lpth-10k_063013.htm


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-K
 

 
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended June 30, 2013

OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________
 
Commission file number 000-27548
 

 
LIGHTPATH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
 


DELAWARE
 
86-0708398
(State or other jurisdiction of incorporation or organization)
 
( I.R.S. Employer Identification No)
http://www.lightpath.com
   
2603 Challenger Tech Court, Suite 100
Orlando, Florida 32826
 
(407) 382-4003
(Address of principal executive offices, including zip code)
 
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
 
None
 
None
(Title of each class)
 
(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.
YES ¨    NO x
 
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 x
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES x    NO ¨
 
Indicate by check mark whether the registrant 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 x    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.  x

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 x

Indicate by check mark whether the registrant is a shell company, (as defined in Rule 12b-2 in the Exchange Act).     YES ¨   NO x.

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 NASDAQ Capital Market, and for the purpose of this computation only, on the assumption that all of the registrant’s directors and officers are affiliates as well as one party filing on Form SC 13-G) was approximately $8,810,858 as of December 31, 2012.

As of September 3, 2013, the number of shares of the registrant’s Class A Common Stock outstanding was 13,790,957.
 
 


 
 
LightPath Technologies, Inc.
Form 10-K

Table of Contents
 
 
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Index to Consolidated Financial Statements  
F-1
     
 
S-1
 
Certifications
See Exhibits
 
 
2

 
 
PART I

Item 1.    Business.

General

LightPath Technologies, Inc. (“LightPath”, the “Company”, “we”, “our”, or “us”) manufactures optical components and higher level assemblies including precision molded glass aspheric optics, isolators assemblies, proprietary high performance fiber-optic collimators, 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 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 with applications in firefighting, predictive maintenance, homeland security, surveillance, automotive and defense;
  
·
Collimators are assemblies that are used to straighten and make parallel diverging light as it exits a fiber, and are used in laser delivery applications like fiber lasers; 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 manufacturing subsidiary, located in Jiading, People’s Republic of China. The manufacturing operations are housed in a 16,000 square foot facility located in the Jiading Industrial Zone near Shanghai.  This plant increased our overall production capacity and enabled LightPath to compete for larger production volumes of optical components and assemblies, and strengthened our partnerships within the Asia/Pacific region.

We also believe the glass aspheres and infrared systems product markets provide significant growth opportunities over the next several years. We have targeted specific applications in each of these areas: laser tools, gun sights, biomedical instruments and telecommunication subsystems for the glass aspheres market; laser line generators, industrial tools, optical cutting/welding, scientific lasers, semiconductors metrology systems and telecommunication subsystems for the specialty optics market; and thermal imaging, security cameras, thermography, gas sensing and defense targeting and tracking for the infrared optics market.  Within the larger overall markets which are estimated to be in the multi-billions of dollars, we believe there is a market of approximately $450 million for our current products and capabilities.

Given these specific markets and applications, 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 by:

 
o
Continuing our penetration into high-volume applications by leveraging our low cost structure;

 
o
Introducing new value-added products;

 
o
Expanding our market presence by broadening our customer base and leveraging our Shanghai subsidiary to gain direct access to the Asian market;

 
o
Adding new products for industrial tools, laser based measurement tools and laser based gas sensing instruments;

 
o
Leveraging our expanded sales distribution channels worldwide; and

 
o
Expanding our offering of molded infrared lenses and assembly products which will enable future revenue growth.
 
 
3

 
 
Precision Molded Aspheric Lenses. Aspheric lenses are known for their optimal performance. LightPath’s glass molding technology has enabled the production of high volumes of aspheric optics while still maintaining the highest quality at an affordable price. Because molding is the most consistent and economical way to produce aspheres in large volumes, LightPath has perfected this method to offer the most precise aspheric lens available. We anticipate growth in our precision molded aspheres product revenues as we add new product lenses and applications for the industrial tool market, telecommunications and medical instruments. In addition, we see new growth opportunities in the area of commercial projectors using laser light boxes for illumination. These growth opportunities are well diversified and include laser tools, telecom transceivers, micro-projectors, scientific and bench top lasers, range finders, medical devices, bar code scanners and laser based spectrometers.

Infrared Molded Glass Aspheric Lenses & Assemblies. Advances in chalcogenide materials have enabled compression molding for mid- and long-wavelength infrared (MWIR & LWIR) optics in a process similar to precision molded lenses. LightPath’s 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 surface figure 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 the growth of 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 $20 billion at the complete systems level by 2014. As infrared imaging systems become widely available, the cost of optical components needs to decrease before the market demand will increase.  LightPath’s 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 Products & Assemblies.  LightPath has a group of products that take advantage of our unique technologies and capabilities. These include custom optical designs, mounted lenses, assemblies, isolator assemblies, collimators and GRADIUM lenses.

Collimators. We are specifically targeting and selling high power collimators in diverse markets such as fiber laser systems, Nd:YAG laser cutting and welding systems and communications systems. Our collimator products provide higher performance in back reflection and insertion loss and can withstand in excess of ten watts of optical power. Customers have passively tested our collimators to over 100 watts in the forward direction. The process to manufacture these collimators uses patented laser fusion technologies and robotics. These products may incorporate aspheric molded optics and GRADIUM lenses.

