================================================================================
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 September 30, 2000
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
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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.)
http://www.light.net
6820 Academy Parkway East, N.E.
Albuquerque, New Mexico 87109
(Address of principal executive offices) (Zip Code)
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 19,246,199 shares
Class Outstanding at October 31, 2000
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<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
ITEM PAGE
---- ----
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Legal Proceedings 15
Changes in Securities and Use of Proceeds 15
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
1
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
2000 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,868,606 $ 58,728,130
Trade accounts receivable - less allowance of $55,526 and $15,000 2,588,461 841,533
Inventories (NOTE 2) 4,125,819 1,690,058
Advances to employees and related parties 20,066 17,733
Prepaid expenses and other 381,925 225,451
------------- -------------
Total current assets 52,984,877 61,502,905
Property and equipment - net 9,530,526 6,482,039
Goodwill and intangible assets - net (NOTE 3) 49,994,144 31,727,811
Investment in LightChip, Inc. (NOTE 5) 8,000,000 1,000,000
------------- -------------
Total assets $ 120,509,547 $ 100,712,755
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,710,341 $ 1,573,531
Accrued liabilities 590,133 469,771
Accrued payroll and benefits 837,015 330,734
Current portion of long-term debt and capital lease obligations 246,864 --
------------- -------------
Total current liabilities 3,384,353 2,374,036
Long-term debt and capital lease obligations 1,480,315 --
Deferred income taxes 3,311,715 --
Commitments and contingencies
Redeemable common stock (NOTE 6)
Class E-1, E-2 and E-3 - performance based and redeemable common
stock 0 and 4,022,037 shares issued and outstanding -- 40,221
Stockholders' equity (NOTE 6)
Preferred stock, $.01 par value; 5,000,000 shares authorized;
Series F convertible shares 127 and 153 issued and outstanding,
$1,270,000 liquidation preference at September 30, 2000 1 1
Common stock, Class A, $.01 par value, voting; 34,500,000 shares
authorized; 19,126,429 and 18,136,254 shares issued and outstanding 191,264 181,363
Additional paid-in capital 173,550,259 142,559,848
Accumulated deficit (61,408,360) (44,442,714)
------------- -------------
Total stockholders' equity 112,333,164 98,298,498
------------- -------------
Total liabilities and stockholders' equity $ 120,509,547 $ 100,712,755
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
REVENUES
Telecom product and lens sales $ 2,897,569 $ 164,182
Product development fees and other sales 167,370 104,923
------------ ------------
Total revenues 3,064,939 269,105
COSTS AND EXPENSES
Cost of sales 1,724,774 84,821
Selling, general and administrative 3,408,490 667,349
Stock based compensation 2,700,000 --
Research and development 1,362,343 101,096
Amortization of goodwill and intangibles 2,538,130 5,250
Acquired in process research and development 9,100,000 --
------------ ------------
Total costs and expenses 20,833,737 858,516
------------ ------------
Operating loss (17,768,798) (589,411)
OTHER INCOME(EXPENSE)
Investment income 841,057 9,212
Interest and other expense (10,992) (436,179)
------------ ------------
Net loss $(16,938,733) $ (1,016,378)
Premium on preferred stock (26,913) (8,158)
------------ ------------
Net loss applicable to common shareholders (NOTE 7) $(16,965,646) $ (1,024,536)
============ ============
Basic and diluted net loss per share (NOTE 7) $ (.93) $ (.20)
============ ============
Number of shares used in per share calculation 18,327,625 5,222,931
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(16,938,733) $ (1,016,378)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 3,012,872 83,233
Debt discount -- 425,795
Stock based compensation 2,700,000 --
Acquired in-process research and development 9,100,000 --
Changes in operating assets and liabilities
(net of the effect of the acquisition of Geltech, Inc.):
Receivables and advances to employees (532,806) 102,737
Inventories (1,367,676) (69,720)
Prepaid expenses and other (82,907) (3,045)
Accounts payable and accrued expenses (158,638) 114,300
------------ ------------
Net cash used in operating activities (4,267,888) (363,078)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions, net (2,076,874) (178,760)
Costs incurred in acquiring patents and license agreements (1,886) (16,475)
Acquisition of Geltech, Inc., net of cash acquired (23,000) --
Investment in LightChip (7,000,000) --
------------ ------------
Net cash used in investing activities (9,101,760) (195,235)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 6% convertible debentures, net of
discount and offering costs -- 893,324
Proceeds from exercise of common stock options and warrants, net 510,124 960,521
Proceeds from issuance of common stock -- 8,800
------------ ------------
Net cash provided by financing activities 510,124 1,862,645
------------ ------------
Net (decrease) increase in cash and cash equivalents (12,859,524) 1,304,332
Cash and cash equivalents at beginning of period 58,728,130 413,388
------------ ------------
Cash and cash equivalents at end of period $ 45,868,606 $ 1,717,720
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Class A common stock, warrant and stock options
issued to acquire Geltech, Inc. $ 27,723,054 $ --
Class E common stock redemption $ 40,221 --
Class A common stock issued upon conversion of preferred stock $ 556 $ 5,355
</TABLE>
See accompanying notes.
