net loss $(1,016,378)
Less: Preferred Stock Premium (8,158)
-----------
BASIC AND DILUTED EPS
Net loss applicable to common
shareholders $(1,024,536) 5,222,931 $(.20)
=========== ========= =====
1998
Net loss $ (962,106)
Less: Preferred Stock Premium (99,577)
-----------
BASIC AND DILUTED EPS
Net loss applicable to common
shareholders $(1,061,683) 3,466,062 $(.31)
=========== ========= =====
8
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS - UNAUDITED - CONTINUED
7. SEGMENT INFORMATION
Optoelectronics and Fiber Telecommunications (optoelectronics), which represents
12% of total revenues of the Company, and Traditional Optics, which represents
88% of total revenues, are the Company's reportable segments under SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information (SFAS 131).
The optoelectronics segment is based primarily on the development and sale of
fiber collimators, fiber-optic switches and other related passive component
products for the optoelectronics segment of the telecommunications industry
while the traditional optics segment provides for the development and sale of
GRADIUM glass in the form of lenses, blanks and development fees for the general
optics markets.
Summarized financial information concerning the Company's reportable segments
for the quarters ended September 30, is shown in the following table. During
fiscal 1999, the Company changed its primary marketing objectives from primarily
traditional optics products to the development and marketing of passive
components for the optoelectronics segment of the telecommunications industry
and laser based products in the general optics product arena.
Opto- Traditional Corporate
Segment Information Electronics Optics And other (1) Total
- ------------------- ----------- ------ ------------- -----
Revenues (2)
1999 $ 32,564 236,541 -- $ 269,105
1998 -- 190,728 -- 190,728
Segment operating loss (3)
1999 $(237,172) (27,352) (324,887) $(589,411)
1998 (313,715) (169,502) (360,230) (781,686)
- ----------
(1) Corporate functions include certain members of executive management, the
corporate accounting and finance function and other typical administrative
functions which are not allocated to segments.
(2) There were no inter-segment sales during the quarters ended September 30,
1999 and 1998.
(3) In addition to unallocated corporate functions, management does not
allocate interest expense, interest income, and other non-operating income
and expense amounts in the determination of the operating performance of
the reportable segments.
8. SUBSEQUENT EVENT
On November 2, 1999, LightPath completed a private placement for $4,080,000 of
Series F Preferred Stock (the "Preferred Stock"). The Preferred Stock is
convertible into shares of Class A common stock, at a conversion price which is
equal to the lower of $5.00 or 80% of the five day average closing bid price of
the Company's Class A common stock at the conversion date. Each share of
Preferred Stock is convertible into Class A common stock at the option of
holder, subject to certain volume limitations during the first 9 months.
Preferred stockholders also received warrants to acquire 489,600 shares of Class
A common stock in addition to the modification of terms on warrants outstanding
from prior private placements. The warrant agreement provides for a conversion
price of $5.00 per share. The warrants are immediately exercisable and have a
three year life. LightPath issued 125,000 warrants to the placement agent, with
terms identical to those issued to the Preferred Stock holders. Finally,
LightPath will recognize an aggregate imputed dividend of approximately $2
million during the second and third quarters of fiscal year 2000 for the
"beneficial conversion feature" associated with the Preferred Stock.
9
<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 SIMILAR MATTERS ARE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON THE COMPANY'S CURRENT
EXPECTATIONS AND ASSUMPTIONS AND ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS SET FORTH HEREIN AS
A RESULT OF A NUMBER OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THE COMPANY'S
EARLY STAGE OF DEVELOPMENT, THE NEED FOR ADDITIONAL FINANCING, INTENSE
COMPETITION IN VARIOUS ASPECTS OF ITS BUSINESS AND OTHER RISKS DESCRIBED IN THE
COMPANY'S REPORTS ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. IN LIGHT
OF THESE RISKS AND UNCERTAINTIES, ALL OF THE FORWARD-LOOKING STATEMENTS MADE
HEREIN ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO
ASSURANCE THAT THE ACTUAL RESULTS OR DEVELOPMENTS ANTICIPATED BY THE COMPANY
WILL BE REALIZED. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY
OF THE FORWARD LOOKING STATEMENTS CONTAINED HEREIN.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 ("2000") COMPARED WITH THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 ("1999")
During the first quarter of fiscal 2000 the Company's optoelectronics and
fiber telecommunications segment continued its efforts to 1) increase the sale
of collimator assemblies and lenses and the distribution of collimator samples
to potential customers for testing 2) develop fiberoptic switches and 3) obtain
patent protection for its proprietary telecommunications products and processes.