GRADIUM Lenses.  We developed GRADIUM glass as 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.

Optical Assemblies.  We produce optical assemblies based on our proprietary technologies. We design, build and sell optical assemblies into markets for test and measurement, medical devices, military, industrial and communications. Many of our assemblies consist of several products that LightPath manufactures.   The OASIS product line consists of an optical isolator that is aligned and mounted to a molded aspheric lens.  This product has been particularly well received in the communications market for its value in reducing assembly time and component count for the customer.

Sales and 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 (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.
 
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 fourteen industrial, laser, and optoelectronics distributors and channel partners located in the United States and foreign countries to assist in the distribution of our products in highly specific target markets and 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.
 
 
4

 
 
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 2013 and SPIE Defense, Security and Sensing in May 2013. 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 a Laser World of Photonics in Munich, Germany.  Such a strategy underscores LightPath’s strategic directive of broadening our base of innovative optical components and assemblies. These trade shows 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 that are available on the merchant market, 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 source of supply in the United States should they be unwilling to commit all of their source of supply of a critical component to a foreign production source. We also have a broad product offering in addition to the molded aspheric lenses with proprietary GRADIUM lens glass, collimators, infrared lenses and assembly technology.

Precision Molded Aspheric Lenses.  Manufacturers of conventional lenses and optical components include companies such Nikon, Olympus Optical Company, Carl Zeiss and Leica AG. Our products compete with products currently produced by these companies. In addition to being substantial producers of optical components, these companies are also some of the primary customers for such components, incorporating them into finished products for sale to end-users. Consequently, these competitors have significant control over certain markets for our products.

Aspheric lenses that improve the shortcomings of conventional lenses significantly compete with our molded glass aspheric lenses. 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, such as those manufactured by Anteryon, 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 Molded Glass Aspheric Lenses & Assemblies. LightPath’s 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 lenses can either be polished spherical or are diamond turned aspherical.  LightPath’s 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.  LightPath’s molded aspheric lenses compete with these technologies through our low cost, high volume lens business strategy.

Our molded infrared optics competes with products manufactured by Umicore. We believe that our optical design expertise and our flexibility in providing custom high performance infrared optical components are key advantages over Umicore.  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.
 
 
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GRADIUM.  GRADIUM lenses are a well-established technology that has successfully competed in the niche market for high power laser optics.  GRADIUM is derived from unique technology that no other manufacturer possesses to produce lenses in the high power laser optics market.  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.

Collimators.  LightPath’s collimator line focuses on high performance and high durability fiber optic systems for lasers and optical systems. There are currently only a handful of direct competitors for our collimators, such as Optoskand and Oz Optics. The key difference between our collimators and our competitors’ collimators is in our fiber fusion technology.  This fusion technology eliminates the air interface at the tip of a fiber providing a more robust, reliable construction than our competition.

Manufacturing

Facilities. Our manufacturing is performed in a 22,000 square foot production facility in Orlando, Florida and in a 16,000 square foot production facility in Shanghai. With space remaining in the Shanghai and Orlando facilities, we believe our facilities are adequate to accommodate our needs over the next year. However increased demand creates a need for additional space we are prepared to negotiate new leases in Orlando and Shanghai.  For example, since our unit growth plans indicate the need for additional production space in Shanghai, we have begun to review our options as our current Shanghai lease expires in April 2014. Both 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. Both facilities include new product development laboratories and space that includes development and metrology equipment. Our Shanghai 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 and the fabrication of proprietary press work stations and mold equipment. We also have glass coring equipment to meet our current needs of GRADIUM product sales worldwide. Our Orlando facility includes a clean room for our collimator assembly workstations.  The facility is also International Traffic in Arms and Regulation (ITAR) compliant.  LPOI’s Shanghai facility features a molded glass aspheres manufacturing area and clean room.  Both 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 will be crucial to our long-term success. In that regard, we have generally used 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. Optical fiber and collimator housings are manufactured and supplied by a number of 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.
 
 
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Issued patents owned or available to us may not afford adequate protection to us 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.

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, whether it is a service mark or trademark, whether it is registered or unregistered, if registered, the country in which the mark is filed, and the renewal date for such mark.
 
Mark
 
Type
 
Registered
 
Country
 
Renewal
Date
LightPath®
 
service mark
 
Yes
 
United States
 
November 10, 2014
GRADIUM
 
trademark
 
Yes
 
United States
 
February 5, 2017
Circulight
 
trademark
 
No
 
 
BLACK DIAMOND
 
trademark
 
No
 
 
GelTech
 
trademark
 
No
 
 
Oasis
 
trademark
 
No
 
 
 
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 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 that the complete optical systems receive government approval, 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.

New Product Development

For many years, we were engaged in basic research and development that resulted in the invention of GRADIUM glass and certain proprietary processes for fabricating GRADIUM glass lenses. Thereafter, new product development efforts were broadened or acquired that led to the development of our capabilities in molded aspheric lenses, infrared lenses, isolator assemblies and collimators. However, in recent years, including fiscal 2013, we conducted very limited basic research and development due to our cash conservation strategy. We incurred expenditures for new product development during fiscal years 2013 and 2012 of approximately $939,000 and $1.05 million, respectively. Our efforts in this area were concentrated on product development to support existing and new customers in the design and manufacture of items in two of our product lines: lenses and collimators. In fiscal 2013 our infrared product development efforts were in connection with part of the Raytheon purchase order and the costs associated with this product development were charged to cost of goods sold.