4
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
SEPTEMBER 30, 2000
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. On April 14, 2000, the Company acquired Horizon
Photonics, Inc. ("Horizon"). On September 20, 2000, the Company acquired
Geltech, Inc. ("Geltech"). The Company is engaged in the production of
collimator, isolator, and precision molded aspherical optics used in the telecom
components market, GRADIUM(R) glass lenses and other opticaL materials.
Additionally, Geltech has a unique and proprietary line of all-glass diffraction
gratings (StableSil(R)) foR telecom applications as well as a product family of
Sol-Gel based waveguides. The Company also performs research and development for
optical solutions for the fiber telecommunications and traditional optics
markets.
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Item 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, 2000, as filed
with the Securities and Exchange Commission on August 31, 2000.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies as set forth in LightPath's Annual Report on Form 10-KSB
dated August 30, 2000 have been adhered to in preparing the accompanying interim
financial statements. These statements are unaudited but include all
adjustments, which include normal recurring adjustments, that the Company
considers 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.
Effective July 1, 2000, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 133, "Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS 138. SFAS 133, as amended, establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The Company
did not have any outstanding derivatives at September 30, 2000 or July 1, 2000,
and as such, adoption of SFAS 133 had no impact on the Company's financial
position or results of operations for the period ended September 30, 2000.
2. INVENTORIES
The components of inventories include the following at:
September 30, June 30,
2000 2000
---------- ----------
Raw materials $2,400,086 $ 733,050
Work in process 684,449 459,789
Finished goods 1,041,284 497,219
---------- ----------
Total inventories $4,125,819 $1,690,058
========== ==========
5
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
3. INTANGIBLE ASSETS
Intangible assets consist of the following at:
September 30, June 30,
2000 2000
----------- -----------
Goodwill $11,797,725 $11,797,725
Customer list 18,600,000 15,900,000
Developed technology 18,000,000 2,400,000
Covenant not-to-compete 3,100,000 2,000,000
Other intangibles 2,860,000 1,520,000
Patents and trademarks granted 585,856 509,095
License agreements 40,000 40,000
Patent applications in process 48,547 60,845
----------- -----------
55,032,128 34,227,665
Less accumulated amortization 5,037,984 2,499,854
----------- -----------
Total intangible assets $49,994,144 $31,727,811
=========== ===========
4. ACQUISITIONS
On September 20, 2000, the Company acquired all of the outstanding shares of
Geltech, for an aggregate purchase price of approximately $28.5 million,
comprised of 822,737 shares of Class A common stock (valued at $27.5 million)
and approximately $1 million in acquistion costs. The number of shares of Class
A common stock issued to the former shareholders of Geltech was based on the
average closing price of the Class A common stock for five days prior to the
date of the purchase agreement, August 9, 2000. Geltech, a Delaware corporation,
is a leading manufacturer of precision molded aspherical optics used in the
active telecom components market to provide a highly efficient means to couple
laser diodes to fibers or waveguides. Additionally, Geltech has a unique and
proprietary line of all-glass diffraction gratings (StableSil(R)) for telecom
applications such as optical switching, mux/demux and laser tuning as well as A
product family of Sol-Gel based waveguides. The acquisition has been accounted
for using the purchase method of accounting and, accordingly, the results of
operations of Geltech have been included in the Company's consolidated financial
statements from September 20, 2000.