The Company's internal focus has been on the sale and shipment of products and
samples of LightPath's single-mode fiber collimator assembly (SMF assembly). The
Company currently offers three telecom product levels, the collimating lens, a
SMF assembly and a large-beam collimating assembly. The Company displayed all
three of these products at industry trade shows in early calendar 1999. These
shows allow the Company to deliver additional samples and to meet with potential
customers to distribute information on our products or to discuss test results
from samples previously sent. Based on the results of the customers' testing,
the Company believes higher-volume production orders will develop in the future.
The Company anticipates such orders to be received in response to customer use
that confirms the SMF assembly offers superior performance in the areas of back
reflection and insertion loss at a very competitive price. The Company believes
that its increased sales for the first quarter reflect this positive feedback.
Collimator product sales increased to $32,564, plus the backlog for these
products increased to $66,000, when combined, the amount exceeds the entire
telecom revenues of $57,029 in fiscal 1999. A key OEM represents $54,000 or 82%
of the sales backlog. The Company has completed the installation of a clean room
in its manufacturing area to meet anticipated future customer demands and is
currently adding additional manufacturing collimator production lines. During
the first quarter, the Company continued the fiberoptic, mechanical switch
development process with Kaifa Technology. Kaifa, which in July 1999 was
acquired by E-TEK Dynamics, will remain as a separate business unit of E-TEK.
LightPath anticipates that the mechanical switch project will remain on
schedule. The Company believes these agreements will accelerate its planned
introduction of fiberoptic mechanical switching products for the
telecommunications market. During the first quarter, the Company was notified
that its patent application for its proprietary process to fuse fibers directly
to a larger optical component such as the collimator lens has been allowed. At
September 30,1999 the Company had a backlog of $66,000 in telecom orders for all
three of the Company's collimator products as compared to $10,000 at June 30,
1999.
The sales cycle, for acceptance by a telecom customer, of component
products is rigorous and consists of multiple steps. Therefore, all of the
Company's products are subject to Bellcore testing in addition to meeting the
customer's specifications. The Company has sold product or sent samples of
collimators to approximately 90 actual or potential customers over the past
twelve months. After the products are qualified some of these targeted customers
purchase a larger quantity to perform additional testing. After successful
testing and evaluation of the product many customers then require some
customization of the collimator. Finally the Company will receive a request for
quotation on production size quantities prior to receiving manufacturing orders.
Our current OEM order of $54,000 reflects such a process. The Company believes
that it will be a qualified vendor to this OEM and that the collimator product
will be successful in becoming incorporated into their production. The Company
is at various stages in this process with a number of customers.
10
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
During the first quarter of fiscal 2000, the majority of the Company's
sales to the traditional optics segment were comprised of laser optic lenses.
Revenues of $236,541 for the first quarter included $62,500 in license fees and
$42,424 in revenues for government funded subcontracts utilizing GRADIUM glass
in optoelectronics application. The Company and the German optical products
manufacturer Rodenstock Prazisionsoptik GmbH ("Rodenstock") are proceeding with
the marketing program for the development, production and joint-distribution of
GRADIUM based optical products in Europe. The Company believes the relationship
with Rodenstock may create new and sustain existing markets for GRADIUM in
Europe primarily in the area of imaging systems. The Company's remaining
distributors continue to work with existing markets for GRADIUM in their
respective countries primarily in the area of the YAG laser market. At September
30,1999, the Company had a backlog of $120,000 in lens products as compared to
$35,000 at June 30, 1999. Both the overall dollar sales and total number of
customers placing orders during this period exceeded those occurring during any
other quarter to date. Sales revenues from orders will be recognized in future
quarters as the products are shipped.