Our present new product development efforts are focused on infrared optics products for imaging and sensing, blue lens applications, fiber lasers, defense, medical devices, industrial, optical data storage, machine vision, sensors and environmental monitoring. We currently plan to expend approximately $1.24 million for new product development during fiscal 2014, which could vary depending upon revenue levels, customer requirements and perceived market opportunities.
 
 
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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 2013, we had sales to five customers that individually comprised at least 5% of our annual revenue: Crimson Trace at 7%, Thorlabs at 9%, AMS at 10%, IPG Photonics at 6% and Red Digital at 6%.  In fiscal 2012, we had sales to four customers that individually comprised at least 5% of our annual revenue: Crimson Trace at 10%, Thorlabs at 9%, AMS at 9% and Raytheon Missile Systems at 5%. The loss of any of these customers, or a significant reduction in sales to any such customer, would adversely affect our revenues.

In fiscal 2013, 35% of our net revenue was derived from sales outside of the United States, with 79% of our foreign sales occurring to customers in Europe and Asia.

Employees

As of June 30, 2013, we had 171 full-time equivalent employees, with 56 in Florida and 115 in China. Any employee additions or terminations over the next twelve months will be dependent upon the actual sales levels realized during fiscal 2014. We have 21 employees engaged in management, administrative and clerical functions, 14 in new product development, 9 in sales and marketing and 127 in production and quality 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 22,000 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 collimator 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.

Our rental payments for our Orlando facility are approximately $40,000 per month through April 2015, which includes all charges, including common area maintenance, escalation, and certain pass-through of taxes and other operating costs.

Due to the transfer of manufacturing for over 90% of our production requirements for our precision molded optic line and our isolator assembly product line to LPOI’s Shanghai facility, we previously 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 lease term was also extended from November 30, 2008, to April 30, 2015, and minimum rental rates for the extension term were established based on annual increases of three percent.  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 third lease amendment.
 
Our wholly-owned subsidiary, LPOI, also leases a 16,000 square foot facility located in Jiading, People’s Republic of China. In May 2009, the Chinese government paid LPOI to move to a new facility in the Jiading Industrial Zone near Shanghai. LPOI’s Shanghai facility features a molded glass aspheres manufacturing area, which includes lens pressing equipment, advanced metrology and inspection equipment and coating facilities.  The clean room in LPOI’s Shanghai facility features assembly manufacturing equipment and automated dispensing systems. The Shanghai facility also houses our precision dicing equipment and anti-reflective coating equipment. The facility is used primarily for our manufacturing operations and has increased our overall production capacity, enabling us to compete for larger production volumes of optical components and assemblies and strengthen partnerships within the Asia/Pacific region.  It has also provided a launching point to drive our sales expansion in the Asia/Pacific region.
 
LPOI signed a five year lease that will expire April 30, 2014.  The Shanghai facility houses 115 employees. The rent is approximately $6,600 per month.
 
 
8

 
 
We are ISO 9001:2008 certified at both the Orlando and Shanghai facilities. Much of our product qualification is performed in-house at both 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 and Orlando facilities, we believe our facilities are adequate to accommodate our needs over the next year. If increased demand creates a need for additional space we are prepared to negotiate new leases in Orlando and Shanghai.  Current production levels for both of our facilities are at 98% of manned capacity. We are in the process of adding additional production equipment and additional work shifts to increase the capacity and meet forecasted demand.
 
The territorial sales personnel maintain an office from their homes to serve their geographical territories.

Item 3.    Legal Proceedings.

The Company 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.
 
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
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 the 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, 2013 was $1.24 per share.
 
 
Class A Common
Stock
 
 
High
 
Low
 
Fiscal Year Ended June 30, 2013
           
Quarter ended June 30, 2013
  $ 1.46     $ 0.72  
Quarter ended March 31, 2013
  $ 0.92     $ 0.72  
Quarter ended December 31, 2012
  $ 1.02     $ 0.82  
Quarter ended September 30, 2012
  $ 1.04     $ 0.92  
         
Fiscal Year Ended June 30, 2012
               
Quarter ended June 30, 2012
  $ 1.44     $ 1.02  
Quarter ended March 31, 2012
  $ 2.05     $ 0.88  
Quarter ended December 31, 2011
  $ 1.59     $ 0.90  
Quarter ended September 30, 2011
  $ 2.44     $ 1.41  

Holders

As of August 19, 2013, we estimate there were approximately 245 holders of record and approximately 4,647 street name holders of our Class A common stock.
 
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.
 
 
9

 
 
Securities Authorized For Issuance Under Equity Compensation Plans

The following table sets forth information with respect to compensation plans under which equity securities of the Company are authorized for issuance as of the end of fiscal 2013:
 
         
Award Shares
   
Available for
 
   
Award Shares
   
Outstanding
   
Issuance
 
   
Authorized
   
at June 30,
   
at June 30,
 
Equity Compensation Arrangement
       
2013
   
2013
 
Amended and Restated Omnibus Incentive Plan
    2,715,625       1,419,709       848,012  
Employee Stock Purchase Plan
    200,000             109,457  
                         
      2,915,625       1,419,709       957,469  

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.