The purchase price was allocated to the tangible net assets and identifiable
intangible assets. The value of the tangible net assets acquired approximated
their historical book value at the date of the acquisition excluding previously
acquired goodwill and certain licensed technology at the acquisition date. In
addition, a deferred tax liability of approximately $8.3 million was recorded
together with a reduction in the Company's deferred tax valuation allowance of
approximately $5 million at the acquisition date. The estimated fair value of
the tangible net assets and identifiable intangible assets based on assessment
of management, are as follows:
6
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Fair Value
at Acquisition
--------------
Current assets $ 3,127,107
Equipment 1,446,355
Patents 62,577
In-process research and development 9,100,000
Customer list 2,700,000
Developed technology 15,600,000
Covenants not-to-compete 1,100,000
Patents, trademark & tradename 600,000
Acquired work force 740,000
Current liabilities (922,091)
Long-term debt and capital leases (1,727,179)
Deferred income taxes (3,311,715)
------------
Total $ 28,515,054
============
In the first quarter of fiscal 2000, the Company recorded an immediate
non-recurring charge of $9.1 million, due to acquired in-process research and
development based on an assessment of purchased technology of Geltech. This
charge represents technology that did not meet the accounting definitions of
"completed technology," and thus should be charged to earnings under generally
accepted accounting principles. This assessment analyzed certain diffractive
gratings, waveguides, lens arrays and sub-assembly technologies that were under
development at the time of acquisition. These programs were in various stages of
completion ranging from 30% to 50% of completion, with estimated completion
dates through December 2001. This in-process research will have no alternative
future uses if the products are not feasible. Revenues from in-process products
are estimated primarily beginning in fiscal 2002, with projected research and
development costs-to-complete of approximately $2.25 million. The fair value of
these development programs was determined in accordance with views expressed by
the staff of the Securities and Exchange Commission.
On April 14, 2000, the Company acquired Horizon Photonics, Inc. ("Horizon") a
California corporation which is an emerging leader in the automated production
of passive optical components for the telecommunications and data communications
markets. LightPath acquired all of the outstanding shares of Horizon for
approximately 1.4 million shares of Class A common stock and $1 million cash for
a purchase price of approximately $36.2 million. The acquisition has been
accounted for using the purchase method of accounting and, accordingly, the
results of operations of Horizon have been included in the Company's
consolidated financial statements from April 14, 2000. In the fourth quarter of
fiscal 2000, the Company recorded an immediate non-recurring charge of $4.2
million, due to acquired in-process research and development based on an
assessment of purchased technology of Horizon.
The following unaudited pro forma information presents the results of operations
of the Company as if the acquisition of Horizon and Geltech had taken place at
the beginning of fiscal 2000 and excludes the write-off of the acquired
in-process research and development of $4.2 million and $9.1 million,
respectively. The pro forma information for fiscal 2001 presents the results of
operations of the Company as if the acquisition of Geltech had taken place at
the beginning of fiscal 2001 and excludes the write-off of the acquired
in-process research and development of $9.1 million.
September 30, September 30,
(in 000's except per share data) 2000 1999
------------- -------------
Revenues $ 5,550 $ 2,687
Net loss applicable to common shareholders $(10,302) $(4,866)
Net loss per basic and diluted share $ (.54) $ (.65)
7
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
The pro forma information is presented for informational purposes only and is
not necessarily indicative of the reults of operations that actually would have
been achieved had the acquisition been consummated as of that date, nor is it
intended to be a projection of future results.
5. INVESTMENT IN LIGHTCHIP, INC.
In August 2000, LightChip, Inc. issued additional shares of voting convertible
preferred stock for $60 million, of which the Company purchased $7 million. The
Company's combined common stock and preferred stock voting interest in LightChip
decreased from approximately 18% to 16.6% after the August 2000 investment.
6. STOCKHOLDERS' EQUITY
Authorized 2,000,000 shares of Class E-1 common stock, 2,000,000 shares of Class
E-2 common stock and 1,500,000 shares of Class E-3 common stock (the "E Shares"
) with $.01 par value. The stockholders of E shares are entitled to one vote for
each share held. Each E share was automatically convertible into one share of
Class A common stock in the event that the Company's income before provision of
income taxes and extraordinary items or any charges which result from the
conversion of the Class E common stock was equal to or in excess of a minimum
value of approximately $13.5 million in fiscal 2000. Since the conversion
provisions expired without being met as of June 30, 2000, the E shares were
redeemed by the Company, effective as of September 30, 2000. The E stockholders
will receive their redemption value of $.0001 per share upon resolution of the E
stockholder litigation.
