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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2002
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.)
2603 CHALLENGER TECH CT. SUITE 100
ORLANDO, FLORIDA 32826
(Address of principal executive offices)
(ZIP Code)
(407) 382-4003
(Registrant's telephone number, including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
20,677,071 shares of common stock, Class A, $.01 par value, outstanding as of
January 31, 2003
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LIGHTPATH TECHNOLOGIES, INC.
FORM 10-Q
INDEX
ITEM PAGE
- ---- ----
PART I FINANCIAL INFORMATION
Item 1. Condensed Unaudited Consolidated Balance Sheets 2
Condensed Unaudited Consolidated Statements of Operations 3
Condensed Unaudited Consolidated Statements of Cash Flows 4
Notes to Condensed Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 27
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 28
1
ITEM 1. FINANCIAL STATEMENTS
LIGHTPATH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, JUNE 30,
2002 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,466,618 $ 13,177,624
Trade accounts receivable, net of allowance of $309,052
and $278,255, respectively 952,284 1,560,198
Inventories 2,032,994 2,403,644
Prepaid expenses and other receivables 649,226 1,531,367
------------- -------------
Total current assets 10,101,122 18,672,833
Property and equipment, net 3,806,660 6,664,374
Goodwill, net -- 2,276,472
Intangible assets, net 4,085,513 5,777,707
Investment in LightChip, Inc.
(included in June 30, 2002 balance only)
and other assets 159,391 3,585,842
------------- -------------
Total assets $ 18,152,686 $ 36,977,228
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 479,050 $ 1,002,374
Accrued liabilities 848,173 1,835,040
Accrued payroll and benefits 396,459 549,241
Accrued severance and exit costs 114,112 1,059,680
Other current liabilities 77,613 88,550
------------- -------------
Total current liabilities 1,915,407 4,534,885
Commitments and contingencies - (Note 10)
Stockholders' equity:
Common stock: Class A, $.01 par value, voting;
34,500,000 shares authorized; 20,677,071 shares
issued and outstanding 206,771 206,771
Additional paid-in capital 188,255,978 188,276,439
Accumulated deficit (172,225,470) (156,040,867)
------------- -------------
Total stockholders' equity 16,237,279 32,442,343
------------- -------------
Total liabilities and stockholders' equity $ 18,152,686 $ 36,977,228
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED UNAUDITED
CONSOLIDATED STATEMENTS.
2
LIGHTPATH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
REVENUES
Sales, net $ 1,663,573 $ 2,325,704 $ 3,308,556 $ 5,675,758
Product development fees and other sales -- 71,167 -- 179,159
------------ ------------ ------------ ------------
Total revenues 1,663,573 2,396,871 3,308,556 5,854,917
COSTS AND EXPENSES
Cost of sales (exclusive of stock-based
compensation of $9,966 and $6,956,
$(20,585) and $13,912 for the three
months and the six months ended December
31, 2002 and 2001, respectively) 2,441,164 3,804,654 4,684,416 6,918,421
Selling, general and administrative
(exclusive of stock-based compensation of
$(37,835) and $1,869,294, $17,523 and
$4,678,346 for the three months and the
six months ended December 31, 2002 and
2001, respectively) 1,647,382 2,888,398 3,670,116 6,725,666
Research and development (exclusive of
stock-based compensation of $(30,285) and
none, $(17,398) and $13,767 for the three
months and the six months ended December
31, 2002 and 2001, respectively) 599,409 2,169,419 1,533,197 4,221,873
Asset impairment 1,966,666 6,955,229 5,504,457 6,955,229
Stock-based compensation (58,154) 1,876,250 (20,460) 4,706,025
Amortization of goodwill and intangibles 730,644 2,410,063 1,543,509 5,100,819
Reorganization and relocation expense 232,175 -- 431,287 --
------------ ------------ ------------ ------------
Total costs and expenses 7,559,286 20,104,013 17,346,522 34,628,033
------------ ------------ ------------ ------------
Operating loss (5,895,713) (17,707,142) (14,037,966) (28,773,116)
OTHER INCOME (EXPENSE)
Investment and other income, net 45,093 89,716 129,834 799,439
------------ ------------ ------------ ------------
Loss before cumulative effect of accounting change (5,850,620) (17,617,426) (13,908,132) (27,973,677)
Cumulative effect of accounting change (2,276,472) -- (2,276,472) --
------------ ------------ ------------ ------------
Net loss $ (8,127,092) $(17,617,426) $(16,184,604) $(27,973,677)
------------ ------------ ------------ ------------
Imputed dividend on preferred stock -- (22,407) -- (48,016)
------------ ------------ ------------ ------------
Net loss applicable to common shareholders $ (8,127,092) $(17,639,833) $(16,184,604) $(28,021,693)
============ ============ ============ ============
Loss per share of common stock (basic and diluted)
Before cumulative effect of accounting change $ (0.28) $ (0.91) $ (0.67) $ (1.45)
Cumulative effect of accounting change (0.11) -- (0.11) --
------------ ------------ ------------ ------------
Net loss $ (0.39) $ (0.91) $ (0.78) $ (1.45)
============ ============ ============ ============
Number of shares used in per share calculation 20,677,071 19,392,308 20,677,071 19,381,738
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED UNAUDITED
CONSOLIDATED STATEMENTS.
3
LIGHTPATH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
----------------------------
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(16,184,604) $(27,973,677)
Adjustments to reconcile net loss to net cash
used in operating activities:
Cumulative effect of accounting change 2,276,472 --
Depreciation and amortization 2,475,706 6,579,098
Asset impairment 5,504,457 6,955,229
Stock-based compensation (20,460) 4,706,025
Provision for uncollectible accounts receivable 30,797 --
Changes in operating assets and liabilities:
Trade receivables 577,117 642,300
Inventories 370,650 1,429,879
Prepaid expenses and other 905,549 453,013
Accounts payable and accrued expenses (2,608,540) 533,774
------------ ------------
Net cash used in operating activities (6,672,856) (6,674,359)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions, net (125,242) (2,315,255)
Proceeds from sale of assets 116,008 372,480
Patent and license agreement costs, net (17,979) (45,105)
------------ ------------
Net cash used in investing activities (27,213) (1,987,880)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital leases (10,937) (125,821)
Proceeds from exercise of stock options and warrants -- 292,050
------------ ------------
Net cash provided by financing activities (10,937) 166,229
------------ ------------
Net decrease in cash and cash equivalents (6,711,006) (8,496,010)
Cash and cash equivalents at beginning of period 13,177,624 29,273,034
------------ ------------
Cash and cash equivalents at end of period $ 6,466,618 $ 20,777,024
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Note receivable in exchange for equipment $ -- $ 270,000
Preferred stock premium $ -- $ (48,016)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED UNAUDITED
CONSOLIDATED STATEMENTS.
4
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, 2002
ORGANIZATION
LightPath Technologies, Inc. ("LightPath" or the "Company") was incorporated in
Delaware on June 15, 1992. 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 precision
molded aspherical lenses, GRADIUM(R) glass lenses, collimator and isolator
optics used in various markets, including industrial, telecommunications
medical, defense, test and measurement. The Company also performs research and
development for emerging optical products and market segments in both the
traditional optics markets and telecommunications. As used herein, the terms
("LightPath" or the "Company"), refer to LightPath individually or, as the
context requires, collectively with its subsidiaries on a consolidated basis.
The Company has incurred substantial losses since inception. During fiscal year
1996, the Company completed an initial public offering ("IPO") and in fiscal
years 1997, 1998 and 2000 the Company completed four private placements of
convertible preferred stock and one private placement of convertible debentures
to raise additional capital. These funds were used for further research,
development and commercialization of optoelectronic products and GRADIUM(R)
glass lenses. During fiscal year 2000, warrants issued at the IPO and private
placement warrants were exercised for approximately $65.5 million.
