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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

OR

For the transition period from              to             

Commission file number 000-27548

LIGHTPATH TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

http://www.lightpath.com

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:

3,371,147 shares of common stock, Class A, $.01 par value, outstanding as of April 30, 2004

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LIGHTPATH TECHNOLOGIES, INC.

Form 10-Q

Index

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Item 1. Financial Statements

LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Balance Sheets

(unaudited)

The accompanying notes are an integral part of these unaudited consolidated statements.

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LIGHTPATH TECHNOLOGIES, INC.

Condensed Consolidated Statement of Operations

(unaudited)

The accompanying notes are an integral part of these unaudited consolidated statements.

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LIGHTPATH TECHONOLOGIES, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

The accompanying notes are an integral part of these unaudited consolidated statements.

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LIGHTPATH TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements – (Unaudited)

March 31, 2004 and 2003

History and Liquidity

History: LightPath Technologies, Inc. (“LightPath” or the “Company”) was incorporated in Delaware in 1992. In order to pursue a strategy of supplying hardware to the telecommunications industry, in April 2000, the Company acquired Horizon Photonics, Inc. (Horizon), and in September 2000 the Company acquired Geltech, Inc (Geltech). During fiscal 2003, in response to sales declines in the telecommunications industry, the operations of Horizon in California and LightPath in New Mexico were consolidated into the former Geltech facility in Orlando, Florida.

The Company is engaged in the production of precision molded aspherical lenses, GRADIUM^® glass lenses, collimators and isolator optics used in various markets, including industrial, medical, defense, test and measurement and telecommunications. As used herein, the terms “LightPath,” “Company,” “we,” “us,” or “our,” refer to LightPath individually or, as the context requires, collectively with its subsidiaries on a consolidated basis.

Liquidity: During fiscal 2003, progress was made to reduce cash outflow. In the four quarters of fiscal 2003, cash used in operations was $4,116,000, $2,557,000, $2,655,000 and $581,000, respectively (the last quarter not reflecting a final liquidation payment to the Company from an investee company of $226,000), or a total of $9.9 million. In the first three quarters of fiscal 2004, cash used in operations has been $2.8 million, not including cash from a legal settlement of $0.6 million, which is a substantial reduction from the prior year.

Significant risk and uncertainty remains in the business. The fiscal 2004 operating plan and related financial projections the Company has developed anticipate sales growth, improving margins based on production efficiencies and reductions in both product costs and expected selling, administrative and new product development expenditures. Not all of these factors have fully materialized at the end of the first nine months of the fiscal 2004 period at levels sufficient to meet our fiscal 2004 operating plan.

Factors which could adversely affect cash balances in future quarters include, but are not limited to, a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized or being realized at a slower rate than anticipated, increased health insurance and benefits costs and increases in other discretionary spending, particularly sales and marketing-related aimed at boosting sales.

On September 26, 2003, the Company’s Chairman provided an unsecured line of credit enabling LightPath to borrow up to $300,000 on or before September 30, 2004. Any outstanding balances and accrued interest on September 30, 2004 are fully due and payable. The interest rate is 5% per annum on any funded balances outstanding. In connection with this line of credit, the Chairman was issued a warrant to purchase 100,000 shares of Common Stock (Class A) at any time until September 30, 2013. The exercise price to acquire the shares underlying the warrant is $3.20 per share, the closing market price of the Common Stock Class A as reported by the Nasdaq NMS on September 26, 2003. As of April 30, 2004, no funds have been drawn under the unsecured line of credit.

In February 2004, the Company sold 550,000 shares of its Common Stock Class A at $3.55 per share to nine investors in a private offering that raised approximately $1.9 million, net of related costs. These shares were subsequently registered with the SEC and were sold to bolster cash balances in order to continue to pursue the Company’s plan to reach positive cash flow and profitability. Additionally, in February 2004 the Company settled a litigation claim that resulted in a cash payment to the Company of approximately $600,000 in the quarter, net of related attorney’s fees.

During the quarter, the Company’s Common Stock Class A Nasdaq listing was moved from the Nasdaq National Market System (NMS) to the Nasdaq SmallCap Market (SCM). The trading symbol, “LPTH,” is unchanged.

