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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 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:

3,375,864 shares of common stock, Class A, $.01 par value, outstanding as of October 31, 2004

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LIGHTPATH TECHNOLOGIES, INC.

Form 10-Q

Index

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Part I, Item 1.

LIGHTPATH TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Balance Sheets

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

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LIGHTPATH TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Statement of Operations

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

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LIGHTPATH TECHNOLOGIES, INC.

Unaudited Condensed Consolidated Statements of Cash Flows

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)

September 30, 2004

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 accounting principles generally accepted in the United States of America. These condensed 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, 2004, filed with the Securities and Exchange Commission.

These condensed 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.

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 & measurement and communications. 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 years 2003 and 2004, progress was made to reduce cash outflow. In fiscal 2003, cash used in operations was approximately $9.7 million. In fiscal 2004, cash used in operations was $2.5 million. The Company’s operating plan in 2005 includes reaching positive cash flow from operations during the year. However, there can be no assurance that the plan can be fully achieved and the Company has no firm commitments for any material future financing, if needed, at this time. At September 30, 2004, the Company has a cash and cash equivalent balance of approximately $2.1 million. The Company may seek external debt or equity financing in 2005 or thereafter if it can be obtained in an amount and on terms that are acceptable to us, though no assurance can be made that financing will be available. With regard to prospective equity financing, the Company’s stockholders approved a proposal at the annual meeting of stockholders on October 20, 2004 to permit the Board to enter into one or more transactions to issue up to 1.2 million additional common shares or equivalents, for such purposes as determined by the Board of Directors. The Company does not currently anticipate any such issuances thereunder.

As heretofore stated, significant risk and uncertainty remains in achieving the goal of generating cash flow from operations. The Company did not generate positive cash flow from operations in the quarter ended September 30, 2004, which is the first quarter of fiscal 2005. The aforementioned 2005 operating plan and related financial projections the Company has developed anticipate further sales growth, continuing improvement in margins based on production efficiencies and reductions in product costs, offset by higher selling, administrative and new product development costs. 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 (yield) improvements not being realized, increased insurance and benefits costs and increases in other discretionary spending required to effectively compete in our markets.

As a result of the Company’s cash flow position, should the Company find it desirable or necessary to issue additional equity securities or debt that may be convertible into or exercisable for equity securities, the action would have the effect of

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Notes to Condensed Consolidated Financial Statements – (Unaudited)

September 30, 2004

increasing our fully diluted shares outstanding and ultimately diluting our operating results per share and would dilute the voting power of current stockholders who do not acquire sufficient additional shares to maintain their percentage of share ownership.

On September 30, 2004, a $300,000 unsecured line of credit provided one year earlier by the Company’s Chairman of the Board expired. No borrowings were utilized under this line during its one-year life.

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 sold to bolster cash balances in order to continue to pursue the Company’s plan to reach positive cash flow and profitability and they were subsequently registered with the SEC.

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, work-in-process and finished lenses, isolators, collimators and assemblies, 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. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the related assets using the straight-line method.

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. 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 was being amortized over four years. At September 30, 2004, such developed technology became fully amortized. Upon issuance of a license, patent or trademark, the asset is amortized on the straight-line basis over the estimated useful life or lives of the related assets ranging from ten to

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LIGHTPATH TECHNOLOGIES, INC.

Notes to Condensed Consolidated Financial Statements – (Unaudited)

September 30, 2004

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, which are immaterial, 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. For restricted stock awards, compensation measured at the grant date is recognized as the vesting occurs. Under the intrinsic value method, compensation expense for a restricted stock award is recognized when a portionfo 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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Notes to Condensed Consolidated Financial Statements – (Unaudited)

September 30, 2004

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 no remaining book value resulting in a gain of $12,097 during the first quarter of fiscal 2005. These disposed assets were previously impaired in the second quarter of fiscal 2003. The original cost of property and equipment classifications and the related total accumulated depreciation and amortization is as follows:

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Notes to Condensed Consolidated Financial Statements – (Unaudited)

September 30, 2004

4. Intangible Assets

The following tables disclose 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 October 20, 2004, at the annual meeting of the Company’s stockholders, both of the following proposals were approved and adopted. First, a proposal to amend and add 450,000 shares to the Company’s Amended & Restated Omnibus Incentive Plan was passed. Second, a proposal to permit the Board to enter into one or more transactions to issue up to 1.2 million additional common shares or equivalents thereof, for such purposes as determined by the Board of Directors, was passed.

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 awards, 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. 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 underlying the Texas Action are without merit. Since being filed, a Texas court has granted the Company’s motion for Summary Judgment. An appellate court subsequently denied the plaintiff’s motion for reconsideration and the Texas Supreme Court has dismissed a plaintiff’s petition for a review for want of jurisdiction. The plaintiffs subsequently filed another appeal with the 14^th District Court of Appeals in Texas. On November 3, 2004, arguments were heard in that court by a panel of judges. A ruling by the 14^th District Court of Appeals, as to whether to overturn the Summary Judgment and allow a new trial or to affirm that decision, is not expected until mid-2005.