The optical components markets, particularly the telecommunications market, have
experienced a severe downturn since mid-2001, resulting in a significant decline
in the demand for the Company's telecom related products as well as competitors'
products. During the first six months of fiscal 2003, the Company completed the
consolidation of the collimator and GRADIUM(R) product lines in Orando, Florida,
relocated the administrative headquarters from Albuquerque, New Mexico to
Orlando, Florida, and is currently evaluating strategic alternatives for the
isolator business including either the consolidation of the Walnut, California
plant into the Orlando, Florida plant, or sale of the unit.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the requirements of Article 10 of Regulation S-X
and, therefore, do not include all information and footnotes necessary for a
fair presentation of financial position, results of operations, and cash flows
in conformity with generally accepted accounting principles. These consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and related notes included in its Form 10-K
for the fiscal year ended June 30, 2002, filed with the Securities and Exchange
Commission.
These statements are unaudited but include all adjustments, which include normal
recurring adjustments, which, in the opinion of management, are 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. Certain items in the prior year's financial statements have
been reclassified to conform with the 2003 presentation. These reclassifications
had no effect on stockholders' equity or the results of operations.
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of the Company and its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS consist of cash in the bank and temporary investments
with maturities of 90 days or less when purchased.
INVENTORIES which consist principally of raw materials, lenses, isolators,
collimators and components are stated at the lower of cost or market, on a
first-in, first-out basis. Inventory costs include materials, labor and
manufacturing overhead.
5
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
PROPERTY AND EQUIPMENT are stated at cost and depreciated using both
straight-line methods over the estimated useful lives of the related assets
ranging from three to seven years. Platinum molds, less estimated salvage value,
are depreciated on a straight-line basis over the estimated useful lives ranging
from one to two years.
INTANGIBLE ASSETS consisting of customer list and supply contracts, licenses,
patents, trademarks, and others 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 life of the related assets ranging
from ten to seventeen years. Customer list and supply contracts and other
intangibles are being amortized on a straight-line basis over the estimated
period of benefit ranging from two to five years. The recoverability of the
carrying values of these intangible assets are evaluated on a recurring basis.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. When an evaluation is required, the estimated future undiscounted
cash flows associated with the asset are compared to the asset's carrying amount
to determine if a write-down to fair value is required.
The Company adopted Statement of Financial Accounting Standards No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS (SFAS 142) on July 1, 2002. SFAS 142
eliminates the amortization of goodwill and other intangible assets that have
indefinite useful lives. Amortization will continue to be recorded for
intangible assets with definite useful lives. SFAS 142 also requires at least an
annual impairment review of goodwill and other intangible assets. Any asset
deemed to be impaired is to be written down to its fair value. The Company has
completed its review of goodwill and other intangible assets for impairment in
accordance with SFAS 142 as of December 31, 2002.
INVESTMENTS AND OTHER ASSETS consists of the Company's ownership interest in
LightChip Inc. ("LightChip") which is accounted for under the cost method.
Investment in LightChip was disposed of during the first fiscal quarter of 2003.
Also included is a long-term note receivable related to the sale of certain
fixed assets with a maturity in 2006.
INCOME TAXES are accounted for under the asset and liability method. Deferred
income tax assets and liabilities are computed on the basis of differences
between the financial statement and tax basis 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 is generally recognized from product sales when products are shipped to
the customer provided that LightPath has received a valid purchase order, the
price is fixed, title has transferred, collection of the associated receivable
is reasonably assured, and there are no remaining significant obligations.
Revenues from product development agreements are recognized as milestones are
completed in accordance with the terms of the agreements. Provisions for
estimated losses are made in the period in which such losses are determined.
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 and other requirements are met. For stock options
granted to non-employees, stock-based compensation is determined using the fair
value method as prescribed by SFAS 123, "Accounting for Stock-Based
Compensation."
6
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MANAGEMENT MAKES ESTIMATES and assumptions during the preparation of the
Company's consolidated 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 available, which in turn
could impact the amounts reported and disclosed herein.
FAIR VALUES OF FINANCIAL INSTRUMENTS of the Company are disclosed as required by
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUES OF FINANCIAL INSTRUMENTS. The carrying amounts of cash and cash
equivalents, trade accounts receivable, accounts payable and accrued liabilities
approximate fair value.
2. INVENTORIES
The components of inventories include the following at:
December 31 June 30
2002 2002
---------- ----------
Raw materials $1,322,957 $1,670,488
Work in process 630,472 380,987
Finished goods 79,565 352,169
---------- ----------
Total inventories $2,032,994 $2,403,644
========== ==========
3. PROPERTY AND EQUIPMENT
During the first six months of fiscal 2003, the Company recorded asset
impairment charges on property and equipment of $1.9 million, of which $134,748
was recorded as a result of the relocation and disposal of equipment in
connection with the reorganization of operations from Albuquerque, New Mexico to
Orlando, Florida in the first fiscal quarter, and $1.8 million impairment of
equipment at the Walnut, California facility in the second fiscal quarter. The
net carrying value of the equipment remaining in Orlando, Florida, which was
held for disposal at December 31, 2002, is approximately $88,000.
4. GOODWILL AND INTANGIBLE ASSETS
Effective July 1, 2002, the Company no longer amortizes goodwill in accordance
with SFAS 142. Accordingly, amortization expense decreased by approximately $.9
million for the six-month period ended December 31, 2002. The following table
presents the impact of the adoption of SFAS 142 on the Company's reported net
loss and net loss per applicable common share had SFAS 142 been in effect in
fiscal 2001:
7
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
DECEMBER 31, DECEMBER 31,
THREE MONTH PERIODS ENDED: 2002 2001
------------ ------------
Reported loss before cumulative effect of accounting
change applicable to common shareholders $ (5,850,620) $(17,639,833)
Add back: amortization of goodwill -- 445,210
------------ ------------
Adjusted loss before cumulative effect of accounting
change applicable to common shareholders $ (5,850,620) $(17,194,623)
============ ============
Reported net loss applicable to common shareholders $ (8,127,092) $(17,639,833)
Add back: amortization of goodwill -- 445,210
------------ ------------
Adjusted net loss applicable to common shareholders $ (8,127,092) $(17,194,623)
============ ============
Reported loss before cumulative effect of accounting
change per applicable common share $ (0.28) $ (0.91)
------------ ------------
Adjusted loss before cumulative effect of accounting
change per applicable common share $ (0.28) $ (0.89)
============ ============
Reported net loss per applicable common share $ (0.39) $ (0.91)
------------ ------------
Adjusted net loss per applicable common share $ (0.39) $ (0.89)
============ ============
DECEMBER 31, DECEMBER 31,
SIX MONTH PERIODS ENDED: 2002 2001
------------ ------------
Reported loss before cumulative effect of accounting
change applicable to common shareholders $(13,908,132) $(28,021,693)
Add back: amortization of goodwill -- 890,420
------------ ------------
Adjusted loss before cumulative effect of accounting
change applicable to common shareholders $(13,908,132) $(27,131,273)
============ ============
Reported net loss applicable to common shareholders $(16,184,604) $(28,021,693)
Add back: amortization of goodwill -- 890,420
------------ ------------
Adjusted net loss applicable to common shareholders $(16,184,604) $(27,131,273)
============ ============
Reported loss before cumulative effect of accounting
change per applicable common share $ (0.67) $ (1.45)
------------ ------------
Adjusted loss before cumulative effect of accounting
change per applicable common share $ (0.67) $ (1.40)
============ ============
Reported net loss per applicable common share $ (0.78) $ (1.45)
------------ ------------
Adjusted net loss per applicable common share $ (0.78) $ (1.40)
============ ============
8
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
The following table discloses information regarding the carrying amounts and
associated accumulated amortization for intangible assets subject to
amortization after the adoption of SFAS 142.