Basis of Presentation

The accompanying unaudited 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 accounting principles generally accepted in the

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LIGHTPATH TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements – (Unaudited)

March 31, 2004 and 2003

United States of America. 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, 2003, 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 that may be expected for the year as a whole. Certain items in the prior year’s financial statements have been reclassified to conform to the 2004 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.

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 which is most of the acquisition cost, 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 Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. The adoption of SFAS No. 144 at the beginning of fiscal 2003, resulted in asset impairments of $5.5 million for fiscal 2003, all of which was recorded in the first half of fiscal 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 & for Long-Lived Assets to be Disposed of.

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 estimates of 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.

Intangible assets, consisting of developed technology, customer list and supply contracts, licenses, patents and trademarks are recorded at cost. Developed technology relating to the Geltech acquisition is being amortized over four years. Upon

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LIGHTPATH TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements – (Unaudited)

March 31, 2004 and 2003

issuance of the license, patent or trademark, these assets are being amortized on the straight-line basis over the estimated useful lives of the related assets ranging from ten to seventeen years. 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 Company accounts for goodwill and intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. 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. The Company evaluates its intangible assets for impairment in accordance with SFAS 144.

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 have been established 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.

New product 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. Under the intrinsic value method, compensation expense for a restricted stock award is recognized when a portion of the award “vests,” that is, the restrictions fully lapse. The Company has 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.

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LIGHTPATH TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements – (Unaudited)

March 31, 2004 and 2003

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:

3. Property and Equipment

The Company disposed of equipment with a book value of $9,178 and $30,120, resulting in a gain of $6,450 and $115,106 during the third quarter and the first nine months of fiscal 2004, respectively. These assets were previously impaired in the second quarter of fiscal 2003.

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LIGHTPATH TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements – (Unaudited)

March 31, 2004 and 2003

4. Intangible Assets

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.

5. Stockholders’ Equity

On February 28, 2003, the Board of Directors authorized a 1-for-8 reverse stock split of the Company’s Class A $0.01 par value common stock. All references in the accompanying financial statements to the number of common shares and per-share amounts have been restated to reflect the reverse stock split. The Company does not have any preferred stock outstanding.

6. Net Loss Per Share

Basic net loss per share is computed based upon the weighted average number of shares of Class A common stock outstanding, not including unvested restricted stock, during each period presented. The computation of diluted net loss per share does not differ from the basic computation because potentially issuable securities would be anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss per share are equal.

7. Segment Information

In fiscal 2004, the Company is reporting as a single-segment entity since management has been reorganized into one decision-making unit at one location.

8. Contingencies

In 2000, a small group of holders of Class E Common Stock commenced an action in a state court in Texas (the “Texas Action”). Plaintiffs in the Texas Action made various allegations regarding the circumstances surrounding the issuance of the Class E Common Stock and sought damages based upon those allegations. Management believes the allegations

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Notes to Condensed Consolidated Financial Statements – (Unaudited)

March 31, 2004 and 2003

underlying the Texas Action are without merit. During the first quarter of fiscal 2003, the Texas court granted the Company’s motion for Summary Judgment. The plaintiffs sought reconsideration of the ruling, however, on October 24, 2002, the Texas court denied their motion. On February 14, 2003, the Plaintiffs requested that the Texas Supreme Court review the appellate court’s decision. On June 26, 2003, the Texas Supreme Court dismissed the Plaintiffs’ petition for review for want of jurisdiction. We are unable to determine at present whether the Plaintiffs intend to further challenge or appeal the Texas Supreme Court’s denial of their petition for review. On July 22, 2002, the Company and a director filed a motion for summary judgment as to all of the Plaintiff’s claims which was granted on October 10, 2002, and has been made final by the trial court on March 1, 2004. On March 15, 2004, the Plaintiffs filed an amended notice of appeal of final judgment as to the Company and a co-defendant.

The Company filed an insurance claim for the aggregate amount of costs incurred in connection with the Texas Action in excess of applicable deductibles. During fiscal 2002, one of the insurance companies responsible for the claim, which had previously filed for reorganization, was declared insolvent. In March 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. We settled this claim in February 2004. The settlement resulted in a cash payment to the Company of approximately $600,000, net of related attorney’s fees, which were paid.

