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 March 31, 2003
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:
2,584,595 shares of common stock, Class A, $.01 par value, outstanding as of
April 30, 2003
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 15
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
PART II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
1
ITEM 1. FINANCIAL STATEMENTS
LIGHTPATH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, JUNE 30,
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,789,414 $ 13,177,624
Trade accounts receivable, net of allowance of
$402,309 and $278,255, respectively 1,194,286 1,560,198
Inventories 1,404,717 2,403,644
Prepaid expenses and other receivables 968,974 1,531,367
------------- -------------
Total current assets 7,357,391 18,672,833
Property and equipment, net 3,385,292 6,664,374
Goodwill, net -- 2,276,472
Intangible assets, net 3,521,537 5,777,707
Investment in LightChip, Inc. and other assets 202,761 3,585,842
------------- -------------
Total assets $ 14,466,981 $ 36,977,228
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 227,498 $ 1,002,374
Accrued liabilities 357,960 1,835,040
Accrued payroll and benefits 424,419 549,241
Accrued severance and exit costs 98,157 1,059,680
Other current liabilities 77,613 88,550
------------- -------------
Total current liabilities 1,185,647 4,534,885
Commitments and contingencies
Stockholders' equity:
Common stock: Class A, $.01 par value, voting;
34,500,000 shares authorized; 2,584,595 shares
issued and outstanding 25,846 25,846
Additional paid-in capital 188,312,131 188,457,364
Accumulated deficit (175,056,643) (156,040,867)
------------- -------------
Total stockholders' equity 13,281,334 32,442,343
------------- -------------
Total liabilities and stockholders' equity $ 14,466,981 $ 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 ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
REVENUES
Sales, net $ 1,687,722 $ 3,451,427 $ 4,996,278 $ 9,127,185
Product development fees and other sales -- 166,157 -- 345,316
------------ ------------ ------------ ------------
Total revenues 1,687,722 3,617,584 4,996,278 9,472,501
COST OF SALES 1,775,961 3,297,300 6,439,791 10,229,633
------------ ------------ ------------ ------------
GROSS MARGIN (88,239) 320,284 (1,443,513) (757,132)
OPERATING EXPENSES
Selling, general and administrative 1,261,776 2,250,372 4,942,624 13,654,384
Research and development 927,391 1,474,452 2,449,984 5,710,092
Asset impairment -- -- 5,504,457 6,955,229
Amortization of goodwill and intangibles 563,977 1,639,626 2,107,485 6,740,445
Reorganization and relocation expense -- -- 431,287 --
------------ ------------ ------------ ------------
Total operating expenses 2,753,144 5,364,450 15,435,837 33,060,150
------------ ------------ ------------ ------------
OPERATING LOSS (2,841,383) (5,044,166) (16,879,350) (33,817,282)
OTHER INCOME
Investment and other income (expense), net 10,210 8,719 140,044 808,158
------------ ------------ ------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,831,173) (5,035,447) (16,739,306) (33,009,124)
Cumulative effect of accounting change -- -- (2,276,472) --
------------ ------------ ------------ ------------
NET LOSS $ (2,831,173) $ (5,035,447) $(19,015,778) $(33,009,124)
Imputed dividend on preferred stock -- (13,890) -- (61,906)
------------ ------------ ------------ ------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (2,831,173) $ (5,049,337) $(19,015,778) $(33,071,030)
============ ============ ============ ============
LOSS PER SHARE OF COMMON STOCK (BASIC AND DILUTED)
Before cumulative effect of accounting change $ (1.10) $ (2.04) $ (6.48) $ (13.55)
Cumulative effect of accounting change -- -- (0.88) --
------------ ------------ ------------ ------------
Net loss $ (1.10) $ (2.04) $ (7.36) $ (13.55)
============ ============ ============ ============
Number of shares used in per share calculation 2,584,595 2,474,780 2,584,595 2,439,818
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED UNAUDITED
CONSOLIDATED STATEMENTS.