DECEMBER 31, 2002
------------------------------------------
Gross carrying Accumulated Net carrying
Amortized intangible assets: amount amortization amount
----------- ------------ -----------
$ 1,041,750 $ 378,825 $ 662,925
Customer list and supply contract
Developed technology 6,064,981 3,732,721 2,332,260
Covenant not-to-compete 1,100,000 835,186 264,814
Other intangibles 2,860,000 2,533,333 326,667
Patents and trademarks granted 643,388 237,278 406,110
Patent applications in process 92,737 -- 92,737
----------- ----------- -----------
Total $11,802,856 $ 7,717,343 $ 4,085,513
=========== =========== ===========
JUNE 30, 2002
------------------------------------------
Gross carrying Accumulated Net carrying
Amortized intangible assets: amount amortization amount
----------- ------------ -----------
Customer list and supply contract $ 1,041,750 $ 189,409 $ 852,341
Developed technology 6,064,981 3,066,360 2,998,621
Covenant not-to-compete 3,100,000 2,151,852 948,148
Other intangibles 2,860,000 2,391,111 468,889
Patents and trademarks granted 643,388 208,437 434,951
Patent applications in process 74,757 -- 74,757
----------- ----------- -----------
Total $13,784,876 $ 8,007,169 $ 5,777,707
=========== =========== ===========
The following table summarizes the amortization expense attributable to
intangible assets for the three month and six month periods ended December 31,
2002 and 2001, as well as estimated amortization expense for the fiscal years
ending in June 2003 through 2007.
Aggregate amortization expense:
Three Months Ended Six Months Ended
------------------ ----------------
December 31, 2002 $ 730,644 $1,543,509
December 31, 2001 $2,410,063(a) $5,100,819(b)
Estimated amortization expense:
For the fiscal years ending:
June 30, 2003 $2,614,000
June 30, 2004 $1,973,000
June 30, 2005 $ 578,000
June 30, 2006 $ 90,000
June 30, 2007 $ 60,000
(a) Totals for the three months ended December 31, 2001 includes $445,210 of
goodwill amortization.
(b) Totals for the six months ended December 31, 2001 includes $890,420 of
goodwill amortization.
During the second fiscal quarter of 2003, the Company further evaluated its
goodwill and intangibles. As a result, approximately $2.3 million of goodwill
impairment associated with the acquisition of Horizon Photonics, Inc.
("Horizon") was recorded in the second fiscal quarter.
9
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
5. INVESTMENT IN LIGHTCHIP, INC.
During the first quarter ended September 30, 2002, LightChip ceased operations.
Subsequently, the Board of Directors of LightChip approved the sale of its
assets to two corporations who also agreed to hire LightChip's remaining
employees. As a result, the Company recorded an impairment charge of $3.4
million to write down the remaining carrying value of its investment in
LightChip to zero during the quarter ended September 30, 2002.
6. RESTRUCTURING
On June 27, 2002, the Company announced a restructuring plan to consolidate its
corporate headquarters and manufacturing facilities from Albuquerque, New Mexico
to Orlando, Florida by September 30, 2002. A restructuring accrual for employee
severance and other exit costs was recorded at June 30, 2002 for approximately
$1.1 million, which includes employee severance for 67 employees and other lease
costs. As of December 31, 2002, $.9 million of the accrued restructuring costs
were paid. The severance benefits were paid by December 31, 2002 and the lease
payments will be substantially complete by June 30, 2003.
The Company also recorded reorganization and relocation expenses totaling
approximately $.4 million during the six months ended December 31, 2002.
The restructuring accrual and its activity during the period are summarized as
follows:
Balance at June 30, Amounts Balance at December 31,
2002 paid 2002
----------- ----------- -----------
Severance $ 631,181 $ (631,181) $ --
Lease and other 428,499 (314,387) 114,112
----------- ----------- -----------
$ 1,059,680 $ (945,568) $ 114,112
=========== =========== ===========
7. STOCKHOLDERS' EQUITY
On September 30, 2000, the Company redeemed 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 (collectively the "E Shares") with $.01 par value since the
conversion provisions expired without being met. The former holders of E Shares
received their redemption value of $.0001 per share upon resolution of certain
stockholder litigation relating to E Shares by September 30, 2002. See Note 10.
8. NET LOSS PER SHARE
Basic net loss per common share is computed based upon the weighted average
number of shares of Class A common stock 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 December 31, 2002: 3,812,214 shares
of Class A common stock issuable upon exercise of outstanding restricted stock
options, and 299,300 shares of Class A common stock issuable upon exercise of
private placement and other warrants. A seven percent premium earned by the
preferred shareholders increased the net loss applicable to common shareholders
by $22,407 and $48,016 for the three months and the six months ended December
31, 2001, respectively.
9. SEGMENT INFORMATION
Beginning in fiscal 2003, the Company reorganized into the Optical Lens Group
("Optical Lens") and Laser Component Group ("Laser Component") as the Company's
reportable segments under SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". For the three months ended December 31,
2002, Optical Lens product sales represented approximately 69% of total revenues
and Laser Component product sales represented approximately 31% of total
revenues of the Company.
The Optical Lens segment includes the core lens business of the Company,
precision molded aspheric optics, GRADIUM lenses and collimators. Applicable
markets for the Optical Lens products include defense, medical devices, barcode
10
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
scanners, optical data storage, machine vision, sensors, and environmental
monitoring. The Optical Lens Group also performs research and development in the
aforementioned markets.
The Laser Component Group includes the integrated platform segment with a focus
on optical packaging solutions. The Laser Component Group also manufactures
isolator components, and performs research and development in support of optical
generation and detection applications, such as transmitters, transceivers and
pumps. In addition, current passive optical packages such as OASIS(TM) and
Vectra(TM) collimator arrays are included within this segment.
Summarized financial information concerning the Company's reportable segments
for the three months ended December 31, is shown in the following table. Prior
year information has been restated to conform to the new reportable segments of
the Company.
11
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Optical Laser Corporate and
Lens Component Other (1) Total
----------- ---------- ----------- ------------
THREE MONTHS ENDED DECEMBER 31
Revenues (2)
2002 $ 1,154,734 508,839 -- $ 1,663,573
2001 $ 1,819,434 577,437 -- $ 2,396,871
Operating loss
2002 $ (660,302) (3,231,071) (2,004,340) $ (5,895,713)
2001 $(3,451,667) (1,342,765) (12,912,710) $(17,707,142)
Loss before cumulative
effect of accounting
change (3)
2002 $ (660,302) (3,231,071) (1,959,247) $ (5,850,620)
2001 $(3,451,667) (1,342,765) (12,822,994) $(17,617,426)
Net loss (3)
2002 $ (660,302) (5,340,877) (2,125,913) $ (8,127,092)
2001 $(3,451,667) (1,342,765) (12,822,994) $(17,617,426)
Total Assets at December 31
2002 $ 4,890,669 2,888,082 10,373,935 $ 18,152,686
2001 $ 4,731,809 6,589,277 47,085,369 $ 58,406,455
SIX MONTHS ENDED DECEMBER 31
Revenues (2)
2002 $ 2,543,192 765,364 -- $ 3,308,556
2001 $ 4,057,075 1,797,842 -- $ 5,854,917
Segment operating loss (3)
2002 $(1,703,956) (3,343,851) (8,990,159) $(14,037,966)
2001 $(5,844,319) (2,169,465) (20,759,332) $(28,773,116)
Loss before cumulative
effect of accounting
change (3)
2002 $(1,703,956) (3,343,851) (8,860,325) $(13,908,132)
2001 $(5,844,319) (2,169,465) (19,959,893) $(27,973,677)
Net loss (3)
2002 $(1,703,956) (5,453,657) (9,026,991) $(16,184,604)
2001 $(5,844,319) (2,169,465) (19,959,893) $(27,973,677)
(1) Corporate functions include certain members of executive management, the
corporate accounting and finance function, non-cash charges and other
typical administrative functions as well as the restructuring expenses,
which are not allocated to segments.
(2) There were no material inter-segment sales during all periods presented.
(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.
12
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
10. CONTINGENCIES
In December 2001, the Company agreed to proceed with the settlement of a May 2,
2000 class action lawsuit, which the Company had commenced in the Chancery Court
of Delaware. The settlement included a provision that each former Class E
shareholder had the right to request exclusion from the settlement class. By
June 30, 2002, the final settlement arrangements had been mailed to former
holders of Class E Common Stock pursuant to which they would receive a
settlement payment of $0.40 for each share. Approximately 3.6 million shares or
88% of Class E Common Stock participated in the settlement whereas holders of
approximately 0.5 million shares or 12% opted out of the settlement. At June 30,
2002, the Company accrued an estimated settlement charge of $1.5 million of
which approximately $1.3 million was distributed as of December 31, 2002.