The Company licenses certain patents from the University of Florida Research Foundation, Inc. (“UF’). UF notified us that we were in default under the terms of the Amended and Restated License Agreement (“License”) for failure to pay certain royalties. UF claims that we owe $83,000 in unpaid royalties. In April, UF sent its letter of termination of the license. While we dispute the amount owed and we believe that an amicable result can be reached with UF, the termination of the license agreement does not materially adversely affect our business.

The Company is also involved in various legal actions arising in the normal course of business. After taking into consideration legal counsel’s evaluation of such actions, management is of the opinion that their outcome will not have a significant effect on the Company’s financial position or results of operations.

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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.

Overview

Historical: We are in the business of supplying users with glass lenses and other specialty optical products, which have applications in a number of different industries. Due to the emergence of optical technologies in communications, networking and data storage products in the late 1990’s, there was a significant surge in demand for our products, particularly in the period represented by our fiscal 1999-2001 years. During this period, our revenues increased from less than $2 million in sales to approximately $25 million due to both acquisitions (to add glass lens production capacity and market presence, and isolators to our existing line of collimators and proprietary glass lenses) and product line growth.

During fiscal 2002, optical component markets experienced a severe downturn that resulted in a significant decline in the demand for our products. By fiscal 2003, our sales had contracted to just under $7 million. The business infrastructure was too large and diverse to support a business of this reduced size and a decision was made in late fiscal 2002 and implemented during fiscal 2003 to close our isolator production facility in California and our headquarters and collimator and lens production facility in New Mexico. The productive capacity in these locations was moved to excess space in the acquired lens business facility in Florida and production of all of the aforementioned products continues there. These moves were completed by June 30, 2003, resulting in a significant reduction in the net cash use by the business.

Nevertheless, the ongoing cash used by the business remains negative each quarter and management, while continuing to work toward reducing costs and producing product at lower per-unit costs, believes that increased sales volumes going forward will be required to permit the Company to be self-sustaining in terms of a regular and positive cash flow from operations. In order to increase sales volumes, during fiscal 2003 and 2004 to-date, sales force personnel was strengthened through changes and additions and in early fiscal 2004 a Senior Vice President of Sales and Marketing was added to lead the effort to bring LightPath’s capabilities to the marketplaces of specialty and high-performance optics users.

How we operate: The Company has continuing sales of two basic types: occasional sales via ad-hoc purchase orders of mostly standard product configurations (our “turns” business) and the more challenging and potentially more rewarding business with characteristics of the semiconductor industry. In this latter type of business we work with a customer to help them determine optical specifications and even create certain optical designs for them, including complex multi-component designs that we call “engineered assemblies.” That is followed by “sampling” them small numbers of the product for their test and evaluation. Thereafter, should the customer conclude that our specification or design is the best solution to their product need, we negotiate and “win” a contract (sometimes called a “design win”) – whether of a “blanket purchase order” type or a supply agreement. The strategy is to create an annuity revenue stream that makes the best use of our production capacity as compared to the turns business, which is unpredictable and uneven. A key business objective is to convert as much of our business to the design win and annuity model as is possible. We have several challenges in doing so:

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Despite these challenges to winning more “annuity” business, we nevertheless believe we can be successful in procuring this business because of our unique capabilities in optical design engineering that we make available on the merchant market, a market that we believe is underserved in this area of service offering. Additionally, we believe that we offer value to some customers as a source of supply in the United States should they be unwilling to commit all of their source of supply of a critical component to foreign merchant production sources. We also continue to have the proprietary GRADIUM lens glass technology to offer to certain laser markets.

Our key indicators: Going forward, sales growth will be our best indicator of success. Our best view into the efficacy of our sales efforts is in our “order book.” Our order book equates to sales “backlog.” It has a quantitative and a qualitative aspect: quantitatively, our backlog’s prospective dollar value and qualitatively, what percent of the backlog is scheduled by the customer for date-certain delivery. We define our “Disclosure Backlog” as that which is requested by the customer for delivery within one year and which is reasonably likely to remain in the backlog and be converted into revenues. This includes customer purchase orders and may include amounts under supply contracts if they meet the aforementioned criteria. At March 31, 2004, our Disclosure Backlog was approximately $2,810,000; at March 31, 2003, it was approximately $1,640,000. We believe this increase in the Disclosure Backlog is attributable to several factors:

In the near-term, we believe this magnitude of backlog growth portends continuing sales improvements.