The Series F Convertible Preferred Stock have a stated value and liquidation
preference of $10,000 per share, plus an 7% per annum premium. The holders of
the Series F Convertible Preferred Stock are not entitled to vote or to receive
dividends. Each share of Series F 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 $5.00 or 80% of the average closing bid price of the
Company's Class A common stock for the five days preceding the conversion date.
The Company accounted for the beneficial conversion feature associated with the
Series F Convertible Preferred Stock at issuance. There were 55,704 shares of
Class A common stock issued upon the conversion of 26 shares of Series F
Preferred Stock during the three months ended September 30, 2000.
Warrants
Preferred Common Class Common Unit
Stock Stock C,E,L Stock Purchase
Shares Outstanding Series F Class A & Other Options Options
-------- ------- ------- ------- -------
Outstanding at
June 30, 2000 153 18,136,254 339,547 3,199,526 2,145
Conversions (26) 64,288 -- -- (2,145)
Option grants -- -- -- 31,000 --
Exercise of options -- 103,150 -- (103,150) --
Forfeitures -- -- -- (9,058) --
Acquisition of
Geltech -- 822,737 6,753 -- --
---- ----------- -------- ---------- ------
Outstanding at
September 30, 2000 127 19,126,429 346,300 3,118,318 --
8
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
7. 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, 2000: 3,118,318 Class A common stock
options, 346,300 private placement and other warrants, 307,340 Class A shares
issuable upon the conversion of convertible preferred stock (minimum of 270,221
shares based on the fixed conversion price at closing). A seven percent premium
earned by the preferred shareholders of $26,914 and $8,158 increased the net
loss applicable to common shareholders for the three months ended September 30,
2000 and 1999, respectively.
8. SEGMENT INFORMATION
Optoelectronics and Fiber Telecommunications (optoelectronics), which represents
92% of total revenues of the Company, and Traditional Optics, which represents
8% 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
LightPath fiber collimators and fiber-optic switches; Horizon's free space
isolators and Geltech's precision molded aspherical optics (only 10 days of
Geltech's sales are included in the first quarter of fiscal 2001) 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.
Opto- Traditional Corporate
Segment Information Electronics Optics and Other(1) Total
------------------- ----------- ------ ------------ -----
Revenues (2)
2000 $2,815,256 249,683 -- $ 3,064,939
1999 32,564 236,541 -- 269,105
Segment operating loss (3)
2000 $(1,824,961) (317,047) (15,626,790) $(17,768,798)
1999 (237,172) (27,352) (324,887) (589,411)
(1) Corporate functions include certain members of executive management, the
corporate accounting and finance function, non-cash charges and other
typical administrative functions which are not allocated to segments.
(2) There were no inter-segment sales during the quarters ended September 30,
2000 and 1999.
(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.
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, 2000 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
TELECOM SEGMENT
During the first quarter of fiscal 2001 our optoelectronics and fiber
telecommunications segment was impacted by:
* the September 20, 2000 expansion of our telecom products to include
active components through the acquisition of privately held Geltech.
We began acquisition talks with Geltech, due to our interest in their
precision molded aspherical optics used in the active
telecommunication components markets. The acquisition purchase price
was $27.5 million which was paid through the issuance of 822,737
shares of Class A common stock;
* the Company's investment in LightChip, Inc. of $7 million (August 2000
private placement significant investors included Berkeley
International, Morgenthaler, J.P. Morgan Capital, AT&T Ventures and
LightPath);
* the August 2000 introduction of the LP1600 opto-mechanical switch at
the National Fiber Optics Engineers Conference is a continuation of
our strategic plan to bring additional component products into the
telecom sector. The switch employees a patented retro-reflecting
mirror design in conjunction with our Gen3 collimator which has the
lowest documented insertion loss reported to date in these devices;
and
* continued record sales backlog at September 30, 2000 of $10.2 million,
of which telecom orders were $9.8 million.