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. Although we pursued a settlement with UF of its claims for unpaid royalties, such discussions were unsuccessful. We continue to dispute the amount owed. The termination of the license agreement does not materially adversely affect our business.

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Notes to Condensed Consolidated Financial Statements – (Unaudited)

September 30, 2004

During the quarter ended September 30, 2004, the Company settled an employee harassment suit relating to an action filed against the Company’s Geltech subsidiary concerning a pre-acquisition, 1998 incident. The Company will make payments to both the plaintiff and plaintiff’s attorneys over a seven month period that will total $70,000. The action was dismissed upon reaching the settlement.

The Company may also be involved, from time to time, in various claims or actions arising in the normal course of business. After taking into consideration legal counsel’s evaluation of such matters, management is of the opinion that any outcomes will not have a significant effect on the Company’s financial position or results of operations.

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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 organic 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 will be required to permit the Company to be self-sustaining in terms of a regular and positive cash flow from operations. Additions to the sales and customer service organizations in fiscal 2004 aided sales increases in the fourth quarter of fiscal 2004 and the first quarter of fiscal 2005.

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 semi-conductor 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 have been and believe we can continue to 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 second or backup source of supply in the United States should they be unwilling to commit all of their source of supply of a critical component to a foreign merchant production source. We also continue to have the proprietary GRADIUM lens glass technology to offer to certain laser markets.

Our key indicators:

Sales Backlog – We believe that 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 September 30, 2004, our disclosure backlog was approximately $4,000,000; at September 30, 2003, it was approximately $1,440,000. 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.

Inventory Levels - Inventory levels are managed by the Company to minimize investment in working capital but still have the flexibility to meet customer demand to a reasonable degree. While the mix of inventory is an important factor, including adequate safety stocks of long lead-time materials, an important aggregate measure of inventory in all phases of production is the quarter’s ending inventory expressed as a number of days worth of the quarter’s cost of sales, also known as “days cost of sales in inventory,” or “DCSI.” It is calculated by dividing the quarter’s ending inventory by the quarter’s cost of goods sold, multiplied by 365 and divided by 4. Generally, a lower DCSI measure equates to a lesser investment in inventory and therefore more efficient use of capital. At September 30, 2004, our DCSI was 65 compared to 82 at September 30, 2003.

Accounts Receivable Levels and Quality - Accounts receivable levels are similarly managed by the Company to minimize investment in working capital. We measure the quality of receivables by the proportions of the total that are at various increments past due from our normally extended terms, which are generally 30 days. The most important aggregate measure of accounts receivable is the quarter’s ending balance of net accounts receivable expressed as a number of days worth of the quarter’s net revenues, also known as “days sales outstanding,” or “DSO.” It is calculated by dividing the quarters ending net accounts receivable by the quarter’s net revenues, multiplied by 365 and divided by 4. Generally, a lower DSO measure equates to a lesser investment in accounts receivable and therefore more efficient use of capital. At September 30, 2004, our DSO was 58 compared to 66 at September 30, 2003.

Other Key Indicators – Other key indicators include various operating metrics, some of which are qualitative and others are quantitative. These indicators change from time to time as the opportunities and challenges in the business change. They are mostly non-financial indicators such as units of shippable output by major product line, production yield rates by major product line and the output and yield data from significant intermediary manufacturing processes that support the production of the finished shippable product. These indicators can be used to calculate such other related indicators as 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. Higher unit production per shift means lower unit cost and therefore improved margins or improved ability to

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compete where desirable for price sensitive customer applications. The data from these reports is used to determine tactical operating actions and changes. The Company believes that its non-financial production indicators, such as those noted, are proprietary information.

Liquidity and Capital Resources

During fiscal 2004 the Company raised approximately $1.9 million from a private equity offering. These shares were sold to bolster cash balances in order to continue to pursue the Company’s plan to reach positive cash flow and profitability. 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 continue apace, but may not succeed and we may find it necessary to raise additional capital. Should capital not be available to the Company at reasonable terms, other actions may become necessary in addition to cost controls and vigorous sales activities. These actions may include exploring strategic options for the sale of the Company or of some of the Company’s product capabilities. The Company has no firm commitments for any future financing at this time and we have a book cash balance of approximately $1.5 million at November 4, 2004.

Subsequent to September 30, 2004, the Company entered into a $75,000 capital equipment lease for equipment to support our molded optics production. If additional capital expenditures are warranted, the Company will seek similar capital equipment lease financing. It is uncertain whether the Company will be able to consistently have access to this source of capital.

Further improvement in cash flow, initially 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.