The other business indicator that is of particular importance to us is our fully yielded unit production per-shift, which varies by the particular product and our state of automation in production of that product at any given time. Unit production per-shift equates to productivity since there is a mostly fixed cost involved with operating any shift in our clean-room production environment. Higher unit production per shift means lower unit cost and therefore improved margins or improved ability to compete where desirable for price sensitive customer applications. Unit production per shift has been increasing generally steadily since the completion of the consolidation of isolator, collimator and GRADIUM manufacturing into the Orlando facility that was previously devoted primarily to molded glass optics production. New production techniques continue to be evaluated and new production management personnel are introducing new measurement and analysis steps into our processes with the aim of further improving unit production per shift.

Liquidity and Capital Resources

In February 2004, the Company sold 550,000 shares of its Common Stock Class A at $3.55 per share to nine investors in a private offering that raised approximately $1.9 million, net of related costs. These shares were subsequently registered with the SEC and were sold to bolster cash balances in order to continue to pursue the Company’s plan to reach positive cash flow and profitability. Additionally, we reached an agreement in January 2004 to settle a litigation claim that is resulted in a cash payment to the Company of approximately $600,000 in the quarter, net of related attorney’s fees that were paid. Additionally, we engage in continuing efforts to keep costs under control as we seek renewed sales growth. Our efforts are directed toward reaching positive cash flow and profitability. These efforts, while encouraging to date, may not fully succeed and we may find it necessary to raise additional capital. Additional capital may not be available to the Company if and when desired by the Company or may not be available at terms the Company finds acceptable at that time. The Company has no firm commitments for any future financing at this time and we have a book cash balance of approximately $2.98 million at May 3, 2004. Available credit is a $300,000 line of credit available to us (see Liquidity section of History and Liquidity Note in the foregoing financial statements), which is un-tapped at this time, but which expires in September 2004.

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During fiscal 2003, significant progress was made to reduce cash outflow. In the four quarters of fiscal 2003, our cash used in operations was $4,116,000, $2,557,000, $2,655,000 and $581,000, respectively (the last quarter not reflecting a final liquidation payment to us from an investee company of $226,000), or a total of $9.9 million. In the first three quarters of fiscal 2004, our cash used in operations has been $2.8 million, not including cash from a legal settlement ($0.6 million).

Further improvement in cash use, meaning a reduction in cash use, is expected to be primarily a function of sales increases and, to a lesser extent, margin improvements. Sales increases are expected to be the most important source of future reduction in operating cash outflow. Sales management has been strengthened and focused efforts are underway in order to try to penetrate new industrial optics customers.

As we have progressed through fiscal 2004, we have found it necessary to make certain capital expenditures for capacity expansion in product areas that are showing “strategic” sales growth – proprietary technology products, such as GRADIUM, or engineered assembly products resulting from new design win/annuity business opportunities. We generally will not make capital expenditures at this time for our “turns” business, except on a replacement basis if warranted. Capital expenditures for the first nine months of the current fiscal year have been approximately $299,000, a majority of which has been in the GRADIUM product line capacity.

Our fiscal 2004 operating plan and related financial projections anticipate sales growth, improving margins based on production efficiencies and reductions in both product costs and expected selling and administrative expenditures. Not all of these factors have fully materialized at the end of the first three-quarters of the fiscal 2004 period.

Factors which could adversely affect cash balances in future quarters include, but are not limited to, a decline in revenue or a lack of anticipated sales growth, poor cash collections from our accounts receivables, increased material costs, increased labor costs, planned production efficiency improvements not being realized and increases in other discretionary spending, particularly sales and marketing related.