First quarter of fiscal 2001 telecom product sales increased to
approximately $2,815,000 versus $1,243,000 for the fourth quarter of fiscal 2000
and $32,600 for the comparable period last year. The telecom segment results
include LightPath's $729,000 of collimator product sales, Horizon's isolator
sales of $1,696,000 and Geltech's sales for ten days were $390,000. The telecom
product backlog increased to $9.8 million at September 30, 2000, versus $4
million at June 30, 2000. The backlog is composed of $1.6 million for collimator
products, $2.4 million for isolator products, and $5.8 million for active
telecom components.
Our internal focus continues to be on the sale and shipment of products and
samples of our Gen3 collimators and development of manufacturing capacity at all
of our locations. Based on the results of customers' testing and qualification
of our telecom products, we believe higher-volume production orders will
continue to develop. We believe that our increased sales and sales orders
reflect this positive feedback and customer qualification.
10
<PAGE>
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GELTECH ACQUISITION
On August 9, 2000, the Company entered into a definitive agreement to
acquire Geltech Inc., a Delaware corporation, for an aggregate purchase price of
approximately $28.5 million. Geltech is a manufacturer of precision molded
aspherical optics used in the active telecommunication components markets. On
the closing date September 20, 2000, LightPath acquired all of the outstanding
shares of Geltech in exchange for 822,737 shares of Class A common stock. The
acquisition has been accounted for using the purchase method of accounting and,
accordingly, the results of operations of Geltech have been included in the
Company's consolidated financial statements from September 20, 2000. In the
first quarter of fiscal 2000, the Company recorded an immediate non-recurring
charge of $9.1 million, due to acquired in-process research and development. The
value assigned to in-process R&D was determined based on estimates of the
resulting net cash flows from diffractive gratings, waveguides, lens arrays and
sub-assembly technologies and the discounting of such cash flows to present
value. These programs were in various stages of completion ranging from 30% to
50% of completion, with estimated completion dates through December 2001. This
in-process research will have no alternative future uses if the products are not
feasible. Revenues from in-process products are estimated primarily beginning in
fiscal 2002, with projected research and development costs-to-complete of
approximately $2.25 million. In projecting net cash flows resulting from
diffractive gratings, waveguides, lens arrays and sub-assembly technologies,
management estimated revenues, cost of sales, R&D expenses, selling, general and
administrative (SG&A) expenses and income taxes for those projects. These
estimates were based on the following assumptions:
* Estimated revenues projected a compound annual growth rate over six
years of approximately 132%. Projections of revenue growth for the
various products in development were based on management's estimates
of market size and growth supported by market data and by the nature
and expected timing of the development of the products by LightPath
and its competitors.
* The estimated cost of sales as a percentage of revenue, initially at
51% increasing to 60%, was consistent with the historical rates for
Geltech's business as well as their business plan analysis.
* Estimated SG&A costs were expected to decrease as a percentage of
sales, from 21% to approximately 13% in later years.
* The estimated R&D costs were expected to remain approximately 10% of
sales as most R&D efforts are in a development or maintenance phase.
* A 38% effective tax rate was estimated.
The projected net cash flows for the in-process projects were discounted
using a range of 30% to 65% weighted-average cost of capital (WACC) based on
consideration of the perceived risk of each project considering estimated
completion percentage, technology advances, market acceptance and future
projected financial expectations. The calculation produces the average required
rate of return of an investment in an operating enterprise. The WACC selected
was based upon venture capital rates of return as required for investment in
companies during their early stages of development and reflective of the risk
associated with corresponding development/operating challenges. A WACC range of
25% to 30% was used to determine the value of the return of the developed
technology, the customer list and other intangibles acquired as part of the
purchase of Geltech.
TRADITIONAL OPTICS SEGMENT
During the first quarter of fiscal 2001, the majority of our approximately
$250,000 traditional optics segment sales were laser optic lenses versus
$143,000 for the fourth quarter of fiscal 2000 and $237,000 for the comparable
period last year. Revenues for the first quarter of fiscal 2000 included
approximately $105,000 in license fees and government funded subcontracts.
Joining with the German optical products manufacturer Rodenstock Prazisionsoptik
GmbH ("Rodenstock") we are proceeding with the marketing program for the
development, production and joint-distribution of GRADIUM based optical products
in Europe. Rodenstock sold their precision optics division to Linos AG, a
pioneer in the field of photonics, in June 2000. We believe our agreement and
relationships will continue to grow under the Linos AG/Rodenstock alliance. We
believe the relationship with Linos AG/Rodenstock may create new and sustain
existing markets for GRADIUM in Europe primarily in the area of imaging systems.