3
LIGHTPATH TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
2003 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(19,015,778) $(33,009,124)
Adjustments to reconcile net loss to net cash used in
operating activities:
Cumulative effect of accounting change 2,276,472 --
Depreciation and amortization 3,482,726 8,986,832
Asset impairment 5,504,457 6,955,229
Stock-based compensation (145,232) 4,782,278
Provision for uncollectible accounts receivable 124,054 --
Changes in operating assets and liabilities:
Trade receivables 241,858 (108,701)
Inventories 998,927 1,034,147
Prepaid expenses and other 542,432 (411,268)
Accounts payable and accrued expenses (3,338,301) 854,257
------------ ------------
Net cash used in operating activities (9,328,385) (10,916,350)
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions (146,916) (2,214,872)
Proceeds from sale of assets 116,008 595,774
Patent and license agreement costs (17,980) (52,033)
------------ ------------
Net cash used in investing activities (48,888) (1,671,131)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capital leases (10,937) (145,325)
Proceeds from exercise of stock options and warrants -- 292,050
------------ ------------
Net cash (used in) provided by financing activities (10,937) 146,725
------------ ------------
Net decrease in cash and cash equivalents (9,388,210) (12,440,756)
Cash and cash equivalents at beginning of period 13,177,624 29,273,034
------------ ------------
Cash and cash equivalents at end of period $ 3,789,414 $ 16,832,278
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Note receivable in exchange for equipment $ -- $ 270,000
Preferred stock premium $ -- $ (61,906)
Class A common stock issued upon conversion of
preferred stock $ -- $ 11,984
Conversion of redeemable preferred stock to
Class A common stock $ -- $ 1,478,976
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED UNAUDITED
CONSOLIDATED STATEMENTS.
4
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, 2003
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, collimators and isolator
optics used in various markets, including industrial, telecommunications,
medical, defense, and test & measurement. The Company also performs research and
development for emerging optical products and market segments in both
traditional optics and telecommunications markets. 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 nine months of fiscal 2003, the Company completed the
consolidation of the collimator and GRADIUM(R) product lines in Orando, Florida
and relocated the administrative headquarters from Albuquerque, New Mexico to
Orlando, Florida. During the third quarter of fiscal 2003, the Company elected
to begin consolidating its isolator business from Walnut, California into the
Orlando, Florida plant. This consolidation is expected to be completed by June
30, 2003.
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 consolidated financial 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 the
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 the
straight-line method 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.
LONG-LIVED ASSETS are recorded in accordance with SFAS No.144, ACCOUNTING FOR
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. SFAS No. 144 provides a single
accounting model for long-lived assets to be disposed of. SFAS No. 144 also
changes the criteria for classifying an asset as held for sale; and broadens the
scope of businesses to be disposed of that qualify for reporting as discontinued
operations and changes the timing of recognizing losses on such operations.
In accordance with SFAS No. 144, long-lived assets, such as property, plant, and
equipment, and purchased intangibles subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized in the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
Goodwill and intangible assets not subject to amortization are tested annually
for impairment, and are tested for impairment more frequently if events and
circumstances indicate that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount exceeds the asset's fair
value.
The Company adopted SFAS No. 144 on July 1, 2002. The adoption of SFAS No. 144
has resulted in asset impairment of $5.5 million for the nine months ended March
31, 2003. Prior to the adoption of SFAS No. 144, the Company accounted for
long-lived assets in accordance with SFAS No. 121, ACCOUNTING FOR IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
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. The
Company's investment in LightChip was written off 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.
6
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
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
employee's 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.
The Company adopted the disclosure provisions of SFAS No. 148, ACCOUNTING FOR
STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE.
The following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of FASB Statement No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to stock-based employee
compensation.
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net loss, as reported $ (2,831,173) $ (5,049,337) $(19,015,778) $(33,071,030)
Add: Total stock-based employee compensation
expense included in reported net income, net of
related tax effects (124,772) 76,250 (145,232) 4,782,278
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects 452,014 4,512,721 1,585,125 14,505,539
------------ ------------ ------------ ------------
Pro forma net income $ (3,407,959) $ (9,485,808) $(20,746,135) $(42,794,291)
------------ ------------ ------------ ------------
Loss per share:
Basic and diluted, as reported $ (1.10) $ (2.04) $ (7.36) $ (13.55)
Basic and diluted, pro forma $ (1.32) $ (3.83) $ (8.03) $ (17.54)
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.