Recent Sales of Unregistered Securities

On October 29, 2012, we issued a Common Stock Purchase Warrant to purchase 25,000 shares of Class A common stock to Hayden IR, LLC for services rendered as a consultant.  The warrant is exercisable at an exercise price of $0.95 for a period of three years beginning April 30, 2013. The warrant may also be exercised on a “cashless” basis.  We did not receive any cash proceeds from the issuance of the warrant.  The issuance was exempt from the registration requirements of the Act pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”) (in that warrant and the shares of Class A common stock underlying the warrant were issued by the Company in a transaction not involving any public offering).  The warrant and the shares of Class A common stock underlying the warrant have not been registered for sale under the Act.

On March 25, 2013, the Company and the holders of our 8% Senior Secured Convertible Debentures (the “Debentures”) holding approximately 93.10% of the outstanding principal amount of the Debentures executed a conversion agreement (the “Conversion Agreement”) in connection with the early conversion of the Debentures.  The Conversion Agreement provided, among other things, for the issuance of 559,448 shares of Class A common stock as an incentive to convert the remaining Debentures into shares of common stock.  The Company did not receive any cash proceeds from the issuance of the shares of Class A common stock.  The issuances were exempt from the registration requirements of the Act, pursuant to Section 4(a)(2) of the Act (in that the shares of Class A common stock were issued by the Company in a transaction not involving any public offering).  The shares of Class A common stock have not been registered for sale under the Act.

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. All statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, other than statements of historical facts, which address activities, events or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures, growth, product development, sales, business strategy and other similar matters are forward-looking statements. These forward-looking statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from the forward-looking statements set forth herein as a result of a number of factors, including, but not limited to, our products current stage of development, the need for additional financing, competition in various aspects of its business and other risks described in this report and in our other reports on file with the Securities and Exchange Commission. In light of these risks and uncertainties, all of the forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized. We undertake no obligation to update or revise any of the forward-looking statements contained in this report.
 
Liquidity and Capital Resources

History and Background:

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 our fiscal 2013, inclusive, we have raised a net total of approximately $104 million from the issuance of common and preferred stock, the sale of convertible debt and the exercise of options and warrants for our common stock.
 
 
10

 
 
In 2006, the Company implemented a cash conservation strategy by reducing its operating costs, which included restructuring its manufacturing operations. Our cash conservation strategy has also included measures such as extending payment terms with certain of our suppliers, delaying purchases for as long as practicable using just-in-time ordering practices and managing headcount and salaries for our staff to reflect order demand. This business strategy has resulted in the fundamentals of the Company improving each year.  Fiscal 2013 was the first profitable year in the Company’s history. In fiscal 2012, we achieved positive cash flow from operations. Cash provided by operations was approximately $556,000 and $406,000 during fiscal 2013 and fiscal 2012, respectively. The improvements in cash flows from operations are as a result of increased revenues from the additional markets we are able to address due to our lower cost structure as well as manufacturing and product efficiencies. Although we reported net income for fiscal 2013 we had recurring losses from operations in previous years. As of June 30, 2013, we had an accumulated deficit of approximately $204 million.  Our accumulated deficit was approximately $205 million for fiscal year 2012.  On September 3, 2013 we had a book cash balance of $2,766,910.

Management has developed an operating plan for fiscal 2014 and believes the Company has adequate financial resources for achievement of this plan and to sustain its current operations in the coming year. The fiscal 2014 operating plan and related financial projections we have developed anticipate sales growth primarily from precision molded optics, with the emphasis on low-cost, high-volume applications, optical assemblies including our redesigned collimator product line and infrared products.  We expect further margin improvements based on production efficiencies and yield improvements.

We expect this continued growth in our precision molded optic lenses due to 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 will exceed the global population by 2016 and is estimated to be a 1.4 devices per person.  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 70% of all network traffic by 2016, 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.  LightPath produces products, such as our precision molded optic lenses, that can be used as a component in optical communication networks.  These trends combined with the excellent value proposition that we bring to our customers with competitive prices and superior quality are the reasons we believe we are experiencing in increase in demand for our precision molded optic lenses and why we have confidence in our continued growth in the future.

We expect continued improvement of overhead absorption as we increase the volume of products produced and lower material costs since we will be able to purchase materials in higher volumes. We also will continue to implement cost reductions with programs to improve tool life and lower anti-reflective coating costs by coating the lenses at our facilities. We have established milestones that will be tracked to ensure that as funds are being used that we are achieving results before additional funds are committed. Management will be monitoring the operating plan closely during the year and should the plan objectives not be met, remedial actions will be initiated.

We continue to face financial challenges along with many in the industries we do business with, as the slow recovery of the global economy continues to create instability in the market.  We 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.
 
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, 2013 and 2012, we incurred a loss of $35,522 and a gain of $37,665 on foreign currency translation, respectively.

During fiscal 2013 we decided to no longer market our isolator product line and we reserved all isolator inventories at 100%.
 