Our remaining distributors continue to work with existing markets for GRADIUM in
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
their respective countries primarily in the area of the YAG laser market. At
September 30, 2000, we had a lens product backlog of $443,000 as compared to
$305,000 at June 30, 2000.
CONSOLIDATED OPERATIONS
Our consolidated revenues totaled $3.1 million for the first quarter of
fiscal 2001, an increase of approximately $2.8 million or 1039% over fiscal
2000. The increase was primarily attributable from an increase of $1,695,000
(61%) from Horizon isolator and other sales, $715,000 (25%) in LightPath product
sales, primarily for telecom products, and $390,000 (14%) in Geltech product
sales. At September 30, 2000, our consolidated backlog was $10.2 million
consisting of $2.4 million in isolator sales, $1.6 million for collimator sales,
$5.8 million in active components and $422,000 for lens sales, as compared to
June 30, 2000 sales backlog of $4.3 million. Sales revenues from orders will be
recognized in future quarters as the products are shipped.
In first quarter of fiscal 2001, consolidated cost of sales was 56% of
product sales, an improvement from the fourth quarter where cost of sales was
62% but an increase from first quarter of fiscal 2000, when cost of sales was
52% of product sales. The increase was primarily due to lower margins on telecom
products. It is anticipated that our telecom products will continue to maintain
a cost of sales in the 60% range for fiscal 2001 as we work to expand our
manufacturing capabilities and product lines. During the first quarter of fiscal
2001, selling, general and administrative costs increased by $2.7 million from
first quarter of fiscal 2000 to $3.4 million due to $650,000 of Horizon and
Geltech costs and the $2 million balance due from increases in personnel in
administration and manufacturing support. We incurred several non-cash charges
during the first quarter of fiscal 2001; Geltech's $9.1 million non-recurring
in-process research and development charge, $2.5 million in amortization of
acquisition's goodwill and intangibles, and $2.7 million in non-cash stock-based
compensation charges due to Mr. Ripp's stock options. Research and development
costs increased by approximately $1.3 million to $1.4 million in first quarter
of fiscal 2001 versus 2000 of which $400,000 was due to acquisitions. The
majority of development work consisted of expenses associated with the Gen3
collimator assembly, LP1600 opto-mechanical switch and the New Jersey facility
where development work is on-going to expand the Company's products to the areas
of switches, interconnects and cross-connects for the telecommunications
industry. Horizon continues its efforts in the area of isolators and
micro-collimators and Geltech has research ongoing for diffractive gratings,
waveguides, lens arrays and sub-assembly technologies.
Investment income increased approximately $832,000 in first quarter of
fiscal 2001 due to the increase in interest earned on temporary investments as a
result of an increase in cash balances. Interest expense was not significant in
2001. In July 1999, we issued $1 million aggregate principal amount of 6%
convertible debentures and paid approximately $10,000 of interest expense. We
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.
Net loss of $16.9 million in first quarter of fiscal 2001 was an increase
of approximately $16 million from first quarter of fiscal 2000 of which $14.3
million relates to non-cash charges which includes, $9.1 million of
non-recurring write off of Geltech's in-process research and development, $2.7
million in stock-based compensation charges, and $2.5 million in amortization of
acquisition's goodwill and intangibles. The remaining $4.4 million increase was
due primarily to increased cost of sales and operating costs primarily in
selling, general and administrative expense and an $1.3 million increase in
research and development costs. These increased costs were partially offset by
the $2.8 million increase in total revenues, $832,000 increase in interest
income and the $425,000 reduction of interest expense. Net loss applicable to
common shareholders of $17 million for the first quarter of fiscal 2001 included
an additional charge of $26,913 attributable to the premium on our outstanding
preferred stock. Net loss per share of $.93 in fiscal year 2001 was an increase
of $.73 compared to the fiscal 2000 first quarter net loss per share.
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LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL RESOURCES AND LIQUIDITY
We financed our initial operations through private placements of equity and
debt until February 1996 when our 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 November 1999, we completed four preferred stock
and one convertible debt private placements which generated total net proceeds
of approximately $12 million. During fiscal 2000, we received net proceeds of
approximately $66 million from the exercise of stock options and warrants issued
at the initial public offering or in connection with previous private
placements. Since June 30, 2000, we have received net proceeds of approximately
$510,000 from the exercise of stock options.