The Company's revenues totaled $269,000 for 2000, an increase of
approximately $78,000 or 41% over 1999. The increase was attributable to $11,000
in additional product sales, primarily for telecom products, and $67,000 in
product development/license fees. At September 30, 1999, the Company's backlog
consisted of $120,000 for lens sales, $66,000 for collimator sales and $50,000
for government project funding. In addition, the Company's exclusive agreement
with Karl Storz entitles the Company to receive a license fee of $20,833 per
month through December 1999.
In 2000, cost of sales was 52% of product sales, a decrease from 1999, when
cost of sales was 60% of product sales. The decrease was primarily due to higher
margins on telecom products and sales to traditional optics distributors during
the quarter. It is anticipated that the Company's telecom products will continue
to maintain a lower cost of sales than its traditional optics products.
Additionally, with increased volume and the increased utilization of off-shore
lens finishers, the cost of traditional optics production could be decreased.
Selling, general and administrative costs decreased by $80,879, or 11% to
$672,599 from 1999, primarily due to the reduction of personnel in
administration. Research and development costs decreased by $26,000 to $101,096
in 2000 versus 1999. The majority of development work consisted of expenses
associated with the collimator assembly design and manufacturing process. In
addition, development work is on-going to expand the Company's products to the
areas of switches, interconnects and cross-connects for the telecommunications
industry.
Investment income decreased approximately $37,000 in 2000 due to the
decrease in interest earned on temporary investments as a result of a decrease
in cash balances. In July 1999, the Company issued $1,000,000 aggregate
principal amount of 6% convertible debentures and paid approximately $10,000 of
interest expense. Interest expense was not significant in 1999. LightPath
recognized an interest charge of $381,869 in the first quarter of fiscal year
2000 for the "beneficial conversion feature" associated with the Debentures and
$43,926 of the remaining debt discount was amortized from the issuance date
through September 24, 1999 when all of the Debentures were converted and related
warrants were exercised into approximately one million shares of Class A Common
Stock. The Company accounts for its investment in LightChip under the equity
method. The Company discontinued application of the equity method of accounting
when its pro-rata share of LightChip's losses (approximately 15% based on its
pro-rata investment in LightChip preferred stock) had reduced the investment to
its remaining contractually committed obligation for future funding of $570,000.
As a result, the Company recognized LightChip losses of $0 for the 2000 quarter
versus $225,434 in 1999.
Net loss of $1,016,378 in 2000 was an increase of approximately $54,000
from 1999 of which $435,000 relates to recognition of charges associated with
the debenture issuance and $36,000 due to a reduction in interest income. These
increased costs were partially offset by a $225,000 decrease in the Company's
share of LightChip's loss, $78,000 increase in total revenues, $7,000 reduction
in cost of sales and a $107,000 decrease in operating costs primarily in
selling, general and administrative expense. Net loss applicable to common
shareholders of $1,024,536 included an additional charge of $8,158 attributable
to the 8% premium on the Company's outstanding preferred stock. Net loss per
share of $.20 was a decrease of $.11 from 1999 net loss per share of $.31 of
which $.13 was due to the increase in the number of weighted shares outstanding
due to the conversion of preferred stock. The 1999 net loss per share contains
$99,577 attributable to the 8% premium on the preferred stock.
11
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
FINANCIAL RESOURCES AND LIQUIDITY
LightPath financed its initial operations through private placements of
equity, or debt until February 1996 when its initial public offering of units of
common stock and Class A and B Warrants generated net proceeds of approximately
$7.2 million. From June 1997 through February 1998, the Company completed three
preferred stock private placements which generated total net proceeds of
approximately $7.2 million. In July 1999 the Company issued convertible
debentures with attached warrants resulting in net proceeds of approximately
$893,000. In September 1999 all of the debentures were converted to shares of
common stock and all of the associated warrants were exercised resulting in
additional net proceeds of $940,170. In November 1999 the Company issued 408
shares of its Series F Preferred Stock and attached warrants in a private
placement. Net proceeds from the private placement were approximately $3.9
million.
The Company intends to continue to explore additional funding opportunities
in fiscal year 2000, although it currently has no commitments for such funding.
