SECURITIES & EXCHANGE COMMISSION EDGAR FILING
LIGHTPATH TECHNOLOGIES INC
Form: 10-K
Date Filed: 2015-09-22
Corporate Issuer CIK: 889971
© Copyright 2018, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the terms of use.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2015
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-27548
LIGHTPATH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
86-0708398
(I.R.S. Employer Identification No)
http://www.lightpath.com
2603 Challenger Tech Court, Suite 100
Orlando, Florida 32826
(Address of principal executive offices, including zip code)
(407) 382-4003
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of each class)
None
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.01 par value
Series D Participating Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES ☐ NO ☒
YES ☐ NO ☒
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 ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files).
YES ☒ NO ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller reporting company . See
the definitions of “large accelerated filer”, “accelerated filer”, “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check
One):
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company, (as defined in Rule 12b-2 in the Exchange Act). YES ☐ NO ☒
The aggregate market value of the registrant’s voting stock held by non-affiliates (based on the closing sale price of the registrant’s Common Stock on the
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
NASDAQ Capital Market, and for the purpose of this computation only, on the assumption that all of the registrant’s directors and officers as well as two parties
filing on Form SC 13-G, are affiliates) was approximately $8,645,439 as of December 31, 2014.
As of September 14, 2015, the number of shares of the registrant’s Class A Common Stock outstanding was 15,239,775.
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LightPath Technologies, Inc.
Form 10-K
Table of Contents
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Index to Consolidated Financial Statements
Signatures
Certifications
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35
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F-1
S-1
See Exhibits
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Annual Report on Form 10-K may constitute “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections,
strategies, future events or performance, and underlying assumptions and other statements, which are not statements of historical facts. In some cases, you can
identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or
“continue,” or other comparable terminology. These forward-looking statements are based on our current expectations and beliefs concerning future
developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can
be no assurance that future developments affecting us will be those that we anticipate. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking
statements. Forward-looking statements represent management’s beliefs and assumptions only as of the date of this Annual Report on Form 10-K. You should
read this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update these forward-looking statements, or to update the reasons actual results could differ materially
from those anticipated in these forward-looking statements, even if new information becomes available in the future.
PART I
Item 1. Business.
General
LightPath Technologies, Inc. (“LightPath”, the “Company”, “we”, “our”, or “us”) was incorporated under Delaware law in 1992 as the successor to LightPath
Technologies Limited Partnership, a New Mexico limited partnership formed in 1989, and its predecessor, Integrated Solar Technologies Corporation, a New
Mexico corporation formed in 1985. We manufacture optical components and higher level assemblies including precision molded glass aspheric optics, infrared
aspheric lenses, GRADIUM glass lenses and other optical materials used to produce products that manipulate light. We design, develop, manufacture and
distribute optical components and assemblies utilizing advanced optical manufacturing processes. Our products are incorporated into a variety of applications by
our customers in many industries, including defense products, medical devices, laser aided industrial tools, automotive safety applications, barcode scanners,
optical data storage, hybrid fiber coax datacom, telecom, machine vision and sensors, among others. All the products that we produce enable lasers and imaging
devices to function more effectively. For example:
•
•
•
Molded glass aspheres and assemblies are used in various high performance optical applications primarily based on laser technology;
Infrared molded lenses and assemblies using short (SWIR), mid (MWIR) and long (LWIR) wave materials imaging are used in applications for
firefighting, predictive maintenance, homeland security, surveillance, automotive and defense; and
GRADIUM extends the performance of a spherically polished glass lens technology improving optical performance so that it approximates aspheric
lens performance.
In November 2005, we formed LightPath Optical Instrumentation (Shanghai) Co., Ltd (“LPOI”), a wholly-owned subsidiary, located in Jiading, People’s Republic
of China. Over time, we transitioned a substantial portion of our manufacturing to LPOI, which until recently, operated as our primary manufacturing facility in
China.
In December 2013, we formed LightPath Optical Instrumentation (Zhenjiang) Co., Ltd. (“LPOIZ”), a wholly-owned subsidiary located in the New City district, of
the Jiangsu province, of the People’s Republic of China. LPOIZ built out a 25,833 square foot manufacturing facility and production at LPOIZ’s new facility
commenced in April 2014. We have now shifted our manufacturing operations from LPOI to LPOIZ, as this new facility provides a lower cost structure for
production of larger volumes of optical components and assemblies, and further strengthens our partnerships within the Asia/Pacific region. The LPOI facility is
now primarily used for sales and engineering functions.
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Product Groups and Markets
During fiscal 2015, we started evaluating our business based on five product groups: low volume precision molded optics (“LVPMO”), high volume precision
molded optics (“HVPMO”), specialty products, infrared products, and non-recurring engineering (“NRE”). Our LVPMO product group consists of precision molded
optics with a sales price greater than $10 per lens that are usually sold in smaller lot quantities. Our HVPMO product group consists of precision molded optics
with a sales price of less than $10 per lens that are usually sold in larger lot quantities. Our infrared product group is comprised of both molded lens and
assemblies. Our specialty product group is comprised of value added products such as optical subsystems, assemblies, GRADIUM lenses, and isolators. Our
NRE product group consists of those products we develop pursuant to product development agreements we enter into with customers. Typically, customers
approach us and request that we develop new products or applications for our existing products to fit their particular needs or specifications. The timing and
extent of any such product development is outside of our control.
We currently serve the following major markets: distribution and catalog, laser, industrial, instrumentation, telecommunications, and defense. Within our product
groups, we have various applications that serve these major markets. For example, our HVPMO lenses are typically used in industrial tools, especially in China.
Our HVPMO and LVPMO lenses are also used in applications for the telecommunications market, such as cloud computing, video distribution via digital
technology, wireless broadband, and machine to machine connection, and, the laser market, such as laser tools, scientific and bench top lasers, and bar code
scanners. Our infrared products can also be used in various applications within our major markets. Currently, sales of our infrared products are primarily for
customers in the industrial market that use thermal imaging cameras. Our infrared products can also be used for gas sensing devices, spectrometers, night
vision systems, automotive driver systems, thermal weapon gun sights, and infrared counter measure systems, among others. Within the larger overall markets,
which are estimated to be in the multi-billions of dollars, we believe there is a market of approximately $355 million for our current products and capabilities. We
continue to believe our products will provide significant growth opportunities over the next several years and, therefore, we will continue to target specific
applications in each of these major markets. Our strategy is to leverage our technology, know-how, established low cost manufacturing capability and
partnerships to grow our business. We plan to accomplish this growth through the implementation of the following objectives:
·
·
Continue to Drive Operational Excellence and Asset Efficiency. Operational excellence, which includes a commitment to safety, environmental
stewardship, and improved reliability, is key to our future success. We continually evaluate our business to identify opportunities to increase operational
efficiency throughout our production facilities with a focus on maintaining operational excellence and maximizing asset efficiency. We intend to continue
focusing on increasing manufacturing efficiencies through selected capital projects, process improvements, and best practices in order to lower unit
costs. We will also carefully manage our portfolio and take appropriate actions to address product lines that face challenging market conditions and do
not generate returns on invested capital that we believe are sufficient to create long-term shareholder value.
Focus on Cash Flow Generation. Our goal is to focus on cash flow generation and return on invested capital through the continuing optimization of our
cost structure, improvement in working capital and supply chain efficiencies, and a disciplined approach to capital expenditures. We have a proven track
record of mitigating fixed cost inflation with cost saving actions and productivity improvements. We intend to continue to identify incremental cost saving
opportunities based in large part on benchmarks of industry-leading performance and productivity improvements by utilizing our engineering and
manufacturing technology expertise and partnerships with low cost producers. Our goal is to maintain a cost structure that positions us favorably to
compete and grow. We intend to continue to upgrade our customer and product mix to increase our sales of value-added, differentiated products, thereby
achieving premium pricing to improve margins and enhance cash flow.
We also intend to actively manage our working capital by increasing inventory turnover and reducing finished goods and raw materials inventory without
affecting our ability to deliver products to our customers. We strive to improve our supply chain efficiency by focusing on reducing both operating costs
and working capital needs. Our supply chain efforts to lower operating costs have consisted of reducing procurement spending, lowering transportation
and warehouse costs, and optimizing production scheduling.
We remain focused on disciplined capital allocation among our product groups. We plan to allocate our capital expenditures to projects required to
enhance the reliability of our manufacturing operations and maintain the overall asset portfolio. This includes key maintenance and repair activities in
each product group, and necessary regulatory and maintenance spending to ensure safe operations. We intend to optimize capital spending on growth
projects across our various business based on a thorough comparison of risk-adjusted returns for each project.
· Maintain Strong Customer Focus . A key component of our strategy is to produce innovative, high-performance products that offer enhanced value
propositions to our customers at competitive prices. Our goal is to continually work closely with our customers to provide solutions and products that
optimize their products. This market-driven product development enables us to offer a high-quality product portfolio to our customers and provides our
business with the ability to respond quickly and efficiently to changes in market demands.
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·
·
Leverage our Leadership to Drive Organic Growth . We plan to continue to capitalize on our global operations network, distribution infrastructure, and
technology to pursue global growth. We will focus our efforts on those geographic areas and end products that we believe offer the most attractive growth
and long-term profit prospects.
Deepen Our Presence in Emerging Markets . Emerging markets are a strategic priority for our business. We are well positioned not only to leverage
our strong market positions in mature but highly sophisticated markets in North America and Europe, but also to participate in the expected growth of
emerging markets in Asia and Eastern Europe. We believe that improving living standards and growth in GDP across emerging markets are combining to
create increased demand for our products. We expect to capitalize on this growth opportunity by expanding our customer base and local capabilities in
order to increase our market share across emerging markets, especially in China. To accelerate our penetration of these markets and maintain our
competitive cost position, we may develop relationships with leading local partners, especially in businesses where participation in the fast-growing
Chinese market is particularly important for long-term sustainable growth. For example, we are well positioned to leverage our strong production
technology in the Chinese market as a result of an increasing percentage of aerospace, automotive, semiconductor, electronics, and telecommunications
manufacturing transitioning to China.
Drive Organizational Alignment. We believe that maintaining alignment of the efforts of our employees with our overall business strategy and
operational excellence goals is critical to our success. We have outstanding people and assets and, with the commitment to values of safety, customer
appreciation, simplicity, collective entrepreneurship, and integrity, we believe that we can maintain our competitiveness and help achieve our operational
excellence and asset efficiency strategic objectives.
The following further discusses the various products we offer and certain growth opportunities we anticipate for each such product.
LVPMO and HVPMO Product Groups. Aspheric lenses are known for their optimal performance. Our glass molding technology enables the production of both
low and high volumes of aspheric optics while still maintaining the highest quality at an affordable price. Molding is the most consistent and economical way to
produce aspheres and we have perfected this method to offer the most precise molded aspheric lenses available.
In recent years, sales of both our LVPMOs and HVPMOs have increased. We expect this growth to continue for the next several years with what we believe is
the beginning of a multi-year growth cycle of the optical market. This multi-year growth cycle is driven by four major trends: cloud computing; video distribution
via digital technology; wireless broadband; and machine-to-machine connection. Cloud computing is causing a shift in enterprise technology with increased
spending for software-as-a-service (“SAAS”) and infrastructure-as-a-service (“IAAS”) capital investments. Delivery of applications and technology using SAAS
or IAAS requires larger and faster network bandwidth. The explosion of mobile devices, which includes smartphones and tablet devices, is also requiring the
expansion of network bandwidth as users are receiving and transferring larger amounts of data via their mobile devices. The number of mobile devices
exceeded the global population at the beginning of 2015 and is estimated to be 1.5 mobile devices per capita by 2019. Individuals are also streaming more
video on their mobile devices or through their smart TVs. This type of video distribution, which is estimated to be 80% of all network traffic by 2019, is creating a
huge demand for larger and faster bandwidth. Finally, machine-to-machine connection technology allows wireless and wired systems to communicate with other
devices of the same type. This type of networking often requires bandwidth in order for the machines to communicate with each other. All of these trends
require the expansion of bandwidth, and thus, the growth of optical communication networks. Our products, such as our precision molded optical lenses, can be
used as a component in optical communication networks. We also anticipate growth in our precision molded aspheres product revenues as we add new product
lenses and applications for a variety of markets and industries, including laser tools, telecom transceivers, micro-projectors, scientific and bench top lasers, range
finders, medical devices, bar code scanners and laser based spectrometers.
·
·
LVPMOs. The growth in our LVPMO business is driven by a variety of market applications such as medical endoscopes, medical flow cytometers,
scientific and bench-top lasers, laser based spectrometers, military telecom and telescopic weapon sights. These products have precision specifications
and 100% testing to verify that our lenses conform to a higher level of performance than most of the competition in these markets.
HVPMOs. The continued growth in our HVPMO business is driven by market applications supporting mostly the laser diode applications for high volume
markets in laser tools, range finders, laser gun sights, bar code scanners and micro-projectors. The same basic tooling used for high precision in the
LVPMO applications allows us to realize a competitive advantage for high volume production that benefits the end customer while maintaining low price
targets. Markets for laser diode applications are expected to grow substantially in the next few years as applications such as Lidar, which uses light and
radar for distance tracking and speed detection, headlights for automobiles and many other related disciplines begin to rely more and more on laser
technology.
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Infrared Product Group. Advances in chalcogenide materials have enabled compression molding for MWIR and LWIR optics in a process similar to precision
molded lenses. Our molded infrared optics technology enables high performance, cost-effective infrared aspheric lenses that do not rely on traditional diamond
turning or lengthy polishing methods. Utilizing precision molded aspheric optics significantly reduces the number of lenses required for typical thermal imaging
systems and the cost to manufacture these lenses. Traditional germanium or zinc selenide aspheres are manufactured by diamond turning, which is a time-
consuming and expensive process. Diamond turned lenses are made one at a time and the lenses suffer from variations in the surface resulting in variations of
performance from lens to lens. The infrared optics molding process allows lenses to be manufactured in high volume with a highly repeatable, consistent
performance and allows for sophisticated beam shaping or achromatization over a range of wavelengths to be molded directly into the surfaces of the lens.
Overall, we anticipate growth for infrared optics and increased requirements for systems requiring molded aspheric optics over traditional ground and polished
lenses. Infrared systems, which include thermal imaging cameras, gas sensing devices, spectrometers, night vision systems, automotive driver awareness
systems such as blind spot detection, thermal weapon gun sights, and infrared counter measure systems, represent a market that is forecasted to grow to
greater than $5.6 billion at the complete systems level by 2020 at a compound annual growth rate of 10%. As infrared imaging systems become widely available,
the cost of optical components needs to decrease before the market demand will increase. Our aspheric molding process is an enabling technology for the cost
reduction and commercialization of infrared imaging systems because the aspheric shape of our lenses enables system designers to reduce the lens element in
a system and provide similar performance at a lower cost.
Specialty Product Group . We have a rapidly growing group of specialty products and assemblies that take advantage of our unique technologies and
capabilities. These include custom optical designs, mounted lenses, optical assemblies, and GRADIUM lenses. We expect growth from defense
communications programs and commercial optical sub-assemblies.
Our GRADIUM glass is an optical quality glass material with axially varying refractive index, capable of reducing optical aberrations inherent in conventional
lenses and performing with a single lens tasks traditionally performed by multi-element, conventional lens systems. Typical applications include surgical lasers,
high power YAG lasers for welding, cutting and marking, defense-market uses, and test and measurement. GRADIUM has a unique capability to handle up to 10
kilowatts of power and is servicing a niche market for laser high-power cutting and laser welding.
We design, build, and sell optical assemblies into markets for test and measurement, medical devices, military, industrial, and communications based on our
proprietary technologies. Many of our optical assemblies consist of several products that we manufacture.
Sales and Marketing
Marketing. Extensive product diversity and varying levels of product maturity characterize the optics industry. Product markets range from consumer (e.g.,
cameras, copiers) to industrial (e.g., lasers, data storage, infrared imaging), from products where the lenses are the central feature (e.g., telescopes,
microscopes, lens systems) to products incorporating lens components (e.g., robotics, semiconductor production equipment) and communications (e.g., various
optics are required for bandwidth expansion and improved data transfer for the optical network). As a result, we market our products across a wide variety of
customer groups including laser systems manufacturers, laser OEMs, infrared-imaging systems vendors, industrial laser tool manufacturers, telecommunications
equipment manufacturers, medical and industrial measurement equipment manufacturers, government defense agencies, and research institutions worldwide.
Organization Optimization Plan. In February 2015, we announced our plan to transition to a technical sales process that leverages the success of our existing
demand-creation model. To align the organization for specific goals and accountability, we created an executive structure with three direct reporting lines:
Operations, China, and Finance. Technical and engineering staffs are now more fully integrated with our sales force, and two new sales positions were created:
Executive Sales Manager, combining the responsibility for all sales and marketing, and Marketing Manager. We combined the organizations supporting our
aspheric visible lens products and our new line of infrared products. Sales, marketing, engineering, and quality now report to the newly created position of
Executive Vice President – Operations.
Sales Organization. We have regional sales forces that market and sell our products directly to customers in North America and China. We also have a master
distributor in Europe. We have formalized relationships with 14 industrial, laser, and optoelectronics distributors and channel partners located in the United
States and various foreign countries to assist in the distribution of our products in highly specific target markets. We also have reseller arrangements with the top
three product catalogs in the optics and opto-electronics market. In addition, we also maintain our own product catalog and internet website (www.lightpath.com)
as vehicles for broader promotion of our products. We make use of print media advertisements in various trade magazines and participate in appropriate
domestic and foreign trade shows.
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All of our partners work diligently to expand opportunities in emerging geographic markets and through alternate channels of distribution. We believe that we
provide a high level of support in developing and maintaining our long-term relationships with our customers. Customer service and support are provided through
our offices and those of our partners that are located throughout the world.
Trade Shows. We display our product line additions and enhancements at one or more trade shows each year. For example, we participated in several United
States based shows including Society of Photographic Instrumentation Engineers (“SPIE”) Photonics West in January 2015 and SPIE Defense, Security and
Sensing in May 2015. We also participate in shows in China such as the China International Optoelectronic Exposition in Shenzhen. In addition, we partner with
key distributors to attend exhibitions such as Laser World of Photonics in Munich, Germany. Such a strategy underscores our strategic directive of broadening
our base of innovative optical components and assemblies. These trade shows also provide an opportunity to meet with and enhance existing business
relationships, meet and develop potential customers, and to distribute information and samples regarding our products.
Competition
The market for optical components generally is highly competitive and highly fragmented. We compete with manufacturers of conventional spherical lenses and
optical components, providers of aspheric lenses and optical components, and producers of optical quality glass. To a lesser extent, we compete with
developers of specialty optical components and assemblies. Many of these competitors have greater financial, manufacturing, marketing and other resources
than we do.
We believe our unique capabilities in optical design engineering, our low cost structure and our substantial presence in Asia, particularly in China, provides us
with a competitive edge and assists us in securing business. Additionally, we believe that we offer value to some customers as a second or backup supply
source in the United States should they be unwilling to commit to purchase their entire supply of a critical component from a foreign production source. We also
have a broad product offering to satisfy a variety of applications and markets.
LVPMOs and HVPMOs Product Groups . Our LVPMO products compete with conventional lenses and optical components manufactured by companies such
as Asia Optical, Anteryon, RPO, and Sunny Optics.
Aspheric lenses that improve the shortcomings of conventional lenses significantly compete with our molded glass aspheric lenses, which are part of our
HVPMO product group. Aspheric lens system manufacturers include Panasonic, ALP’s, Hoya Corporation, as well as newer competitors from China and Taiwan
such as E-pin Optical Industry Co. and Kinik Company. The use of aspheric surfaces provides the optical designer with a powerful tool in correcting spherical
aberrations and enhancing performance in state-of-the-art optical products. However, we believe that our optical design expertise and our flexibility in providing
custom high performance optical components at a low price are key competitive advantages for us over these competitors.
Plastic molded aspheres and hybrid plastic/glass aspheric optics, on the other hand, allow for high volume production, but primarily are limited to low cost
consumer products that do not place a high demand on performance (such as plastic lenses in disposable or mobile phone cameras). Molded plastic aspheres
appear in products that stress cost or weight as their measure of success over performance and durability. Our low cost structure allows us to compete with
these lenses based on higher performance and durability from our glass lenses at only a small premium in price over plastic or plastic/glass hybrid lenses.
Infrared Product Group. Our infrared molded aspheric optics competes with traditional infrared lenses manufactured from germanium, such as those produced
by Janos Technologies, Ophir Optics or Elcan Optical Technologies. These traditional infrared lenses can either be polished spherical or are diamond turned
aspherical. Our molded lenses compete with spherical lenses because like all aspheres they can replace doublets or triplets based on the higher performance
of an aspheric lens. Diamond turned aspheres from germanium are expensive to produce in high volumes and time consuming to manufacture. We believe our
low cost, high volume lens business strategy enables us to compete with the manufacturers of traditional infrared lens.
Our molded infrared optics competes with products manufactured by Umicore, Kiro, and Free Form. We believe that our optical design expertise and our
flexibility in providing custom, high performance infrared optical components are key advantages over the products manufactured by these competitors. A
specific advantage over Umicore, a foreign company, is that the infrared market is highly dependent on the United States defense industry, which prefers to
purchase from United States based companies such as LightPath.
Specialty Product Group . GRADIUM lenses are often used for products in the niche high power laser optics market. GRADIUM lenses are produced using a
unique, well-established technology that no other manufacturer possesses, which provides us with a competitive advantage. However, there are other competing
technologies, such as traditional fused silica doublets and triplets as well as newer large diameter aspheres, such as those manufactured by Asphericon or
Edmund Optics.