Cash used in operations for the first quarter of fiscal 2001 was
approximately $4.3 million, an increase of approximately $4 million from first
quarter of fiscal 2000, due primarily to increased raw materials maintained in
inventory and administrative costs due to our acquisitions and increases in
staff. We expect to continue to incur net losses until such time, if ever, we
obtain market acceptance for our products at sale prices and volumes which
provide adequate gross revenues to offset our operating costs. During for the
first quarter of fiscal 2001, we expended approximately $2.1 million for capital
equipment and patent protection. The majority of the capital expenditures during
the year were related to the development of our clean rooms and equipment used
to expand our manufacturing facilities. We have outstanding budget commitments
for fiscal 2001, to expend an additional $3 million. In addition, approximately
$5 million will be used to fund expansion of Geltech's manufacturing facilities
over the next 18 months. The remaining fiscal 2001 projected capital
expenditures are for research and development equipment and construction of
additional collimator manufacturing and testing stations.
In August 2000, we purchased $7 million of LightChip, Inc. preferred stock
as part of a private placement in which LightChip, Inc. issued $60 million of
convertible preferred stock.
In September 2000, we acquired Geltech, a Delaware corporation for an
aggregate purchase price of approximately $27.5 million. We acquired all of the
outstanding shares of Geltech for 822,737 shares of Class A common stock. The
expenses of approximately $1million incurred for the acquisition were provided
from our working capital.
INFLATION; SEASONALITY
The Company has not been significantly impacted by inflation in 2001 due to
the nature of its product components. The Company does not believe that seasonal
factors will have a significant impact on its business.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
This bulletin summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB No. 101B that delayed the implementation date
of SAB No. 101 until the fourth fiscal quarter of fiscal years beginning after
December 15, 1999, although early adoption is allowed. We do not expect our
adoption of the provisions of this statement effective April 1, 2001, to have a
material effect on our results of operations or financial position.
13
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LIGHTPATH TECHNOLOGIES, INC.
PART II
ITEM 1. LEGAL PROCEEDINGS
On May 2, 2000, the Company commenced a class action lawsuit in the
Chancery Court of Delaware, New Castle County. The action seeks a declaratory
judgment with respect to the Company's right to redeem the Class E Common Stock
on September 30, 2000 for $.0001 per share, the right of the holders of Class E
Common Stock to vote at the Annual Meeting to be held on October 6, 2000, and
for certification of the holders of Class E Common Stock as a class and the
named defendants as its representatives. The named defendants are Donald E.
Lawson, President, Chief Executive Officer and a Director of the Company, who
owns an aggregate of 25,000 shares of Class E Common Stock, Louis G. Leeburg, a
Director of the Company, who owns an aggregate of 7,272 shares of Class E Common
Stock, and William Leeburg, who owns or controls an aggregate of 21,816 shares
of Class E Common Stock. Subsequent to September 30, 2000, the Company entered
into a proposed settlement of this lawsuit. The Company expects the Delaware
Chancery Court to schedule a hearing on the proposed settlement.
On or about June 9, 2000, a small group of holders of Class E Common Stock
commenced an action in a state court in Texas (the "Texas Action"). In essence,
the Texas Action makes various allegations regarding the circumstances
surrounding the issuance of the Class E Common Stock and seeks damages based
upon those allegations. The Company believes the allegations underlying the
Texas Action have no basis in fact and that this lawsuit is without merit. The
Company has retained counsel and intends to vigorously defend against these
claims.
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 reported in the Company's Form 10-KSB for the
year ended June 30, 2000.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule
b) The following reports on Form 8-K were filed under the Securities
Exchange Act of 1934 during the quarter ended June 30, 2000:
1. Current Report on Form 8-K dated August 9, 2000, announced the merger
agreement with Geltech, Inc.
2. Current Report on Form 8-K dated October 3, 2000, announced that the
final number of shares issued, after closing adjustments, for the
acquisition of Geltech, Inc. were 822,737 shares of Class A common
stock.
3. Current Report on Form 8-K/A-1 dated October 11, 2000, included the
audited financial statements of Geltech, Inc. and pro forma financial
statements for the acquisition of Geltech, Inc.
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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/ Donna Bogue November 12, 2000
-------------------------------------------
Donna Bogue Date
Chief Financial Officer
15