Sources and Uses of Cash

The Company’s recurring sources and uses of cash are as follows: we collect receivables after invoicing customers for product shipments and we pay vendors for materials and services purchased. Other significant uses of cash are payments to employees for wages and compensation and payments to providers of employee benefits. All other sources and uses of cash are typically immaterial. However we do make expenditures for capital goods, and have received small amounts of cash in the last several quarters for the sale of surplus equipment that we moved from New Mexico or California attendant to the closure and consolidation of those facilities. For some time the net balance of these cash flows has been negative, meaning a net use of cash. This net use of cash has been met by drawing down on the Company’s cash and cash equivalent balances.

In February 2004, to supplement its cash and cash equivalent balances, the Company sold 550,000 shares of its Common Stock Class A at $3.55 per share to nine investors in a private offering that raised approximately $1.9 million, net of related costs. Additionally, we reached an agreement in January 2004 to settle a litigation claim that resulted in a cash payment to the Company of approximately $600,000 in the quarter, net of related attorney’s fees that were paid. Both of these specific transactions are non-recurring.

In the future, the Company may be required to replenish its cash and cash equivalent balances through the sale of equity securities or by obtaining debt. There can be no assurances that such financing will be available to the Company and as a result there is significant risk to the Company in terms of having limited cash resources with which to pursue business opportunities. As a result of this risk, should it materialize, the Company may be generally unable to sustain its growth plan or even to maintain its current levels of business. Either of these outcomes would materially adversely affect the Company’s results of operations and its stock price.

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There are certain uses of the Company’s cash that are contractually or commercially committed. Those are presented below as of March 31, 2004:

Contractual Obligations – Payments Due By Period (dollars in 000’s)

The Company does not engage in any activities involving variable interest entities or off-balance sheet financing.

Results of Operations

Fiscal Third Quarter: Three months ended March 31, 2004 compared to the three months ended March 31, 2003

Revenues:

Our revenues totaled approximately $1,951,000 for the third quarter of fiscal 2004, an increase of approximately $263,000, or 16% compared to revenues for the third quarter of fiscal 2003. The increase was primarily attributed to higher unit volumes in the Company’s lens and isolator products that are caused by factors such as better sales efforts and a stronger overall economy.

Cost of Sales:

In the third quarter of fiscal 2004, consolidated cost of sales of approximately $1,625,000 was approximately 83% of product sales, versus the comparable period of fiscal 2003 in which we reported cost of sales of approximately $1,776,000, or 105% of product sales. The reduction in cost of sales in both absolute and relative terms is attributable primarily to reduced manufacturing costs due to the consolidation of the Company’s manufacturing operation from Walnut, California to Orlando, Florida, which was completed during the last quarter of fiscal 2003. We continue to make efforts to reduce manufacturing costs as a percent of sales through absolute cost reductions and yield improvements.

Selling, General and Administrative:

During the third quarter of fiscal 2004, selling, general and administrative costs (SG&A) were approximately $1,387,000, which was an increase of approximately $125,000 compared to the third quarter of fiscal 2003. The increase was due to certain legal expenses to conclude a lawsuit to which the Company was a party that was settled in the quarter and to higher costs due to stock compensation in the quarter. In the 2003 quarter, stock compensation costs were a credit due to the headcount reductions effective at that time accounted for as reversals of previously accrued stock compensation expense. While in the future we intend to manage SG&A costs to be generally in proportion to our business levels, we are considering adding to our sales force while seeking other cost reductions such as sub-leasing a portion of our Orlando facility to reduce rent cost.

New Product Development:

New product development costs (NPD) decreased by approximately $687,000 to approximately $240,000 in the second quarter of fiscal 2004 versus the second quarter of fiscal 2003, due primarily to reduced personnel caused by the facilities consolidation and discontinuation of certain efforts that had been directed toward certain technologies in California and New Mexico. As we work to achieve profitability at our current level of business, NPD spending will consist of product development work to meet specific customer design requests that can lead to new and continued sales.

Other Income (Expense):

We settled a litigation claim that resulted in a cash payment to the Company of approximately $790,000 in the quarter, not including related attorney’s fees of approximately $185,000 that were paid from the proceeds and charged to selling, general and administrative in both the second (approximately $135,000) and current quarter (approximately $50,000). This gain is non-recurring.

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Gain on sale of assets was approximately $6,000 in the third quarter of fiscal 2004. There were no such sales in the third quarter of fiscal 2003. No significant additional sales or cash proceeds from this excess equipment are expected.