 
11

 
 
Cash Flows - Financings:

Convertible Debentures
On March 25, 2013, the Company and holders of our Debentures holding approximately 93.10% of the outstanding principal amount of the Debentures executed the Conversion Agreement in connection with the early conversion of the Debentures. The Debenture holder’s party to the Conversion Agreement were Steven Brueck, J. James Gaynor, Louis Leeburg, Robert Ripp and Gary Silverman, all of whom are directors or officers of the Company, and Berg & Berg Enterprises, LLC (“BBE”), a greater than 5% beneficial stockholder of the Company. The Conversion Agreement provided, among other things, for the issuance of 559,448 shares of Class A common stock as an incentive to convert the Debentures into shares of common stock.  All of the holders party to the Conversion Agreement, except for BBE, fully converted their Debentures. In order to ensure BBE did not exceed a 19.9% beneficial ownership limitation, it partially converted its Debenture, and the Company repaid $105,000, representing the outstanding principal amount due under its Debenture. The remaining holder not party to the Conversion Agreement was repaid $75,000, representing the outstanding principal amount due under its Debenture. As of June 30, 2013, none of the Debentures remain outstanding.

Private Placement
On June 11, 2012, we executed a Securities Purchase Agreement (the “SPA”) with 19 institutional and other accredited investors with respect to a private placement of an aggregate of 1,943,852 shares of the Company’s Class A common stock, at $1.02 per share, and warrants to purchase 1,457,892 shares of common stock.  The warrants had an initial exercise price of $1.32 (subsequently adjusted to $1.26),  are exercisable for a period of five years beginning December 11, 2012, and contain customary, weighted-average anti-dilution protection with respect to the exercise price (subject to a floor price of $1.15).

The Company received gross cash proceeds from the issuance of the common stock (exclusive of proceeds from any future exercise of the warrants) in the amount of approximately $1,982,727.  The Company is required by the terms of the SPA to use the funds for general working capital purposes to support the continued growth of the Company’s business, with the primary uses of the funds used for expansion of our infrared molding capacity and enhancement of our glass preparation processes and test and measurement capability.  The funding will also support new product development and the acquisition of new equipment, also critical to the Company’s growth plans.

The Company paid a commission to the exclusive placement agent for the offering, Meyers Associates, LP, in an amount equal to $198,273, plus a non-accountable marketing and expense fee of $20,000, and reimbursement of up to $10,000 of its legal and due diligence expenses related to the private placement offering.  The Company also issued the placement agent and its designees warrants to purchase an aggregate of 194,385 shares of common stock at an initial exercise price equal to $1.32, subsequently adjusted to $1.26 per share.  The warrants have a five-year term and were exercisable after December 11, 2012.

The private placement was exempt from the registration requirements of the Act, pursuant to Section 4(a)(2) of the Act (in that the shares of common stock, warrants, and shares of common stock underlying the warrants were sold by the Company in a transaction not involving any public offering) and pursuant to Rule 506 of Regulation D promulgated thereunder.  On June 20, 2012 we filed a registration statement to register the shares of common stock, warrants and the shares of common stock underlying the warrants. The registration statement was declared effective on July 2, 2012.

Warrant Exercises
During July and August 2013 the Company received $1,304,678 in proceeds from the exercise of warrants. The Company issued 829,178 shares of common stock in connection with these exercises. The exercise prices ranged from $0.87 to $1.89 per share of common stock.

Cash Flows – Operating and Investing:

Cash flow provided by operations was approximately $556,000 for the year ended June 30, 2013, an increase of approximately $150,000 from fiscal 2012. Our cash flow provided by operations was approximately $622,000 for the fourth quarter of fiscal 2013. Our fiscal 2014 operating plan and related financial projections anticipate continued improvement in our cash flows in future years due to sales growth and continuing 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 glass costs as a result of replacing internally fabricated material with purchased materials from suppliers in Asia 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 2013, we expended approximately $1.10 million for capital equipment as compared to $629,000 during fiscal 2012. The majority of our capital expenditures during both fiscal 2013 and fiscal 2012 were related to the purchase of equipment used to enhance or expand our production capacity and tooling for our precision molded products.  We anticipate increasing our expenditures during fiscal 2014 to enhance or expand our production capacity; however, the total amount expended will depend on opportunities and circumstances.
 
 
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Results of Operations

Operating Results for Fiscal Year Ended June 30, 2013 compared to the Fiscal Year Ended June 30, 2012:
 
Revenue for fiscal 2013 totaled $11.78 million compared to $11.28 million for fiscal 2012, an increase of 4%. This increase was primarily attributable to revenue from precision molded lenses for the telecommunications and laser tool markets and custom optics.  The number of units of precision molded optics sold increased by 35% due to the Company’s increased production capability and the pursuit of the low-cost, high-volume lens business. We expect continued growth in sales to be derived primarily from our precision molded optics product line, particularly our low-cost lenses sold in Asia, and the Company’s infrared and collimator product lines.
 
Gross margin percentage for fiscal 2013 was 44% compared to 36% in fiscal 2012. Total manufacturing costs of $6.61 million were approximately $642,000 lower in fiscal 2013 as compared to fiscal 2012. This decrease in manufacturing costs resulted from an increase in direct costs of $31,000 for materials, labor and outside services due to higher revenues offset by a decrease of $219,000 in labor costs, a decrease of $304,000 in tooling costs, a decrease of $92,000 in freight costs and a decrease of $55,000 in supplies. Direct costs, which include material, labor and services, were 24% of revenue in fiscal 2013, as compared to 25% of revenue in fiscal 2012.
 