Cash used in operations for the first quarter of fiscal 2000 totaled
approximately $363,000, a decrease of $476,000 from fiscal 1999, due to
increased sales and administrative cost reductions. The Company expects to
continue to incur net losses until such time, if ever, as it obtains market
acceptance for its products at sale prices and volumes which provide adequate
gross revenues to offset its operating costs. During fiscal 2000, the Company
expended approximately $200,000 for capital equipment and patent protection and
has outstanding commitments for an additional $250,000. The majority of the
capital expenditures during the year were related to the development of its
clean room and equipment used to expand the Company's manufacturing facilities
for collimator production. In addition, in October 1999, the Company expended
the remaining $570,000 of its financing commitment to LightChip upon completion
of the product development requirements in the September 1998 agreement.
Projected product sales as well as the proceeds from the July 1999 sale of
6% Convertible Debentures and related warrants exercised will be used for
working capital for fiscal 2000. Proceeds from the November 1999 Series F
Preferred Stock of approximately $3.9 million will be used to expand collimator
production, development of the optical switch and working capital. The Company's
ability to complete these future sales will depend on the extent that the SMF
assembly, collimating lenses and GRADIUM glass become commercially accepted and
at levels sufficient to sustain its operations. There can be no assurance that
the Company will generate sufficient revenues to fund its future operations and
growth strategies. At this time the Company does not believe product sales will
reach the level required to sustain its operations and growth plans beyond the
near term; therefore, the Company is actively pursuing additional financing. The
Company may also be required to alter its business plan in the event of delays
for commercial production orders or unanticipated expenses. The Company
currently has no credit facility with a bank or other financial institution.
There also can be no assurance that any additional financing will be available
if needed, or, if available, will be on terms acceptable to the Company. In the
event necessary financing is not obtained, the Company's business and results of
operations will be materially adversely affected and the Company may have to
cease or substantially reduce its operations. Any commercial financing obtained
by the Company in the future is likely to impose certain financial and other
restrictive covenants upon the Company and result in additional interest
expense. Further, any issuance of additional equity or debt securities could
result in further dilution to the Company's existing investors.
YEAR 2000 RISKS; INFLATION; SEASONALITY
Some computer applications were originally designed to recognize calendar
years by their last two digits. As a result, calculations performed using these
truncated fields will not work properly with dates from the year 2000 and
beyond. This problem is commonly referred to as the "Year 2000 Issue". The
Company has determined that its internal computer systems, manufacturing
equipment and software products were produced to be Year 2000 compliant and no
material remediation costs have been incurred or are expected to be incurred by
the Company. During the third quarter of fiscal 1999, the Company confirmed in
writing whether the internal business operations of third parties with whom it
has a material relationship will be affected by the Year 2000 Issue. The
Company's assessment of third parties is complete and based on their responses,
the Company believes its material third party relationships will not be
adversely impacted by the Year 2000 Issue barring any unforeseen circumstances.
Under a worst case scenario the Company may experience delays in receiving
products and services thereby impacting its ability to make product shipments.
The Company plans on having adequate inventory levels to minimize such impact,
if any. The Company will continue to monitor third parties with whom it has a
material relationship throughout the remainder of calendar 1999 and develop
contingency plans if a third party is subsequently found to be non-compliant.
The Company has not been significantly impacted by inflation in 2000 due to the
nature of its product components and in prior years the Company was principally
engaged in basic research and development. The Company does not believe that
seasonal factors will have a significant impact on its business.
12
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
PART II
ITEM 1. LEGAL PROCEEDINGS
LightPath is subject to various claims and lawsuits in the ordinary course
of its business, none of which are considered material to the Company's
financial condition and results of operations. There have been no material
developments in any legal actions since the period reported as to in the
Company's Form 10-KSB for the year ended June 30, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
EMPLOYEE STOCK PURCHASES. During 1997 the Company adopted a policy whereby
employees may purchase shares of its Class A common stock at fair market value
using payroll deductions. During the first quarter of fiscal 2000 one employee
elected to purchase 3,937 shares at an average price of $2.24 per share. All of
these shares were issued in a private offering pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "Act"). In relying upon Section 4(2) of
the Act, the Company limited its offering of the shares solely to its employees.
No other public offering or advertisement was conducted. In addition, the
Company relied upon certain representations made by the employees with respect
to their understanding of the risks associated with the Company's business and
financial condition, and future business prospects, and their intent to acquire
the shares for their own investment purposes only and not with a view to resale.
The resale of these shares has been restricted and appropriate legends have been
placed on the certificates representing such restrictions.