On or about June 9, 2000, a small group of holders of Class E Common Stock (the
"Texas Plaintiffs") commenced an action in a state court in Texas (the "Texas
Action"). The Texas Plaintiffs alleged that the actions of the Company, and
certain named individuals, leading up to and surrounding the Company's 1995
proxy statement constitute fraud, negligent misrepresentation, fraudulent
inducement, breach of fiduciary duty and civil conspiracy. In general, the Texas
Plaintiffs alleged misrepresentations and omissions in connection with a request
from the Company that its shareholders consent to a recapitalization, resulting
in a 5.5 to 1 reverse stock split and the issuance of certain Class E Common
Stock. The Texas Plaintiffs further alleged that, as a result of the defendants'
actions, they were induced to consent to the Company's recapitalization. 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 is vigorously defending against these claims. During the first quarter of
fiscal 2003, the Texas court granted a motion for Summary Judgment filed by the
Company. The plaintiffs sought reconsideration of the ruling, however, on
October 24, 2002, the Texas court denied their motion. The Company is in the
process of seeking to have the two remaining named individuals dismissed from
the action.
During the six months ended December 31, 2002, the Company incurred and expensed
legal fees associated with the Texas Action of approximately $.4 million,
however, an insurance claim for the aggregate amount incurred in connection with
the Texas Action in excess of applicable deductibles has been filed by the
Company. During the first quarter of fiscal 2002, one of the insurance companies
responsible for the claim, which had previously filed for reorganization, was
declared insolvent. The Company is working with regulatory agencies to resolve
and collect the monies due under this policy, although the Company currently
considers any potential recovery under this policy as speculative. Accordingly,
no claim for recovery is recorded as of December 31, 2002. On March 6, 2002, the
Company commenced an action in a state court in New Mexico for various claims
surrounding the now insolvent insurance carrier and the Company's former
insurance broker.
LightPath is subject to various other claims and lawsuits in the ordinary course
of its business, none of which are currently considered material to the
Company's financial condition and results of operations. Except as set forth
above, there have been no material developments in any legal actions reported in
the Company's Form 10-K for the year ended June 30, 2002.
13
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 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 DECEMBER 31, 2002 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 2001
CONSOLIDATED OPERATIONS
Our consolidated revenues totaled $1.7 million for the second quarter of fiscal
2003, a decrease of approximately $0.7 million or 31% compared to revenues for
the second quarter of fiscal 2002. The decrease was primarily attributable to a
decrease in laser components sales of $69,000 and optical lens sales of $.7
million.
In the second quarter of fiscal 2003, consolidated cost of sales was
approximately 147% of product sales, versus the comparable period of fiscal 2002
in which we reported cost of sales of 159%. Both periods included inventory
write downs of $.3 million and $1.2 million, respectively. Excluding the write
downs, the fiscal 2003 consolidated cost of sales was approximately 126% of
product sales, versus the comparable period of fiscal 2002 of 108%. The elevated
cost of sales is attributable principally to the underutilization of
manufacturing facilities and staff because of reduced sales during the quarter.
During the second quarter of fiscal 2003, selling, general and administrative
costs decreased by $1.2 million from the second quarter of fiscal 2002 to $1.6
million, due, primarily, to the decrease in administrative and personnel costs
as we consolidated facilities. We incurred several non-cash charges during the
second quarter of fiscal 2003, including $2.4 million related to the write down
of the Company's goodwill and remaining intangible assets from the Horizon
acquisition, $1.8 million impairment of manufacturing equipment related to the
isolator business, and $.7 million in amortization of intangibles from
acquisitions. This was offset by the forfeiture of restricted stock awards
resulting in $(58,000) in stock-based compensation charges.
Research and development costs decreased by approximately $1.6 million to
approximately $.6 million in the second quarter of fiscal 2003 versus the second
quarter of fiscal 2002, due to reduced personnel and discontinuation of the
research and development efforts directed at developing a optical cross connect
switch. Other development work consisted of expenses associated with automation
development and products in the areas of isolators and next generation optical
subassemblies and sub-assembly technologies.
During the second fiscal quarter of 2003, the Company also recorded
approximately $.2 million of reorganization and relocation expenses incurred in
connection with its previously announced plans to consolidate its corporate
headquarters and manufacturing facilities from Albuquerque, New Mexico to
Orlando, Florida. These expenses consist primarily of employment expenses, costs
to dispose equipment, and travel expenses. In addition, during the second
quarter of fiscal 2003, we paid approximately $.5 million of the employee
severance and lease termination fees accrued at June 30, 2002.
14
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Investment and other income decreased approximately $45,000 as interest earned
on investments in the second quarter of fiscal 2003 declined due to lower
interest rates and a decrease in cash balances. Interest and other expense in
the second quarter of fiscal 2003 and fiscal 2002 were not significant.
Net loss was $8.1 million during the second quarter of fiscal 2003. Included in
the net loss was approximately $4.9 million from the non-cash charges described
above, $.3 million inventory write down and $.2 million in reorganization and
relocation expenses, which, if excluded would have resulted in a net loss of
$2.6 million. This compares with the second quarter of fiscal 2002 in which we
reported a net loss of $17.6 million, including $11.2 million in non-cash
charges and a $1.2 million inventory write down, which, if excluded would have
resulted in a net loss of $5.2 million. The $2.6 million decrease in net loss
excluding the non-cash and other charges was due primarily to the reductions in
operating costs, primarily in selling, general and administrative expense and
research and development. Effective July 1, 2002, the Company no longer
amortizes goodwill in accordance with SFAS 142. Accordingly, amortization
expense decreased by approximately $.4 million for the three-month period ended
December 31, 2002. Net loss of $8.1 million for the second quarter of fiscal
2003 resulted in a net loss per share of $0.39, a decrease of $0.52 compared to
the second quarter of fiscal 2002 net loss per applicable common share of $0.91.
Net loss applicable to common shareholders for the second quarter of fiscal 2002
of $17.6 million included $22,407 attributable to a premium on the Company's
preferred stock previously outstanding.)
SEGMENTS
In June 2002 we announced plans for fiscal 2003 to consolidate lens product
lines in Florida and reorganize internally into two segments; the Optical Lens
Group and the Laser Component Group.
OPTICAL LENS GROUP
The Optical Lens Group manages the aspheric, GRADIUM(R), and collimator lens
products. We believe the aspheric lens product line, in particular, has broad
applicability to market segments beyond communications. We are aggressively
pursuing new opportunities in the application areas of medical devices, barcode
scanners, optical data storage, machine vision, sensors, and environmental
monitoring. For the second quarter of fiscal 2003, lens product sales decreased
$.7 million to approximately $1.1 million from $1.8 million for the comparable
period last year. This decrease is due largely to declining demand for
collimators, primarily in the telecommunications market.
The Optical Lens Group incurred a segment operating loss of $.7 million for the
second quarter of fiscal 2003 as compared to $3.4 million for the comparable
period last year, due primarily to overhead reductions. The company was able to
significantly reduce operating overhead through the shut-down and transfer of
its New Jersey research and development office, and the relocation and
reorganization of the New Mexico production facility into the Orlando, Florida
facility. Additional savings came from targeted headcount and expense
reductions.
LASER COMPONENT GROUP
The Laser Component Group includes integrated platforms with a focus on optical
packaging solutions. As our customers ask for more demanding optical
performance, we see a great opportunity to provide the entire solution from
laser to fiber. The Laser Component Group will be investing a modest amount in
research and development in support of optical generation and detection
applications, such as transmitters, transceivers and pumps. This group allows
LightPath to augment current passive optical packages such as OASIS(TM) and
Vectra(TM) collimator arrays with new innovative passive optical modules, such
as multiport and hybrid devices, to provide effective optical management
solutions for our customers. During the second quarter of fiscal 2003, the
Company reported approximately $.5 million of laser component sales, which is
comparable to the same period last year. A decrease of approximately $68,000
from the comparable period of the prior year was due primarily to reduced sales
of isolator products in the telecommunications market.