7
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
2. INVENTORIES
The components of inventories include the following at:
March 31 June 30
2003 2002
---------- ----------
Raw materials $ 987,222 $1,670,488
Work in process 304,244 380,987
Finished goods 113,251 352,169
---------- ----------
Total inventories $1,404,717 $2,403,644
========== ==========
3. PROPERTY AND EQUIPMENT
During the first nine 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 the remaining $1.8 million for
the impairment of equipment at the Walnut, California facility was recorded in
the second fiscal quarter. The net carrying value of the equipment remaining in
Orlando, Florida, which was held for disposal at March 31, 2003, is
approximately $74,000.
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 $1.3
million for the nine-month period ended March 31, 2003. 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 2002:
MARCH 31, MARCH 31,
THREE MONTH PERIODS ENDED: 2003 2002
------------- -----------
Reported net loss applicable to common shareholders $ (2,831,173) $(5,049,337)
Add back: amortization of goodwill -- 445,210
------------- -----------
Adjusted net loss applicable to common shareholders $ (2,831,173) $(4,604,127)
============= ===========
Reported net loss per applicable common share $ (1.10) $ (2.04)
------------- -----------
Adjusted net loss per applicable common share $ (1.10) $ (1.86)
------------- -----------
8
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
MARCH 31, MARCH 31,
NINE MONTH PERIODS ENDED: 2003 2002
-------------- ------------
Reported loss before cumulative effect of accounting change
applicable to common shareholders $ (16,739,306) $(33,071,030)
Add back: amortization of goodwill -- 1,335,630
-------------- ------------
Adjusted loss before cumulative effect of accounting change
applicable to common shareholders $ (16,739,306) $(31,735,400)
============== ============
Reported net loss applicable to common shareholders $ (19,015,778) $(33,071,030)
Add back: amortization of goodwill -- 1,335,630
-------------- ------------
Adjusted net loss applicable to common shareholders $ (19,015,778) $(31,735,400)
============== ============
Reported loss before cumulative effect of accounting change
per applicable common share $ (6.48) $ (13.55)
-------------- ------------
Adjusted loss before cumulative effect of accounting change
per applicable common share $ (6.48) $ (13.01)
============== ============
Reported net loss per applicable common share $ (7.36) $ (13.55)
-------------- ------------
Adjusted net loss per applicable common share $ (7.36) $ (13.01)
============== ============
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.
MARCH 31, 2003
Gross carrying Accumulated Net carrying
Amortized intangible assets: amount amortization amount
----------- ------------ -----------
Customer list and supply contract $ 1,041,750 $ 473,524 $ 568,226
Developed technology 6,064,981 4,065,900 1,999,081
Covenant not-to-compete 1,100,000 926,852 173,148
Other intangibles 2,860,000 2,563,345 296,655
Patents and trademarks granted 643,388 251,698 391,690
Patent applications in process 92,737 -- 92,737
----------- ----------- -----------
Total $11,802,856 $ 8,281,319 $ 3,521,537
=========== =========== ===========
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
=========== =========== ===========
9
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
The following table summarizes the amortization expense attributable to
intangible assets for the three month and nine month periods ended March 31,
2003 and 2002, as well as estimated amortization expense for the fiscal years
ending in June 2003 through 2007.
Aggregate amortization expense:
Three Months Ended Nine Months Ended
------------------ -----------------
March 31, 2003 $ 563,977 $ 2,107,485
March 31, 2002 $ 1,639,626(a) $ 6,740,445(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 March 31, 2002 includes $445,210 of
goodwill amortization.
(b) Totals for the nine months ended March 31, 2002 includes $1,335,630 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 was recorded in the second
fiscal quarter.
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. A restructuring accrual for employee severance and other
exit costs was recorded at June 30, 2002 for approximately $1.1 million, which
included employee severance for 67 employees and other lease costs. As of March
31, 2003, $1.0 million of the accrued restructuring costs were paid. The
severance benefits were paid by December 31, 2002 and the lease payments should
be substantially complete by June 30, 2003.
The Company also recorded reorganization and relocation expenses totaling
approximately $.4 million during the nine months ended March 31, 2003.
The restructuring accrual and its activity during the period are summarized as
follows:
Balance at Balance at
June 30, 2002 Amounts paid March 31, 2003
------------- ------------ --------------
Severance $ 631,181 $ (631,181) $ --
Lease and other 428,499 (330,342) 98,157
----------- ----------- ----------
$ 1,059,680 $ (961,523) $ 98,157
=========== =========== ==========
10
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
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 11.