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Manufacturing
Facilities. Our manufacturing is largely performed in our 26,000 square foot production facility in Orlando, Florida and in LPOIZ’s 26,000 square foot production
facility in Zhenjiang. Prior to the transition of our manufacturing in China to LPOIZ’s facility, such manufacturing was performed in LPOI’s 16,000 square foot
facility near Shanghai, which is now used primarily for sales and engineering functions. With space remaining in the Zhenjiang and Orlando facilities, we believe
our facilities are adequate to accommodate our needs for the foreseeable future. We are currently reviewing our options with respect to the Shanghai facility
since our lease terminates in 2016. Management currently anticipates relocating to a smaller facility with a lower monthly rent amount given the extra capacity
provided by LPOIZ’s Zhenjiang facility.
Our manufacturing facilities feature areas for each step of the manufacturing process, including coating work areas, preform manufacturing and a clean room for
pressing and integrated assembly. Our Orlando and Zhenjiang facilities include new product development laboratories and space that includes development and
metrology equipment. Our Zhenjiang facility has anti-reflective coating equipment to coat our lenses in-house.
Production and Equipment . Our Orlando facility contains a manufacturing area for our molded glass aspheres, a tooling and machine shop to support new
product development, commercial production requirements for our machined parts, the fabrication of proprietary press work stations and mold equipment, and a
clean room for our molding and assembly workstations. We also have glass coring equipment to meet our current needs of GRADIUM product sales worldwide.
The Orlando facility is also International Traffic in Arms and Regulation (ITAR) compliant. LPOIZ’s Zhenjiang facility features a molded glass aspheres
manufacturing area, clean room, and an area for anti-reflective coating. Our Orlando, Shanghai, and Zhenjiang facilities are ISO 9001:2008 certified. For more
information regarding our facilities, please see Item 2. Properties in this Annual Report.
Subcontractors and Strategic Alliances . We believe that low-cost manufacturing is crucial to our long-term success. In that regard, we generally use
subcontractors in our production process to accomplish certain processing steps requiring specialized capabilities. For example, we presently use a number of
qualified subcontractors for fabricating, polishing, and coating certain lenses as necessary. We have taken steps to protect our proprietary methods of repeatable
high quality manufacturing by patent disclosures and internal trade secret controls.
Suppliers. We utilize a number of glass compositions in manufacturing our molded glass aspheres and lens array products. These glasses or equivalents are
available from a large number of suppliers, including CDGM Glass Company, Ohara, and Sumita. Base optical materials, used in both GRADIUM and collimator
products, are manufactured and supplied by a number of optical and glass manufacturers. We believe that a satisfactory supply of such production materials will
continue to be available at reasonable prices, although there can be no assurance in this regard.
We also rely on local and regional vendors for component materials and services such as housings, fixtures, magnets, chemicals and inert gases, specialty
ceramics, UV and AR coatings, and other specialty coatings. In addition, certain products require external processing such as anodizing and metallization. To
date, we are not dependent on any of these manufacturers and have found a suitable number of qualified vendors and suppliers for these materials and services.
We currently purchase a few key materials from single or limited sources. We believe that a satisfactory supply of production materials will continue to be
available at competitive prices, although there can be no assurance in this regard.
Patents and Other Proprietary Intellectual Property
Our policy is to protect our technology by, among other things, patents, trade secret protection, trademarks, and copyrights. The products and technologies that
we employ use patents that are either owned and maintained by us or licensed to us by others. Patents have been issued, and/or patent applications have been
filed, in the areas of glass composition, glass molding, gradient geometries, and certain production processes such as fiber attachment and micro-fabrication.
The first of our issued patents expired in 2006; the remainder expire at various times through 2023.
Issued patents owned or available to us may not afford us adequate protection or may be challenged, invalidated, infringed, or circumvented. Patent applications
relating to our products may not result in patents being issued. Patent rights granted to us for technologies that we may license in the future may not provide
competitive advantages to us. Patents that are owned or licensed by us that are issued in one jurisdiction may not be issued in any other jurisdiction. The validity
of any of our patents may not be upheld if challenged by others in litigation or if such litigation alleges that our activities infringe upon patents owned by others.
In addition to patent protection, certain process inventions, lens designs and innovations are retained as trade secrets. A key feature of GRADIUM glass is that,
once fabricated, it does not reveal our formula upon inspection and, to our knowledge, cannot be reverse-engineered.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We own several registered and unregistered service marks and trademarks which are used in the marketing and sale of our products. The following sets forth
our registered and unregistered service marks and trademarks, if registered, the country in which the mark is filed, and the renewal date for such mark.
Mark
LightPath®
GRADIUM™
Circulight
BLACK DIAMOND
GelTech
Oasis
LightPath®
Type
service mark
trademark
trademark
trademark
trademark
trademark
service mark
Registered
Yes
Yes
No
No
No
No
Yes
Country
United States
United States
—
—
—
—
People’s Republic of China
Renewal Date
October 22, 2022
February 5, 2017
—
—
—
—
Application filed
Environmental and Governmental Regulation
Currently, emissions and waste from our manufacturing processes are at such low levels that no special environmental permits or licenses are required. In the
future, we may need to obtain special permits for disposal of increased waste by-products. The glass materials we utilize contain some toxic elements in a
stabilized molecular form. However, the high temperature diffusion process results in low-level emissions of such elements in gaseous form. If production
reaches a certain level, we believe that we will be able to efficiently recycle certain of our raw material waste, thereby reducing disposal levels. We believe that
we are presently in compliance with all material federal, state, and local laws and regulations governing our operations and have obtained all material licenses
and permits necessary for the operation of our business.
We also utilize certain chemicals, solvents, and adhesives in our manufacturing process. We believe we maintain all necessary permits and believe we are in full
compliance with all applicable regulations.
To our knowledge there are currently no United States federal, state or local regulations that restrict the manufacturing and distribution of our products. Certain
end-user applications require government approval of the complete optical system, such as United States Food and Drug Administration approval for use in
endoscopy. In these cases, we will generally be involved on a secondary level and the OEM customer will be responsible for the license and approval process.
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes disclosure requirements regarding the use of “conflict minerals” mined from the
Democratic Republic of Congo and adjoining countries in products, whether or not these products are manufactured by third parties. The conflict minerals
include tin, tantalum, tungsten and gold, and their derivatives. Pursuant to these requirements, we are required to report on Form SD the procedures we employ
to determine the sourcing of such minerals and metals produced from those minerals. There are costs associated with complying with these disclosure
requirements, including for diligence in regards to the sources of any conflict minerals used in our products, in addition to the cost of remediation and other
changes to products, processes, or sources of supply as a consequence of such verification activities. In addition, the implementation of these rules could
adversely affect the sourcing, supply, and pricing of materials used in our products. We strive to only use suppliers that source from conflict-free smelters and
refiners; however, in the future, we may face difficulties in gathering information regarding our suppliers and the source of any such conflict minerals.
New Product Development
For many years, we engaged in basic research and development that resulted in the invention of GRADIUM glass and certain proprietary processes for
fabricating GRADIUM glass lenses. Thereafter, our new product development efforts led to the development of our capabilities in molded aspheric lenses and
infrared lenses. We incurred expenditures for new product development during fiscal years 2015 and 2014 of approximately $1.1 million and $1.2 million,
respectively. We concentrated our efforts to support existing and new customers in the design and manufacture of items in two of our product lines: lenses and
infrared products.
We are continuing to focus our new product development efforts on infrared optics products for imaging and sensing, fiber lasers, defense, medical devices,
industrial, optical data storage, machine vision, sensors, and environmental monitoring. We currently plan to expend approximately $1.2 million for new product
development during fiscal 2016, which could vary depending upon revenue levels, customer requirements, and perceived market opportunities.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
For more difficult or customized products, we bill our customers for engineering services as a non-recurring engineering fee.
Concentration of Customer Risk
In fiscal 2015 and fiscal 2014, we had sales to three customers that comprised an aggregate of approximately 28% of our annual revenue with one customer at
11% of our sales, another customer at 10% of our sales, and the third customer at 7% of our sales. We continue to diversify our business in order to minimize our
sales concentration risk. The loss of any of these customers, or a significant reduction in sales to any such customer, would adversely affect our revenues.
In fiscal 2015, 54% of our net revenue was derived from sales outside of the United States, with 90% of our foreign sales derived from customers in Europe and
Asia.
Employees
As of June 30, 2015, we had 173 full-time equivalent employees, with 67 in Florida and 106 in China. Any employee additions or terminations over the next
twelve months will be dependent upon the actual sales levels realized during fiscal 2016. We have 27 employees engaged in management, administrative, and
clerical functions, 11 employees in new product development, 10 employees in sales and marketing, and 125 employees in production and quality control
functions. We have used and will continue utilizing part-time help, temporary employment agencies, and outside consultants, where appropriate, to qualify
prospective employees and to ramp up production as required from time to time. None of our employees are represented by a labor union.
Item 2. Properties.
We occupy a 26,000 square foot facility in Orlando, Florida, which includes a 6,000 square foot clean room and houses our corporate headquarters, engineering,
marketing, internal sales, manufacturing management and some manufacturing operations. At our Orlando facility, our molded glass aspheres manufacturing
area includes lens pressing equipment, high precision mold production equipment, advanced metrology and inspection equipment, and coating facilities. It also
features a tooling and machine shop, which can support new product development, commercial production requirements for our machined parts, and the
fabrication of propriety press workstations and mold equipment. Our Orlando facility has glass coring equipment for our current needs of GRADIUM product sales
and also includes a clean room for our molding and assembly workstations, which include our proprietary laser fusion and housing equipment, automated testing
processes, and laser polishing stations. Our Orlando facility is International Traffic in Arms Regulations (ITAR) compliant.
The monthly rental payments for our Orlando facility average approximately $29,000 through April 2022, which excludes all charges, common area
maintenance, escalation, and certain pass-through of taxes and other operating costs. In July 2014, we negotiated a new lease which increased our space from
approximately 22,000 square feet to approximately 26,000 square feet, or by 20%. The additional space allowed us to relocate our administration functions to
new office space and reclaim needed manufacturing space for our business. We were also able to take advantage of local market conditions and decrease our
overall rent expense by an estimated 25%.
Over time, we transitioned a majority of our manufacturing requirements for our precision molded optic line and our assembly product line to LPOI’s Shanghai
facility and, now, most recently from LPOI’s Shanghai facility to LPOIZ’s Zhenjiang facility. As we transitioned our manufacturing overseas, we reduced the
leased space in our Orlando facility from 41,063 square feet to 21,557 square feet, as reflected in the third, fourth and fifth amendments to the Orlando facility
lease, effective December 1, 2007, May 1, 2009 and May 1, 2012, respectively. The sixth amendment, effective July 2, 2014, extended the lease term through
April 2022 and increased the leased space from 21,557 square feet to 26,077 square feet. The seventh amendment dated January 31, 2015 corrected the square
footage to 25,847 square feet. Minimum rental rates for the extension term were established based on annual increases of two and one half percent and start in
the third year of the extension period. Additionally, there are two 3-year extension options exercisable by us. The minimum rental rates for such additional
extension options will be determined at the time an option is exercised and will be based on a “fair market rental rate” as determined in accordance with the third
lease amendment.
Our wholly-owned subsidiary, LPOI, also leases an approximately 16,000 square foot facility located in Jiading, People’s Republic of China. The lease expires in
April 2016 and houses 19 employees. LPOI’s Shanghai facility is now primarily used for sales and engineering functions. The rent is approximately $8,000 per
month. We plan to relocate to a smaller facility upon expiration of the current lease, and anticipate that our monthly rental amount will decrease as a result of
such relocation.
LPOIZ leases an approximately 26,000 square foot facility located in Zhenjiang, Jiangsu Province, People’s Republic of China. LPOIZ’s Zhenjiang facility
features a molded glass aspheres manufacturing area, which includes lens pressing equipment, advanced metrology and inspection equipment. The clean room
in LPOIZ’s Zhenjiang facility features assembly manufacturing equipment and automated dispensing systems. The Zhenjiang facility also houses our precision
dicing equipment and anti-reflective coating equipment.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LPOIZ signed a five year lease that will expire March 31, 2019. The Zhenjiang facility houses 87 employees. The rent is approximately $2,000 per month.
We are ISO 9001:2008 certified at all three of our facilities. Much of our product qualification is performed in-house at our facilities. Our test and evaluation
capabilities include damp heat, high/low temp storage, and a thermal shock oven, which are representative of the equipment required to meet Telecordia
requirements and other customer required product specifications. Our New Product Development department has computer aided design (CAD) tools and
technical support. The continuing implementation of various statistical process controls (SPCs) is being pursued to improve product yields and allows us to
reduce costly manual testing operations. Quality control in manufacturing to ensure a quality end product is critical to our ability to bring our products to market,
as our customers may demand rigorous testing prior to their purchase of our products.
With space remaining in the Shanghai, Zhenjiang and Orlando facilities, we believe our facilities are adequate to accommodate our needs over the next year. We
are in the process of adding additional production equipment and will add additional work shifts to increase the capacity and meet forecasted demand.
Our territorial sales personnel maintain an office from their homes to serve their geographical territories.
Item 3. Legal Proceedings.
From time to time, we are involved in various legal actions arising in the normal course of business. We currently have no legal proceeding to which we are a
party to or to which our property is subject to and, to the best of our knowledge, no adverse legal activity is anticipated or threatened.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .
PART II
Market Information
Our Class A common stock is traded on the NASDAQ Capital Market (“NCM”) under the symbol “LPTH”.
The following table sets forth the range of high and low bid prices for our Class A common stock for the periods indicated, as reported by NCM. The quotation
information below reflects inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions. The closing ask price
on June 30, 2015 was $1.76 per share.
Fiscal Year Ended June 30, 2015
Quarter ended June 30, 2015
Quarter ended March 31, 2015
Quarter ended December 31, 2014
Quarter ended September 30, 2014
Fiscal Year Ended June 30, 2014
Quarter ended June 30, 2014
Quarter ended March 31, 2014
Quarter ended December 31, 2013
Quarter ended September 30, 2013
Holders
Class A Common
Stock
High
Low
$
$
$
$
$
$
$
$
1.81 $
1.32 $
1.48 $
1.56 $
1.63 $
1.76 $
1.55 $
1.83 $
0.88
0.89
0.90
1.17
1.28
1.35
1.17
1.17
As of July 15, 2015, we estimate there were approximately 235 holders of record and approximately 4,168 street name holders of our Class A common stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Dividends
We have never declared or paid any cash dividends on our Class A common stock and do not intend to pay any cash dividends in the foreseeable future. We
currently intend to retain all future earnings in order to finance the operation and expansion of our business. In addition, the payment of dividends, if any, in the
future, will depend on our earnings, capital requirements, financial conditions and other relevant factors.
Securities Authorized For Issuance Under Equity Compensation Plans
The following table sets forth information with respect to compensation plans under which our equity securities are authorized for issuance as of the end of fiscal
2015:
Equity Compensation Arrangement
Amended and Restated Omnibus Incentive Plan
Employee Stock Purchase Plan
Award Shares
Authorized
Award Shares
Outstanding
at June 30,
2015
3,915,625
400,000
4,315,625
1,797,783
—
1,797,783
Available for
Issuance
at June 30,
2015
1,478,778
400,000
1,878,778
Please see section titled “Equity Compensation Plan Information” in Item 12 of this Annual Report on Form 10-K for information relating to compensation plans
approved and not approved by our stockholders.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis by our management of our financial condition and results of operations in conjunction with our
consolidated financial statements and the accompanying notes.
The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and
intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the
beginning of this Annual Report on Form 10-K regarding forward-looking statements.
Results of Operations
Operating Results for Fiscal Year Ended June 30, 2015 compared to the Fiscal Year Ended June 30, 2014:
Revenue for fiscal 2015 totaled approximately $13.66 million compared to approximately $11.83 million for fiscal 2014, an increase of 15%. The 15% increase in
revenue primarily resulted from an increase in specialty products due to higher collimators volume, and growth in our infrared products. Unit shipment volume in
precision molded optics in fiscal 2015 decreased by 28% as compared to fiscal 2014 but the average selling price improved 38% period over period due to a
product mix shift with lower volumes in the industrial tool business offset by new applications in fiber laser delivery systems, medical applications, and
telecommunications. The sales price mix of the precision molded optics also changed in fiscal 2015. Revenue for LVPMO (low volume precision molded optics
with selling price of greater than $10) units sold increased by 11%, or $629,000, while revenue for HVPMO (high volume precision molded optics with selling
price of less than $10) units sold decreased by 22%, or ($707,000). We expect continued growth in sales to be derived primarily from our specialty products and
our precision molded optics product line, particularly our HVPMOs sold in Asia, and our infrared product line based upon recent quote activity and market trends.
Gross margin percentage for fiscal 2015 was 44% compared to 46% in fiscal 2014. Gross margin percentage decreased in fiscal 2015 due to changes in the
product mix. The product mix change was a result of changes in both the sales volume and sales prices of our products. Our sales of LVPMOs increased;
however, the lenses were sold at a lower price. Similarly, our sales of infrared products increased; however, the products were sold at production prices versus
prices we charge when a product is a prototype. These changes were partially offset by a decrease in HVPMOs sold at higher prices and an increase in sales of
specialty products at stable prices. Total manufacturing costs were approximately $7.68 million, an increase of approximately $1.24 million as compared to fiscal
2014. This increase in manufacturing costs resulted from costs associated with the increase of $1.83 million in revenue.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We plan to continue emphasizing unit cost reductions now that we have completed the consolidation of production in LPOIZ’s facility, efficiently purchasing raw
materials and continuing to increase the amount of anti-reflective coating we do in-house versus outsourcing this service. We also anticipate efficiency
improvements in production at LPOIZ’s Zhenjiang facility as the employees become a more experienced workforce. We expect lower direct costs due to the
lower labor and service costs in Zhenjiang.
Selling, general and administrative expenses increased by approximately $618,000 to $5.13 million in fiscal 2015 as compared to $4.51 million in fiscal 2014.
This increase was primarily due to an increase of approximately $574,000 in wages due to an increase in headcount and bonus expense for our named
executive officers as a result achieving certain performance goals, and an increase of approximately $51,000 in commission expenses due to increased sales.
Our fiscal 2016 operating plan projects our selling, general and administrative expenses to increase by $413,000 to $5.54 million as compared to fiscal 2015 due
to an increase in commissions and bonus payments to our named executive officers as a result of an increase in forecasted sales.
New product development costs in fiscal 2015 decreased by approximately $106,000 to $1.11 million. This decrease was primarily due to a decrease of $52,000
in wages, and a decrease of $54,000 in materials and services costs. These additional costs in the prior year were to support ongoing product development
projects. Our fiscal 2016 operating plan projects product development spending of $1.15 million, a slight increase as compared to fiscal 2015.
In fiscal 2014, the amortization of intangibles, which consisted of our patents, was approximately $35,000. Our patents were fully amortized in fiscal 2014.
Interest expense was approximately $32,000 for fiscal 2015 as compared to approximately $37,000 for fiscal 2014. In fiscal 2015, interest expense consisted of
amortization of debt costs of approximately $13,000 pursuant to that certain Amended and Restated Loan and Security Agreement dated December 23, 2014
(the “Amended LSA”) with Avidbank Corporate Finance, a division of Avidbank (“Avidbank”) related to our invoice-based working capital revolving line of credit
(the “Invoiced Based Line”) and interest of approximately $18,000 on capital leases. In fiscal 2014, interest expense consisted of amortization of debt costs
related to our revolving line of credit pursuant to our initial Loan and Security Agreement dated September 30, 2013 (the “LSA”) with Avidbank.
In fiscal 2015 and 2014, we recognized approximately $464,000 in expense and approximately $94,000 in income, respectively, related to the change in the fair
value of derivative warrants issued in connection with our June 2012 private placement. This fair value will be re-measured each reporting period throughout the
five year life of the warrants, or until exercised.
Investment and other income increased by approximately $35,000 to $41,000 in fiscal 2015 primarily from the impact of the foreign exchange rate reflecting the
rate change during the receipt of payable invoices and payment of those invoices.
We execute all foreign sales from our Orlando facility and inter-company transactions in United States dollars, mitigating the impact of foreign currency
fluctuations. Assets and liabilities denominated in non-United States currencies, primarily the Chinese Renminbi, are translated at rates of exchange prevailing
on the balance sheet date, and revenues and expenses are translated at average rates of exchange for the year. During the years ended June 30, 2015 and
2014, we incurred a loss of $1,001 and $1,055 on foreign currency translation, respectively.
Net loss for fiscal 2015 was approximately $715,000 compared with a net loss of approximately $313,000 in fiscal 2014, an increase of approximately $402,000.
This increase in net loss from fiscal 2014 to fiscal 2015 is primarily due to the change in the fair value of our warrant liability. Net loss for fiscal 2015, adjusted
for the effect of the change in the fair value of the warrant liability, was $251,000 compared with a net loss for fiscal 2014, adjusted for the effect of the change
in the fair value of the warrant liability, was $407,000, a decrease of approximately $156,000.
Liquidity and Capital Resources
At June 30, 2015, we had working capital of $5.68 million and total cash and cash equivalents of $1.64 million, of which $822,000 of the total cash was held by
our foreign subsidiaries. As of June 30, 2015 and June 30, 2014, we had an accumulated deficit of approximately $205 million. On September 14, 2015 we had a
book cash balance of $2,065,448.
Cash and cash equivalents held by our foreign subsidiaries in China were generated in China as a result of foreign earnings. Before any funds can be repatriated
the retained earnings in China must equal at least 150% of the registered capital. As of June 30, 2015 we have retained earnings of $1.9 million and we need to
have $11.3 million before repatriation will be allowed. We currently do not anticipate that we will need funds generated from foreign operations to fund our
domestic operations. In the event that funds from foreign operations are needed to fund operations in the United States and, if United States taxes have not been
previously provided on the related earnings, we would provide for and pay additional United States taxes at the time we change our intention with regard to the
reinvestment of those earnings.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
We generally rely on cash from operations and equity and debt offerings, to the extent available, to satisfy our liquidity needs. From February 1996 (when our
initial public offering occurred) through the end of fiscal 2015, inclusive, we raised a net total of approximately $106 million from the issuance of common and
preferred stock, the sale of convertible debt and the exercise of options and warrants for shares of our common stock.