15
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Laser Component Group incurred a segment operating loss of approximately
$3.2 million for the second quarter of fiscal 2003, which is $1.9 million higher
compared to the same period of fiscal 2002. This segment net loss includes $2.3
million for the write down of Goodwill and Intangibles consistent with the
transitional analysis performed in accordance with SFAS 142 and an additional
$1.9 million for the impairment of long-lived assets in accordance with SFAS 144
"Accounting for the Impairment or Disposal of Long-Lived Assets".
In January 2003, the Company announced plans to either sell the Walnut,
California operating unit or consolidate the operations into its Orlando,
Florida facility.
SIX MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THE SIX MONTHS ENDED DECEMBER 31,
2001
CONSOLIDATED OPERATIONS
Our consolidated revenues totaled $3.3 million for the first six months of
fiscal 2003, a decrease of approximately $2.5 million or 43% compared to
revenues for the first six months of fiscal 2002. The decrease was primarily
attributable to a decrease in laser component product sales of $1.0 million or
57% and a decrease in optical lens sales of $1.5 million or 37%.
In the first six months of fiscal 2003, consolidated cost of sales was
approximately 142% of product sales, an increase from the comparable period of
fiscal 2002 in which we reported cost of sales of 118%. Both years included
inventory write downs of $.5 million and $1.2 million, respectively. Excluding
the write down, the fiscal 2003 consolidated cost of sales was approximately
127% of product sales, versus the comparable period of fiscal 2002 of 98%. The
increase of 29% from the comparable period of fiscal 2002 is attributable
principally to the underutilization of manufacturing facilities and staff
because of reduced sales during the period.
During the first six months of fiscal 2003, selling, general and administrative
costs decreased by $3.1 million from the first six months of fiscal 2002 to $3.7
million. The decrease is due primarily to a $1.2 million legal settlement
accrual included in fiscal 2002 and a $2.5 million decrease in administrative
and personnel costs due to reorganization of facilities. We incurred several
non-cash charges during the first six months of fiscal 2003, including $3.4
million related to the write down of the Company's investment in LightChip, $2.4
million related to the write down of the Company's goodwill and remaining
intangible assets from the Horizon acquisition, $1.9 million of asset impairment
charges primarily from manufacturing equipment related to the isolator business,
$1.5 million in amortization of intangibles from acquisitions, and the forfeit
of restricted stock awards resulting in ($20,460) in stock-based compensation
charges.
Research and development costs decreased by approximately $2.7 million to $1.5
million in the first six months of fiscal 2003 versus the first six months of
fiscal 2002, due, primarily, to reduced personnel and discontinuation of the
research and development efforts directed at developing a optical cross connect
switch. Other development work consisted of expenses associated with automation
development and products in the areas of isolators and next generation optical
subassemblies and sub-assembly technologies.
During the first six months of fiscal 2003, the Company also recorded
approximately $.4 million of reorganization and relocation expenses incurred in
connection with its previously announced plans to consolidate its corporate
headquarters and manufacturing facilities from Albuquerque, New Mexico to
Orlando, Florida. These expenses consist primarily of costs to dispose and move
equipment to Florida, employment, and travel expenses. In addition, during the
first six months of fiscal 2003, we paid approximately $.9 million of the
employee severance and lease termination fees accrued at June 30, 2002.
Investment and other income decreased approximately $.3 million as interest
earned on investments in the first six months of fiscal 2003 declined due to
lower interest rates and a decrease in cash balances. In addition, the first six
16
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
months of fiscal 2002 included a gain on the sale of assets of approximately $.4
million not present in fiscal 2003. Interest and other expense in the first six
months of fiscal 2003 and fiscal 2002 were not significant.
Net loss was $16.2 million during the first six months of fiscal 2003. Included
in the net loss was approximately $9.3 million from the non-cash charges
described above, $.5 million in inventory write downs and $.6 million in
reorganization and relocation expenses including $.1 million for asset
impairment, which, if excluded would have resulted in a net loss of $5.3
million. This compares with the first six months of fiscal 2002 in which we
reported a net loss of $28 million including $16.8 million in non-cash charges,
a $1.2 million inventory write down and a $1.4 million charge related to
litigation settlement costs, which, if excluded would have resulted in a net
loss of $8.7 million. The $3.7 million decrease in net loss excluding the
non-cash and other charges was due primarily to the reductions in operating
costs, primarily in selling, general and administrative expense and research and
development. Effective July 1, 2002, the Company no longer amortizes goodwill in
accordance with SFAS 142. Accordingly, amortization expense decreased by
approximately $.9 million for the six-month period ended December 31, 2002. Net
loss of $16.2 million for the first six months of fiscal 2003 resulted in a net
loss per share of $0.78, a decrease of $0.67 compared to the first six months of
fiscal 2002 net loss per applicable common share of $1.45. Net loss applicable
to common shareholders for the first six months of fiscal 2002 of $28 million
included $48,016 attributable to a premium on the Company's preferred stock
previously outstanding. SEGMENTS
In June 2002 we announced plans for fiscal 2003 to consolidate lens product
lines in Florida and reorganize internally into two segments; the Optical Lens
Group and the Laser Component Group.
OPTICAL LENS GROUP
The Optical Lens Group manages the aspheric lens products, collimator, and
GRADIUM(R) glass lenses. We believe the aspheric lens product line, in
particular, has broad applicability to market segments beyond communications. We
are aggressively pursuing new opportunities in the application areas of medical
devices, barcode scanners, optical data storage, machine vision, sensors, and
environmental monitoring. For the first six months of fiscal 2003, lens product
sales decreased $1.5 million to approximately $2.5 million from $4.0 million for
the comparable period last year. This decrease is due largely to declining
demand for collimators, primarily in the telecommunications market.
The Optical Lens Group incurred a segment operating loss of $1.7 million for the
first six months of fiscal 2003 as compared to $5.8 million for the comparable
period last year due primarily to overhead reductions offset by reduced margins.
LASER COMPONENT GROUP
The Laser Component Group includes integrated platforms with a focus on optical
packaging solutions. As our customers ask for more demanding optical
performance, we see a great opportunity to provide the entire solution from
laser to fiber. The Laser Component Group will be investing a modest amount in
research and development in support of optical generation and detection
applications, such as transmitters, transceivers and pumps. This Group allows
LightPath to augment current passive optical packages such as OASIS(TM) and
Vectra(TM) collimator arrays with new innovative passive optical modules, such
as multiport and hybrid devices, to provide effective optical management
solutions for our customers. During the first six months of fiscal 2003, the
Company reported approximately $.8 million of laser component sales, compared
with $1.8 million for the comparable period last year. The decrease of
approximately $1.0 million from the comparable period of the prior year was due
primarily to reduced sales of isolator products in the telecommunications market
segment.
The Laser Component Group incurred a segment operating loss of approximately
$3.3 million for the first six months of fiscal 2003, a decrease of
approximately $1.2 million from the comparable period last year. This segment
loss includes $2.3 million for the write down of Goodwill and Intangibles
17
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
consistent with the transitional analysis performed in accordance with SFAS 142
and an additional $1.9 million for the impairment of long-lived assets in
accordance with SFAS 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets".
In January 2003, the Company announced plans to either sell the Walnut,
California operating unit or consolidate the operations into its Orlando,
Florida facility.
CRITICAL ACCOUNTING POLICIES
The preparation of Consolidated Financial Statements in conformity with
generally accepted accounting principles requires the Company to select
appropriate accounting policies, and to make judgments and estimates affecting
the application of those accounting policies. In applying the Company's
accounting policies, different business conditions or the use of different
assumptions may result in materially different amounts reported in our
Consolidated Financial Statements.
In response to the Securities and Exchange Commission's ("SEC") Release No.
33-8040, "Cautionary Advice Regarding Disclosure About Critical Accounting
Policies," the Company has identified the most critical accounting principles
upon which the Company's financial status depends. The critical principles were
determined by considering accounting policies that involve the most complex or
subjective decisions or assessments. The most critical accounting principles
identified relate to: (i) revenue recognition; (ii) inventory valuation; (iii)
long-lived assets; (iv) investment in LightChip and (v) intangible assets. These
critical accounting policies and the Company's other significant accounting
policies are disclosed in Note 1 to the Company's Condensed Consolidated
Financial Statements.