Investment and other income (expense), net, was a net expense of approximately $100,000 in the third quarter of 2004 vs. a net income of $10,000 in the third quarter of fiscal 2003. Contributors to this decline were lower earnings on investments due to a decrease in cash balances and lower available interest rates and the continued amortization of warrant issuance cost for a warrant that was issued in the first quarter of fiscal 2004.

Net Loss:

Net loss was approximately $1,070,000 during the third quarter of fiscal 2004. This compares with the third quarter of fiscal 2003, in which we reported a net loss of $2,831,000. The $1,761,000 decrease in net loss was due primarily to the legal settlement in the 2004 quarter, gross margin improvements and reductions in certain operating costs. The net loss of $1,070,000 for the third quarter of fiscal 2004 resulted in a net loss per share of $0.37, an arithmetical increase (improvement) of $0.73 compared to the net loss per share of $1.10 in the third quarter of fiscal 2003. Weighted average shares outstanding increased the third quarter of fiscal 2004 primarily due to the sale of 550,000 shares in the quarter to private investors.

Nine months ended March 31, 2004 compared to the nine months ended March 31, 2003

Revenues:

Our revenues totaled approximately $5,559,000 for the first nine months of fiscal 2004, an increase of approximately $563,000 or 11% compared to revenues of approximately $4,997,000 for the first nine months of fiscal 2003. The increase was primarily attributed to strength in the sales of the Company’s lens and isolator products.

Cost of Sales:

In the first nine months of fiscal 2004, consolidated cost of sales was approximately $4,443,000, or 80% of product sales, versus the comparable period of fiscal 2003 in which we reported cost of sales of approximately $6,440,000, or 128% of product sales. The reduction in cost of sales in both absolute and relative terms is attributable primarily to reduced manufacturing costs due to the consolidation of the Company’s manufacturing operations from Albuquerque, New Mexico and Walnut, California to Orlando, Florida, both of which were completed during fiscal 2003. We continue to make efforts to reduce manufacturing costs as a percent of sales through cost reductions and both process and yield improvements.

Selling, General and Administrative:

During the first nine months of fiscal 2004, selling, general and administrative costs (SG&A) of approximately $4,098,000 decreased by approximately $845,000 from the first nine months of fiscal 2003. The decrease came despite certain higher legal expenses and was due primarily to reduced headcount from the consolidation of facilities. While in the future we intend to manage SG&A costs to be generally in proportion to our business levels, we are considering adding to our sales force while seeking other cost reductions such as sub-leasing a portion of our Orlando facility to reduce rent cost.

New Product Development:

New product development costs (NPD) decreased by approximately $1,745,000 to approximately $705,000 in the first nine months of fiscal 2004 versus approximately $2,450,000 in the first nine months of fiscal 2003. The decrease came primarily from reduced headcount from the consolidation of facilities. As we work to achieve profitability at our current level of business, NPD spending will consist of product development work to meet specific customer design requests that can lead to new and continued sales.

Other Income (Expense):

We settled a litigation claim that resulted in a cash payment to the Company of approximately $790,000 in the nine months of fiscal 2004, not including related attorney’s fees totaling approximately $185,000 that were paid and charged to the fiscal second and third quarters of 2004. This gain is non-recurring.

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Gain on sale of assets was approximately $115,000 in the first nine months of fiscal 2004. There were no such sales in the first nine months of fiscal 2003. No significant additional sales or cash proceeds from this excess equipment are expected.

Investment and other income (expense), net, decreased approximately $306,000 as interest earned on investments in the first nine months of fiscal 2004 declined due to a decrease in cash balances and lower available interest rates. Of this $306,000 decrease, approximately $156,000 of it in the first nine months of fiscal 2004 relates to the amortization of warrant issuance cost incurred in the first quarter of fiscal 2004.

Net Loss:

Net loss was approximately $4,429,000 during the first nine months of fiscal 2004. This compares with the first nine months of fiscal 2003, in which we reported a net loss of approximately $19,016,000. The $14.6 million decrease in net loss was due primarily to the asset impairment of $5.5 million and approximately $2.3 million cumulative effect of accounting change taken in the first nine months of fiscal 2003, the aforementioned reductions in operating costs and improvements in gross margin. The net loss for the first nine months of fiscal 2004 resulted in a net loss per share of $1.64, a decrease of $5.72 compared to the first nine months of fiscal 2003 net loss per share of $7.36. Weighted average shares outstanding increased in the nine months of fiscal 2004 primarily due to the sale of 550,000 shares in the quarter to private investors.