On December 23, 2014, we entered into an Amended LSA with Avidbank for an Invoice Based Line. The Amended LSA amended and restated the LSA.
Pursuant to the Amended LSA, Avidbank will, in its discretion, make loan advances to us up to a maximum aggregate principal amount outstanding not to
exceed the lesser of (i) One Million Dollars ($1,000,000) or (ii) eighty percent (80%) (the “Maximum Advance Rate”) of the aggregate balance of our eligible
accounts receivable, as determined by Avidbank in accordance with the Amended LSA. Avidbank may, in its discretion, elect to not make a requested advance,
determine that certain accounts are not eligible accounts, change the Maximum Advance Rate or apply a lower advance rate to particular accounts and
terminate the Amended LSA.
Amounts borrowed under the Amended LSA may be repaid and re-borrowed at any time prior to December 23, 2015, at which time all amounts shall be
immediately due and payable. The advances under the Amended LSA bear interest, on the outstanding daily balance, at a per annum rate equal to three percent
(3%) above the prime rate (or 6.25% at June 30, 2015). Interest payments are due and payable on the last business day of each month. Payments received with
respect to accounts upon which advances are made will be applied to the amounts outstanding under the Amended LSA.
Our obligations under the Amended LSA are secured by a first priority security interest (subject to permitted liens) in cash, U.S. inventory and accounts
receivable.
The Amended LSA contains customary covenants, including, but not limited to: (i) limitations on the disposition of property; (ii) limitations on changing our
business or permitting a change in control; (iii) limitations on additional indebtedness or encumbrances; (iv) restrictions on distributions; and (v) limitations on
certain investments.
Late payments are subject to a late fee equal to the lesser of five percent (5%) of the unpaid amount or the maximum amount permitted to be charged under
applicable law. Amounts outstanding during an event of default accrue interest at a rate of five percent (5%) above the interest rate applicable immediately prior
to the occurrence of the event of default. The Amended LSA contains other customary provisions with respect to events of default, expense reimbursement, and
confidentiality. The amount outstanding on the Amended LSA was $51,585 as of June 30, 2015. During fiscal 2015, the highest balance drawn on the LSA was
$512,000.
Management developed an operating plan for fiscal 2016 and believes we have adequate financial resources to achieve this plan and to sustain our current
operations in the coming year. We have established milestones that will be tracked to ensure that as funds are expended we are achieving results before
additional funds are committed. The fiscal 2016 operating plan and related financial projections we have developed anticipate sales growth primarily from
precision molded optics, with the emphasis on HVPMO applications, specialty products, and infrared products. We also expect to be better positioned to
accelerate our revenue growth and profitability as a result of certain strategic growth initiatives and an organizational optimization plan we announced in
February 2015. Under these plans, we transitioned to a technical sales process that leverages the success of our existing demand-creation model. These growth
initiatives and organizational modifications are intended to further enhance our incremental organic growth position for our core aspheric lens business, prime our
operations for the anticipated high growth of our new infrared products, and allow for the integration of strategic acquisitions. An ancillary benefit of these plans is
an estimated annual reduction of operating expenses of 5% to 10% or savings of approximately $200,000 to $375,000 per year upon complete implementation.
These plans are now fully implemented and we realized the cost reductions starting in the fourth quarter of fiscal 2015. We are also benefiting from a substantial
increase in revenue generating opportunities and broader market applications as a result of our investments in technologies that decreased our lens production
costs and expanded our production capacity. We believe we can further improve upon our track record of growth – and do so far more profitably.
Our future capital requirements will depend on many factors including a decline in revenue or a lack of anticipated sales growth, increased material costs,
increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums,
and increases in other discretionary spending, particularly sales and marketing related. We will also continue efforts to keep costs under control as we seek
renewed sales growth. Our efforts are directed toward reaching positive cash flow and profitability. If these efforts are not successful, we will need to raise
additional capital. Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost control measures and
continued efforts to increase sales. These actions may include exploring strategic options for the sale of the Company, the sale of certain product lines, the
creation of joint ventures or strategic alliances under which we will pursue business opportunities, the creation of licensing arrangements with respect to our
technology, or other alternatives.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Cash Flows – Financings:
Net cash provided by financing activities was approximately $963,000 in fiscal 2015 compared to approximately $1.50 million in fiscal 2014. In fiscal 2014, we
received approximately $1.5 million in the exercise of warrants, net of costs. In connection with the exercise of warrants during fiscal 2014, we issued 1,136,143
shares of Class A common stock. The exercise prices ranged from $0.87 to $1.89 per share of Class A common stock.
On January 20, 2015, we closed a sale of our securities in accordance with that certain Securities Purchase Agreement with Pudong Science & Technology
Investment (Cayman) Co., Ltd. (“Pudong Investment”), as previously disclosed in our Current Report on Form 8-K filed on April 16, 2014. Prior to the closing,
the Securities Purchase Agreement was amended (as amended, the “SPA”) and assigned by Pudong Science & Technology (Cayman) Co., Ltd. (“Pudong”) to
its affiliate, Pudong Investment.
In connection with the closing, we sold to Pudong Investment 930,790 shares of Class A common stock at a price of $1.40 per share, which was adjusted from
the initial per share purchase price of $1.62 pursuant to the terms of the SPA. We received gross cash proceeds from the issuance of the Class A common
stock in the amount of approximately $1,303,000. The costs associated with this equity raise were approximately $181,000, leaving net proceeds of
approximately $1,122,000. We used the sale proceeds to provide working capital in support of our continued growth, particularly new product development, sales
and marketing of our infrared product line, and capital expenditures related to the acquisition of new equipment.
Immediately following the issuance of the shares of Class A common stock pursuant to the SPA, Pudong Investment beneficially owned 14.9% of our
outstanding shares of Class A common Stock.
The shares of Class A common stock issued were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”). The shares
of Class A common stock are restricted securities that have not been registered under the Act and may not be offered or sold absent registration or applicable
exemption from the registration requirements.
Cash Flows – Operating and Investing:
Cash flow provided by operations was approximately $179,000 for the year ended June 30, 2015, an increase of approximately $268,000 from fiscal 2014. Our
cash flow provided by operations was approximately $747,000 for the fourth quarter of fiscal 2015, compared to cash flow provided by operations of
approximately $39,000 for the fourth quarter of fiscal 2014. Our fiscal 2016 operating plan and related financial projections anticipate improvement in our cash
flows provided by operations in future years due to sales growth and continued margin improvements based on production efficiencies and reductions in product
costs, offset by marginal increases in selling, administrative, and new product development expenditures. For example, we expect lower operating costs as a
result of moving the majority of our manufacturing operations to LPOIZ’s Zhenjiang facility, and lower coating costs due to larger unit volumes and due to our
ability to coat the lenses in house rather than out-sourcing this service.
During fiscal 2015, we expended approximately $694,000 for capital equipment as compared to $1.36 million during fiscal 2014. In fiscal 2015, we initiated
capital leases in the amount of $524,000 for manufacturing equipment. The majority of our capital expenditures during both fiscal 2015 and fiscal 2014 were
related to the purchase of equipment used to enhance or expand our production capacity, tooling for our precision molded products, and equipment and facility
improvements for our new facility in Zhenjiang. We anticipate an increase in capital expenditures during fiscal 2016; however, the total amount expended will
depend on opportunities and circumstances.
License Agreement:
On April 28, 2015, we entered into a License Agreement with one of our specialty products customers (the “Customer”) whereby we granted an irrevocable
license of certain technology to be used by the Customer to manufacture fiber collimator assemblies. We will provide process work instructions, training and
inventory. Pursuant to the License Agreement, we will receive $200,000 in fees in consideration of our disclosure of the technology and the grant of a license to
the Customer to use the technology to manufacture specific fiber collimator assemblies used by the Customer. The license fees are due in two installments. The
first installment of $100,000 was received in May 2015 and the second installment of $100,000 was received in August 2015. The transaction will be accounted
for under the guidance of ASC 605-10, Revenue Recognition and will be recognized over the ninety-day training period which was completed in August 2015.
Pursuant to the License Agreement, the Customer also agreed to order and purchase from us a certain number of fiber collimator assemblies. We recognized
approximately $124,000 of revenue in fiscal 2015, with expenses of $18,000. The costs associated with this License Agreement are estimated to be
approximately $33,000.
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How We Operate
We have 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 of customer product development. In this latter type of business we work with customers to help
them determine optical specifications and even create certain optical designs for them, including complex multi-component designs that we call “engineered
assemblies.” This is followed by “sampling” small numbers of the product for the customers’ test and evaluation. Thereafter, should a 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. This annuity revenue stream can also generate low-cost, high-volume type orders. A key
business objective is to convert as much of our business to the design win and annuity model as is possible. We face several challenges in doing so:
• Maintaining an optical design and new product sampling capability, including a high-quality and responsive optical design engineering staff;
• The fact that as our customers take products of this nature into higher volume, commercial production (for example, in the case of molded optics, this may
be volumes over one million pieces per year) they begin to work seriously to reduce costs – which often leads them to turn to larger or overseas producers,
even if sacrificing quality; and
• Our small business mass means that we can only offer a moderate amount of total productive capacity before we reach financial constraints imposed by the
need to make additional capital expenditures – in other words, because of our limited cash resources and cash flow, we may not be able to service every
opportunity that presents itself in our markets without arranging for such additional capital expenditures.
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 to purchase their
entire 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 Performance Indicators
Usually on a weekly basis, management reviews a number of performance indicators. Some of these indicators 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 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 compete where desirable for price sensitive customer applications. The data
from these reports is used to determine tactical operating actions and changes. We believe that our non-financial production indicators, such as those noted, are
proprietary information.
The discussions of our results as presented in this Annual Report include use of the non-GAAP terms “EBITDA” and “gross margin.” EBITDA is discussed
below. Gross margin is determined by deducting the cost of sales from operating revenue. Cost of sales includes manufacturing direct and indirect labor,
materials, services, fixed costs for rent, utilities and depreciation, and variable overhead. Gross margin should not be considered an alternative to operating
income or net income, which are determined in accordance with GAAP. We believe that gross margin, although a non-GAAP financial measure, is useful and
meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates our cost structure and provides
funds for our total costs and expenses. We use gross margin in measuring the performance of our business and have historically analyzed and reported gross
margin information publicly. Other companies may calculate gross margin in a different manner.
Financial indicators that are usually reviewed at the same time include the major elements of the micro-level business cycle:
• sales backlog;
• revenue dollars and units by product group;
• EBITDA;
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• inventory levels; and
• accounts receivable levels and quality.
These indicators are similarly used to determine tactical operating actions and changes and are discussed in more detail below.
Sales Backlog:
Sales growth has been and continues to 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 “12-month 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. Generally, a higher 12-month backlog is better for us.
Momentum in bookings during fiscal 2015 was strong, which we believe bodes well for revenue growth in future periods. Our 12-month backlog at June 30, 2015
was approximately $6.49 million compared to $4.28 million as of June 30, 2014. Backlog growth rates for fiscal 2015 and 2014 are:
Quarter
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Backlog
($ 000)
Change From
Prior Year End
$
$
$
$
$
$
$
$
4,423
5,156
4,690
4,275
5,340
5,592
6,153
6,493
7%
24%
13%
3%
25%
31%
44%
52%
Change From
Prior Quarter End
7%
17%
-9%
-9%
25%
5%
10%
6%
Our order intake remained strong in the second half of fiscal 2015 with solid bookings across all of the major markets we serve with the exception of the
industrial tool business in China. During the third quarter of fiscal 2015, bookings for our specialty products, which included an order of fiber collimators
assemblies from the Customer, was approximately $1 million. We also had continued improvement in our infrared product group, with an 80% increase in
infrared product bookings during fiscal 2015 compared to fiscal 2014. Because of our product diversification, the continued weakness of the China industrial tool
market, which is impacting our HVPMO product group, did not significantly impact our 12-month backlog. Bookings for HVPMO lenses during fiscal 2015
decreased by 5% compared to fiscal 2014.
We have been able to diversify our business by developing new applications for our products in markets such as digital imaging, laser tools, telecommunications,
digital projectors, industrial equipment, weapon sights, and green lasers. Examples of these new applications are: 2D scanning, fiber laser delivery systems,
disposable medical instruments and infrared sensor applications. Based on recent quote activity, we expect to show increases in revenue of our LVPMOs,
HVPMOs, specialty products and infrared products for fiscal 2016.
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Revenue Dollars and Units by Product Group:
The following table sets forth revenue dollars and units by our five product groups for the three and twelve month periods ended June 30, 2015 and 2014:
Revenue
Units
LVPMO
HVPMO
Infrared Products
Speciality Products
NRE
LVPMO
HVPMO
Infrared Products
Speciality Products
NRE
(unaudited)
Three months ended
June 30,
Twelve months ended
June 30,
2015
1,807,282
853,328
417,174
1,281,423
147,341
4,506,548
2014
1,616,175
712,097
151,075
602,696
28,900
3,110,943
2015
6,495,943
2,535,199
1,193,035
3,165,804
271,589
13,661,570
2014
5,867,177
3,242,474
437,982
2,067,944
218,538
11,834,115
81,054
303,004
9,226
60,844
9
454,137
58,855
380,909
1,934
69,265
24
510,987
280,438
1,216,310
22,761
189,310
75
1,708,894
203,009
1,883,117
3,630
127,964
45
2,217,765
Overall, our global diversification strategies have resulted in revenue increasing 45% in the fourth quarter of fiscal 2015 as compared to the same period in the
prior year, and 15% for fiscal 2015 as compared to the same period in the prior year, with growth in shipments for the LVPMO, infrared, and specialty products
groups.
There was a 38% increase in the unit shipment volume of LVPMO lenses in fiscal 2015 compared to the same period of the prior fiscal year, which offset the
decrease in revenue derived from our HVPMO lenses. Revenue from our HVPMO product group is typically derived from the industrial tool market in China,
which has experienced six years of declining growth. This regional trend has been more than offset by increases in revenues from our other product groups.
We also had significant growth in the infrared product group. Our infrared product group revenue increased 176% in the fourth quarter of fiscal 2015 as
compared to the prior year period, and 172% in fiscal 2015 as compared to the prior year period, albeit from a small initial base. The increase in revenue is
primarily derived from sales to customers in the industrial market.
During the third quarter of fiscal 2015, our specialty products group booked a $1 million fiber collimator assemblies order by the Customer pursuant to the
Licensing Agreement.
EBITDA:
EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management, lenders, and certain investors as a supplemental measure in the
evaluation of some aspects of a corporation’s financial position and core operating performance. Investors sometimes use EBITDA as it allows for some level of
comparability of profitability trends between those businesses differing as to capital structure and capital intensity by removing the impacts of depreciation and
amortization. EBITDA also does not include changes in major working capital items such as receivables, inventory and payables, which can also indicate a
significant need for, or source of, cash. Since decisions regarding capital investment and financing and changes in working capital components can have a
significant impact on cash flow, EBITDA is not a good indicator of a business’s cash flows. We use EBITDA for evaluating the relative underlying performance of
our core operations and for planning purposes. We calculate EBITDA by adjusting net income (loss) to exclude net interest expense, income tax expense or
benefit, depreciation and amortization, thus the term “Earnings Before Interest, Taxes, Depreciation and Amortization” and the acronym “EBITDA.”
We also calculated an Adjusted EBITDA, which excludes the effect of the non-cash expense associated with the mark-to-market adjustments, related to our
June 2012 Warrants. We believe this Adjusted EBITDA is helpful for investors to better understand the financial results of our business operations.
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The following table sets forth EBITDA and Adjusted EBITDA for the three and twelve month periods ended June 30, 2015 and 2014:
(Unaudited)
Three months ended
June 30,
Year ended
June 30,
2015
2014
2015
2014
Net income (loss)
Depreciation and amortization
Interest expense
EBITDA - Non GAAP Measure
Change in fair value of warrant liability
Adjusted EBITDA - Non GAAP Measure
$
$
$
(367,234)
145,055
5,217
(216,962)
839,347
622,385
$
$
$
102,451
122,255
13,219
237,925
(278,183)
(40,258)
$
$
$
(715,280)
537,143
31,549
(146,588)
464,039
317,451
$
$
$
(313,249)
666,322
36,681
389,754
(93,520)
296,234
Our Adjusted EBITDA for the three months ended June 30, 2015 was approximately $622,000, compared to approximately ($40,000) for the three months
ended June 30, 2014. The difference in Adjusted EBITDA between periods was principally caused by a higher net loss recognized in the three months ended
June 30, 2015, offset by lower expense related to the change in the fair value of our warrant liability with respect to the June 2012 Warrants during the three
months ended June 30, 2015.
Our Adjusted EBITDA for the twelve months ended June 30, 2015 was approximately $317,000, compared to approximately $296,000 for the twelve months
ended June 30, 2014. The difference in Adjusted EBITDA between periods was principally caused by a higher net loss recognized in the twelve months ended
June 30, 2015, as well as lower depreciation, offset by higher expense related to the change in the fair value of our warrant liability with respect to the June
2012 Warrants during the twelve months ended June 30, 2015.
Inventory Levels:
We manage inventory levels to minimize investment in working capital but still have the flexibility to meet customer demand to a reasonable degree. We review
our inventory for obsolete items quarterly. 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. The table below shows our DCSI for the immediately preceding eight fiscal quarters:
Fiscal
Quarter
Q4-2015
Q3-2015
Q2-2015
Q1-2015
Fiscal 2015 average
Q4-2014
Q3-2014
Q2-2014
Q1-2014
Fiscal 2014 average
Ended
6/30/2015
3/31/2015
12/31/2014
9/30/2014
6/30/2014
3/31/2014
12/31/2013
9/30/2013
DCSI (days)
122
195
145
197
165
174
175
154
128
158
Our average DCSI for fiscal 2015 was 165, compared to 158 for fiscal 2014. The increase in DCSI from the prior fiscal year is primarily a result of the
reclassification in the second quarter of fiscal 2014 of tooling from fixed and prepaid assets to inventory. Previously, the majority of our tooling costs were
classified as property and equipment in the consolidated balance sheet. The periodic amortization of such costs was included in the pool of production overhead
costs, a portion of which was capitalized into inventory.
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Accounts Receivable Levels and Quality:
Similarly, we manage our accounts receivable 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 day’s worth of the quarter’s net revenues, also known as “days
sales outstanding,” or “DSO.” It is calculated by dividing the quarter’s 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. The table
below shows our DSO for the preceding eight fiscal quarters:
Fiscal
Quarter
Q4-2015
Q3-2015
Q2-2015
Q1-2015
Fiscal 2015 average
Q4-2014
Q3-2014
Q2-2014
Q1-2014
Fiscal 2014 average
Ended
6/30/2015
3/31/2015
12/31/2014
9/30/2014
6/30/2014
3/31/2014
12/31/2013
9/30/2013
DSO (days)
62
67
66
72
67
73
74
73
65
71
Our average DSO for fiscal 2015 was 67 compared to 71 for fiscal 2014. During the fourth quarter of fiscal 2015, 43% of our quarterly sales were shipped in the
third month of the quarter, as compared to 45% in the same period last year. This trend improved our DSO. Revenues generated by shipments during the third
month of a quarter are often not collected before the quarter ends, which can negatively impact our DSO. Also international sales, which are approximately one
half of our revenues, have a longer collection cycle. We plan to monitor our collections efforts to keep this key indicator as low as reasonably possible. We strive
to have DSO no higher than 65.
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 on time delivery trends, 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 compete where desirable for price sensitive customer applications. The data from these reports
is used to determine tactical operating actions and changes.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of income and expense during the reporting periods presented. Our critical estimates include the allowance for trade
receivables which is made up of reserves for bad debts, inventory reserves for obsolescence, revenue recognition, valuation of compensation expense on stock-
based awards and warrant valuation related to a private placement. Although we believe that these estimates are reasonable, actual results could differ from
those estimates given a change in conditions or assumptions that have been consistently applied.
Management has discussed the selection of critical accounting policies and estimates with our board of directors (the “Board”), and the Board has reviewed our
disclosure relating to critical accounting policies and estimates in this prospectus. The critical accounting policies used by management and the methodology for
its estimates and assumptions are as follows:
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Allowance for accounts receivable is calculated by taking 100% of the total of invoices that are over 90 days past due from due date and 10% of the total of
invoices that are over 60 days past due from the due date for U.S. based accounts and 100% on invoices that are over 120 days past due for China based
accounts without an agreed upon payment plan. Accounts receivable are customer obligations due under normal trade terms. We perform continuing credit
evaluations of our customers’ financial condition. Recovery of bad debt amounts which were previously written off is recorded as a reduction of bad debt expense
in the period the payment is collected. If our actual collection experience changes, revisions to our allowance may be required. After attempts to collect a
receivable have failed, the receivable is written off against the allowance.
Inventory obsolescence reserve is calculated by reserving 100% for items that have not been sold in two years or that have not been purchased in two years
or which we have more than a two year supply. These items as identified are reserved at 100%, as well as reserving 50% for other items deemed to be slow
moving within the last twelve months and reserving 25% for items deemed to have low material usage within the last six months. The parts identified are adjusted
for recent order and quote activity to determine the final inventory reserve.
Revenue is recognized from product sales when products are shipped to the customer, provided that we have 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 as completed in accordance with the terms of the agreements and upon shipment of products, reports or
designs to the customer. Invoiced amounts for value-added taxes (VAT) related to sales are posted to the balance sheet and not included in revenue.