On February 28, 2003, the Board of Directors authorized an 8-for-1 reverse stock
split of the Company's Class A $0.01 par value common stock. As a result of the
reverse split, the total number of shares of issued and outstanding stock was
reduced to 2,584,595 from 20,677,071, and additional paid-in capital was
increased by $180,925. All references in the accompanying financial statements
to the number of common shares and per-share amounts for fiscal 2002 have been
restated to reflect the reverse stock split. Currently, the Company does not
have any preferred stock outstanding.
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 March 31, 2002: 4,632,172 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 $13,890 and $61,906 for the three months and the nine months ended March 31,
2002, respectively. Currently, the Company does not have any preferred stock
outstanding.
9. STOCK-BASED COMPENSATION
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
employee's 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." Stock-based compensation has been reclassed to "Cost of sales",
"Selling, general and administrative", and "Research and development" in all
periods presented. The following is a summary of amounts included in each of the
cost and expenses categories:
STOCK-BASED COMPENSATION INCLUDED THREE MONTHS ENDED NINE MONTHS ENDED
IN COST AND EXPENSES MARCH 31, MARCH 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Cost of sales $ (63,923) $ 6,956 $ (84,509) $ 20,868
Selling, general and administrative (72,130) 69,294 (61,398) 4,747,643
Research and development 11,281 -- 675 13,767
---------- ---------- ---------- ----------
TOTAL STOCK-BASED COMPENSATION $ (124,772) $ 76,250 $ (145,232) $ 4,782,278
========== ========== ========== ==============
10.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 March 31, 2003,
Optical Lens product sales represented approximately 75% of total revenues and
Laser Component product sales represented approximately 25% of total revenues of
the Company.
11
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
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
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 and the nine months ended March 31, is shown in the
following table. Prior year information has been restated to conform to the new
reportable segments of the Company.
12
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
Optical Laser Corporate and
Lens Component Other (1) Total
------------ -------- ---------- ------------
THREE MONTHS ENDED MARCH 31
Revenues (2)
2003 $ 1,258,992 428,730 -- $ 1,687,722
2002 $ 2,293,848 1,323,736 -- $ 3,617,584
Operating loss
2003 $ (1,410,353) (882,270) (548,760) $ (2,841,383)
2002 $ (2,878,631) (456,678) (1,708,857) $ (5,044,166)
Loss before cumulative effect of accounting change (3)
2003 $ (1,400,143) (882,270) (548,760) $ (2,831,173)
2002 $ (2,892,663) (456,678) (1,699,996) $ (5,049,337)
Net loss (3)
2003 $ (1,400,143) (882,270) (548,760) $ (2,831,173)
2002 $ (2,892,663) (456,678) (1,699,996) $ (5,049,337)
Total Assets at March 31
2003 $ 5,300,362 1,556,017 7,610,602 $ 14,466,981
2002 $ 12,731,832 7,197,475 33,818,933 $ 53,748,240
NINE MONTHS ENDED MARCH 31
Revenues (2)
2003 $ 3,820,184 1,176,094 -- $ 4,996,278
2002 $ 6,350,606 3,121,895 -- $ 9,472,501
Operating loss (3)
2003 $ (4,099,405) (7,135,734) (5,644,211) $(16,879,350)
2002 $(12,726,390) (2,632,471) (18,458,421) $(33,817,282)
Loss before cumulative effect of accounting change (3)
2003 $ (4,074,897) (7,135,734) (5,528,675) $(16,739,306)
2002 $(11,657,798) (2,614,685) (18,798,547) $(33,071,030)
Net loss (3)
2003 $ (4,074,897) (7,135,734) (7,805,147) $(19,015,778)
2002 $(11,657,798) (2,614,685) (18,798,547) $(33,071,030)
(1) Corporate functions include certain members of executive management, the
corporate accounting and finance, investor relations, 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.
13
LIGHTPATH TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
11. 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 March 31, 2003.
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 (former Directors and Officers), leading up to and
surrounding the Company's 1995 proxy statement constituted 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 in favor of 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 (former Directors and Officers) dismissed from
the action.
During the nine months ended March 31, 2003, 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 March 31, 2003. 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.