REVENUE RECOGNITION. The Company recognizes revenue upon shipment of the product
provided that persuasive evidence of a final agreement exists, title has
transferred, the selling price is fixed and determinable and that collectibility
is reasonably assured.
INVENTORY VALUATION. The Company regularly assesses the valuation of inventories
and writes down those inventories that are obsolete or in excess of forecasted
usage to estimated net realizable value. Estimates of realizable value are based
upon the Company's analyses and assumptions including, but not limited to,
forecasted sales levels by product, expected product lifecycle, product
development plans and future demand requirements. If market conditions are less
favorable than the Company's forecast or actual demand from customers is lower
than the Company's estimates, the Company may be required to record additional
inventory write-downs. If demand is higher than expected, the Company may sell
inventories that have previously been written down.
LONG-LIVED ASSETS. The Company evaluates the carrying value of long-lived
assets, including property and equipment, whenever certain events or changes in
circumstances indicate that the carrying amount may not be recoverable. Such
events or circumstances include, but are not limited to, a prolonged industry
downturn, a significant decline in the Company's market value, or significant
reductions in projected future cash flows. If facts and circumstances warrant
such a review, under the current standard, a long-lived asset would be impaired
if future undiscounted cash flows, without consideration of interest, are
insufficient to recover the carrying amount of the long-lived asset. Once deemed
impaired, the long-lived asset is written down to its fair value which could be
considerably less than the carrying amount or future undiscounted cash flows.
The determination of future cash flows and, if required, fair value of a
long-lived asset is by its nature, a highly subjective judgment. Fair value is
generally determined by calculating the discounted future cash flows using a
discount rate based upon the Company's weighted average cost of capital.
Significant judgments and assumptions are required in the forecast of future
operating results used in the preparation of the estimated future cash flows,
including long-term forecasts of the amounts and timing of overall market growth
and the Company's percentage of that market, groupings of assets, discount rate
and terminal growth rates. Changes in these estimates could have a material
adverse effect on the assessment of property and equipment, thereby requiring
the Company to write down the assets.
INVESTMENT IN LIGHTCHIP. The Company accounts for its investment in LightChip
under the cost method of accounting as prescribed by APB 18 given its ownership
percentage of voting shares is approximately 13% at June 30, 2002. In addition,
the Company regularly assesses the carrying value of its investment in LightChip
18
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
to determine if a write down is necessary. The fair value of privately held
securities is highly subjective and involves inherent risk. While there are
several valuation techniques that could provide objective evidence of the value
of equity securities, the Company considers cash transactions with independent
third parties involving similar equity securities to be the strongest objective
evidence of fair value. The carrying value of our investment at December 31,
2002 is based on the most recent price per share of a cash transaction involving
third parties. As of December 31, 2002, the Company has disposed of the whole
investment in LightChip, based on the fact that a future round of financing be
completed at a per share price would be less than the current carrying value.
INTANGIBLE ASSETS. The Company generally obtains intangible assets in connection
with a business unit purchase (for example, in a business combination). The
assignment of value to individual intangible assets generally requires the use
of a specialist, such as an appraiser. The assumptions used in the appraisal
process are forward-looking, and thus subject to significant judgment. Because
individual intangible assets may be: (i) expensed immediately upon acquisition
(for example, purchased in-process research and development assets); or (ii)
amortized over their estimated useful life (for example, acquired technology),
their assigned values could have a material affect on current and future period
results of operations. Further, intangible assets are subject to the same
judgments when evaluating for impairment as other long-lived assets.
LIQUIDITY AND CAPITAL RESOURCES
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 and 2001, we received net proceeds
of approximately $67.6 million from the exercise of stock options and warrants
issued at the initial public offering or in connection with previous private
placements.
The optical components markets have experienced a severe downturn for the last
eighteen months, resulting in a significant decline in the demand for our
products as well as those of our competitors'. We believe the Company has
adequate financial resources, and will take the necessary actions, to manage
through this downturn. However, a further prolonged downturn in the optical
components markets or the unsuccessful move to sell our optical components into
non-telecom markets, failure by the Company to anticipate or respond to product
technological changes, changes by our customers or suppliers, or any significant
delays in the introduction of new products, could have a material adverse effect
on the Company's financial condition, operating results or cash flows. We expect
to continue to incur net losses until such time, if ever, as we obtain market
acceptance for our products at sale prices and volumes, which provide adequate
gross revenues to offset our operating costs.
Cash used in operations for the quarter ended December 31, 2002 was
approximately $2.6 million, a decrease of approximately $1.5 million from the
quarter ended September 30, 2002. This improvement was due to the cash payout of
a $1.2 million Delaware litigation settlement in the first quarter, and savings
realized from the consolidation of the Albuquerque, New Mexico facility into
Orlando, Florida. We will continue to reduce our cash expenditures through
improved manufacturing efficiencies, suspension of selected development projects
and consolidation of equipment and facilities. During the first six months of
fiscal 2003, we completed the consolidation of our lens product lines in
Florida, ceased manufacturing operations in our New Mexico facilities and
reorganized internally, all of which we believe will further decrease our cash
requirements for the remainder of fiscal 2003. While the Company has no firm
commitments for any future financing at this time, with a cash balance of
approximately $6.5 million at December 31, 2002, we will take the necessary
actions to manage through this downturn. We believe that our financial resources
will be sufficient to finance the Company's operations and capital expenditures,
excluding acquisitions, for the next twelve months.
While significant progress has been made to reduce operating cash outflow in
recent quarters, significant risk and uncertainty remains. At December 31, 2002,
the company had a cash balance of approximately $6.5 million. If the company
19
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
were unable to achieve additional reductions in cash outflow in future quarters,
from the actual total cash outflow of $2.6 million in the second quarter, the
company would have less than three quarters cash on hand. Factors which could
increase cash used in future quarters include, but are not limited to, a decline
in revenue, additional losses for bad debt, increased material costs, increased
labor costs, lump sum payments for annual Directors and Officers insurance
premiums, costs associated with the anticipated sale or relocation of the
Walnut, California facility, employee separation costs, increased health
insurance and benefits costs, and increases in discretionary spending.
Excluding the payment of $.2 million related to the settlement of certain
litigation and $.8 million of cash used in connection with the reorganization
and relocation efforts during the quarter the Company would have had cash used
from operations of approximately $1.6 million in the second quarter. If the
Company were unable to achieve additional reductions in cash flow in future
quarters, from this adjusted cash flow of $1.6 million in the second quarter,
the Company would have approximately four quarters of cash remaining.
The Company continues to take actions and seek additional savings in cash flow
through sales increases and cost reduction. Actions that are planned for the
remainder of 2003 include additional headcount reductions, sale or relocation of
our Walnut, California facility, reduced discretionary spending on research and
development, advertising and trade shows and tight restrictions on capital
spending. The Company has also taken actions in the first two quarters of 2003
to increase sales activities through the hiring of additional sales personnel,
and the signing of new distributor and manufacturer's representative agreements.
Actual cash flow benefit from such actions remains uncertain. The timing of such
actions and severity of cuts will impact the realization of such benefits and
magnitude of ongoing benefit.
For the six months ended December 31, 2002, cash used in operations, excluding
cash requirements related to changes in working capital, was approximately $5.9
million, a decrease of approximately $3.8 million from the same period of fiscal
2002. During the first six months of fiscal 2003, working capital needs used
approximately $.8 million in cash, primarily due to the payment of the cash
settlement in the Delaware litigation action and the reorganization and
relocation efforts. During the first six months of fiscal 2002, changes in
working capital resulted in an increase of approximately $3.1 million in cash
due primarily to growth in accounts payable, accrued expenses, and inventories.
During the six months ended December 31, 2002, there were no significant
expenditures for capital equipment and patent protection, and proceeds from the
sale of assets totaled approximately $.4 million.