We plan to continue emphasizing unit cost reductions by efficiently purchasing raw materials and increasing sourcing of coating services in China. We also continue to have improvements in productivity due to a more experienced workforce at LPOI’s Shanghai facility and press efficiencies due to higher unit volumes.

Selling, general and administrative expenses increased by approximately $110,000 to $3.99 million in fiscal 2013 from $3.88 million in fiscal 2012. This increase is due to $78,000 in higher wages and benefits, $58,000 in higher legal fees, $163,000 in higher fees for consulting services for IT support, $72,000 in higher fees for investor relations, offset by lower depreciation of $41,000 and the write-off of $221,000 in expenses in fiscal 2012 related to our withdrawn shelf offering in fiscal 2012. Our operating plan for fiscal 2014 projects an increase in selling, general and administrative expenses due a projected higher level of sales. We plan to manage our workforce size to meet profit and cash flow goals.

New product development costs in fiscal 2013 decreased by approximately $107,000 to $939,000.  This decrease was primarily due to a decrease in wages and materials purchased for projects as our staff continued to work on the purchase order for Raytheon Vision Systems (“Raytheon”). Our operating plan for fiscal 2014 projects an increase in product development spending due to enhanced efforts in the development of the infrared product line.

In fiscal 2013, our amortization of intangibles remained at approximately $33,000 and is expected to remain at this level for fiscal 2014. Interest expense was approximately $100,000 for fiscal 2013 as compared to approximately $92,000 for fiscal 2012. The Debentures accounted for all of the interest expense during fiscal 2013 and 2012. This represented periodic interest of 8% per annum, amortization and the write-off of the debt issuance costs and debt discount.

In fiscal 2013 and 2012, we recognized a $15,000 loss and a $103,000 gain, respectively, related to the change in the fair value of derivative warrants issued in 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 $72,000 to $120,000 in fiscal 2013 primarily from a $54,000 in royalty income.

Net income for fiscal 2013 was approximately $215,000 compared with a net loss of approximately $865,000 in fiscal 2012, a change of approximately $1.08 million. This improvement of net income was comprised principally of an increase in revenues of $499,000 and a decrease of $642,000 in cost of goods sold, resulting in a $1.14 million increase in gross margin.
 
 
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Key Performance Indicators

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 a customer to help them determine optical specifications and even create certain optical designs for them, including complex multi-component designs that we call “engineered assemblies.” This is followed by “sampling” small numbers of the product for the customer’s test and evaluation. Thereafter, should the customer conclude that our specification or design is the best solution to their product need; we negotiate and “win” a contract (sometimes called a “design win”) – whether of a “blanket purchase order” type or a supply agreement. The strategy is to create an annuity revenue stream that makes the best use of our production capacity as compared to the turns business, which is unpredictable and uneven. 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 their entire source of supply of a critical component to foreign merchant production sources. We also continue to have the proprietary GRADIUM lens glass technology to offer to certain laser markets.

Our key indicators

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 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. 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;

 
·
EBITDA;

 
·
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.
 
 
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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, higher 12-month backlog is better for us.

The 12-month backlog, as defined above, has been as follows in the preceding eight fiscal quarters:

Fiscal
Quarter
Ended
Approximate 12-month Backlog  
Q4-2013
6/30/2013
  $ 4,144,000  
Q3-2013
3/31/2013
  $ 5,014,000  
Q2-2013
12/31/2012
  $ 4,640,000  
Q1-2013
9/30/2012
  $ 5,458,000  
Q4-2012
6/30/2012
  $ 4,892,000  
Q3-2012
3/31/2012
  $ 4,391,000  
Q2-2012
12/31/2011
  $ 3,827,000  
Q1-2012
9/30/2011
  $ 4,203,000  

Our 12-month backlog at June 30, 2013 was approximately $4.14 million compared to $4.89 million as of June 30, 2012. We believe this decrease in the 12-month backlog is temporary as there were three large orders expected in the fourth quarter of 2013 that were delayed until the first quarter of 2014 totaling over $700,000. Bookings and quote activity have continued to increase for our industrial low-cost lenses in Asia and we project continued production and shipment growth for these low-cost lenses in Asia during fiscal 2014.

We continue to diversify our business by entering into additional markets such as digital imaging, laser tools, telecommunications, digital projectors, industrial equipment, weapon sights and green lasers. We expect to show increases in revenue for fiscal 2014 as a result of this diversification.

EBITDA:
EBITDA is a non-GAAP financial measure 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 the Company's 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 a reconciliation of net income (loss) to EBITDA as well as to adjusted EBITDA for the preceding eight quarters:
Fiscal Quarter Ended
 
Net Income (Loss)
   
Depreciation & Amorization
   
Interest Exp.
   