6% CONVERTIBLE DEBENTURES. On July 28, 1999, the Company issued $1,000,000
aggregate principal amount of 6% Convertible Debentures (the "Debentures") due
July 2002 and 427,350 attached Class I warrants. The Debentures are immediately
convertible at any time prior to maturity into shares of Class A common stock,
at a conversion price which is equal to the lower of 80% of the five day average
closing bid price of the Company's Class A common stock at (i) the date of
closing ($1.76) or (ii) the conversion date. Each Class I warrant entitles the
holder to purchase one share of Class A common stock at $2.20 per share at any
time through July 2004. In addition, the placement agent received 150,000 Class
J warrants to purchases shares of the Company's Class A common stock at $2.20
per share at any time through July 2004. In addition, the investors of the
Debentures are entitled to receive additional shares of Class A Common Stock in
the event the Company issues additional shares of its Class A Common Stock or
securities convertible into such class of securities at any time prior to July
28, 2001 under certain circumstances.
All of the Debentures, Class I and Class J Warrants (such Debentures, Class
I and Class J warrants are collectively referred to as the "Securities") were
issued in a private placement exempt from registration pursuant to Rule 506 of
Regulation D promulgated under the Act. In relying upon such exemption, the
Company limited its offering of the Securities to persons whom it reasonably
believed to be "accredited investors" and did not conduct any general
solicitation or advertising. In addition, each investor confirmed in writing
that it was acquiring the Securities for its own account and appropriate
restrictive legends were placed on each certificate representing the Securities.
The Debentures and attached Class I Warrants were sold for aggregate
consideration of $1 million and resulted in net proceeds to the Company of
approximately $893,000 after deducting the cash fee paid to the placement agent
as well as the Company's legal and other associated costs. The Company has filed
a registration statement on Form S-3 (SEC File No. 333-86185) covering the
resale of up to 2,684,500 shares of Class A Common Stock underlying the
Debentures, Class I and Class J Warrants. The registration statement was
declared effective by the SEC on September 24, 1999. Additional information
concerning the Securities is included in that filing. On September 24, 1999, all
of the Debentures were converted into, and the Class I Warrants were exercised
for, 569,801 and 427,350 shares, respectively, of Class A Common Stock. The
Company received $940,170 upon exercise of the Class I Warrants.
SERIES F PREFERRED STOCK. On November 2, 1999, LightPath completed a
private placement of 408 shares of its Series F Preferred Stock (the "Series F
Preferred Stock"). The Series F Preferred Stock is convertible into shares of
13
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
Class A common stock, at a conversion price which is equal to the lower of $5.00
or 80% of the five day average closing bid price of the Company's Class A common
stock at the conversion date. Each share of Preferred Stock is convertible into
Class A Common Stock at the option of holder, subject to certain volume
limitations during the first 9 months.
Holders of Series F Preferred Stock also received Class K warrants to
acquire a total of 489,600 shares of Class A common stock in addition to the
modification of terms on warrants outstanding from prior private placements. The
Class K Warrants may be exercised at any time prior to expiration on November 2,
2002 at a price of $5.00 per share. Each of the investors in the Series F
Preferred Stock has previously invested in the Company's Series A, B and/or C
Preferred Stock (see Note 5). In order to induce them to invest in the Series F
Preferred Stock, the Company agreed to reduce the applicable exercise prices and
extend the applicable expiration dates of all outstanding warrants issued in
connection with the sale of such Series A, B and C Preferred Stock. See "Changes
in Securities and Use of Proceeds" in Part II of this Report. LightPath also
issued 125,000 Class L warrants to the placement agent, with terms identical to
Class K Warrants.