Stock based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite
service period. We estimate the fair value of each stock option as of the date of grant using the Black-Scholes-Merton pricing model. Most options granted under
the Amended and Restated Omnibus Incentive Plan (the “Plan”) vest ratably over two to four years and generally have ten-year contract lives. The volatility rate
is based on four-year historical trends in common stock closing prices and the expected term was determined based primarily on historical experience of
previously outstanding options. The interest rate used is the U.S. Treasury interest rate for constant maturities. The likelihood of meeting targets for option grants
that are performance based are evaluated each quarter. If it is determined that meeting the targets is probable then the compensation expense will be amortized
over the remaining vesting period.
Management estimates. Management makes estimates and assumptions during the preparation of our 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.
Derivative financial instruments. We account for derivative instruments in accordance with ASC 815, which requires additional disclosures about our
objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for, and how the derivative
instruments and related hedging items affect the financial statements.
We do not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt instruments are reviewed to
determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract,
and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with
corresponding changes in fair value recorded in current period operating results.
Freestanding warrants issued by us in connection with the issuance or sale of debt and equity instruments are considered to be derivative instruments. Pursuant
to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to be classified as equity
or as a derivative liability.
Recent accounting pronouncements
There are several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not yet effective. Management does
not believe any of these accounting pronouncements will have a material impact on our financial position or operating results.
In July 2015, the FASB issued No. 2015-11, Inventory - Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 is additional guidance regarding
the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. This guidance is effective for fiscal
years and interim periods beginning after December 15, 2016. Early adoption is permitted. We do not expect the adoption of this guidance to have a material
impact on our consolidated financial position, results of operations or cash flows.
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In April 2015, the FASB issued ASU No. 2015-03, Interest -Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU
2015-03). The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts and the accounting for debt issue costs under the International Financial
Reporting Standards. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. Given the
absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU
2015-15, Interest -Imputation of Interest (Subtopic 835-30), which clarifies ASU 2015-03 by stating that the staff of the Securities and Exchange Commission
(“SEC”) would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs
ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU 2015-
03 is effective for the annual period ending after December 15, 2015, and interim periods within those fiscal years. Early adoption of the amendments in ASU
2015-03 is permitted for financial statements that have not been previously issued. We do not expect the adoption of this guidance will have a material impact on
our consolidated financial position, results of operations or cash flows.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which supersedes nearly
all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 provides
that an entity should apply a five-step approach for recognizing revenue, including (1) identifying the contract with a customer; (2) identifying the performance
obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5)
recognizing revenue when, or as, the entity satisfies a performance obligation. Also, the entity must provide various disclosures concerning the nature, amount
and timing of revenue and cash flows arising from contracts with customers. The effective date will be the first quarter of our fiscal year ending June 30, 2019,
using one of two retrospective application methods. We are currently analyzing the impact of this new accounting guidance.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is incorporated by reference to the consolidated financial statements and supplementary data set forth in “Item 15 -
Exhibits, Financial Statement Schedules” of Part IV of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
As previously disclosed by us in a Current Report on Form 8-K filed on August 5, 2015 with the SEC, on August 1, 2015, we were notified that effective August
1, 2015, the accounting practice of Cross, Fernandez & Riley LLP (“CFR”), our former independent public accountant, was combined with BDO USA, LLP
(“BDO”), and, as a result, CFR’s professional employees and partners joined BDO either as employees or partners. Accordingly, effective August 1, 2015, CFR
resigned as our auditors and with the approval of the Audit Committee, BDO was engaged as our independent public accountant for the year ended June 30,
2015, in connection with the audit of our financial statements, and the review of our quarterly reports for fiscal 2016.
Prior to engaging BDO, we did not consult with BDO regarding (a) the application of accounting principles to a specific completed or contemplated transaction or
regarding the type of audit opinions that might be rendered by BDO on our financial statements, and BDO did not provide any written or oral advice that was an
important factor considered by us in reaching a decision as to any such accounting, auditing, or financing reporting issue, or (b) a disagreement or reportable
event as described under Item 304(a)(2)(ii) of Regulation S-K.
The Report of Independent Registered Public Accounting Firm of CFR regarding our financial statements for the fiscal years ended June 30, 2014 and 2013 did
not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended June 30, 2104 and 2015, and during the interim period from the end of the most recently completed fiscal year through August 1, 2015,
the date of resignation, there were no (a) disagreements, as described under Item 304(a)(1)(iv) of Regulation S-K, with CFR on any matter of accounting
principles or disagreements, if not resolved to the satisfaction of CFR would have caused it to make reference to such disagreement in its reports, or (b)
reportable events, as described under Item 304(a)(1)(v) of Regulation S-K.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the fiscal year ended June 30, 2015, we carried out an evaluation, under the supervision and with the participation of members of our
management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Our CEO and our CFO have
concluded, based on their evaluation, that as of June 30, 2015, our disclosure controls and procedures were effective at the end of the fiscal year to provide
reasonable assurance that information required to be disclosed by us in the reports that we file or submit with the SEC under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management,
including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
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Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Internal control over financial reporting is a process, including policies and procedures, designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting
principles. Our management assessed our internal control over financial reporting based on the Internal Control—Integrated Framework (2013 Framework)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the results of this assessment, our management
concluded that our internal control over financial reporting was effective as of June 30, 2015 based on such criteria.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are
met under all potential conditions, regardless of how remote, and may not prevent or detect all errors and all fraud. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within LightPath have been
prevented or detected. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Auditor’s Report on Internal Control over Financial Reporting
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide
only management’s report in this Annual Report.
Changes in Internal Controls over Financial Reporting
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act,
we continue to review, test and improve the effectiveness of our internal controls. There have not been any changes in our internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter and since the year ended June 30, 2015 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance .
PART III
Each of our directors and officers serves until his or her successor is elected and qualified. The Class I directors’ term expires at the annual meeting of
stockholders proposed to be held in fiscal 2017. The Class II directors’ term expires at the annual meeting of stockholders proposed to be held in fiscal 2016.
The Class III directors’ term expires at the annual meeting of stockholders proposed to be held in fiscal 2018. The table below lists each director, each such
director’s committee memberships, the chairman of each Board committee, and each such director’s class.
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Name
Robert Ripp
J. James Gaynor
Sohail Khan
Steven Brueck
Louis Leeburg
M. Scott Faris
Xudong Zhu
Committee Chairman:
Audit
☒
☒
☒
Compensation
☒
Finance
☒
☒
☒
☒
☒
☒
Khan
Leeburg
Ripp
Class
I
I
II
II
III
II
III
The following is an overview of the biographical information for each of our directors and officers, including their age, the year they became directors or officers,
their principal occupations or employment for at least the past five years, and certain of their other directorships.
Class I Directors
Robert Ripp, 74
Director (Chairman of the Board)
J. James Gaynor, 64
President & Chief Executive Officer,
Director
Mr. Ripp has served as one of our directors since 1999 and as Chairman of the Board since November
1999. During portions of fiscal year 2002 he also served as our Interim President and Chief Executive Officer. Mr.
Ripp has previous management experience, including serving as AMP Incorporated’s Chairman and Chief
Executive Officer from August 1998 until April 1999 and as Vice President and Treasurer of IBM of Armonk, New
York from 1989 to 1993. Mr. Ripp graduated from Iona College and received a Masters of Business
Administration degree from New York University. Mr. Ripp is currently on the board of directors of Ace, Ltd., PPG
Industries, and Axiall Corporation, all of which are listed on the New York Stock Exchange. Mr. Ripp’s extensive
business, executive management, and financial expertise gained from various executive positions coupled with
his ability to provide leadership skills to access strategic plans, business operational performance, and potential
mergers and acquisitions, qualify him for service as one of our directors.
Mr. Gaynor has served as our President, Chief Executive Officer, and as a director since February 2008, and,
prior to that served as Interim Chief Executive Officer commencing in September 2007. From July 2006 to
September 2007, Mr. Gaynor previously served as our Corporate Vice President of Operations. Mr. Gaynor is
also a director of LPOI and LPOIZ. Mr. Gaynor is a mechanical engineer with over 25 years business and
manufacturing experience in volume component manufacturing in the electronics and optics industries. Prior to
joining us, Mr. Gaynor served as Director of Operations and Manufacturing for Puradyn Filter Technologies, the
Vice President of Operations and General Manager for JDS Uniphase Corporation’s Transmission Systems
Division and has also held various executive positions with Spectrum Control, Rockwell International, and Corning
Glass Works. Mr. Gaynor holds a Bachelor of Mechanical Engineering degree from the Georgia Institute of
Technology and has worked in the manufacturing industries since 1976. His experience includes various
engineering, manufacturing, and management positions in specialty glass, electronics, telecommunications
components, and mechanical assembly operations. His global business experience encompasses strategic
planning, budgets, capital investment, employee development, cost reduction programs with turnaround and
startup companies, acquisitions, and management. Mr. Gaynor has an in-depth knowledge of the optics industry
gained through over 25 years of working in various capacities in the industry and understands the engineering
aspects of our business, due to his engineering background. Mr. Gaynor’s experience and knowledge is
necessary to lead us and qualify him for service as one of our directors.
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Class II Directors
Sohail Khan, 61
Director
Dr. Steven Brueck, 71
Director
M. Scott Faris, 50
Director
Mr. Khan has served as one of our directors since February 2005. From September 2015, he serves as the
President and CEO of ViSX Systems Inc., a pioneer and leader in media processing semiconductor solutions for
video over IP streaming solutions. From May 2013 to July 2014, h e served a s t h e Chief Executive Officer of
Lilliputian Systems, a developer o f portable power products for consumer electronics. Since August 2011 has
served as the managing partner of K 5 Innovations, a technology consulting venture. He was the President and
Chief Executive Officer and a member o f t h e board of directors of SiGe Semiconductor (“SiGe”), a leader in
silicon based radio frequency front-end solutions from April 2007 until it was acquired by Skyworks Solutions Inc.
i n June 2011. Prior t o SiGe, Mr. Khan was Entrepreneur in Residence a n d Operating Partner o f Bessemer
Venture Partners, a venture capital group focused on technology investments. From 2007 to 2012, Mr. Khan
served on the board of directors for Gainspan Corporation. Mr. Khan received a Bachelor of Science in Electrical
Engineering from the University of Engineering and Technology in Pakistan. Additionally, he received a Masters
of Business Administration from the University o f California at Berkeley. Mr. Khan is currently on the board of
directors of Intersil Corporation, which is listed on the NASDAQ Global Select Market. Mr. Khan’s experience in
venture financing, specifically technology investments, is a n invaluable asset Mr. Khan contributes t o the Board
In addition, M r . Khan’s significant experience i n executive management, profit and loss
composition.
management, mergers and acquisitions, and capital raising, as well as his background in engineering qualifies
him for service as one of our directors.
Dr. Brueck has served as one of our directors since July 2001. He is a Distinguished Professor, Emeritus, of
Electrical and Computer Engineering and of Physics at the University of New Mexico in Albuquerque, New
Mexico, which he joined in 1985. Although he retired in 2014, he remains active as a University of New Mexico
Research Professor. From 1986 to 2013, he served as Director of the Center for High Technology Materials. He
is a graduate of Columbia University with a Bachelor of Science degree in Electrical Engineering and a graduate of
the Massachusetts Institute of Technology where he received his Masters of Science degree in Electrical
Engineering and Doctorate of Science degree in Electrical Engineering. Dr. Brueck is a fellow of The Optical
Society, the Institute of Electrical and Electronics Engineers, and the American Association for the Advancement
of Science. Dr. Brueck’s expertise in optics and optics applications, as well as his extensive forty years of
research experience in optics, lasers, detectors, lithography, nonlinear optics, and related fields qualify him for
service as one of our directors.
Mr. Faris has served as a director of the Company since December 2011. Mr. Faris is an experienced
entrepreneur with almost two decades of operating, venture-financing and commercialization experience, involving
more than 20 start-up and emerging-growth technology companies. In June 2013, Mr. Faris founded Aerosonix,
Inc. (formerly MicroVapor Devices, LLC), a privately held developer and manufacturer of advanced medical
devices, and served as its Chief Executive Officer. Mr. Faris also founded the Astralis Group, a strategy advisor
that provides consulting to start-up companies, in 2002 and, since 2004, Mr. Faris serves as its Chief Executive
Officer. In June 2007, Mr. Faris founded Planar Energy, a company that developed transformational ceramic solid
state battery technology and products, and served as its Chief Executive Officer until June 2012. Planar Energy is
a spin-out of the U.S. Department of Energy’s National Renewable Energy Laboratory. From October 2004 to
June 2007, Mr. Faris was a partner with Corporate IP Ventures (formerly known as MetaTech Ventures), an early
stage venture fund specializing in defense technologies. Mr. Faris also previously served as the Chairman and
Chief Executive Officer of Waveguide Solutions, a developer of planar optical light wave circuit and micro system
products. and as a director and Chief Operating Officer of Ocean Optics, Inc., a precision-optical-component and
fiber-optic-instrument spin-out of the University of South Florida. Mr. Faris was also the founder and Chief
Executive Officer of Enterprise Corporation, a technology accelerator, served as a director of the Florida Seed
Capital Fund and Technology Commercialization at the Center for Microelectronics Research, and the chairman of
the Metro Orlando EDC. Mr. Farris received a Bachelor of Science degree in Management Information Systems
from Penn State University in 1988. Mr. Faris is currently on the board of directors of MicroVapor Devices, LLC,
Spectra Health, Inc., and Open Photonics, Inc., all of which are private companies. Mr. Faris’s significant
experience in executive management positions at various optical component companies, his experience in the
commercialization of optical and opto-electronic component technology, and his background in optics, technology,
and venture capital qualify him for service as one of our directors.
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Class III Directors
Louis Leeburg, 61
Director
Xudong Zhu, 50
Director
Mr. Leeburg has served as one of our directors since May 1996. Mr. Leeburg is currently a self-employed
business consultant. Since 1993, Mr. Leeburg has served as the senior financial advisor of The Fetzer
Institute. and before that he served as the Vice President for Finance. Mr. Leeburg was an audit manager for
Price Waterhouse & Co. until 1980. He is a member of Financial Foundation Officers Group and the treasurer and
trustee for the John E. Fetzer Memorial Trust Fund. Mr. Leeburg received a Bachelor of Science degree in
Accounting from Arizona State University. Mr. Leeburg has a broad range of experience in accounting and
financial matters. His expertise gained in various roles in financial management and investment oversight for over
thirty years, coupled with his knowledge gained as a certified public accountant, add invaluable knowledge to our
Board and qualify him for service as one of our directors.
Dr. Zhu has served as one of our directors since April 2015. Dr. Zhu is the President of Pudong
Investment. Pudong Investment currently holds 14.9% of our outstanding common stock, including shares
purchased from us in a private placement. Dr. Zhu is also the President of Pudong, the parent of Pudong
Investment. Pudong is a Shanghai-based investment management company with a leading professional
management team, diversified business lines, strong financial position and rich strategic recourses. Although Dr.
Zhu’s appointment as one of our directors was not a contractual condition to Pudong Investment’s purchase of
shares of our common stock in the private placement, his appointment was discussed at the time of the private
placement. Dr. Zhu also serves as the Vice Chairman of Shanghai Association for Science and Technology in
which role he oversees its Productivity Promotion Centers, Science Information Center, and Science & Technology
Investment Corporation. Dr. Zhu currently serves as a director for Pudong, Montage Technology Global Holdings,
Ltd., Shanghai Puxin Investment Management Co., Ltd., and Shanghai Pudong Technology Venture Capital
Investment Co. Ltd. Previously, Dr. Zhu also severed as the Executive Director of Shanghai Pudong High-tech
Investment Co., Ltd. from October 2014 to June 2015, and Independent Director of Shanghai Shyndec
Pharmaceutical Co., Ltd. from May 2012 to April 2015. Dr. Zhu received a Doctor of Engineering degree in Traffic
Engineering from Tongji University. Dr. Zhu has a broad range of experience in financial matters and the high-tech
sector, coupled with his expertise gained in his roles with Pudong and Pudong Investment, add invaluable
experience and expertise to our Board and qualify him for service as one of our directors.
24
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Executive Officers Who Do Not Serve as Directors
Dorothy Cipolla, 59
Chief Financial Officer,
Secretary and Treasurer
Alan Symmons, 43
Executive Vice President of Operations
Ms. Cipolla has served as our Chief Financial Officer, Secretary, and Treasurer since February 2006. Ms. Cipolla
has also served as a director of LPOI since 2006 and LPOIZ since 2013. From March 2004 to February 2006,
Ms. Cipolla was Chief Financial Officer and Secretary of LaserSight Technologies, Inc. (“LaserSight”). Prior to
joining LaserSight, she served in various financial management positions. From 1994 to 1999, she was Chief
Financial Officer and Treasurer of Network Six, Inc., a NASDAQ-listed professional services firm. From 1999 to
2002, Ms. Cipolla was Vice President of Finance with Goliath Networks, Inc., a privately held network consulting
company. From 2002 to 2003, Ms. Cipolla was Department Controller of Alliant Energy Corporation, a regulated
utility. She received a Bachelor of Science degree in Accounting from Northeastern University and is a Certified
Public Accountant in Massachusetts.
Mr. Symmons has served as our Executive Vice President of Operations since February 2015. Previously, Mr.
Symmons served as our Vice President of Corporate Engineering beginning in September 2010 and our Director
of Engineering from October 2007 to September 2010. Prior to that, Mr. Symmons served as our Opto-
Mechanical Manager from October 2006 to October 2007. Prior to joining us, Mr. Symmons was Engineering
Manager for Aurora Optical, a subsidiary of Multi-Fineline Electronix (“MFLEX”), dedicated to the manufacture of
cell phone camera modules. From 2000 to 2006, Mr. Symmons worked for Applied Image Group – Optics
(“AIG/O”), a recognized leader in precision injection molded plastic optical components and assemblies, working
up to Engineering Manager. AIG/O was purchased by MFLEX in 2006. Prior to 2000, Mr. Symmons held
engineering positions at Ryobi N.A., SatCon Technologies, and General Dynamics. Mr. Symmons has a Bachelor
of Science degree in Mechanical Engineering from Rensselaer Polytechnic Institute and a Masters of Business
Administration degree from the Eller School of Management at the University of Arizona.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock
(referred to herein as the “Reporting Persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. To the best
of our knowledge, all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during the period
covered by this report. In making these statements, we have relied solely on our review of copies of the reports furnished to us, representations that no other
reports were required, and other knowledge relating to transactions involving Reporting Persons.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, including our principal executive officer, principal financial officer,
and principal accounting officer or controller, or persons performing similar functions. The text of our Code of Business Conduct and Ethics is available on our
website at www.lightpath.com or may be obtained free of charge by writing to: Secretary, LightPath Technologies, Inc., 2603 Challenger Tech CT, Suite 100,
Orlando, FL 32826.
Audit Committee and Audit Committee Financial Expert
The Audit Committee, which consists of Dr. Steven Brueck, M. Scott Faris, and Louis Leeburg (Chairman), met four times during fiscal 2015. The meetings
included discussions with management and with our independent auditors to discuss our interim and annual financial statements and our annual report, and the
effectiveness of our financial and accounting functions and organization. The Audit Committee acts pursuant to a written charter adopted by the Board, a copy of
which is available on our website at www.lightpath.com. The Audit Committee’s responsibilities include, among others, direct responsibility for the engagement
and termination of our independent accountants, and overseeing the work of the accountants and determining the compensation for their engagement(s). The
Board has determined that the Audit Committee is comprised entirely of independent members as defined under applicable listing standards set out by the SEC
and the NCM. The Board has also determined that at least one member of the Audit Committee, Mr. Leeburg, is an “audit committee financial expert” as defined
by SEC rules and qualifies as independent in accordance with the NCM rules. Mr. Leeburg’s business experience that qualifies him to be determined an “audit
committee financial expert” is described above.
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Item 11. Executive Compensation.
Summary Compensation Table for Named Executive Officers
The following table sets forth certain compensation awarded to, earned by or paid to (i) our Chief Executive Officer and (ii) our two other most highly
compensated executive officers serving as executive officers at the end of fiscal 2015, which includes our Chief Financial Officer. We did not have any
individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer as of the end of fiscal 2015
Name and Position
(a)
J. James Gaynor
President & Chief Executive Officer
Dorothy M. Cipolla
Chief Financial Officer, Treasurer &
Secretary
Alan Symmons
Executive Vice President of Operations
Salary
($)
(c)
Fiscal
Year
(b)
2015 285,435 (2)
2014 279,038 (2)
2015 193,704 (3)
Option
Awards
($)**
(f)
100,998 (1)
38,430
45,249 (1)
2014 190,769 (3)
2015 189,954 (4)
2014 174,327 (4)
11,153
45,188 (1)
10,481
Non-Equity
Incentive Plan
Compensation (1)
($)
(g)
70,000 (1)
—
35,625 (1)
—
40,000 (1)
—
All Other
Compensation
($) *
(i)
Total
($)
(j)
— 456,433
— 317,468
— 274,578
— 201,922
— 275,142
— 184,808
Notes:
*
Other Compensation, as defined by SEC rules does not include the amounts that qualify under the applicable de minimis rule for all periods presented. The de
minimis rule does not require reporting of perquisites and other compensation that totals less than $10,000 in the aggregate. The nature of these compensatory
items include our contribution toward the premium costs for employee and dependent medical, life, and disability income insurances, benefits generally available
to our employees.
** For valuation assumptions on restricted stock units and stock option awards refer to note 8 to the Consolidated Financial Statements of this Annual Report on
Form 10-K for fiscal 2015. The disclosed amounts reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended
June 30, 2015 in accordance with FASB ASC Topic 718 and thus may include amounts from awards granted in and prior to fiscal 2015.