EBITDA
   
Warrant Adjustment
   
Adjusted EBITDA
 
                                     
6/30/2013
    (243,765 )     211,900       428       (31,437 )     502,827       471,390  
3/31/2013
    217,094       193,039       53,083       463,216       (222,766 )     240,450  
12/31/2012
    140,772       199,658       15,500       355,930       (169,552 )     186,378  
9/30/2012
    101,221       208,637       31,306       341,164       (95,784 )     245,380  
                                                 
6/30/2012
    195,864       266,317       22,659       484,840       (103,364 )     381,476  
3/31/2012
    (518,985 )     286,014       22,582       (210,389 )           (210,389 )
12/31/2011
    (343,299 )     326,269       22,566       5,536             5,536  
9/30/2011
    (198,447 )     245,438       24,220       71,211             71,211  
                                                 
6/30/2011
    429       257,798       23,058       281,285             281,285  
3/31/2011
    (375,728 )     227,861       89,560       73,477             73,477  
12/31/2010
    (373,714 )     215,727       113,127       (44,860 )           (44,860 )
9/30/2010
    (852,950 )     211,543       380,510       (260,897 )           (260,897 )
 
The primary reason for the improvement in Adjusted EBITDA in the fourth quarter of fiscal 2013 from the same period in fiscal 2012 is due to higher revenue, improved margins and the warrant adjustment resulting in net income. The primary reason for the decline in EBITDA in the fourth quarter of fiscal 2013 from the same period in fiscal 2012 is due to net losses.
 
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
 
 
Ended
 
 
DCSI (days)
Q4-2013
 
6/30/2013
 
94
Q3-2013
 
3/31/2013
 
110
Q2-2013
 
12/31/2012
 
96
Q1-2013
 
9/30/2012
 
85
Fiscal 2013 average
 
98
Q4-2012
 
6/30/2012
 
74
Q3-2012
 
3/31/2012
 
75
Q2-2012
 
12/31/2011
 
90
Q1-2012
 
9/30/2011
 
100
Fiscal 2012 average
 
76
 
Our average DCSI for fiscal 2012 was 76, compared to 98 for fiscal 2013.  This increase in DCSI for fiscal 2013 as compared to fiscal 2012 was due to higher inventory balances as we ramped up production for higher sales forecasts and the impact of a decrease in cost of goods sold due to our continued cost reduction efforts. We will continue to review inventory balances and sales forecast quarterly in order to manage our inventory levels more effectively.
 
 
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Accounts receivable levels and quality:
Similarly, we manage accounts receivable levels to minimize investment in working capital. We escalate our collection efforts when invoices are fifteen days past the due date.  Weekly, we also review all receivables that are sixty days past terms. These past due accounts are contacted and all future shipments to them are placed on hold. 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 30-45 days. The most important aggregate measure of accounts receivable is the quarter’s ending balance of net accounts receivable expressed as a number of days’ worth of the quarter’s net revenues, also known as “days sales outstanding,” or “DSO.” It is calculated by dividing the 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
 
 
Ended
 
 
DSO (days)
Q4-2013
 
6/30/2013
 
62
Q3-2013
 
3/31/2013
 
72
Q2-2013
 
12/31/2012
 
75
Q1-2013
 
9/30/2012
 
69
Fiscal 2013 average
 
66
Q4-2012
 
6/30/2012
 
63
Q3-2012
 
3/31/2012
 
79
Q2-2012
 
12/31/2011
 
62
Q1-2012
 
9/30/2011
 
69
Fiscal 2012 average
 
68

Our average DSO for fiscal 2013 was 66 compared to 68 for fiscal 2012.  For the past two years over 47% of our quarterly sales are shipped in the third month of each quarter. These revenues will not be collected before the quarter ends, which negatively impacts our DSO. Also international sales which are approximately one third 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.
 
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 significant 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 beneficial conversion and warrant valuation related to convertible debentures. 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, and the board of directors 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:
 
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. Accounts receivable are customer obligations due under normal trade terms. We perform continuing credit evaluations of its customers’ financial condition. Recovery of bad debt amounts 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 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, 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. In the third quarter of fiscal 2013 we placed a 100% reserve on our isolator inventories due to our current sales forecast for this product line.
 
 
17

 
 
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.

Long-lived assets, such as property, plant, and equipment, tooling 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 our 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. We have recorded the difference between the amounts charged to operations and amounts payable under the leases as deferred rent in the accompanying consolidated balance sheets.

Deferred revenue relates to a $1.1 million purchase order from Raytheon for which revenue is recognized on a percentage of completion basis. The Company is using the “cost-to-cost method” to allow it to measure progress toward completion based on the ratio of costs incurred to date to total estimated costs. The Company recorded in deferred revenue, or other receivables, in the accompanying consolidated balance sheet, based on the difference between the amounts invoiced on the project and the amount recognized into revenue or expenses incurred. As of June 30, 2013, the Company invoiced $743,500 and recognized $1,097,030 as revenue with the difference of $353,530 recorded as other receivables. At June 30, 2013, we had no billed accounts receivable outstanding with respect to this purchase order. The project is expected to be completed by December 2013.

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.

We have 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 is no unrecognized benefit or penalty since the date of adoption. If there were an unrecognized tax benefit or penalty, we would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. We are no longer subject to U.S. federal, state, local, or non-U.S. income tax examinations by tax authorities for years before 2010.

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 and are completed in accordance with the terms of the agreements and upon shipment of products, reports or designs to the customer. Invoice amounts for sales or VAT taxes are posted to the balance sheet and not included in revenue.
 