AMENDMENTS TO OUTSTANDING CLASS C, E AND G WARRANTS. The Company has
previously filed registration statements on Form S-3 covering the resale of
shares of its Class A Common Stock underlying the Company's Series A, B and C
Preferred Stock and associated C, E and G warrants. As discussed above, certain
terms of such warrants were amended in connection with the issuance of the
Series F Preferred Stock. These amendments, which are hereby incorporated by
reference into each such respective registration statement, are as follows:
The Company has filed a registration statement on Form S-3 covering the
resale of up to 1,000,000 shares of Class A Common Stock underlying the
Company's Series A Preferred Stock, attached Class C Warrants and Class D
Warrants. This registration Statement (SEC File No. 333-37443) was declared
effective by the SEC on October 30, 1997. As of November 2, 1999, there were
231,111 Class C Warrants unexercised. Effective as of such date, all of such
unexercised warrants were amended so as to (i) extend their expiration date to
July 27, 2003 and (ii) reduce the exercise price to $4.50 per share. As a result
of such amendments, the Company will receive aggregate gross proceeds of up to
$1,040,000 upon exercise of the currently unexercised warrants. Previously
88,889 Class C Warrants were exercised on a cashless basis. The amendments do
not affect Class C Warrants exercised prior to November 2, 1999, or any of the
Series A Preferred Stock, and Class D Warrants.
The Company has filed a registration statement on Form S-3 covering the
resale of up to 1,500,000 shares of Class A Common Stock underlying the
Company's Series B Preferred Stock, attached Class E Warrants and Class F
Warrants. This registration Statement (SEC File No. 333-39641) was declared
effective by the SEC on November 13, 1997. As of November 2, 1999, there were
317,788 Class E Warrants unexercised. Effective as of such date, all of such
unexercised warrants were amended so as to (i) extend their expiration date to
October 2, 2005 and (ii) reduce the exercise price to $5.79 per share. As a
result of such amendments, the Company will receive aggregate gross proceeds of
up to $1,839,993 upon exercise of the currently unexercised warrants. The
amendments do not affect Class E Warrants exercised prior to November 2, 1999,
or any of the Series B Preferred Stock, and Class F Warrants.
The Company has filed a registration statement on Form S-3 covering the
resale of up to 1,758,490 shares of Class A Common Stock underlying the
Company's Series C Preferred Stock, attached Class G Warrants and Class H
Warrants. This registration Statement (SEC File No. 333-47905) was declared
effective by the SEC on March 31, 1998. As of November 2, 1999, there were
365,169 Class G Warrants unexercised. Effective as of such date, all of such
unexercised warrants were amended so as to (i) extend their expiration date to
February 6, 2004 and (ii) reduce the exercise price to $5.34 per share. As a
result of such amendments, the Company will receive aggregate gross proceeds of
up to $1,950,002 upon exercise of the currently unexercised warrants. The
amendments do not affect Class G Warrants exercised prior to November 2, 1999,
or any of the Series C Preferred Stock, and Class H Warrants.
14
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On September 16, 1999 Louis Leeburg was elected to serve as Chairman of the
Board of Directors effective immediately. Mr. Leeburg has been a Director of the
Company since May 1996. Mr. Leeburg replaces Leslie Danziger, who will remain a
Director of the Company. Pursuant to its terms, that certain Voting Trust dated
January 10, 1996, was terminated as a result of Ms. Danziger ceasing to serve as
Chairperson. As a result of such termination, Ms. Danziger no longer has the
right to vote the 1,127,243 shares previously subject to that agreement.
Instead, these shares will now be voted directly by their respective beneficial
owners.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 11 - Computation of Net Loss Per Share (1)
Exhibit 27 - Financial Data Schedule (1)
----------
(1) filed herewith
b) No reports on Form 8-K were filed under the Securities Exchange Act of
1934 during the quarter ended September 30, 1999.
15
<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 December 20, 1999
------------------------------------
Donald Lawson Date
Chief Executive Officer
16
COMPUTATION OF NET LOSS PER SHARE
For the Three Months
Ended September 30
----------------------------
1999 1998
----------- -----------
Net loss $(1,016,378) $ (962,106)
Preferred stock 8% premium (8,158) (99,577)
----------- -----------
Net loss applicable to common shareholders $(1,024,536) $(1,061,683)
----------- -----------
Weighted average common shares outstanding 5,222,931 3,466,062
=========== ===========
Basic and Diluted net loss per common share $ (.20) $ (.31)
=========== ===========
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB/A-1 FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<RECEIVABLES> 244,576
<ALLOWANCES> 15,000
<INVENTORY> 584,389
<CURRENT-ASSETS> 2,574,576
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<COMMON> 65,053
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<SALES> 164,182
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<CGS> 84,821
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<OTHER-EXPENSES> 773,695
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