The table below presents the Company's contractual obligations and commercial
commitments as of December 31, 2002:
CONTRACTUAL OBLIGATIONS
Stated
(Dollars in 000's) Total Maturity Comments
------------------ ----- -------- --------
Note payable $ 78 Jul. 1999 Negotiating settlement with
third party
Operating leases $ 3,813 2003-2008 Real estate leases with
monthly payments
Employee severance and other
exit costs $ 115 Apr. 2005 Lease costs will be
substantially paid by 6/30/03
Legal settlement payments on
Delaware action $ 300 Not applicable Settlement costs to be paid by
June 30, 2003
The Company does not engage in any activities involving special purpose entities
or off-balance sheet financing.
20
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS ASSOCIATED
WITH EXIT OR DISPOSAL ACTIVITIES" which the Company will be required to adopt
for any future costs associated with an exit or disposal activity. The Company
does not believe the adoption of SFAS 146 will have a material effect on our
results of operations or financial position.
In November 2002, the FASB issued Interpretation No. 45, "GUARANTOR'S ACCOUNTING
AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF
INDEBTEDNESS OF OTHERS." Interpretation No. 45 supersedes Interpretation No. 34,
"DISCLOSURE OF INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS," and provides
guidance on the recognition and disclosure to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees. The initial recognition and measurement provisions of Interpretation
No. 45 are effective for guarantees issued or modified after December 31, 2002,
and are to be applied prospectively. The disclosure requirements are effective
for financial statements for interim or annual periods ending after December 15,
2002. Adoption of Interpretation No. 45 is not expected to materially impact our
results of operations or financial position.
In November 2002, the FASB's Emerging Issues Task Force ("EITF") discussed Issue
No. 02-16, "ACCOUNTING BY A RESELLER FOR CASH CONSIDERATION RECEIVED FROM A
VENDOR." Issue No. 02-16 provides guidance on the recognition of cash
consideration received by a customer from a vendor. The consensus reached by the
EITF in November 2002 is effective for fiscal periods beginning after December
15, 2002. Income statements for prior periods are required to be reclassified to
comply with the consensus. Adoption of the consensus reached in November 2002
related to Issue No. 02-16 is not expected to materially impact our results of
operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "ACCOUNTING FOR STOCK-BASED
COMPENSATION TRANSITION AND DISCLOSURE." SFAS No.148 amends SFAS No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION," and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require more prominent and frequent disclosures
in financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. Adoption of SFAS No. 148 is not expected to materially impact our results
of operations or financial position.
21
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company invests liquid cash primarily in money market accounts, certificates
of deposit or in overnight repurchase agreements. Due to the short-term nature
of these investments, we believe that the market risk related to these
investments is minimal.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including the Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"), of the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14(c) and 15-d-14(c)). Based on that
evaluation, the CEO and CFO have concluded that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
Subsequent to the date of their evaluation, there were no significant changes in
the Company's internal controls or in other factors that could significantly
affect the disclosure controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.
22
LIGHTPATH TECHNOLOGIES, INC.
PART II
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Item 1, Legal Proceedings, in Form 10-Q for the quarter
ended September 30, 2002 for descriptions of the following and other legal
proceedings.
In December 2001, the Company agreed to proceed with the settlement of a May 2,
2000 class action lawsuit, which the Company had commenced in the Chancery Court
of Delaware. The settlement included a provision that each former Class E
shareholder had the right to request exclusion from the settlement class. By
June 30, 2002, the final settlement arrangements had been mailed to former
holders of Class E Common Stock pursuant to which they would receive a
settlement payment of $0.40 for each share. Approximately 3.6 million shares or
88% of Class E Common Stock participated in the settlement whereas holders of
approximately 0.5 million shares or 12% opted out of the settlement. At June 30,
2002, the Company accrued an estimated settlement charge of $1.5 million of
which approximately $1.3 million was distributed as of December 31, 2002.
On or about June 9, 2000, a small group of holders of Class E Common Stock (the
"Texas Plaintiffs") commenced an action in a state court in Texas (the "Texas
Action"). The Texas Plaintiffs alleged that the actions of the Company, and
certain named individuals, leading up to and surrounding the Company's 1995
proxy statement constitute fraud, negligent misrepresentation, fraudulent
inducement, breach of fiduciary duty and civil conspiracy. In general, the Texas
Plaintiffs alleged misrepresentations and omissions in connection with a request
from the Company that its shareholders consent to a recapitalization, resulting
in a 5.5 to 1 reverse stock split and the issuance of certain Class E Common
Stock. The Texas Plaintiffs further alleged that, as a result of the defendants'
actions, they were induced to consent to the Company's recapitalization. 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 is vigorously defending against these claims. During the first quarter of
fiscal 2003, the Texas court granted a motion for Summary Judgment filed by the
Company. The plaintiffs sought reconsideration of the ruling; however, on
October 24, 2002, the Texas court denied their motion. The Company is in the
process of seeking to have the two remaining named individuals dismissed from
the action.
During the six months ended December 31, 2002, the Company incurred and expensed
legal fees associated with the Texas Action of approximately $.4 million;
however, an insurance claim for the aggregate amount incurred in connection with
the Texas Action in excess of applicable deductibles has been filed by the
Company. During the first quarter of fiscal 2002, one of the insurance companies
responsible for the claim, which had previously filed for reorganization, was
declared insolvent. The Company is working with regulatory agencies to resolve
and collect the monies due under this policy, although the Company currently
considers any potential recovery under this policy as speculative. Accordingly,
no claim for recovery is recorded as of December 31, 2002. On March 6, 2002, the
Company commenced an action in a state court in New Mexico for various claims
surrounding the now insolvent insurance carrier and the Company's former
insurance broker.
LightPath is subject to various other claims and lawsuits in the ordinary course
of its business, none of which are currently considered material to the
Company's financial condition and results of operations. Except as set forth
above, there have been no material developments in any legal actions reported in
the Company's Form 10-K for the year ended June 30, 2002.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
LightPath Technologies, Inc. conducted its 2002 Annual Meeting of Stockholders
on October 15, 2002. Actions concluded at the meeting through submission of
matters to a vote by stockholders was conducted by proxy and included the
following:
1. Election of Class III Directors to hold office until the Annual
Meeting of Stockholders in 2005 and a Class II Director to hold office
until the Annual Meeting of Stockholders in 2003. The election of
Class III Directors, Louis Leeburg and Gary Silverman, of the Company
23
LIGHTPATH TECHNOLOGIES, INC.
was approved by a vote of Class A shareholders of 18,170,257 FOR and
1,088,403 WITHHOLD AUTHORITY, 18,014,268 FOR and 1,244,392 WITHHOLD
AUTHORITY, respectively. The election of Class II Director, Kenneth
Brizel, of the Company was approved by a vote of Class A shareholders
of 17,947,862 FOR and 1,310,798 WITHHOLD AUTHORITY. The terms of the
Company's Class I Directors, Robert Ripp and Robert Bruggeworth and of
its Class II Directors, James Adler Jr. and Steve Brueck continued
after the date of the Annual Meeting.
2. Approval of the Amended and Restated Omnibus Incentive Plan was
approved by a vote of Class A shareholders 15,772,086 FOR; 3,394,627
AGAINST and 91,947 ABSTENTIONS.
3. Ratification of the selection of KPMG LLP as independent accountants
for the Company for the fiscal year ending June 30, 2003 was approved
by a vote of Class A shareholders 18,002,281 FOR; 1,239,748 AGAINST
and 16,631 ABSTENTIONS.
ITEM 5. OTHER INFORMATION
On January 24, 2003, the Company filed a definitive Proxy Statement and Notice
of Special Shareholders Meeting to be held on February 28, 2003 whereby
shareholder approval will be sought in order to affect a reverse stock split of
up to 8-to-1 as a means to conform to the minimum bid price requirement to
remain listed on the Nasdaq National Market.
The Company believes that a reverse stock split may be desirable for a number of
reasons. First, the Company believes that a reverse stock split may avoid the
delisting of LightPath common stock from the Nasdaq National Market. Second, the
Company believes that a reverse stock split could improve the marketability and
liquidity of its common stock.