14
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 NEED FOR ADDITIONAL FINANCING,
INTENSE COMPETITION IN VARIOUS ASPECTS OF ITS BUSINESS AND OTHER RISKS DESCRIBED
IN THE COMPANY'S REPORTS ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION. IN
LIGHT OF THESE RISKS AND UNCERTAINTIES, ALL OF THE FORWARD-LOOKING STATEMENTS
MADE HEREIN ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO
ASSURANCE THAT THE ACTUAL RESULTS OR DEVELOPMENTS ANTICIPATED BY THE COMPANY
WILL BE REALIZED. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE ANY
OF THE FORWARD LOOKING STATEMENTS CONTAINED HEREIN.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2002
CONSOLIDATED OPERATIONS
Our consolidated revenues totaled $1.7 million for the third quarter of fiscal
2003, a decrease of approximately $1.9 million or 53% compared to revenues for
the third quarter of fiscal 2002. The decrease was primarily attributable to a
decrease in laser components sales of $.9 million and optical lens sales of $1.0
million.
In the third quarter of fiscal 2003, consolidated cost of sales was
approximately 105% of product sales, versus the comparable period of fiscal 2002
in which we reported cost of sales of 91%. The elevated cost of sales is
attributable principally to the underutilization of manufacturing facilities and
staff because of reduced sales during the quarter. The Company has taken steps
to reduce fixed and variable costs, including the consolidation of the Company's
manufacturing operations from Albuquerque, New Mexico and Walnut, California to
a single product facility in Orlando, Florida, which is expected to be completed
in the fourth quarter of fiscal 2003.
During the third quarter of fiscal 2003, selling, general and administrative
costs decreased by $ 1.0 million from the third quarter of fiscal 2002 to $1.3
million, due, primarily, to the decrease in administrative and personnel costs
as we consolidated facilities. We incurred several non-cash charges during the
third quarter of fiscal 2003, including $.5 million in amortization of
intangibles from acquisitions. This was offset by the forfeiture of restricted
stock awards resulting in $.1 million benefit in stock-based compensation.
Research and development costs decreased by approximately $.5 million to
approximately $.9 million in the third quarter of fiscal 2003 versus the third
quarter of fiscal 2002, due to reduced personnel and discontinuation of the
research and development efforts directed at developing an 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.
Investment and other income decreased approximately $.1 million as interest
earned on investments in the third quarter of fiscal 2003 declined due to lower
interest rates and a decrease in cash balances. Interest and other expense in
the third quarter of fiscal 2003 were not significant, as compared to $.1
million interest and other expense in the same period of fiscal 2002.
Net loss was $2.8 million during the third quarter of fiscal 2003. Included in
the net loss was approximately $.4 million from the non-cash charges. This
compares with the third quarter of fiscal 2002, in which we reported a net loss
of $5 million, including $1.7 million in non-cash charges. The $2.2 million
15
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
decrease in net loss was due primarily to the reductions in operating costs,
primarily in selling, general and administrative expense and research and
development, and the non-cash and other charges. 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 March 31, 2003. Net loss of $2.8 million for the third quarter of
fiscal 2003 resulted in a net loss per share of $1.10, a decrease of $0.94
compared to the third quarter of fiscal 2002 net loss per applicable common
share of $2.04. Net loss applicable to common shareholders for the third quarter
of fiscal 2002 of $5.0 million included $13,890 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 third quarter of fiscal 2003, lens product sales decreased
$1.0 million to approximately $1.3 million from $2.3 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 $1.4 million for the
third quarter of fiscal 2003 as compared to $2.9 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 personnel and expense
reductions.
LASER COMPONENT GROUP
The Laser Component Group focuses on isolators and 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 has historically invested in research and development in support
of optical generation and detection applications, such as transmitters,
transceivers and pumps. This group enables LightPath to augment current passive
optical components, such as OASIS(TM), with new innovative passive optical
subassemblies, such as multiport and hybrid devices, to provide cost effective
optical management solutions for our customers. During the third quarter of
fiscal 2003, the Company reported approximately $.4 million of laser component
sales. The decrease of approximately $.9 million from the comparable period of
the prior year was due primarily to reduced sales of isolator products in the
telecommunications market.