(1) Based on the achievement of certain criteria, the named executive officers partially earned their respective bonus awards for fiscal 2015. Pursuant to the
terms of the Plan, each named executive officer’s award is to be paid out 50% in cash and 50% in stock option awards, however; neither the cash portion nor
the stock option portion were paid in fiscal 2015. The Compensation Committee retains the discretion to adjust the portion of the award that will be paid in cash
and the portion that will be paid in stock options. In the event the Compensation Committee exercises its discretion to adjust the portion of the award that is paid
in cash and stock options, we will file a Form 8-K to disclose such adjustment.
(2) Mr. Gaynor’s base salary was 63% of his total compensation for fiscal 2015 and 88% of his total compensation for fiscal 2014.
(3) Ms. Cipolla’s base salary was 71% of her total compensation for fiscal 2015 and 94% of her total compensation for fiscal 2014.
(4) Mr. Symmon’s base salary was 69% of his total compensation for fiscal 2015 and 94% of his total compensation for fiscal 2014.
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Discussion of Summary Compensation Table of Named Executive Officers
The following is a discussion of the material information which we believe is necessary to understand the information disclosed in the foregoing Summary
Compensation Table.
Each named executive officer receives a base salary, and is eligible to earn an incentive bonus based on attaining certain goals, and long-term equity incentive
awards, which are designed to reward executive officers for achieving strategic milestones, as well as for retaining executive officers and other key employees.
Incentive Bonus Program. The fiscal 2015 incentive bonus program had two levels of participation: (i) the “level one” participants and (ii) the “level two”
participants. “Level one” participants were eligible to receive a maximum potential bonus equal to 100% of their base salary, with 50% of such bonus paid in cash
and the other 50% paid in stock option awards. “Level two” participants were eligible to receive a maximum potential bonus equal to 75% of their base salary,
with 50% of such bonus paid in cash and the other 50% paid in stock option awards. The Compensation Committee retains the discretion to adjust the
percentage of the award paid in cash and stock prior to payment. For fiscal 2015, the “level one” participant was Mr. Gaynor and the “level two” participants
were Ms. Cipolla and Mr. Symmons.
For fiscal 2015, the Compensation Committee set three performance goals tied to our revenues, gross margin and EBITDA. The maximum potential bonus
payout was based on the revenue performance goal, varying from a 25% potential bonus payment, if we had revenues equal to $12.2 million, to a 100%
potential bonus payment, if we had revenues equal to $13.5 million. Our revenue was approximately $13.7 million, and, therefore the revenue performance goal
was met at 100%. The actual amount of the bonus payout was determined by the achievement of certain gross margin and EBITDA performance goals, with
each performance goal tied to 50% of the bonus payout. The gross margin goal was 44% and the EBITDA goal was $950,000. We met the gross margin goal
but did not meet the EBITDA goal.
The goals set for fiscal 2014 incentive bonus plans were not met, and, accordingly, no bonus payments were made to the named executive officers. However,
the Compensation Committee awarded discretionary stock options to the named executive officers for fiscal 2014, which were granted under the Plan.
Additional details regarding the stock options granted to each named executive officer is set forth below.
J. James Gaynor
Stock Option Grants (1)
Grant
Date
Number
of Shares
Number of
Vested
Shares(3)
2/4/2010
11/3/2010
10/27/2011
10/25/2012
1/31/2013
10/31/2013
10/30/2014
50,000
25,000
40,000
40,000
13,000
50,000
50,000
50,000
25,000
40,000
20,000
6,500
12,500
—
Actual
Actual
Compensation Expense (2)
Projected
Projected
Projected
Projected
Fiscal 2014
$
10,363
8,388
6,992
4,752
1,355
6,580
—
38,430
Fiscal 2015
$
Fiscal 2016
$
Fiscal 2017
$
Fiscal 2018
$
Fiscal 2019
$
—
2,797
6,992
4,752
1,355
8,772
6,330
30,998
—
—
1,747
4,752
1,355
8,772
8,439
25,065
—
—
—
1,188
677
8,772
8,439
19,076
—
—
—
—
—
2,192
8,439
10,631
—
—
—
—
—
—
2,109
2,109
(1)
This table does not include the stock options award equal to $70,000 that Mr. Gaynor earned, but has not yet received, based on the achievement of
certain performance goals in fiscal 2015.
(2) Compensation expense for grants of stock options is recognized or epected to be recognized in accordance with ASC Topic 718, Stock Compensation.
(3)
The number of shares vested are as of June 30, 2015. One-fourth of the stock option shares vests on each of the first, second,third and fourth
anniversaries of the grant date.
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Dorothy Cipolla
Stock Option Grants (1)
Grant
Date
Number
of Shares
Number of
Vested Shares(3)
2/4/2010
11/3/2010
10/27/2011
10/25/2012
1/31/2013
10/31/2013
10/30/2014
10,000
9,000
12,500
13,000
4,000
15,000
15,000
10,000
9,375
6,250
6,500
2,000
3,750
—
Actual
Fiscal 2014
$
2,072
3,020
2,185
1,485
417
1,974
—
11,153
Actual
Fiscal 2015
$
Compensation Expense (2)
Projected
Fiscal 2016
$
Projected
Fiscal 2017
$
Projected
Fiscal 2018
$
Projected
Fiscal 2019
$
—
1,007
2,185
1,485
417
2,632
1,898
9,624
—
—
545
1,485
417
2,632
2,532
7,611
—
—
—
371
208
2,632
2,532
5,743
—
—
—
—
—
658
2,532
3,190
—
—
—
—
—
—
633
633
(1) This table does not include the stock options award equal to $35,625 that Ms. Cipolla earned, but has not yet received, based on the achievement of certain
performance goals in fiscal 2015.
(2) Compensation expense for grants of stock options is recognized or epected to be recognized in accordance with ASC Topic 718, Stock Compensation.
(3) The number of shares vested are as of June 30, 2015. One-fourth of the stock option shares vests on each of the first, second, third and fourth
anniversaries of the grant date.
Alan Symmons
Stock Option Grants (1)
Grant
Date
Number
of Shares
Number of
Vested
Shares(3)
2/4/2010
11/3/2010
10/27/2011
10/25/2012
1/31/2013
10/31/2013
10/30/2014
1/12/2015
10,000
7,000
12,500
12,500
4,000
15,000
15,000
10,000
10,000
7,000
12,500
6,250
2,000
3,750
—
—
Actual
Actual
Compensation Expense (2)
Projected
Projected
Projected
Projected
Fiscal 2014
$
2,072
2,348
2,185
1,485
417
1,974
—
—
10,481
Fiscal 2015
$
Fiscal 2016
$
Fiscal 2017
$
Fiscal 2018
$
—
784
2,185
1,485
417
2,632
1,898
787
10,188
—
—
545
1,485
417
2,632
2,532
1,572
9,183
—
—
—
371
208
2,632
2,532
1,572
7,315
—
—
—
—
—
658
2,532
1,569
4,759
Fiscal 2019
$
—
—
—
—
—
—
633
784
1,417
(1) This table does not include the stock options award equal to $37,500 that Mr. Symmons earned, but has not yet received, based on the achievement of
certain performance goals in fiscal 2015.
(2) Compensation expense for grants of stock options is recognized or epected to be recognized in accordance with ASC Topic 718, Stock Compensation.
(3) The number of shares vested are as of June 30, 2015. One-fourth of the stock option shares vests on each of the first, second, third and fourth
anniversaries of the grant date.
Potential Payments Upon Termination or Change-of-Control
Mr. Gaynor is our only named executive officer entitled to any payments upon termination. If Mr. Gaynor is terminated without cause, he is entitled to three
months’ paid COBRA benefits.
All of our named executive officers are entitled to certain payments in the event of a change-of-control. The following table sets forth the change-of-control
payments due to each of our named executive officers.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Executive Officer
J. James Gaynor (2)
Dorothy Cipolla (3)
Alan Symmons (3)
(1) A change-of-control is defined as any of the following transactions occurring:
·
The dissolution or liquidation of the Company,
Amount of Payment
Upon
A Change of Control (1)
560,000
$
47,500
$
50,000
$
· Our stockholders approve an agreement providing for a sale, lease or other disposition of all or substantially all of our assets and the transactions
·
·
·
contemplated by such agreement are consummated,
A merger or a consolidation in which we are not the surviving entity,
Any person acquires the beneficial ownership of securities of the Company representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of directors, and
The individuals who, prior to the transaction, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at lease fifty
percent (50%) of the Board, except that if the election of or nomination for election by the stockholders of any new director was approved by a vote of
at least fifty percent (50%) of the Incumbent Board, such new director shall be deemed to be a member of the Incumbent Board.
Notwithstanding the foregoing, a public offering of our common stock shall not be considered a change-of-control.
(2) Mr. Gaynor is entitled to twenty-four months’ compensation in the event of a change-of-control. Payments made pursuant to a change-of-control to
Mr. Gaynor would be paid in a lump sum and would only be paid out in the event Mr. Gaynor was no longer employed by us. All of Mr. Gaynor’s unvested
stock options immediately vest upon a change-of-control.
(3) Ms. Cipolla and Mr. Symmons are entitled to three months’ compensation in the event of a change-of-control. Payments made pursuant to a change-of-
control to Ms. Cipolla or Mr. Symmons would occur according to our normal payroll schedule and would only be paid out in the event they were no longer
employed by us.
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Outstanding Equity Awards at Fiscal Year-End
(a)
Name
J. James Gaynor (1)
Dorothy Cipolla (2)
Alan Symmons (3)
(b)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(c)
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(e)
Option
Exercise
Price ($)
15,000
20,000
15,000
30,000
50,000
25,000
30,000
20,000
6,500
12,500
—
15,000
20,000
10,000
10,000
9,000
9,375
6,250
2,000
3,750
—
5,000
5,000
10,000
7,000
9,375
6,250
2,000
3,750
—
—
— $
— $
— $
— $
— $
— $
10,000 $
20,000 $
6,500 $
37,500 $
50,000 $
— $
— $
— $
— $
— $
3,125 $
6,250 $
2,000 $
11,250 $
15,000 $
— $
— $
— $
— $
3,125 $
6,250 $
2,000 $
11,250 $
15,000 $
10,000 $
Vesting
Schedule
2 year cliff
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
2 year cliff
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
4 year cliff
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
25%/yr for 4 yrs
3.47
4.80
3.05
2.10
2.66
2.69
1.39
0.98
0.87
1.41
1.37
4.53
4.80
3.05
2.66
2.69
1.39
0.98
0.87
1.41
1.37
5.24
3.27
2.66
2.69
1.39
0.98
0.87
1.41
1.37
1.27
(f)
Option
Expiration
Date
7/24/2016
10/27/2016
11/6/2017
1/31/2018
2/4/2020
11/3/2020
10/27/2021
10/25/2022
1/31/2023
10/31/2023
10/30/2024
2/28/2016
10/27/2016
11/6/2017
2/4/2020
11/3/2020
10/27/2021
10/25/2022
1/31/2023
10/31/2023
10/30/2024
10/18/2016
12/3/2017
2/4/2020
11/3/2020
10/27/2021
10/25/2022
1/31/2023
10/31/2023
10/30/2024
1/12/2025
(1) This table does not include the stock options award equal to $70,000 that Mr. Gaynor earned, but has not yet received, based on the achievement of certain
performance goals in fiscal 2015.
(2) This table does not include the stock options award equal to $35,625 that Ms. Cipolla earned, but has not yet received, based on the achievement of certain
performance goals in fiscal 2015.
(3) This table does not include the stock options award equal to $37,500 that Mr. Symmons earned, but has not yet received, based on the achievement of
certain performance goals in fiscal 2015.
The stock options were issued pursuant to the Plan and have a ten year life. The options will terminate 90 days after termination of employment, or in the case of
termination due to death or permanent disability, the options will terminate one year after the date of termination.
30
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Director Compensation
Director Summary Compensation Table
The table below summarizes the compensation paid by us to non-employee directors for fiscal 2015.
Name(1)
(a)
Robert Ripp
Sohail Khan
Dr. Steven Brueck
Louis Leeburg
M. Scott Faris
Dr. Xudong Zhu
Fees Earned or
Paid in Cash
($)(2)
(b)
Stock
Awards
($)(3)
(c)
$
$
$
$
$
$
95,000 $
35,000 $
30,000 $
38,000 $
30,000 $
7,500 $
44,041 $
44,041 $
44,041 $
44,041 $
42,744 $
— $
Total
($)
(h)
139,041
79,041
74,041
82,041
72,744
7,500
(1) J. James Gaynor, our President and Chief Executive Officer during fiscal 2015, is not included in this table as he was an employee, and, thus, received no
compensation for his services as a director. The compensation received by Mr. Gaynor as an employee is disclosed in the Summary Compensation Table
on page 29.
(2) Total fees earned for fiscal 2015 includes all fees earned, including earned but unpaid fees. The amounts of unpaid fees for each director are as follows:
Mr. Ripp - $23,500, Mr. Leeburg - $9,500, Dr. Brueck - $7,500, Mr. Khan - $8,500, Mr. Faris - $0, and Dr. Zhu - $7,500.
(3) Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2015 in accordance with ASC Topic 718
and thus may include amounts from awards granted in and prior to fiscal 2015.
Discussion of the Summary Compensation Table of Directors
The following is a discussion of the material information which we believe is necessary to understand the information disclosed in the previous table. We use a
combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board. In setting director compensation,
we consider the significant amount of time that directors expend in fulfilling their duties as a director as well as the skill-level required by us of members of our
Board.
Cash Compensation Paid to Board Members
During fiscal 2015, directors received a monthly retainer of $2,500. There are no meeting attendance fees paid unless, by action of the Board, such fees are
deemed advisable due to a special project or other effort requiring extra-normal commitment of time and effort. Additionally, fees are paid to the Chairman of the
Board and Committee Chairmen for their responsibilities overseeing their respective functions. The following table sets forth the annual fees paid to each director
for fiscal 2015:
31
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Name
Robert Ripp
J. James Gaynor (1)
Sohail Khan
Steven Brueck
Louis Leeburg
M. Scott Faris
Xudong Zhu (2)
Chairman Fee
60,000
Committee
Chair Fee
4,000
4,000
8,000
Board Fee
30,000
—
30,000
30,000
30,000
37,500
7,500
(1) Mr. Gaynor did not receive any compensation for his service as a director because he is also an employee.
(2)
Dr. Zhu joined the Board in April 2015. Accordingly, Dr. Zhu was only entitled to Board fees for the fourth quarter of fiscal 2015.
Stock Option/Restricted Stock Program
All directors are eligible to receive equity incentives under the Plan, including stock options, restricted stock awards or units. In fiscal 2015, the following
directors received grants under the Plan:
Name of Director
Dr. Steven Brueck
Sohail Khan
Louis Leeburg
Robert Ripp
M. Scott Faris
Restricted Stock Units
Grant
Date
Fair Value
Price Per
Share
10/30/2014 $
10/30/2014 $
10/30/2014 $
10/30/2014 $
10/30/2014 $
1.37
1.37
1.37
1.37
1.37
Number of
Units
Granted
36,500
36,500
36,500
36,500
36,500
182,500
Additional details regarding the restricted stock units granted to each director, other than Mr. Gaynor and Dr. Zhu, is set forth below.
32
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Robert Ripp
Restricted Stock Unit
Grant
Date
11/3/2010
10/27/2011
1/31/2013
10/31/2013
10/30/2014
Number
of Shares
Number of
Vested Shares (2)
15,000
29,000
40,000
35,460
36,500
15,000
29,000
26,666
11,820
—
Actual
Fiscal 2014
$
4,487
13,437
11,533
12,519
—
41,976
Actual
Fiscal 2015
$
—
3,358
11,534
16,692
12,457
44,041
Compensation Expense (1)
Projected
Fiscal 2016
$
Projected
Fiscal 2017
$
Projected
Fiscal 2018
$
—
—
5,766
16,692
16,607
39,065
—
—
—
4,173
16,608
20,781
—
—
—
—
4,151
4,151
Positions: Chairman of the Board, Compensation Committee Chairman
Committees: Compensation Committee
(1) Compensation expense for grants of restricted stock units is recognized or expected to be recognized in accordance with ASC Topic 718, Stock
Compensation.
(2) The number of shares vested are as of June 30, 2015. One-third of the restricted stock unit shares vests on each of the first, second and third anniversaries
of the grant date.
Sohail Khan
Restricted Stock Unit
Grant
Date
11/3/2010
10/27/2011
1/31/2013
10/31/2013
10/30/2014
Number
of Shares
Number of
Vested Shares (2)
15,000
29,000
40,000
35,460
36,500
15,000
29,000
26,666
11,820
—
Actual
Fiscal 2014
$
4,487
13,437
11,533
12,519
—
41,976
Actual
Fiscal 2015
$
—
3,358
11,534
16,692
12,457
44,041
Compensation Expense (1)
Projected
Fiscal 2016
$
Projected
Fiscal 2017
$
Projected
Fiscal 2018
$
—
—
5,766
16,692
16,607
39,065
—
—
—
4,173
16,608
20,781
—
—
—
—
4,151
4,151
Positions: Finance Committee Chairman
Committees: Finance and Compensation Committees
(1) Compensation expense for grants of restricted stock units is recognized or expected to be recognized in accordance with ASC Topic 718, Stock
Compensation.
(2) The number of shares vested are as of June 30, 2015. One-third of the restricted stock unit shares vests on each of the first, second and third anniversaries
of the grant date.
33
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Dr. Steven Brueck
Restricted Stock Unit
Grant
Date
11/3/2010
10/27/2011
1/31/2013
10/31/2013
10/30/2014
Committees: Audit Committee
Number
of Shares
Number of
Vested Shares (2)
15,000
29,000
40,000
35,460
36,500
15,000
29,000
26,666
11,820
—
Actual
Fiscal 2014
$
4,487
13,437
11,533
12,519
—
41,976
Actual
Fiscal 2015
$
—
3,358
11,534
16,692
12,457
44,041
Compensation Expense (1)
Projected
Fiscal 2016
$
Projected
Fiscal 2017
$
Projected
Fiscal 2018
$
—
—
5,766
16,692
16,607
39,065
—
—
—
4,173
16,608
20,781
—
—
—
—
4,151
4,151
(1)
(2)
Compensation expense for grants of restricted stock units is recognized or expected to be recognized in accordance with ASC Topic 718, Stock
Compensation.
The number of shares vested are as of June 30, 2015. One-third of the restricted stock unit shares vests on each of the first, second and third
anniversaries of the grant date.
Louis Leeburg
Restricted Stock Unit
Grant
Date
11/3/2010
10/27/2011
1/31/2013
10/31/2013
10/30/2014
Number
of Shares
Number of
Vested Shares (2)
15,000
29,000
40,000
35,460
36,500
15,000
29,000
26,666
11,820
—
Actual
Fiscal 2014
$
4,487
13,437
11,533
12,519
—
41,976
Actual
Fiscal 2015
$
—
3,358
11,534
16,692
12,457
44,041
Compensation Expense (1)
Projected
Fiscal 2016
$
Projected
Fiscal 2017
$
Projected
Fiscal 2018
$
—
—
5,766
16,692
16,607
39,065
—
—
—
4,173
16,608
20,781
—
—
—
—
4,151
4,151
Positions: Audit Committee Chairman
Committees: Audit and Compensation Committees
(1) Compensation expense for grants of restricted stock units is recognized or expected to be recognized in accordance with ASC Topic 718, Stock
Compensation.
(2) The number of shares vested are as of June 30, 2015. One-third of the restricted stock unit shares vests on each of the first, second and third anniversaries
of the grant date.
34
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
M. Scott Faris
Restricted Stock Unit
Grant
Date
Number
of Shares
Number of
Vested Shares (2)
12/23/2011
1/31/2013
10/31/2013
10/30/2014
15,000
40,000
35,460
36,500
15,000
26,666
11,820
—
Committees: Audit and Finance Committees
Actual
Fiscal 2014
$
4,950
11,533
12,519
—
29,002
Actual
Fiscal 2015
$
2,061
11,534
16,692
12,457
42,744
Compensation Expense (1)
Projected
Fiscal 2016
$
Projected
Fiscal 2017
$
—
5,766
16,692
16,607
39,065
—
—
4,173
16,608
20,781
Projected
Fiscal 2018
$
—
—
—
4,151
4,151
(1)
(2)
Compensation expense for grants of restricted stock units is recognized or expected to be recognized in accordance with ASC Topic 718, Stock
Compensation.
The number of shares vested are as of June 30, 2015. One-third of the restricted stock unit shares vests on each of the first, second and third
anniversaries of the grant date.
Item 12. Security Ownership of Certain Beneficial Owners and Management .
Equity Compensation Plan Information
The following table sets forth as of June 30, 2015, the end of our most recent fiscal year, information regarding (i) all compensation plans previously approved by
our stockholders and (ii) all compensation plans not previously approved by our stockholders:
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Plan category
Equity Compensation Plans
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
3,915,625
—
Weighted average
exercise and grant
price of outstanding
options, warrants and
rights
$
1.21
—
Number of securities
remaining available
for future issuance
1,478,778
—
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of September 14, 2015, the number and percentage of outstanding shares of our Class A common stock, owned by: (i) each
director (which includes all nominees) at such date, (ii) each of the named executive officers named in the Summary Compensation Table for Executive Officers
in Item 11 above, (iii) our directors and named executive officers as a group, and (iv) each person known by us to be the beneficial owner of more than 5% of our
outstanding Class A common stock. The number of shares of Class A common stock outstanding as of September 14, 2015 was 15,239,775.