Our fiscal 2005 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 quarter of the fiscal 2005 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 quite straightforward: 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 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. With regard to prospective equity financing, the Company’s stockholders approved a proposal at the annual meeting of stockholders on October 20, 2004 to permit the Board to enter into one or more transactions to issue up to 1.2 million additional common shares or equivalents, for such purposes as determined by the Board of Directors. The Company does not currently anticipate any such issuances thereunder. 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 September 30, 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

Three months ended September 30, 2004 compared to the three months ended September 30, 2003

Revenues:

Our revenues totaled approximately $2,950,000 for the first quarter of fiscal 2005, an increase of approximately $1,196,000, or 68%, compared to revenues of $1,754,000 for the first quarter of fiscal 2004. The increase was primarily attributed to higher unit volumes due to more effective sales efforts, concentration on achieving larger term sales arrangements, and a stronger overall economy.

Cost of Sales:

In the first quarter of fiscal 2005, cost of sales of approximately $2,372,000 was approximately 80% of product sales, versus the comparable period of fiscal 2003 in which we reported cost of sales of approximately $1,192,000, or 68% of product sales. The increase in cost of sales in both absolute and relative terms is attributable primarily to higher expenses being incurred to meet higher production levels. These higher expenses include both unit driven increases attendant to the 68% sales increase and overtime pay for direct and indirect labor, and higher costs for outside services we employ in our processes. Some portion of the higher overtime pay was incurred due to the loss during the quarter of six production days due to the passage of three hurricanes through the Orlando, Florida area in the first quarter of fiscal 2005. These storms disrupted electric power availability to our facility and employee availability. To make up for these lost days in order to maintain customer delivery schedules, we scheduled additional overtime through longer shifts subsequent to August 16. We also suffered some reduction in yields through this period due to the non-continuous flow of product from these events and due to several vendor-related processing failures. We continue to make efforts to reduce manufacturing costs as a percent of sales through cost reductions, better scheduling and yield improvements.

Selling, General and Administrative:

During the first quarter of fiscal 2005, selling, general and administrative costs (SG&A) were approximately $1,266,000, which was an increase of approximately $84,000 compared to $1,182,000 in the first quarter of fiscal 2004. The increase was due to both legal expenses and to higher costs due to the recognition of stock compensation in the quarter. While in the future we intend to manage SG&A costs to be generally in proportion to our business levels, we are 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) increased by approximately $86,000 to approximately $302,000 in the first quarter of fiscal 2005 versus $216,000 in the first quarter of fiscal 2004. This was due primarily to increased personnel costs to

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support transition of new products to manufacturing and to work on new customer designs to support new sales opportunities.

Other Income (Expense):

We settled a claim against us during the quarter that resulted in accrual of $70,000 of expense, some of which was paid in October, not including related attorney’s fees.

A gain on sale of assets of approximately $12,000 was recognized in the first quarter of fiscal 2005. There were no such sales in the first quarter of fiscal 2004. 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 $69,000 in the first quarter of 2005 vs. a net income of $5,000 in the first quarter of fiscal 2004. This was caused primarily by the final quarter of amortization of warrant issuance cost for a warrant that was issued in the first quarter of fiscal 2004. Additionally, the Company’s investable cash equivalent balances were lower in this quarter than in the first quarter of the prior year.

Net Loss:

Net loss was approximately $1,582,000 during the first quarter of fiscal 2005. This compares with the first quarter of fiscal 2004, in which we reported a net loss of $1,380,000. The $202,000 increase in net loss was due primarily to our legal settlement and higher production costs, proportional to sales, in the most recent quarter. The net loss of $1,582,000 for the first quarter of fiscal 2005 resulted in a net loss per share of $0.49, an improvement of $0.04 compared to the net loss per share of $0.53 in the first quarter of fiscal 2004. Weighted average shares outstanding increased in the first quarter of fiscal 2005 compared to the first quarter in fiscal 2004 primarily due to the sale of 550,000 shares in the third quarter of fiscal 2004 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; and (iii) long-lived assets. 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

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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 us to write down the assets.

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.

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 September 30, 2004.

PART II

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. Since being filed, a Texas court has granted the Company’s motion for Summary Judgment. An appellate court subsequently denied the plaintiff’s motion for reconsideration and the Texas Supreme Court has dismissed a plaintiff’s petition for a review for want of jurisdiction. The plaintiffs subsequently filed another appeal with the 14^th District Court of Appeals in Texas. On November 3, 2004, arguments were heard in that court by a panel of judges. A ruling by the 14^th District Court of Appeals, as to whether to overturn the Summary Judgment and allow a new trial or to affirm that decision, is not expected until mid-2005.

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. Although we pursued a settlement with UF of its claims for unpaid royalties, such discussions were unsuccessful. We continue to dispute the amount owed. The termination of the license agreement does not materially adversely affect our business.

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During the quarter ended September 30, 2004, the Company settled an employee harassment suit relating to an action filed against the Company’s Geltech subsidiary concerning a pre-acquisition, 1998 incident. The Company will make payments to both the plaintiff and plaintiff’s attorneys over a seven month period that will total $70,000. The action was dismissed upon reaching the settlement.

The Company may also be involved, from time to time, in various claims or actions arising in the normal course of business. After taking into consideration legal counsel’s evaluation of such matters, management is of the opinion that any outcomes will not have a significant effect on the Company’s financial position or results of operations.

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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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