The Laser Component Group incurred a segment operating loss of approximately $.9
million for the third quarter of fiscal 2003, which is $.4 million lower
compared to the same period of fiscal 2002. The segment net loss was mainly due
to reduced sales. In January 2003, the Company announced plans to either sell
the Walnut, California operating unit or consolidate the operations into its
Orlando, Florida facility. The company is currently in the process of
consolidating the Walnut, California facility and is expected to complete it by
the end of fourth fiscal quarter. The Company continues to consider strategic
alternatives for this operating unit.
16
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE NINE MONTHS ENDED MARCH 31,
2002
CONSOLIDATED OPERATIONS
Our consolidated revenues totaled $5.0 million for the first nine months of
fiscal 2003, a decrease of approximately $4.5 million or 47% compared to
revenues for the first nine months of fiscal 2002. The decrease was primarily
attributable to a decrease in laser component product sales of $2.0 million or
62% and a decrease in optical lens sales of $2.5 million or 40%. This decrease
was largely a result of an overall decrease in market demand for optical lenses
and laser component products, primarily in the telecom sector.
In the first nine months of fiscal 2003, consolidated cost of sales was
approximately 105% of product sales, an increase from the comparable period of
fiscal 2002 in which we reported cost of sales of 91%. Both years included
inventory write downs of $.5 million and $1.2 million, respectively. The
increase of 14% 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 nine months of fiscal 2003, selling, general and administrative
costs decreased by $8.7 million from the first nine months of fiscal 2002 to
$4.9 million. The decrease is due primarily to a $1.2 million legal settlement
accrual included in fiscal 2002 and a $4.8 million decrease in stock-based
compensation. In addition, the Company has taken additional actions to reduce
costs, including consolidation of the Company's Albuquerque, New Mexico and
Walnut, California operating plants to Orlando, Florida plant, and other
targeted headcount reductions.
Research and development costs decreased by approximately $3.3 million to $2.4
million in the first nine months of fiscal 2003 versus the first nine months of
fiscal 2002, due, primarily, to reduced personnel and discontinuation of the
research and development efforts directed at developing an 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.
We incurred several non-cash charges during the first nine 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, and $2.1 million in amortization of
intangibles from acquisitions, offset by the forfeitures of restricted stock
awards resulting in $.1million benefit in stock-based compensation.
During the first nine 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 nine months of fiscal 2003, we paid approximately $1.0 million of the
employee severance and lease termination fees accrued at June 30, 2002.
Investment and other income decreased approximately $.7 million as interest
earned on investments in the first nine months of fiscal 2003 declined due to
lower interest rates and a decrease in cash balances. In addition, the first
nine 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 nine months of fiscal 2003 and fiscal 2002 were not significant.
Net loss was $19.0 million during the first nine months of fiscal 2003. Included
in the net loss was approximately $9.7 million from the non-cash charges
described above, $.5 million in inventory write- downs, and $.4 million in
reorganization and relocation expenses. This compares with the first nine months
of fiscal 2002 in which we reported a net loss of $33.0 million including $18.5
17
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
million in non-cash charges, a $1.2 million inventory write down and a $1.6
million charge related to litigation settlement costs. The $14.0 million
decrease in net loss was due primarily to the decrease of $10.7 million non-cash
and other charges and 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 $1.3 million for
the nine-month period ended March 31, 2003. Net loss of $19.0 million for the
first nine months of fiscal 2003 resulted in a net loss per share of $7.36, a
decrease of $6.19 compared to the first nine months of fiscal 2002 net loss per
applicable common share of $13.55. Net loss applicable to common shareholders
for the first nine months of fiscal 2002 of $33.0 million included $61,906
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 nine months of fiscal 2003, lens product
sales decreased $2.5 million to approximately $3.8 million from $6.3 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 $4.1 million for the
first nine months of fiscal 2003 as compared to $12.7 million for the comparable
period last year due primarily to overhead reductions offset by reduced margins.
LASER COMPONENT GROUP
The Laser Component Group focuses on isolators and 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 has historically invested in research and development in support
of optical generation and detection applications, such as transmitters,
transceivers and pumps. This group enables LightPath to augment current passive
optical components, such as OASIS(TM), with new innovative passive optical
subassemblies, such as multiport and hybrid devices, to provide cost effective
optical management solutions for our customers. During the first nine months of
fiscal 2003, the Company reported approximately $1.2 million of laser component
sales, compared with $3.1 million for the comparable period last year. The
decrease of approximately $1.9 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
$7.1 million for the first nine months of fiscal 2003, an increase of
approximately $4.5 million from the comparable period last year. The 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. The Company is currently in the process of consolidating the
Walnut, California facility and is expected to complete it by the end of the
fourth fiscal quarter. The Company continues to consider strategic alternatives
for the operating unit.