35
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The number of shares beneficially owned by each director, named executive officer and greater than 5% beneficial owner is determined under SEC rules, and the
information is not necessarily indicative of the beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares to which
the individual has the sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of August
31, 2015, through the exercise of any stock option or other right to purchase, such as a warrant. Unless otherwise indicated, each person has sole investment
and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. In certain instances, the number of
shares listed may include, in addition to shares owned directly, shares held by the spouse or children of the person, or by a trust or estate of which the person is
a trustee or an executor or in which the person may have a beneficial interest. The table that follows is based upon information supplied in a questionnaire
completed by each named executive officer and director and stockholders beneficially owning greater than 5% of our Class A common stock.
Class A Common Stock
Securities
Name and Address (1)
Robert Ripp, Director
Louis Leeburg, Director
Sohail Khan, Director
Dr. Steven Brueck, Director
M. Scott Faris, Director
Dr. Xudong Zhu
J. James Gaynor, President & CEO
Dorothy Cipolla, CFO, Secretary & Treasurer
Alan Symmons, Vice President of Engineering
All directors and named executive officers
currently holding office as a group (9
persons)
Restricted (2) Unrestricted Warrants Options
36,100
611,107
6,100
57,898
6,100
—
6,100
46,077
—
—
—
—
269,000
48,031
99,125
—
62,125
3,064
227,660
227,660
228,860
227,660
126,960
—
—
—
—
—
455
—
—
—
—
228
—
—
Berg & Berg Enterprises, LLC
Pudong Science and Technology Investment
(Cayman) Co., Ltd.
—
2,700,330
—
—
2,270,026
—
—
—
2,700,330 (12)
2,270,026 (13)
1,038,800
766,177
683
484,650
2,290,310
Amount of Shares of
Class A Common
Stock Beneficially
Owned
874,867 (3) (4)
292,113 (5)
234,960 (6)
279,837 (7)
126,960
— (8)
317,259 (9)
99,125 (10)
65,189 (11)
Percent
Owned
(%)
5.6%
1.9%
1.5%
1.8%
0.8%
0.0%
2.0%
*
*
13.7%
17.7%
14.9%
*Less than 1%
Notes:
(1) Except as otherwise noted, each of the parties listed above has sole voting and investment power over the securities listed. The address for all directors and
officers is “in care of” LightPath Technologies, Inc., 2603 Challenger Tech Court, Suite 100, Orlando, FL 32826. The address for Berg & Berg Enterprises, LLC,
as filed on a Schedule 13G filed February 14, 2008, is 10050 Bandley Drive, Cupertino, CA, 94014. The address for Pudong Science and Technology (Cayman)
Co. Ltd., as filed on a Schedule 13G filed August 15, 2013, is 13 Building, No. 439, Chunxiao Rd., Zhangjiang High-tech Park, Pudong, Shanghai 201203, PRC.
(2) Restricted stock units awarded to our directors vest over three years. All directors have elected to defer receipt of the vested shares until after they leave the
Board, either by reason of resignation, termination, or otherwise. Therefore, these vested shares remain unissued. All of the director’s unvested restricted stock
units will vest upon such director’s resignation or termination from the Board. The amounts of restricted stock set forth above reflects both vested and unvested
shares included in the restricted stock unit awards. The amounts of vested shares for each director, other than Mr. Gaynor or Dr. Zhu, are as follow: Mr. Ripp –
154,186, Mr. Leeburg – 154,186, Mr. Khan – 155,386, Dr. Brueck – 154,186 and Mr. Faris – 53,486.
(3) Does not include 7,812 shares of Class A common stock and warrants to purchase 15,000 shares of Class A common stock which are owned by trusts for Mr.
Ripp’s adult children and for which he disclaims beneficial ownership.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(4) Includes 36,100 shares of Class A common stock with respect to which Mr. Ripp has the right to acquire. Mr. Ripp holds options which are currently
exercisable for an aggregate of 36,100 shares of Class A common stock.
(5) Includes 6,555 shares of Class A common stock with respect to which Mr. Leeburg has the right to acquire. Mr. Leeburg holds warrants which are currently
exercisable for an aggregate of 455 shares of Class A common stock and options which are currently exercisable for an aggregate of 6,100 shares of Class A
common stock.
(6) Includes 6,100 shares of Class A common stock with respect to which Mr. Khan has the right to acquire. Specifically, Mr. Khan holds options which are
currently exercisable for an aggregate of 6,100 shares of Class A common stock.
(7) Includes 6,100 shares of Class A common stock with respect to which Dr. Brueck has the right to acquire. Dr. Brueck holds options which are currently
exercisable for an aggregate of 6,100 shares of Class A common stock.
(8) Does not include 2,270,026 shares of Class A common stock which are owned by Pudong Investment and for which he disclaims beneficial ownership.
(9) Includes 269,228 shares of Class A common stock with respect to which Mr. Gaynor has the right to acquire. Mr. Gaynor holds warrants which are currently
exercisable for an aggregate of 228 shares of Class A common stock and options which are currently exercisable for an aggregate of 269,000 shares of Class A
common stock. This amount does not include 79,000 shares of Class A common stock underlying options which remain unvested.
(10) Includes 99,125 shares of Class A common stock with respect to which Ms. Cipolla has the right to acquire. Specifically, Ms. Cipolla holds options which are
currently exercisable for an aggregate of 99,125 shares of Class A common stock. This amount does not include 23,875 shares of Class A common stock
underlying options which remain unvested.
(11) Includes 62,125 shares of Class A common stock with respect to which Mr. Symmons has the right to acquire. Mr. Symmons holds options which are
currently exercisable for an aggregate of 62,125 shares of Class A common stock. This amount does not include 33,875 shares of Class A common stock
underlying options which remain unvested.
(12) Excludes 45,455 shares of Class A common stock with respect to which Berg & Berg Enterprises, LLC (“BBE”) may have the right to acquire in the future.
BBE holds warrants which would be exercisable for an aggregate of 45,455 shares of Class A common stock. However, neither BBE nor the Company is able to
effect any exercise of the warrants to the extent that after giving effect to such issuance after exercise BBE would beneficially own in excess of 4.99% of the
number of shares of Class A common stock outstanding immediately after giving effect to the issuance of shares issuable upon exercise warrants. Given that
BBE currently holds 17.7% of the issued and outstanding share of Class A common stock, the warrants cannot be exercised.
(13) Pudong Science and Technology Investment (Cayman) Co., Ltd. is wholly owned by Shanghai Pudong Science and Technology Investment Co., Ltd., and
for purposes hereof is also deemed as a beneficial owner of the shares.
There are no arrangements known to the Company which may at a subsequent date result in a change-in-control.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
When we are contemplating entering into any transaction in which any executive officer, director, nominee or any family member of the foregoing would have
any direct or indirect interest, regardless of the amount involved, the terms of such transaction have to be presented to the full Board (other than any interested
director) for approval. The Board has not adopted a written policy for related party transaction review but when presented with such transaction, the transaction
is discussed by the full Board and documented in the Board minutes.
We had only one related party transaction since July 1, 2014, which was the beginning of our last fiscal year. On January 20, 2015, we closed a sale of our
Class A common stock in accordance with the SPA. In connection with the closing, we sold to Pudong Investment 930,790 shares of Class A common stock at a
price of $1.40 per share, which was adjusted form the initial per share purchase price of $1.62 pursuant to the terms of the SPA. We received gross cash
proceeds from the issuance of the Class A common stock in the amount of approximately $1,303,000. Prior to closing, Pudong Investment was a stockholder
beneficially owning greater than 5% of our Class A common stock. Subsequent to the closing, Dr. Zhu, the president of Pudong Investment, was appointed as
one of our directors.
Director Independence
In accordance with NCM and SEC rules, the Board affirmatively determines the independence of each director and nominee for election as a director in
accordance with guidelines it has adopted, which include all elements of independence set forth in the NCM listing standards. Based on these standards, the
Board has determined that each of the following non-employee directors is independent and has no relationship with us, except as one of our directors and
stockholders.
Robert Ripp
M. Scott Faris
Louis Leeburg
Dr. Steven Brueck
Sohail Khan
Xudong Zhu
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
All of the members of the audit and compensation committees are also independent.
Item 14. Principal Accountant Fees and Services.
The following table presents fees paid or to be paid for professional audit services rendered by CFR and BDO for the audit of our annual financial statements
during the years ended June 30, 2015 and 2014, review of financial statements included in our quarterly reports during the years ended June 30, 2015 and
2014, and fees billed for other services rendered by CFR or BDO, as applicable:
Audit Fees (1)
Audit-Related Fees
Tax Fees
All Other Fees
Total All Fees
Fiscal 2015
CFR
BDO
Fiscal 2014
CFR
$
$
30,975
—
—
—
30,975
$
$
76,650
—
—
—
76,650
$
$
112,500
—
—
—
112,500
(1)
Audit Fees consisted of fees billed for professional services rendered for the audit of our annual financial statements and review of the interim financial
statements included in quarterly reports, and review of other documents filed with the SEC within those fiscal years.
The Audit Committee has adopted policies and procedures to oversee the external audit process including engagement letters, estimated fees and solely pre-
approving all permitted audit and non-audit work performed by CFR or BDO, as applicable. The Audit Committee has pre-approved all fees for audit and non-
audit work performed.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this Annual Report on Form 10-K:
(1) Financial Statements – See Index on page F-1 of this report
(b) The following exhibits are filed herewith as a part of this report
Exhibit
Number
Description
3.1.1
Certificate of Incorporation of Registrant, filed June 15, 1992 with the Secretary of State of Delaware
3.1.2
Certificate of Amendment to Certificate of Incorporation of Registrant, filed October 2, 1995 with the Secretary of State of Delaware
3.1.3
Certificate of Designations of Class A common stock and Class E-1 common stock, Class E-2 common stock, and Class E-3 common
stock of Registrant, filed November 9, 1995 with the Secretary of State of Delaware
3.1.4
Certificate of Designation of Series A Preferred Stock of Registrant, filed July 9, 1997 with the Secretary of State of Delaware
3.1.5
Certificate of Designation of Series B Stock of Registrant, filed October 2, 1997 with the Secretary of State of Delaware
3.1.6
Certificate of Amendment of Certificate of Incorporation of Registrant, filed November 12, 1997 with the Secretary of State of Delaware
3.1.7
Certificate of Designation of Series C Preferred Stock of Registrant, filed February 6, 1998 with the Secretary of State of Delaware
3.1.8
Certificate of Designation, Preferences and Rights of Series D Participating Preferred Stock of Registrant filed April 29, 1998 with the
Secretary of State of Delaware
38
Notes
1
1
1
2
3
3
4
5
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3.1.9
Certificate of Designation of Series F Preferred Stock of Registrant, filed November 2, 1999 with the Secretary of State of Delaware
3.1.10
Certificate of Amendment of Certificate of Incorporation of Registrant, filed February 28, 2003 with the Secretary of State of Delaware
3.2
4.1
4.2
10.
10.2
10.3
10.4
10.5
10.6
Amended and Restated Bylaws of Registrant
Rights Agreement dated May 1, 1998, between Registrant and Continental Stock Transfer & Trust Company
First Amendment to Rights Agreement dated as of February 28, 2008, between LightPath Technologies, Inc. and Continental Stock
Transfer & Trust Company
Amended and Restated Omnibus Incentive Plan dated October 15, 2002
Employee Letter Agreement dated June 12, 2008, between LightPath Technologies, Inc., and J. James Gaynor, its Chief Executive
Officer & President
Form of Common Stock Purchase Warrant dated as of April 8, 2010, issued by LightPath Technologies, Inc. to certain investors
LightPath Technologies, Inc. Employee Stock Purchase Plan effective January 30, 2015
Form of Common Stock Purchase Warrant dated as of June 11, 2012, issued by LightPath Technologies, Inc. to certain investors
Amended and Restated Loan and Security Agreement dated as of December 23, 2014 between LightPath Technologies, Inc. and
Avidbank Corporate Finance, a division of Avidbank
10.7
Securities Purchase Agreement dated April 15, 2014 between LightPath Technologies, Inc. and Pudong Science & Technology
(Cayman) Co., Ltd.
10.8
Amendment and Assignment of Securities Purchase Agreement dated September 25, 2014 between LightPath Technologies, Inc,
Pudong Science & Technology (Cayman) Co., Ltd. and Pudong Science & Technology Investment (Cayman) Co., Ltd.
10.9
14.1
21.1
23.1
23.2
24
31.1
31.2
32.1
32.2
Sixth Amendment to Lease dated as of July 2, 2014 between LightPath Technologies, Inc. and Challenger Discovery LLC
Code of Ethics
Subsidiaries of the Registrant
Consent of Cross, Fernandez & Riley, LLP
Consent of BDO USA, LLP
Power of Attorney
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code
39
6
7
19
5
10
8
9
11
12
13
14
15
18
16
17
*
*
*
*
*
*
*
*
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*
*
*
*
*
*
Notes:
1. This exhibit was filed as an exhibit to our Registration Statement on Form SB-2 (File No: 33-80119) filed with the Securities and Exchange Commission on
December 7, 1995 and is incorporated herein by reference thereto.
2. This exhibit was filed as an exhibit to our annual report on Form 10-KSB40 filed with the Securities and Exchange Commission on September 11, 1997 and
is incorporated herein by reference thereto.
3. This exhibit was filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 1997 and is
incorporated herein by reference thereto.
4. This exhibit was filed as an exhibit to our Registration Statement on Form S-3 (File No. 333-47905) filed with the Securities and Exchange Commission on
March 13, 1998 and is incorporated herein by reference thereto.
5. This exhibit was filed as an exhibit to our Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 28, 1998 and is
incorporated herein by reference thereto.
6. This exhibit was filed as an exhibit to our Registration Statement on Form S-3 (File No: 333-94303) filed with the Securities and Exchange Commission on
January 10, 2000 and is incorporated herein by reference thereto.
7. This exhibit was filed as an exhibit to our Proxy Statement filed with the Securities and Exchange Commission on January 24, 2003 and is incorporated
herein by reference thereto.
8. The Amended and Restated Omnibus Incentive Plan, dated October 15, 2002 was filed as an exhibit to our Proxy Statement filed with the Securities and
Exchange Commission on September 12, 2002. Amendment No. 1, dated October 20, 2004 and Amendment No. 2, dated December 6, 2004, were filed as an
exhibit to our Registration Statement on Form S-8 (File No. 333-121389) filed with the Securities and Exchange Commission on December 17, 2004.
Amendment No. 3, dated November 1, 2007 and Amendment No. 4, dated January 1, 2009, were filed as an exhibit to our Proxy Statement filed with the
Securities and Exchange Commission on December 10, 2012. Amendment No. 5 dated January 1, 2013 was filed as an exhibit to our Registration Statement on
Form S-8 filed with the Securities and Exchange Commission on May 9, 2013. Amendment No. 6 dated January 29, 2015 was filed as an exhibit to our Proxy
Statement filed with the Securities and Exchange Commission on December 19, 2014.
9. This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 12, 2008, and is
incorporated herein by reference thereto.
10. This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 20, 2009, and is
incorporated herein by reference thereto.
40
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
11. This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 9, 2010, and is
incorporated herein by reference thereto.
12. This exhibit was filed as an Appendix A to our Proxy Statement (File No, 333-27548) filed with the Securities and Exchange Commission on December 19,
2014, and is incorporated herein by reference thereto.
13. This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on June 11, 2012, and is
incorporated herein by reference thereto.
14. This exhibit was filed as an exhibit to our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on February 5, 2015, and is
incorporated herein by reference thereto.
15. This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2014, and is
incorporated herein by reference thereto.
16. This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 8, 2014, and is
incorporated herein by reference thereto.
17. This exhibit was filed as an exhibit to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 16, 2009, and is
incorporated herein by reference thereto.
18. This exhibit was filed as an exhibit to our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 6, 2014, and is
incorporated herein by reference thereto.
19. This exhibit was filed as an exhibit to our Current Report on Form 8-K (File No: 000-27548) filed with the Securities and Exchange Commission on February
3, 2015 and is incorporated herein by reference thereto.
* filed herewith
41
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LightPath Technologies, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm – BDO USA, LLP
Report of Independent Registered Public Accounting Firm – Cross, Fernandez & Riley, LLP
Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 2015 and 2014
Consolidated Statements of Operations and Comprehensive Loss for the years ended June 30, 2015 and 2014
Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2015 and 2014
Consolidated Statements of Cash Flows for the years ended June 30, 2015 and 2014
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-4
F-5
F-6
F-7
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Board of Directors and Shareholders
LightPath Technologies, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheet of LightPath Technologies, Inc., and its subsidiaries (the “Company”) as of June 30, 2015, and
the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing our audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30,
2015, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ BDO USA, LLP
Orlando, Florida
September 22, 2015
F-2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Board of Directors and Shareholders
LightPath Technologies, Inc.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheet of LightPath Technologies, Inc., and its subsidiaries (the “Company”) as of June 30, 2014, and
the related consolidated statements of comprehensive loss, stockholders’ equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing our audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30,
2014, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Cross, Fernandez & Riley, LLP
Orlando, Florida
September 22, 2015
F-3
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Trade accounts receivable, net of allowance of $6,282 and $5,801
Inventories, net
Other receivables
Prepaid expenses and other assets
Total current assets
Property and equipment, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Accrued payroll and benefits
Loan payable, current portion
Capital lease obligation, current portion
Total current liabilities
Capital lease obligation, less current portion
Deferred rent
Warrant liability
Loan payable, less current portion
Total liabilities
Commitments and contingencies (Notes 12, 13 and 17)
Stockholders’ equity:
Preferred stock: Series D, $.01 par value, voting;
5,000,000 shares authorized; none issued and outstanding
Common stock: Class A, $.01 par value, voting;
40,000,000 shares authorized; 15,235,073 and 14,293,305
shares issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these consolidated statements.
F-4
June 30,
2015
June 30,
2014
$
$
$
1,643,920
3,048,754
3,181,377
253,880
244,075
8,372,006
4,275,552
66,964
12,714,522
1,551,885
84,039
842,506
51,585
166,454
2,696,469
310,260
512,679
1,195,470
—
4,714,878
1,197,080
2,472,876
3,322,983
199,976
298,203
7,491,118
3,173,905
27,737
10,692,760
1,809,532
124,582
477,623
54,982
6,196
2,472,915
6,270
76,490
731,431
109,963
3,397,069
—
—
152,351
213,222,950
50,680
(205,426,337)
7,999,644
12,714,522
$
142,933
211,812,134
51,681
(204,711,057)
7,295,691
10,692,760
$
$
$
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Statements of Comprehensive Loss
Product sales, net
Cost of sales
Gross margin
Operating expenses:
Selling, general and administrative
New product development
Amortization of intangibles
(Gain) Loss on disposal of equipment
Total costs and expenses
Operating loss
Other income (expense)
Interest expense
Interest expense - debt costs
Change in fair value of warrant liability
Other income
Net loss
Loss per share - basic and diluted
Number of shares used in per share calculation- basic and diluted
Foreign currency translation adjustment
Comprehensive loss
The accompanying notes are an integral part of these consolidated statements.
F-5
Year ended
2015
$
13,661,569
7,682,194
5,979,375
5,132,730
1,109,095
—
(1,482)
6,240,343
(260,968)
(18,279)
(13,270)
(464,039)
41,276
(715,280)
(0.05)
14,711,586
(1,001)
(716,281.00)
$
$
$
2014
11,834,116
6,444,699
5,389,417
4,514,413
1,215,472
35,397
550
5,765,832
(376,415)
(1,343)
(35,338)
93,520
6,327
(313,249)
(0.02)
14,002,093
(1,055)
(314,304.00)
$
$
$
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Statement of Stockholders' Equity
Years ended June 30, 2015 and 2014
Class A
Common
Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated Stockholders’
Total
Deficit
Balances at June 30, 2013
Issuance of common stock for:
Exercise of warrants, net of costs
Employee Stock Purchase Plan
Exercise of RSU or options
Reclassification of warrant liability upon exercise
Stock based compensation on stock options & RSU
Foreign currency translation adjustment
Net loss
Balances at June 30, 2014
Issuance of common stock for:
Employee Stock Purchase Plan
Private placement of common stock
Stock based compensation on stock options & RSU
Foreign currency translation adjustment
Net loss
Balances at June 30, 2015
12,958,239 $ 129,582 $ 209,645,126 $
52,736 $ (204,397,808)
1,136,142
7,764
191,160
11,362
77
1,912
—
—
—
—
—
—
1,527,699
7,336
(1,912)
277,070
356,815
—
—
14,293,305 $ 142,933 $ 211,812,134 $
—
—
—
—
—
(1,055)
—
—
—
—
—
—
—
(313,249)
51,681 $ (204,711,057)
Equity
5,429,636
1,539,061
7,413
—
277,070
356,815
(1,055)
(313,249)
7,295,691
10,978
930,790
—
—
—
110
9,308
—
—
—
13,120
1,112,746
284,950
—
—
15,235,073 $ 152,351 $ 213,222,950 $
—
—
—
(1,001)
—
13,230
—
1,122,054
—
284,950
—
(1,001)
—
(715,280)
(715,280)
50,680 $ (205,426,337) $ 7,999,644
The accompanying notes are an integral part of these consolidated statements.
F-6
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
Interest from amortization of debt costs
(Gain) Loss on disposal of property and equipment
Stock based compensation
Provision for doubtful accounts receivable
Change in fair value of warrant liability
Deferred rent
Changes in operating assets and liabilities:
Trade accounts receivables
Other receivables
Inventories
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Deferred revenue
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property and equipment
Cash flows from financing activities
Proceeds from sale of common stock, net of costs
Proceeds from sale of common stock from employee stock purchase plan
Proceeds from exercise of warrants, net of costs
Net borrowings (payments) on loan payable
Payments on capital lease obligations
Net cash provided by financing activities
Effect of exchange rate on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Interest paid in cash
Income taxes paid
Vesting of restricted stock units
Supplemental disclosure of non-cash investing & financing activities:
Landlord credits for leasehold improvements
Purchase of equipment through capital lease arrangements
Reclassification of tooling costs to inventory
Reclassification of warrant liability upon exercise
The accompanying notes are an integral part of these consolidated statements.