Critical Accounting Policies and Estimates

The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires us 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) intangible assets; and (v) accounting for obligations and instruments potentially to be settled in the Company’s stock. These critical accounting policies and the Company’s other significant accounting policies are further disclosed in Note 1 to the Company’s Consolidated Financial Statements.

Revenue recognition. We recognize 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. We regularly assess the valuation of inventories and write 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 our forecast or actual demand from customers is lower than our estimates, we may be required to record additional inventory write-downs. If demand is higher than expected, we may be able to use or sell inventories that have previously been written down.

Long-Lived Assets. We evaluate 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

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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 us to write down the assets.

Intangible Assets. We have obtained intangible assets in connection with a business unit purchase (for example, in an acquisition). 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.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

LightPath’s liquid investments outside of bank demand deposit accounts, which are classified as cash equivalents in the accompanying financial statements, are invested short-term taxable auction rate certificates (ARC’s) in order to improve our effective received yield on our invested cash by approximately 30 basis points over money market funds and short-term U.S. Treasury direct investments. The ARC’s we have chosen have Aaa ratings and, due to their short-term nature (30-day rate resets) and the level of investable cash balances, we do not believe that changes in market interest rates of up to 10% either up or down will have a material effect on our results of operations.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carry out a variety of on-going procedures, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, to evaluate the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2004.

PART II

Item 1. Legal Proceedings

In 2000, a small group of holders of Class E Common Stock commenced an action in a state court in Texas (the “Texas Action”). Plaintiffs in the Texas Action made various allegations regarding the circumstances surrounding the issuance of the Class E Common Stock and sought damages based upon those allegations. Management believes the allegations underlying the Texas Action are without merit. During the first quarter of fiscal 2003, the Texas court granted the Company’s motion for Summary Judgment. The plaintiffs sought reconsideration of the ruling, however, on October 24, 2002, the Texas court denied their motion. On February 14, 2003, the Plaintiffs requested that the Texas Supreme Court review the appellate court’s decision. On June 26, 2003, the Texas Supreme Court dismissed the Plaintiffs’ petition for review for want of jurisdiction. We are unable to determine at present whether the Plaintiffs intend to further challenge or appeal the Texas Supreme Court’s denial of their petition for review. On July 22, 2002, the Company and a director filed a motion for summary judgment as to all of the Plaintiff’s claims which was granted on October 10, 2002, and has been made final by the trial court on March 1, 2004. On March 15, 2004, the Plaintiffs filed an amended notice of appeal of final judgment as to the Company and a co-defendant.

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The Company filed an insurance claim for the aggregate amount of costs incurred in connection with the Texas Action in excess of applicable deductibles. During fiscal 2002, one of the insurance companies responsible for the claim, which had previously filed for reorganization, was declared insolvent. In March 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. We settled this claim against our former insurance broker in February 2004. The settlement resulted in a cash payment to the Company of approximately $600,000, net of related attorney’s fees, which were paid.

The Company licenses certain patents from the University of Florida Research Foundation, Inc. (“UF’). UF notified us that we were in default under the terms of the Amended and Restated License Agreement (“License”) for failure to pay certain royalties. UF claims that we owe $83,000 in unpaid royalties. In April, UF sent its letter of termination of the license. While we dispute the amount owed and we believe that an amicable result can be reached with UF, the termination of the license agreement does not materially adversely affect our business.

The Company is also involved in various legal actions arising in the normal course of business. After taking into consideration legal counsel’s evaluation of such actions, management is of the opinion that their outcome will not have a significant effect on the Company’s financial position or results of operations.

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Item 6. Exhibits and Reports on Form 8-K

1. The following exhibits are filed herewith as a part of this report.

2. The following reports on Form 8-K were filed under the Securities Exchange Act of 1934 during the quarter ended March 31, 2004:

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1. 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.

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