18
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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; and (iv) intangible assets. These critical accounting
policies and the Company's other significant accounting policies are further
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 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, 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.
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.
19
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 $12.0 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 recently experienced a severe downturn,
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 March 31, 2003 was approximately
$2.6 million, which was comparable to the quarter ended December 31, 2002. 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 nine 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 $3.8
million at March 31, 2003, 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 current operations and capital expenditures 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 March 31, 2003,
the Company had a cash balance of approximately $3.8 million. If the Company is
unable to achieve additional reductions in cash outflow in future quarters from
the actual total cash outflow of $2.6 million in the third quarter, the Company
would have less than two 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 relocation of the Walnut, California
facility, employee separation costs, increased health insurance and benefits
costs, and increases in discretionary spending.
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 fiscal 2003 include consolidation 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 three 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 the ongoing benefit.
For the nine months ended March 31, 2003, cash used in operations, excluding
cash requirements related to changes in working capital, was approximately $7.7
million, a decrease of approximately $4.5 million from the same period of fiscal
2002. During the first nine months of fiscal 2003, working capital needs used
approximately $1.6 million in cash, primarily due to the payment of the cash
20
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
settlement in the Delaware litigation action, annual Directors and Officers
insurance premium, and the Company's consolidation and relocation efforts.
During the first nine months of fiscal 2002, changes in working capital resulted
in an increase of approximately $1.4 million in cash due primarily to growth in
accounts payable, accrued expenses, and inventories. During the nine months
ended March 31, 2003, 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 March 31, 2003:
CONTRACTUAL OBLIGATIONS
Stated
Total Maturity Comments
----- -------- --------
Note payable $ 78,000 Jul. 1999
Real estate leases with
Operating leases $3,500,000 2003-2008 monthly payments
Employee severance and other Lease costs will be
exit costs $ 98,000 Apr. 2005 substantially paid by 6/30/03
Legal settlement payments on Not Remaining payments related to
Delaware action $ 200,000 applicable unlocated E shareholders
The Company does not engage in any activities involving special purpose entities
or off-balance sheet financing.
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 March 31, 2003, 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
21
LIGHTPATH TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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.
In January 2003, the FASB issued FASB Interpretation No. 46, "CONSOLIDATION OF
VARIABLE INTEREST ENTITIES." This interpretation of Accounting Research Bulletin
No. 51, "CONSOLIDATED FINANCIAL STATEMENTS," addresses consolidation by business
enterprises of variable interest entities. A variable interest entity refers to
certain entities subject to consolidation according to the provisions of this
interpretation. This interpretation requires existing unconsolidated variable
interest entities to be consolidated by their primary beneficiaries if the
variable interest entities do not effectively disperse risks among parties
involved. The primary beneficiary of a variable interest entity is the party
that absorbs a majority of the entity's expected losses, receives a majority of
its expected residual returns, or both, as a result of holding variable
interests, which are the ownership, contractual, or other pecuniary interests in
an entity. Certain disclosures are also required by enterprises that hold
significant variable interests in a variable interest entity. This
interpretation applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which an enterprise
obtains an interest after that date. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The adoption of this interpretation is not expected to have a
significant impact on the financial position or results of operations of the
Company.
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.
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 and December 31, 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
22
LIGHTPATH TECHNOLOGIES, INC.
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 March 31, 2003.
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 (former Directors and Officers), leading up to and
surrounding the Company's 1995 proxy statement constituted 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 in favor of 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 (former Directors and Officers) dismissed from
the action.
During the nine months ended March 31, 2003, 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 March 31, 2003. 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 prior periodic reports for this fiscal year.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
LightPath Technologies, Inc. conducted a special meeting of Stockholders on
February 28, 2003. Actions concluded at the meeting through submission of
matters to a vote by stockholders was conducted by proxy and included the
following:
1. Proposal to affect a reverse stock split of up to 8-to-1 of the Class
A common stock of the Company was approved by a vote of Class A
shareholders of 18,196,865 FOR, 1,032,821 AGAINST, and 42,770 WITHHOLD
AUTHORITY, respectively.