F-7
Year ended
June 30,
2015
2014
$
(715,280)
$
(313,249)
537,143
13,270
(1,482)
284,950
(15,745)
464,039
16,175
(560,133)
(53,904)
141,606
1,631
66,693
—
178,963
666,322
35,338
550
356,815
(8,864)
(93,520)
(143,726)
(337,105)
153,554
(1,106,514)
(91,407)
794,995
(1,966)
(88,777)
(693,634)
(1,982,313)
1,122,054
13,230
—
(113,360)
(59,412)
962,512
(1,001)
446,840
1,197,080
1,643,920
18,280
2,316
—
420,014
523,660
—
—
$
$
—
7,413
1,539,061
164,945
(7,409)
1,704,010
(1,055)
(368,135)
1,565,215
1,197,080
1,343
2,988
1,912
—
12,972
425,686
277,070
$
$
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
1. Organization and History
LightPath Technologies, Inc. (“LightPath”, the “Company”, “we”, “us” or “our”) was incorporated in Delaware in 1992. It was the successor to LightPath
Technologies Limited Partnership formed in 1989, and its predecessor, Integrated Solar Technologies Corporation formed in 1985. On April 14, 2000, the
Company acquired Horizon Photonics, Inc. (“Horizon”). On September 20, 2000, the Company acquired Geltech, Inc. (“Geltech”). The Company completed its
initial public offering (“IPO”) during fiscal 1996. In November 2005, we formed LightPath Optical Instrumentation (Shanghai) Co., Ltd (“LPOI”), a wholly-owned
subsidiary located in Jiading, People’s Republic of China. In December 2013, we formed LightPath Optical Instrumentation (Zhenjiang) Co., Ltd (“LPOIZ”), a
wholly-owned subsidiary located in Zhenjiang, Jiangsu Province, People’s Republic of China.
LightPath is a manufacturer and integrator of families of precision molded aspheric optics, high-performance fiber-optic collimator, GRADIUM glass lenses and
other optical materials used to produce products that manipulate light. LightPath designs, develops, manufactures and distributes optical components and
assemblies utilizing the latest optical processes and advanced manufacturing technologies. LightPath also performs research and development for optical
solutions for the traditional optics markets and communications markets. As used herein, the terms “LightPath,” the “Company,” “we,” “us” or “our,” refer to
LightPath individually or, as the context requires, collectively with its subsidiaries on a consolidated basis.
2. Summary of 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.
Allowance for accounts receivable, is calculated by taking 100% of the total of invoices that are over 90 days past due from the due date and 10% of the total
of invoices that are over 60 days past due from the due date for U.S. based accounts and 100% of invoices that are over 120 days past due for China based
accounts. Accounts receivable are customer obligations due under normal trade terms. The Company performs continuing credit evaluations of its customers’
financial condition. If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable
have failed, the receivable is written off against the allowance.
Inventories, which consist principally of raw materials, tooling, work-in-process and finished lenses, 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. Acquisition of goods from our vendors has a purchase
burden added to cover customs, shipping and handling costs. Fixed costs related to excess manufacturing capacity have been expensed. We look at the
following criteria for parts to consider for the inventory reserve: items that have not been sold in two years or that have not been purchased in two years or of
which we have more than a two-year supply. These items as identified are reserved at 100%, as well as reserving 50% for other items deemed to be slow
moving within the last twelve months and reserving 25% for items deemed to have low material usage within the last six months. The parts identified are adjusted
for recent order and quote activity to determine the final inventory reserve.
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
one to ten 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. Construction in process represents the accumulated costs of assets not yet placed in service and primarily relates to manufacturing equipment.
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 its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of
an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair
value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value
less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the
appropriate asset and liability sections of the balance sheet.
Deferred rent relates to certain of the Company’s operating leases containing predetermined fixed increases of the base rental rate during the lease term being
recognized as rental expense on a straight-line basis over the lease term, as well as applicable leasehold improvement incentives provided by the landlord. The
Company has recorded the difference between the amounts charged to operations and amounts payable under the leases as deferred rent in the accompanying
consolidated balance sheets.
F-8
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
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.
The Company has not recognized a liability for uncertain tax positions. A reconciliation of the beginning and ending amount of unrecognized tax benefits or
penalties has not been provided since there has been no unrecognized benefit or penalty. If there were an unrecognized tax benefit or penalty, the Company
would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
The Company files U.S. Federal income tax returns, and various states and foreign jurisdictions. The Company’s open tax years subject to examination by the
Internal Revenue Service and the Florida Department of Revenue generally remain open for three years from the date of filing.
Our cash, cash equivalents totaled $1.6 million at June 30, 2015. Of this amount, approximately 50% was held by our foreign subsidiaries in China. These
foreign funds were generated in China as a result of foreign earnings. Before any funds can be repatriated, the retained earnings in China must equal at least
150% of the registered capital. As of June 30, 2015, we have retained earnings of $1.9 million and we need to have $11.3 million before repatriation will be
allowed. We currently do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event that funds from
foreign operations are needed to fund operations in the United States, if United States taxes have not been previously provided on the related earnings, we
would provide for and pay additional United States taxes at the time we change our intention with regard to the reinvestment of those earnings.
Revenue is recognized from product sales when products are shipped to the customer, provided that the Company 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. Product
development agreements are generally short term in nature with revenue recognized upon shipment to the customer for products, reports or designs. Invoiced
amounts for sales for value-added taxes (“VAT”) are posted to the balance sheet and not included in revenue.
Value added tax is computed on the gross sales price on all sales of the Company’s products sold in the PRC. The VAT rates range up to 17%, depending on
the type of products sold. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or
acquiring its finished products. The Company recorded a VAT receivable net of payments in the accompanying financial statements.
New product development costs are expensed as incurred.
Stock-based compensation is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite
service period. We estimate the fair value of each restricted stock unit or stock option as of the date of grant using the Black-Scholes-Merton pricing model.
Most awards granted under our Amended and Restated Omnibus Incentive Plan (the “Plan”) vest ratably over two to four years and generally have four to ten-
year contract lives. The volatility rate is based on historical trends in common stock closing prices and the expected term was determined based primarily on
historical experience of previously outstanding awards. The interest rate used is the U.S. Treasury interest rate for constant maturities. The likelihood of meeting
targets for option grants that are performance based are evaluated each quarter. If it is determined that meeting the targets is probable then the compensation
expense will be amortized over the remaining vesting period.
Management estimates. 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 value of financial instruments. The Company accounts for financial instruments in accordance with ASC 820, which provides a framework for measuring
fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820 defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.
Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the
assumptions that market participants would use in pricing.
F-9
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2015.
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments which include cash,
receivables, accounts payable and accrued liabilities. Fair values were assumed to approximate carrying values for these financial instruments since they are
short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company’s loan
payable approximates its carrying value based upon current rates available to the Company.
The Company values its warrant liabilities based on open-form option pricing models which, based on the relevant inputs, render the fair value measurement at
Level 3. The Company bases its estimates of fair value for warrant liabilities on the amount it would pay a third-party market participant to transfer the liability
and incorporates inputs such as equity prices, historical and implied volatilities, dividend rates and prices of convertible securities issued by comparable
companies maximizing the use of observable inputs when available. See further discussion at Note 15.
The Company does not have any other financial or non-financial assets or liabilities that would be characterized as Level 2 or Level 3 instruments.
Derivative financial instruments. The Company accounts for derivative instruments in accordance with ASC 815, which requires additional disclosures about
the Company’s objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for, and how
the derivative instruments and related hedging items affect the financial statements.
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible debt instruments are
reviewed to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the
host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities, if any, is required to be revalued at each reporting date, with
corresponding changes in fair value recorded in current period operating results.
Freestanding warrants issued by the Company in connection with the issuance or sale of debt and equity instruments are considered to be derivative
instruments. Pursuant to ASC 815, an evaluation of specifically identified conditions is made to determine whether the fair value of warrants issued is required to
be classified as equity or as a derivative liability.
Comprehensive income (loss) of the Company is defined as the change in equity (net assets) of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners
and distributions to owners. Comprehensive income (loss) has two components, net income (loss) and other comprehensive income (loss), and is included on
the statement of operations and comprehensive income (loss). Our other comprehensive income (loss) consists of foreign currency translation adjustments made
for financial reporting purposes.
Business segments are required to be reported by the Company. As the Company only operates in principally one business segment, no additional reporting is
required.
Recent accounting pronouncements. There are new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) which are not
yet effective. Management does not believe any of these accounting pronouncements will have a material impact on the Company’s financial position or
operating results.
In July 2015, the FASB issued No. 2015-11, Inventory - Simplifying the Measurement of Inventory (ASU 2015-11). ASU 2015-11 provides additional guidance
regarding the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. This guidance is
effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of this
guidance will have a material impact on its consolidated financial position, results of operations or cash flows.
In April 2015, the FASB issued ASU No. 2015-03, Interest -Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU
2015-03). The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts and the accounting for debt issue costs under IFRS. The recognition and
measurement guidance for debt issuance costs are not affected by the amendments in ASU 2015-03. Given the absence of authoritative guidance within ASU
2015-03 for debt issuance costs related to line-of-credit arrangements, in August 2015, the FASB issued ASU 2015-15, Interest -Imputation of Interest (Subtopic
835-30), which clarifies ASU 2015-03 by stating that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and
subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any
outstanding borrowings on the line-of-credit arrangement. ASU 2015-03 is effective for the annual period ending after December 15, 2015, and interim periods
within those fiscal years. Early adoption of the amendments in ASU 2015-03 is permitted for financial statements that have not been previously issued. The
Company does not expect the adoption of this guidance will have a material impact on its consolidated financial position, results of operations or cash flows.
F-10
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which supersedes nearly
all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.
ASU 2014-09 provides that an entity should apply a five-step approach for recognizing revenue, including (1) identifying the contract with a customer; (2)
identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in
the contract; and (5) recognizing revenue when, or as, the entity satisfies a performance obligation. Also, the entity must provide various disclosures concerning
the nature, amount and timing of revenue and cash flows arising from contracts with customers. The effective date will be the first quarter of the Company’s
fiscal year ending June 30, 2019, using one of two retrospective application methods. The Company is currently analyzing the impact of this new accounting
guidance.
3. Inventories – net
The components of inventories include the following:
Raw materials
Work in process
Finished goods
Reserve for obsolescence
June 30, 2015
June 30, 2014
$
$
1,730,153
919,444
812,643
(280,863)
3,181,377
$
$
1,659,893
865,041
1,063,126
(265,077)
3,322,983
During fiscal 2015 and 2014, the Company evaluated all reserved items and disposed of $85,261 and $77,564, respectively, of inventory parts and wrote them
off against the reserve for obsolescence.
The value of tooling in raw materials was approximately $1.06 million at June 30, 2015 and approximately $913,000 at June 30, 2014.
F-11
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4. Property and Equipment – net
Property and equipment consist of the following:
Manufacturing equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Construction in progress
Total property and equipment
Less accumulated depreciation and amortization
Total property and equipment, net
Estimated
Life (Years)
5 - 10
3 - 5
5
5 - 7
June 30,
2015
June 30,
2014
$
$
5,796,912
327,920
105,402
1,711,018
886,624
8,827,876
4,552,325
4,275,551
$
$
5,255,571
299,314
101,953
864,378
665,977
7,187,193
4,013,288
3,173,905
During fiscal 2015, we extended our Orlando lease term and received a tenant improvement allowance from the landlord of $420,014. This allowance was used
to construct improvements and was recorded as leasehold improvements and deferred rent liability. It will be amortized over the new lease term.
5. Accounts Payable
The accounts payable balance includes $56,500 and $54,500 representing earned but unpaid board of directors’ fees as of June 30, 2015 and 2014,
respectively.
6. Stockholders’ Equity
Preferred stock—The Company’s preferred stock consists of the following:
Authorized 5,000,000 shares of Series D preferred stock, $.01 par value. The stockholders of Series D preferred stock are entitled to one vote for each
share held.
Common stock—The Company’s common stock consists of the following:
Authorized 40,000,000 shares of Class A common stock, $.01 par value. The stockholders of Class A common stock are entitled to one vote for each share
held.
Warrants — Warrants shares outstanding at June 30, 2015 equal 1,545,001 and include:
·
·
·
·
warrants to purchase up to 101,549 shares of Class A common stock at $2.48 per share at any time through October 8, 2015 issued in connection
with a private placement financing in fiscal 2010;
warrants to purchase up to 1,393,452 shares of Class A common stock at $1.26 per share at any time through December 11, 2017 issued in
connection with a private placement financing in fiscal 2012;
warrants to purchase up to 25,000 shares of Class A common stock at $1.03 per share at any time through December 29, 2015 issued in
connection with an investor relations contract in fiscal 2012; and
warrants to purchase up to 25,000 shares of Class A common stock at $0.95 per share at any time through April 30, 2016 issued in connection
with an investor relations contract in fiscal 2012.
During fiscal 2014, the Company received approximately $1,539,000 in net proceeds from the exercise of warrants. The Company issued 1,136,143 shares of
common stock in connection with these exercises. The exercise prices ranged from $0.87 to $1.89 per share of common stock.
F-12
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7. Income Taxes
Due to the Company’s losses from operations, no provision for income taxes during the years ended June 30, 2015 and 2014. The tax effects of temporary
differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows at June 30:
Deferred tax assets:
Net operating loss and credit carryforwards
Intangible assets
Capital loss and R&D credits
Research development expenses
Inventory
Accrued expenses and other
Gross deferred tax assets
Valuation allowance for deferred tax assets
Total deferred tax assets
Deferred tax liabilities:
Depreciation and other
Total deferred tax liabilities
Net deferred tax liability
2015
2014
$
$
$
33,279,000
6,000
1,500,000
657,000
135,000
306,000
35,883,000
(35,789,000)
94,000
(94,000)
(94,000)
—
$
33,098,000
75,000
1,454,000
639,000
128,000
—
35,394,000
(35,136,000)
258,000
(258,000)
(258,000)
—
The reconciliation of income tax attributable to operations computed at the United States federal statutory tax rates and the actual tax provision of zero results
primarily from the change in the valuation allowance.
In assessing the potential future recognition of deferred tax assets, management considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future
taxable income of approximately $88.4 million prior to the expiration of net operating loss carry-forwards from 2019 through 2035. Based on the level of historical
taxable income, management has provided for a valuation adjustment against the deferred tax assets of $35,789,000 at June 30, 2015, a decrease of
approximately $653,000 over June 30, 2014.
At June 30, 2015, in addition to net operating loss carry forwards, the Company also has research and development credit carry forwards of approximately
$1,500,000, of which $38,505 will expire in fiscal 2019. A portion of the net operating loss carry forwards may be subject to certain limitations of the Internal
Revenue Code Sections 382 and 383 which would restrict the annual utilization in future periods due principally to changes in ownership in prior periods.
The Company has net operating loss carry forwards in China of $622,000 which are expected to be used to offset profits or to expire in fiscal 2016. Subsequent
to the utilization or expiration of the net operating loss carry forwards, we will accrue income taxes. The Company’s Chinese subsidiaries are governed by the
Income Tax Law of the PRC concerning the privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income
reported in the statutory financial statements after appropriate tax adjustments.
F-13
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
8. Compensatory Equity Incentive Plan and Other Equity Incentives
Share-based payment arrangements — The Plan included several available forms of stock compensation of which incentive stock options, non-qualified stock
options and restricted stock units have been granted to date.
These plans are summarized below:
Equity Compensation Arrangement
Amended and Restated Omnibus Incentive Plan
Employee Stock Purchase Plan
Award Shares
Authorized
3,915,625
400,000
4,315,625
Award Shares
Outstanding
at June 30,
2015
1,797,783
—
1,797,783
Available for
Issuance
at June 30,
2015
1,478,778
400,000
1,878,778
The 2004 Employee Stock Purchase Plan (“ESPP”) permitted employees to purchase common stock through payroll deductions, not to exceed 15% of an
employee’s compensation, at a price not less than 85% of the market value of the stock on specified dates (June 30 and December 31). In no event could any
participant purchase more than $25,000 worth of shares of Class A common stock in any calendar year and an employee could purchase no more than 4,000
shares on any purchase date within an offering period of 12 months and 2,000 shares on any purchase date within an offering period of six months. The ESPP
expired on December 6, 2014, and was replaced by the LightPath Technologies, Inc. Employee Stock Purchase Plan (“2014 ESPP”), which was adopted by the
Company’s Board of Directors on October 30, 2014 and approved by the Company’s stockholders on January 29, 2015. The 2014 ESPP permits employees to
purchase common stock through payroll deductions, which may not exceed 15% of an employee’s compensation, at a price not less than 85% of the market
value of the stock on specified dates (June 30 and December 31). In no event can any participant purchase more than $25,000 worth of shares of Class A
common stock in any calendar year and an employee cannot purchase more than 8,000 shares on any purchase date within an offering period of 12 months and
4,000 shares on any purchase date within an offering period of six months. This discount of $1,356 and $755 for fiscal 2015 and 2014, respectively, is included
in the selling, general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.
Grant Date Fair Values and Underlying Assumptions; Contractual Terms— The Company estimates the fair value of each stock option as of the date of
grant. The Company uses the Black-Scholes-Merton pricing model. The ESPP or the 2014 ESPP fair value is the amount of the discount the employee obtains
at the date of the purchase transaction.
For stock options and restricted stock units (“RSUs”) granted in the years ended June 30, 2015 and 2014, the Company estimated the fair value of each stock
award as of the date of grant using the following assumptions:
Expected volatility
Weighted average expected volatility
Dividend yields
Risk-free interest rate
Expected term, in years
Year Ended
June 30, 2015
103% - 104%
103% - 104%
0%
Year Ended
June 30, 2014
105% - 123%
105% - 123%
0%
1.64% - 1.77%
1.60% - 2.81%
7.49
3 - 7
Most options granted under the Plan vest ratably over two to four years and are generally exercisable for ten years. The assumed forfeiture rates used in
calculating the fair value of options and restricted stock unit grants with both performance and service conditions were 20% for each of the years ended June 30,
2015 and 2014. The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures.
The interest rate used is the U.S. Treasury interest rate for constant maturities.
F-14
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Information Regarding Current Share Based Payment Awards— A summary of the activity for share-based payment awards in the years ended June 30,
2015 and 2014 is presented below:
Options Outstanding
June 30, 2013
Granted
Exercised
Cancelled
June 30, 2014
Granted
Exercised
Cancelled/Forfeited
June 30, 2015
Awards exercisable/
vested as of
June 30, 2015
Awards unexercisable/
unvested as of
June 30, 2015
Stock Options
Weighted
Average
Exercise
Price
(per share)
Weighted
Average
Remaining
Contract
Life (YRS)
Shares
585,009
$
83,000
—
(13,851)
654,158
103,000
—
(34,675)
722,483
$
$
$
$
2.38
1.41
—
2.40
2.25
1.35
—
3.06
2.08
Restricted
Stock Units (RSUs)
Weighted
Average
Remaining
Contract
Life (YRS)
1.1
2.3
—
—
0.9
2.3
—
—
0.9
Shares
834,700
212,760
(191,160)
—
856,300
219,000
—
—
5.9
9.4
—
—
5.5
9.4
—
2.9
5.3
1,075,300
497,983
$
2.44
3.9
671,430
—
224,500
722,483
$
1.29
8.5
403,870
1,075,300
0.9
The total intrinsic value of share options exercised for years ended June 30, 2014 and 2013 was $0.
The total intrinsic value of shares options outstanding and exercisable at both June 30, 2015 and 2014 was $86,000 and $22,000, respectively.
The total fair value of shares options vested during the years ended June 30, 2015 and 2014 was $92,000 and $122,000, respectively.
The total intrinsic value of RSUs exercised during the years ended June 30, 2015 and 2014 was $0 and $289,000, respectively.
The total intrinsic value of RSUs outstanding and exercisable at June 30, 2015 and 2014 was $1.18 million and $683,000, respectively.
The total fair value of RSUs vested during the years ended June 30, 2015 and 2014 was $200,000 and $334,000, respectively.
F-15
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
As of June 30, 2015 there was $462,548 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including
share options and restricted stock units) granted under the Plan. The cost expected to be recognized as follows:
Stock
Options
Restricted
Stock
Share/
Units
Year ended June 30, 2016
Year ended June 30, 2017
Year ended June 30, 2018
Year ended June 30, 2019
$
$
44,425
$
211,931
$
34,682
20,915
5,176
105,198
$
120,513
24,906
—
357,350
$
Total
256,356
155,195
45,821
5,176
462,548
The table above does not include shares under the Company’s 2014 ESPP, which has purchase settlement dates in the second and fourth fiscal quarters. The
Company’s 2014 ESPP is not administered with a look back option provision and, as a result, there is not a population of outstanding option grants during the
employee contribution period.
RSU awards vest immediately or from two to four years from the grant date.
The Company issues new shares of common stock upon the exercise of stock options. The following table is a summary of the number and weighted average
grant date fair values regarding our unexercisable/unvested awards as of June 30, 2015 and 2014 and changes during the two years then ended:
Unexercisable/unvested awards
Stock Options
Shares
RSU Shares
Total Shares
Weighted-Average
Grant Date Fair
Values
(per share)
June 30, 2013
Granted
Vested
Cancelled/Forfeited
June 30, 2014
Granted
Vested
Cancelled/Forfeited
June 30, 2015
183,250
83,000
(73,250)
—
193,000
103,000
(71,500)
—
224,500
371,670
212,760
(230,127)
—
354,303
219,000
(169,433)
—
403,870
554,920
295,760
(303,377)
—
547,303
322,000
(240,933)
—
628,370
$
$
$
$
$
$
$
1.57
1.36
1.36
—
1.18
1.30
1.28
—
1.10
Acceleration of Vesting—The Company does not generally accelerate the vesting of any stock options. Upon the death of one of the former members of the
Company’s Board of Directors in fiscal 2014, 75,460 of his RSUs vested on an accelerated basis.