LightPath common stock is quoted on the Nasdaq National Market. In order for it
to continue to be quoted on the Nasdaq National Market, certain listing
maintenance standards, established by Nasdaq, must be satisfied. Among other
things, if the closing bid price of the common stock is under $1.00 per share
for 30 consecutive trading days and does not thereafter reach $1.00 per share or
higher for a minimum of ten consecutive trading days during the 90 calendar days
following notification by Nasdaq, Nasdaq may delist the common stock from
trading on the Nasdaq National Market. If the Company's common stock were to be
delisted, and did not qualify for trading on the Nasdaq SmallCap Market, the
common stock would trade on the OTC Bulletin Board or in the "pink sheets"
maintained by the National Quotation Bureau, Inc. Such alternative markets are
generally considered to be less efficient than, and not as broad as, the Nasdaq
National Market.
On July 24, 2002, the Company received a letter from Nasdaq advising that its
common stock had not met Nasdaq's minimum bid price requirement for 30
consecutive trading days and that, if the Company were unable to demonstrate
compliance with this requirement during the 90 calendar days ending October 22,
2002, its common stock would be delisted from the Nasdaq National Market. On
October 23, 2002, a letter was received from Nasdaq advising that the Company
had not regained compliance with the minimum bid price requirement and as a
result, its common stock would be delisted from the Nasdaq National Market on
October 31, 2002. In accordance with Nasdaq's rules, the Company requested a
hearing before Nasdaq's Listing Qualifications Panel to review the staff's
determination and remain listed on the Nasdaq National Market. This request
stayed the delisting of LightPath common stock, pending the outcome of the panel
hearing which was set for December 5, 2002. On December 5, 2002, the Company
presented its case to the Listing Qualifications Panel which determined that the
Company's common stock must meet the $1.00 per share minimum bid price
requirement as soon as possible. The Company submitted a proposal whereby a
reverse stock split could be accomplished in approximately 90 days. On January
7, 2003, the Listing Qualifications Panel approved such a plan and permitted the
Company's common stock to remain listed on the Nasdaq National Market pending
such reverse stock split and compliance with the minimum bid price requirement
(in addition to all other maintenance listing requirements) by or before March
7, 2003. A further condition of continued listing on the Nasdaq National Market
is that the Company's common stock maintains a closing bid price of at least
$1.00 per share for a minimum of ten consecutive trading days (in addition to
all other maintenance listing requirements).
24
LIGHTPATH TECHNOLOGIES, INC.
The Company expects that a reverse stock split of its common stock will increase
the market price so that it will be able to maintain compliance with the Nasdaq
minimum bid price listing standard. However, the effect of a reverse split upon
the market price of the Company's common stock cannot be predicted with any
certainty, and the history of similar stock split combinations for companies in
like circumstances is varied. It is possible that the per share price of the
Company's common stock after the reverse split will not rise in proportion to
the reduction in the number of shares of its common stock outstanding resulting
from the reverse stock split, and there can be no assurance that the market
price per post-reverse split share will either exceed or remain in excess of the
$1.00 minimum bid price for a sustained period of time. The market price of the
Company's common stock may be based also on other factors which may be unrelated
to the number of shares outstanding, including the Company's future performance.
In addition, there can be no assurance that the Company will not be delisted due
to a failure to meet other continued listing requirements even if the market
price per post-reverse split share of its common stock remains in excess of
$1.00. Notwithstanding the foregoing, the Company believes that the proposed
reverse stock split, when implemented within the proposed exchange ratio range,
will result in the market price of our common stock rising to the level
necessary to satisfy the $1.00 minimum bid price requirement.
The Company also believes that the increased market price of its common stock
expected as a result of implementing a reverse stock split may improve the
marketability and liquidity of its common stock and may encourage interest and
trading in its common stock. Because of the trading volatility often associated
with low-priced stocks, many brokerage houses and institutional investors have
internal policies and practices that either prohibit them from investing in
low-priced stocks or tend to discourage individual brokers from recommending
low-priced stocks to their customers. Some of those policies and practices may
function to make the processing of trades in low-priced stocks economically
unattractive to brokers. Additionally, because brokers' commissions on
low-priced stocks generally represent a higher percentage of the stock price
than commissions on higher-priced stocks, the current average price per share of
the Company's common stock can result in individual stockholders paying
transaction costs representing a higher percentage of their total share value
than would be the case if the share price were substantially higher. It should
be noted that the liquidity of the Company's common stock may be adversely
affected by the proposed reverse split given the reduced number of shares that
would be outstanding after the reverse stock split. The Company is hopeful,
however, that the anticipated higher market price will reduce, to some extent,
the negative effects on the liquidity and marketability of the common stock
inherent in some of the policies and practices of institutional investors and
brokerage houses described above.
LightPath also announced in January 2003 that it plans to continue the
realignment of its outstanding stock option incentives, initiated in July 2002,
with the cancellation of additional selected stock options and the issuance of
restricted stock awards. LightPath will cancel approximately 1.6 million options
and issue restricted stock awards covering a total of .8 million shares,
providing a reduction of approximately .8 million shares. The Company will also
issue approximately 150,000 new incentive options to employees bringing the net
reduction in underlying shares from 3.8 million to 3.1 million or approximately
15% of outstanding shares. This realignment is expected to be completed within
the next 120 days. The issuance of the restricted stock awards will result in
the recording of non-cash stock-based compensation charges of approximately $.3
million which will be recorded ratably over the vesting period.
In January 2003, Todd Childress, formerly Vice President, Finance, assumed the
role of CFO and Secretary for the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
None
b) The following reports on Form 8-K were filed under the Securities
Exchange Act of 1934 during the quarter ended December 31, 2002:
25
LIGHTPATH TECHNOLOGIES, INC.
1. Current report on Form 8-K dated October 17 2002, included the
press release announcing the results of the Annual Shareholders
meeting held October 15, 2002 and that the first quarter fiscal
2003 conference call would be held on October 31, 2002.
2. Current report on Form 8-K dated October 31, 2002 included the
press release of the first quarter fiscal 2003 financial results
made on October 31, 2002.
26
LIGHTPATH TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIGHTPATH TECHNOLOGIES, INC.
Date: February 10, 2003 By: /s/ Ken Brizel
----------------- ------------------------------------
CHIEF EXECUTIVE OFFICER
27
LIGHTPATH TECHNOLOGIES, INC.
Certification of the Principal Executive Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Ken Brizel, the President and Chief Executive Officer of LightPath
Technologies, Inc. (the "Company"), certify that:
(1) I have reviewed this quarterly report on Form 10-Q of the Company;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
(4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of Company's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and
(6) The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 10, 2003
-----------------
/s/ Ken Brizel
- -------------------------------------
Ken Brizel
LightPath Technologies, Inc.
President and Chief Executive Officer
28
LIGHTPATH TECHNOLOGIES, INC.
Certification of the Principal Financial Officer
Pursuant to 15 U.S.C. 78m(a) or 78o(d)
(Section 302 of the Sarbanes-Oxley Act of 2002)
I, Todd Childress, the Chief Financial Officer of LightPath Technologies, Inc.
(the "Company"), certify that:
(1) I have reviewed this quarterly report on Form 10-Q of the Company;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Company as of, and for, the periods presented in this
quarterly report;
(4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Company and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit
committee of Company's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and
(6) The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 10, 2003
-----------------
/s/ Todd Childress
- -------------------------------------
Todd Childress
LightPath Technologies, Inc.
Chief Financial Officer
29
LIGHTPATH TECHNOLOGIES, INC.
Certification of the Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Ken Brizel, the President and Chief Executive Officer of LightPath
Technologies, Inc. (the "Company") certify that to the best of my knowledge,
based upon a review of the Quarterly Report on Form 10-Q for the period ended
December 31, 2002 of the Company (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: February 10, 2003
-----------------
/s/ Ken Brizel
- ---------------------------
Ken Brizel
LightPath Technologies, Inc.
President and Chief Executive Officer
I, Todd Childress, the Chief Financial Officer of LightPath Technologies, Inc.
(the "Company") certify that to the best of my knowledge, based upon a review of
the Quarterly Report on Form 10-Q for the period ended December 31, 2002 of the
Company (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: February 10, 2003
-----------------
/s/ Todd Childress
- ---------------------------
Todd Childress
LightPath Technologies, Inc.
Chief Financial Officer
30