ITEM 5. OTHER INFORMATION
At a special meeting of the stockholders held on February 28, 2003, the
LightPath stockholders approved an amendment to the Company's certificate of
incorporation to affect a reverse stock split of the Company's common stock.
Following the special meeting of stockholders. LightPath's Board of Directors
unanimously approved the reverse stock split on the basis of one share of
post-split common stock for each currently outstanding eight shares of pre-split
common stock, effective as of the open of business March 4, 2003. Consequently,
when trading commenced on Tuesday, March 4, 2003, it was on a post-reverse split
basis.
23
LIGHTPATH TECHNOLOGIES, INC.
Previously, the Company had announced the primary purpose of the reverse split
was to have its common stock trade above the $1.00 minimum bid price requirement
of the Nasdaq National Market. No fractional shares of stock were issued in the
reverse split. Any fractional shares held by LightPath stockholders will be paid
for by the Company at a price equal to the closing sale price of LightPath's
common stock (pre-split) on Monday, March 3, 2003. Continental Stock Transfer
and Trust Company is acting as exchange agent for the reverse split, and
Continental has sent letters of transmittal to LightPath stockholders
instructing them on how to exchange their share certificates.
In addition to the minimum bid price requirement of the Nasdaq National Market
referenced above, in order for LightPath's common stock to continue to be quoted
on the Nasdaq National Market, certain other listing maintenance standards,
established by Nasdaq, must be satisfied. Among other things, if the market
value of the Company's publicly held shares ("MVPHS") falls below the minimum
MVPHS requirement of $5 million for 30 consecutive business days and does not
thereafter reach $5 million or higher for a minimum of ten consecutive business
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 grace
period expires without compliance being achieved, Nasdaq will issue a delisting
notice to the Company, at which time the Company may appeal Nasdaq's
determination to delist and/or assess the viability of transferring its listing
to the Nasdaq SmallCap Market. If the Company's common stock were to be
delisted, and did not qualify for trading on the Nasdaq SmallCap Market (whose
minimum MVPHS requirement is $1 million), the Company's common stock would
likely 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 markets.
On April 15, 2003, the Company received a letter from Nasdaq advising that its
common stock had not met Nasdaq's National Market minimum MVPHS requirement for
30 consecutive trading days and that the Company has until July 14, 2003, to
demonstrate compliance with such requirement.
LightPath also announced in January 2003 that it plans to continue the
realignment of its outstanding stock option incentives, first initiated in July
2002, with the cancellation of additional selected stock options and the
issuance of restricted stock awards. Under this realignment to take place in the
third and fourth quarters of fiscal 2003, the Company expects to cancel
approximately .2 million options and issue restricted stock awards covering a
total .1 million shares. This realignment is expected to be completed in the
fourth quarter. 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 the third
quarter, the Company also issued approximately 19,000 new incentive options to
employees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibits are filed as a part of this report.
99. Additional Exhibits
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 (filed herewith).
b) The following reports on Form 8-K were filed under the Securities Exchange
Act of 1934 during the quarter ended March 31, 2003:
1. Current report on Form 8-K dated January 9, 2003, included the press
release announcing preliminary results for the second quarter of
fiscal 2003, the conference call on January 30, 2003, and the NASDAQ
decision to proceed with a proxy for a reverse stock split.
24
LIGHTPATH TECHNOLOGIES, INC.
2. Current report on Form 8-K dated January 30, 2003, included the press
release announcing the second quarter fiscal 2003 financial results.
3. Current report on Form 8-K dated February 28, 2003, included the press
release announcing stockholder approval of reverse stock split
proposal.
25
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: May 12, 2003 By: /s/ Ken Brizel
------------ ------------------------
CHIEF EXECUTIVE OFFICER
26
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: May 12, 2003
/s/ Ken Brizel
- -----------------------------
Ken Brizel
LightPath Technologies, Inc.
President and Chief Executive Officer
27
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: May 12, 2003
/s/ Todd Childress
- -------------------------------
Todd Childress
LightPath Technologies, Inc.
Chief Financial Officer
28
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
March 31, 2003 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: May 12, 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 March 31, 2003 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: May 12, 2003
/s/ Todd Childress
- ------------------------------
Todd Childress
LightPath Technologies, Inc.
Chief Financial Officer
29