F-16
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Financial Statement Effects and Presentation—The following table shows total stock-based compensation expense for the years ended June 30, 2015 and
2014 included in the Consolidated Statement of Operations and Comprehensive Loss:
Stock options
RSU
Total
The amounts above were included in:
General & administrative
Cost of sales
New product development
9. Earnings Per Share
Year ended
June 30,
2015
Year ended
June 30,
2014
$
$
$
$
53,583
231,367
284,950
273,379
158
11,413
284,950
$
$
$
$
68,113
288,702
356,815
346,119
—
10,696
356,815
Basic earnings per share is computed by dividing the weighted-average number of shares of Class A common stock outstanding, during each period presented.
Diluted earnings per share is computed similarly to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or
other obligations to issue shares of Class A common stock were exercised or converted into shares of Class A common stock. The computations for basic and
diluted earnings per share are described in the following table:
Net loss
Weighted average common shares outstanding:
Basic and diluted
Loss per common share:
Basic and diluted
Excluded from computation as effects are considered anti-dilutive:
Options to purchase common stock
Restricted stock units
Common stock warrants
F-17
$
$
Year ended
June 30,
2015
2014
(715,280)
$
(313,249)
14,711,586
14,002,093
(0.05)
$
(0.02)
703,721
1,002,700
1,916,671
3,623,092
654,158
856,300
2,127,230
3,637,688
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10. Defined Contribution Plan
The Company discontinued its profit sharing plan that permitted participants to make contributions by salary reduction pursuant to Section 401(k) of the Internal
Revenue Code of 1986, as amended, in January 2009. Effective January 1, 2009, the Company transferred all plan assets to the ADP Total Source 401(k) plan.
The ADP plan is a defined 401(k) contribution plan which all employees, over the age of 21, are eligible to participate in after three months of employment. The
Company matched 25% of the first 6% of employee contributions until February 27, 2009, when the match was eliminated. Currently, there are 23 employees
who are enrolled in this program. The 401(k) contribution plan is administered by a third party. Annual discretionary contributions, if any, are made by the
Company to match a portion of the funds employees contribute. The Company made no matching contributions during the fiscal years ended June 30, 2015 and
2014.
11. Lease Commitments
The Company has operating leases for office space. At June 30, 2015, the Company has a lease agreement for its manufacturing and office facility in Orlando,
Florida (the “Orlando Lease”). The Orlando Lease, which is for a seven-year original term with renewal options, expires April 2022 and expands our space to
25,847 square feet, including space added in July 2014. Minimum rental rates for the extension term were established based on annual increases of two and one
half percent starting in the third year of the extension period. Additionally, there are two 3-year extension options exercisable by the Company. The minimum
rental rates for such additional extension options will be determined at the time an option is exercised and will be based on a “fair market rental rate” as
determined in accordance with the sixth lease amendment.
The Company received $420,014 in a leasehold improvement allowance in fiscal 2015. This amount is included in the property and equipment and deferred rent
on the consolidated balance sheets. Amortization of leasehold improvements was $5,060 as of June 30, 2015.
As of June 30, 2015, the Company, through its wholly-owned subsidiary, LPOI, has a lease agreement for a manufacturing and office facility in Shanghai, China
(the “China Lease”). The China Lease, which was for a two year extension on the five-year original term, expires April 2016.
As of June 30, 2015, the Company, through its wholly-owned subsidiary, LPOIZ, has a lease agreement for a manufacturing and office facility in Zhenjiang,
China (the “Zhenjiang Lease”). The Zhenjiang Lease, which is for a five-year original term with renewal options, expires March 2019.
During fiscal 2014 and 2015, the Company entered into four capital lease agreements, with three to five year terms, for computer and manufacturing equipment,
which are included as part of Property and Equipment. Assets under capital lease include approximately $547,000 in computer equipment and software and
manufacturing equipment, with accumulated amortization of approximately $67,000 as of June 30, 2015. Amortization related to capital leases is included in
depreciation expense.
Rent expense totaled $581,679 and $440,576 during the years ended June 30, 2015 and 2014, respectively.
The approximate future minimum lease payments under capital and operating leases at June 30, 2015 were as follows:
Fiscal year ending June 30,
Capital Leases
Operating Lease
2016
2017
2018
2019
2020
2021 and beyond
Total minimum payments
Less imputed interest
Present value of minimum lease
payments included in capital lease
obligations
Less current portion
Non-current portion
$
$
$
$
169,322
169,322
167,335
39,001
6,825
—
551,804
(75,090)
476,714
166,454
310,260
F-18
341,000
357,000
372,000
372,000
357,000
676,000
2,475,000
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
In July 2014, we negotiated a new lease on our Orlando facility which increased our rental space from 22,000 square feet to 25,847 square feet, or by 20%, thus
reducing our rent expense by an estimated 25%. The term also was extended to April 2022. The future minimum lease payments above include this new lease.
12. Contingencies
The Company from time to time is involved in various legal actions arising in the normal course of business. Management, after reviewing with legal counsel all
of these actions and proceedings, believes that the aggregate losses, if any, will not have a material adverse effect on the Company’s financial position or results
of operations.
13. Foreign Operations
Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the balance sheet date, and revenues and expenses
are translated at average rates of exchange for the period. Gains or losses on the translation of the financial statements of a non-U.S. operation, where the
functional currency is other than the U.S. dollar, are reflected as a separate component of equity, which was a gain of $50,680 and $51,681 at June 30, 2015 and
2014, respectively. The Company as of June 30, 2015 had approximately $8,862,000 in assets and $7,305,000 in net assets located in China. The Company as
of June 30, 2014 had approximately $7,575,000 in assets and $6,280,000 in net assets located in China.
14. Significant Suppliers and Customers
We utilize a number of glass compositions for the manufacture of our molded glass aspheres and lens array products. We purchase glass from Hikari, Ohara,
CDGM and other suppliers.
Base optical materials, used in both GRADIUM and collimator products, are manufactured and supplied by a number of major optical and glass manufacturers.
Optical fiber and collimator housings are manufactured and supplied by a number of major manufacturers.
In fiscal 2015, sales to three customers comprised an aggregate of approximately 27% of our annual sales. The loss of any of these customers, or a significant
reduction in sales to any such customer, would adversely affect our revenues.
In fiscal 2014, sales to three customers comprised an aggregate of approximately 27% of our annual sales. The loss of any of these customers, or a significant
reduction in sales to any such customer, would adversely affect our revenues.
15. Derivative Financial Instruments (Warrant Liability)
On June 11, 2012, we executed a Securities Purchase Agreement with respect to a private placement of an aggregate of 1,943,852 shares of our Class A
common stock at $1.02 per share and warrants to purchase 1,457,892 shares of our common stock at an initial exercise price of $1.32 per share, which was
subsequently reduced to $1.26 (“June 2012 Warrants”). The June 2012 Warrants are exercisable for a period of five years beginning on December 11, 2012.
The Company accounted for the June 2012 Warrants issued to investors in accordance with ASC 815-10. ASC 815-10 provides guidance for determining
whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock. This applies to any freestanding financial instrument or
embedded feature that has all the characteristics of a derivative under ASC 815-10, including any freestanding financial instrument that is potentially settled in an
entity’s own stock.
Due to certain adjustments that may be made to the exercise price of the June 2012 Warrants if the Company issues or sell shares of its Class A common stock
at a price which is less than the then-current warrant exercise price, the June 2012 Warrants have been classified as a liability, as opposed to equity, in
accordance with ASC 815-10 as it was determined that the June 2012 Warrants were not indexed to the Company’s Class A common stock.
F-19
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The fair value of the outstanding June 2012 Warrants was re-measured on June 30, 2015 to reflect their fair market value at the end of the current reporting
period. The June 2012 Warrants will be re-measured at each subsequent financial reporting period until the warrants are exercise or expire. The change in fair
value of the June 2012 Warrants is recorded in the statement of operations and comprehensive loss and is estimated using the Lattice option-pricing model
using the following assumptions:
Inputs into Lattice model for warrants:
Equivalent volatility
Equivalent interest rate
Floor
Greater of estimated stock price or floor
Probability price < strike price
Fair value of call
Probability of fundamental transaction occuring
6//30/2015
81.02%
0.59%
1.1500
1.1500
59.90%
0.9970
5%
$
$
$
All warrants issued by the Company other than the above noted June 2012 Warrants are classified as equity.
The warrant liabilities are considered a recurring Level 3 fair value measurement, with a fair value of approximately $1.2 million at June 30, 2015.
The following table summarizes the activity of Level 3 financial instruments measured on a recurring basis for the year ended June 30, 2015:
Fair value, June 30, 2014
Exercise of common stock warrants
Change in fair value of warrant liability
Fair value, June 30, 2015
16. Loan Payable
6//30/2015
Warrant
Liability
731,431
—
464,039
1,195,470
$
$
On September 30, 2013, the Company entered into a Loan and Security Agreement (the “LSA”) with Avidbank Corporate Finance, a division of Avidbank
(“Avidbank”). Pursuant to the LSA, Avidbank would lend to the Company under a revolving credit facility an aggregate principal outstanding amount not to
exceed the lesser of (i) One Million Dollars ($1,000,000) (the “Revolving Line”) or (ii) an amount equal to eighty percent (80%) of eligible accounts, as determined
by Avidbank in accordance with the LSA. Amounts borrowed under the Revolving Line could have been repaid and re-borrowed at any time prior to December
30, 2014, at which time all amounts were immediately due and payable. The advances under the Revolving Line bore interest, on the outstanding daily balance,
at a per annum rate equal to one percent (1%) above the Prime Rate. Interest payments were due and payable on the last business day of each month.
Pursuant to the LSA, Avidbank also could make equipment advances to the Company, each in a minimum amount of $100,000, and in an aggregate principal
amount not to exceed One Million Dollars ($1,000,000). Equipment advances during any particular three month draw period were due and repayable in thirty-six
(36) equal monthly payments. All amounts due under outstanding equipment advances made during any particular draw period were due on the tenth (10th) day
following the end of such draw period, and in any event, no later than September 30, 2017. The equipment advances bore interest, on the outstanding daily
balance, at a per annum rate equal to one and half percent (1.5%) above the Prime Rate. Interest payments were due and payable on the tenth day of each
month so long as any equipment advance is outstanding.
As of December 23, 2014, approximately $142,000 was outstanding under the LSA as equipment advances and $280,000 was outstanding under the Revolving
Line, for a total of $422,000. The Company’s obligations under the LSA were secured by a first priority security interest (subject to permitted liens) in substantially
all of the assets of the Company. In addition, the Company’s wholly-owned subsidiary, Geltech, guaranteed the Company’s obligations under the LSA.
On December 23, 2014, the Company entered into an Amended and Restated Loan and Security Agreement (the “Amended LSA”) with Avidbank for an invoice-
based working capital revolving line of credit (the “Invoiced Based Line”). The Amended LSA amends and restates that certain LSA between the Company and
Avidbank dated September 30, 2013. Pursuant to the Amended LSA, Avidbank will, in its discretion, make loan advances to the Company up to a maximum
aggregate principal amount outstanding not to exceed the lesser of (i) One Million Dollars ($1,000,000) or (ii) eighty percent (80%) (the “Maximum Advance
Rate”) of the aggregate balance of the Company’s eligible accounts receivable, as determined by Avidbank in accordance with the Amended LSA.
F-20
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Avidbank may, in its discretion, elect to not make a requested advance, determine that certain accounts are not eligible accounts, change the Maximum Advance
Rate or apply a lower advance rate to particular accounts and terminate the Amended LSA. The outstanding balance due to Avidbank as of December 23, 2014,
in the amount of $422,000, was transferred from the LSA to the Invoiced Based Line of the Amended LSA. As of June 30, 2015, the principal outstanding on the
Invoiced Based Line was $51,585.
Amounts borrowed under the Invoiced Based Line may be repaid and re-borrowed at any time prior to December 23, 2015, at which time all amounts shall be
immediately due and payable. The advances under the Invoiced Based Line bear interest, on the outstanding daily balance, at a per annum rate equal to three
percent (3%) above the Prime Rate (6.25% at June 30, 2015). Interest payments are due and payable on the last business day of each month. Payments
received with respect to accounts upon which advances are made will be applied to the amounts outstanding under the Amended LSA.
The Company’s obligations under the Amended LSA are secured by a first priority security interest (subject to permitted liens) in cash, U.S. inventory and
accounts receivable. In addition, the Company’s wholly-owned subsidiary, Geltech, has guaranteed the Company’s obligations under the Amended LSA.
The Amended LSA contains customary covenants, including, but not limited to: (i) limitations on the disposition of property; (ii) limitations on changing the
Company’s business or permitting a change in control; (iii) limitations on additional indebtedness or encumbrances; (iv) restrictions on distributions; and (v)
limitations on certain investments.
Late payments are subject to a late fee equal to the lesser of five percent (5%) of the unpaid amount or the maximum amount permitted to be charged under
applicable law. Amounts outstanding during an event of default accrue interest at a rate of five percent (5%) above the interest rate applicable immediately prior
to the occurrence of the event of default. The Amended LSA contains other customary provisions with respect to events of default, expense reimbursement, and
confidentiality.
17. Pudong Private Placement
On January 20, 2015, the Company issued and sold securities to Pudong Science & Technology Investment (Cayman) Co. Ltd. (“Pudong Investment”) in
accordance with that certain Securities Purchase Agreement with Pudong Science & Technology (Cayman) Co., Ltd. (“Pudong”). Prior to the closing, the
Securities Purchase Agreement was amended (as amended, the “SPA”) and assigned by Pudong to its affiliate, Pudong Investment.
In connection with the closing, the Company sold to Pudong Investment 930,790 shares of Class A common stock at a price of $1.40 per share, which was
adjusted from the initial per share purchase price of $1.62 pursuant to the terms of the SPA. The Company received gross cash proceeds from the issuance of
the Class A common stock in the amount of approximately $1,303,000. The Company used the sale proceeds of the sale to provide working capital in support of
its continued growth, particularly new product development, sales and marketing of its infrared product line, and capital expenditures related to the acquisition of
new equipment.
Immediately following the issuance of the shares of Class A common stock pursuant to the SPA, Pudong Investment beneficially owned 14.9% of the
Company’s outstanding shares of Class A common Stock.
The shares of Class A common stock issued were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”). The shares
of Class A common stock are restricted securities that have not been registered under the Act and may not be offered or sold absent registration or applicable
exemption from the registration requirements.
18. Technology Transfer and License Agreement
On April 28, 2015, the Company entered into a Technology Transfer and License Agreement (“License Agreement”) with one of its specialty products customers
(the “Customer”) regarding the granting of an irrevocable license of certain technology, to be used by the Customer to manufacture specific fiber collimator
assemblies used by the Customer. The Company has agreed to provide process work instructions, training, inventory and access to intellectual property
specifically related to the manufacturing process of that Customer’s fiber collimator assemblies. Pursuant to the License Agreement, the Customer will pay to the
Company an aggregate of $200,000 in fees, in consideration of the Company’s disclosure of the technology and the grant of a license to the Customer to use
the technology to manufacture such fiber collimator assemblies. The first installment of $100,000 was received in May 2015 and the second installment of
$100,000 was received in August 2015. Pursuant to the License Agreement, the Customer also agreed to order and purchase from the Company a certain
number of fiber collimator assemblies. Costs associated with the License Agreement are estimated to be approximately $33,000. The License Agreement is
being recognized into revenue over the training period. Revenue of approximately $124,000, which includes the amortization of the license fee, was included in
product sales on the accompanying consolidated statement of operations and comprehensive loss for fiscal 2015. The remainder of the license fee will be
recognized as revenue during the first quarter of fiscal 2016.
End of Consolidated Financial Statements
F-21
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: September 22, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By:
/s/ J. James Gaynor
J. James Gaynor
President & Chief Executive Officer
LIGHTPATH TECHNOLOGIES, INC.
/s/ J. JAMES GAYNOR
J. James Gaynor,
President & Chief Executive Officer (Principal
Executive Officer)
/s/ ROBERT RIPP
Robert Ripp
Director (Chairman of the Board)
/s/ DR. STEVEN R. J. BRUECK
Dr. Steven R. J. Brueck
Director
/s/ M. SCOTT FARIS
M. Scott Faris
Director
September 22, 2015
September 22, 2015
September 22, 2015
September 22, 2015
/s/ DOROTHY M. CIPOLLA
Dorothy M. Cipolla,
Chief Financial Officer
(Principal Financial Officer)
/s/ SOHAIL KHAN
Sohail Khan
Director
/s/ LOUIS LEEBURG
Louis Leeburg
Director
/s/ XUDONG ZHU
Xudong Zhu
Director
S-1
September 22, 2015
September 22, 2015
September 22, 2015
September 22, 2015
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Lightpath Technologies, Inc. 10-K
Exhibit 21.1
Subsidiaries
GelTech Inc. Delaware Corporation
LightPath Optical Instrumentation (Shanghai) Co., Ltd People’s Republic of China
LightPath Optical Instrumentation (Zhenjiang) Co., Ltd People’s Republic of China
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Lightpath Technologies, Inc. 10-K
LightPath Technologies, Inc.
Orlando, Florida
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S8 (Nos. 333-23515, 333-23511, 333-41705, 333-92017, 333-
121389, 333-121385, 333-96083, 333-50976, 333-50974, 333-155044, 333-188482, 333-201871 and 333-201872) and Form S-3 (Nos. 333-113814, 333-
37443, 333-39641, 333-47905, 333-86185, 333-93179, 333-94303, 333-31014, 333-37622, 333-47992, 333-51474, 333-75528, 333-127053, 333-133772,
333-146550, 333-153743, 333-159603, 333-162342, 333-163416, 333-166633 and 333-182240) of LightPath Technologies, Inc. of our report dated September
4, 2014, relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated by reference in this Annual
Report on Form Form 10-K.
Cross, Fernandez & Riley, LLP
Orlando, Florida
September 4, 2014
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Lightpath Technologies, Inc. 10-K
Exhibit 23.2
Consent of Independent Registered Public Accounting Firm
LightPath Technologies, Inc.
Orlando, Florida
We hereby consent to the incorporation by reference in the Registration Statements on Form S8 (Nos. 333-23515, 333-23511, 333-41705, 333-92017, 333-
121389, 333-121385, 333-96083, 333-50976, 333-50974, 333-155044, 333-188482, 333-201871 and 333-201872) and Form S-3 (Nos. 333-113814, 333-
37443, 333-39641, 333-47905, 333-86185, 333-93179, 333-94303, 333-31014, 333-37622, 333-47992, 333-51474, 333-75528, 333-127053, 333-133772,
333-146550, 333-153743, 333-159603, 333-162342, 333-163416, 333-166633 and 333-182240) of LightPath Technologies, Inc. of our report dated September
22, 2015, relating to the consolidated financial statements, which appears in the Annual Report to Shareholders, which is incorporated by reference in this
Annual Report on Form Form 10-K.
BDO USA, LLP
Orlando, Florida
September 22, 2015
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Lightpath Technologies, Inc. 10-K
Exhibit 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that the undersigned constitutes and appoints J. James Gaynor and Dorothy Cipolla, and each of them, his true and lawful
attorneys’-in-fact and agents, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to sign the Annual
Report on Form 10-K for the fiscal year ended June 30, 2015, and any and all amendments thereto and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as
might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them, or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on this 20nd day of August 2015 by the following persons.
/s/ Robert Ripp
Robert Ripp
/s/ Sohail Khan
Sohail Khan
/s/ Steven Brueck
Steven Brueck
/s/ M. Scott Faris
M. Scott Faris
/s/ J. James Gaynor
J. James Gaynor
/s/ Xudong Zhu
Xudong Zhu
/s/ Louis Leeburg
Louis Leeburg
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC. 10-K
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, J. James Gaynor, certify that:
1. I have reviewed this annual report on Form 10-K of LightPath Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Dated: September 22, 2015
/s/ J. James Gaynor
J. James Gaynor
President and Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC. 10-K
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Dorothy M. Cipolla, certify that:
1. I have reviewed this annual report on Form 10-K of LightPath Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Dated: September 22, 2015
/s/ Dorothy M. Cipolla
Dorothy M. Cipolla
Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC. 10-K
Exhibit 32.1
Certifications of Chief Executive Officer
Pursuant to 1350 of Chapter 63 of Title 18 of the United States Code
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer of LightPath
Technologies, Inc. (the “Company”) does hereby certify, to the best of such officer’s knowledge, that:
1. The Annual Report on Form 10-K of the Company for the year ended June 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a)
or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 22, 2015
/s/ J. James Gaynor
J. James Gaynor
President and Chief Executive Officer
The certifications set forth above are being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be
deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any
filing under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature
that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to LightPath Technologies, Inc. and
will be retained by LightPath Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
LIGHTPATH TECHNOLOGIES, INC. 10-K
Exhibit 32.2
Certifications of Chief Financial Officer
Pursuant to 1350 of Chapter 63 of Title 18 of the United States Code
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Financial Officer of LightPath
Technologies, Inc. (the “Company”) does hereby certify, to the best of such officer’s knowledge, that:
1. The Annual Report on Form 10-K of the Company for the year ended June 30, 2015 (the “Report”) fully complies with the requirements of Section 13(a)
or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: September 22, 2015
/s/ Dorothy M. Cipolla
Dorothy M. Cipolla
Chief Financial Officer
The certifications set forth above are being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be
deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any
filing under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature
that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to LightPath Technologies, Inc. and
will be retained by LightPath Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.