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 stock option and restricted stock unit as of the date of grant using the Black-Scholes-Merton pricing model. Most awards granted under our Amended and Restated Omnibus Incentive Plan vest ratably over two to four years and generally have four to ten-year contract lives.  The volatility rate is based on four-year historical trends in Class A 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 United States 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 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.
 
 
18

 
 
Financial instruments. We account for financial instruments in accordance with the Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements and Disclosures (“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.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2013.  We use the market approach to measure fair value for its Level 1 financial assets and liabilities, which include cash equivalents of $728,000 and $1.77 million at June 30, 2013 and 2012, respectively.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.

The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values.  These financial instruments which include cash, trade 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 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.

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 FASB ASC 815, Derivatives and Hedging (“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. Our other comprehensive income (loss) consists of the foreign currency translation adjustment.

Business segments are required to be reported by the Company. As we only operate in principally one business segment, no additional reporting is required.
 
 
19

 
 
Recent accounting pronouncements issued by FASB (including Emerging Issues Task Force (“EITF”)), the American Institute of Certified Public Accountants (“AICPA”) and the Securities and Exchange Commission (“SEC”) did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

In July 2013 the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which amends ASC 740, “Income Taxes.” This new guidance requires that a liability related to an unrecognized tax benefit be offset against a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if certain criteria are met. The provisions of this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company will adopt this guidance during fiscal 2015 and does not expect the adoption to have a material effect on our financial position, results of operations or cash flows.

Item 8.    Financial Statements and Supplementary Data.

See index at page F-1 for the Financial Statements for each of the years in the two-year period ended June 30, 2013.
 
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 9A. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the fiscal year ended June 30, 2013, LightPath 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 LightPath’s 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, 2013, 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.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
LightPath’s 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 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, 2013 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 LightPath’s 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 LightPath 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 LightPath’s 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, 2013 that have materially affected, or are reasonably likely to materially affect, LightPath’s internal control over financial reporting.
 
 
20

 
 
PART III

Item 10.  Directors, Executive Officers and Corporate Governance.

Each of our directors and officers serves until his or her successor is elected and qualified.  The names and ages of our directors and officers, the years they became directors or officers, their principal occupations or employment for at least the past five years and certain of their other directorships is set forth below. The Class I directors’ term expires at the annual meeting of stockholders proposed to be held in fiscal 2014.  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 2015.

Class I Directors

Robert Ripp, 72
Director (Chairman of the
Board)
Mr. Ripp has served as a director of the Company since 1999 and as Chairman of the Board since November 1999. During portions of fiscal year 2002 he also served as the Company’s Interim President and Chief Executive Officer.  Mr. Ripp held various executive positions at AMP Incorporated (“AMP”) from 1994 to 1999, including serving as Chairman and Chief Executive Officer from August 1998 until April 1999, when AMP was sold to TYCO International Ltd.  Mr. Ripp previously spent 29 years with IBM of Armonk, New York.  He held positions in all aspects of operations within IBM culminating in the last four years as Vice President and Treasurer. He retired from IBM in 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 also serves on the Company’s Compensation and Finance Committees. Mr. Ripp has dedicated over ten years of service to the Company. 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 a director of our Company.
   
J. James Gaynor, 62
President & Chief Executive
Officer,
Director
Mr. Gaynor was appointed as President, Chief Executive Officer and as a director on February 1, 2008 and prior to that served as Interim Chief Executive Officer commencing on September 18, 2007. Mr. Gaynor previously served as the Company’s Corporate Vice President of Operations since July 2006. Mr. Gaynor is also a director of LPOI. 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 the Company, from August 2002 to July 2006, Mr. Gaynor was Director of Operations and Manufacturing for Puradyn Filter Technologies. Previous to that, he was Vice President of Operations and General Manager for JDS Uniphase Corporation’s Transmission Systems Division. He has also held executive positions with Spectrum Control, Rockwell International and Corning Glass Works. 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 holds a Bachelor of Mechanical Engineering degree from the Georgia Institute of Technology and has worked in the manufacturing industries since 1976. 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 our Company and qualify him for service as a director.
 
 
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Class II Directors
Sohail Khan, 59
Director
 
Mr. Khan has served as a director of the Company since February 2005. Since May 2013, he has served as the Chief Executive Officer of Lilliputin Systems a developer of portable power products for consumer electronics.  From July 2011 to April 2013 he was the owner of K5 Innovations, a technology consulting venture from July 2011 to April 2013. He was the President and Chief Executive Officer and a member of the board of directors of SiGe Semiconductor (“SiGe”), a leader in silicon based radio frequency front-end solutions which was acquired by Skyworks Solutions Inc. in June 2011. Prior to SiGe, Mr. Khan was Entrepreneur in Residence and Operating Partner of Bessemer Venture Partners, a venture capital group focused on technology investments. From 1996 to 2006 he held various executive positions with Agere Systems/Lucent Technologies ending as Executive Vice President and Chief Strategy & Development Officer of Agere Systems. Mr. Khan has also held various management positions at NEC Electronics, Intel and the National Engineering Services of Pakistan. 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 of California at Berkeley. From 2007 to 2012, Mr. Khan served on the board of directors for Gainspan Corporation. Mr. Khan also serves on the Company’s Compensation Committee. Mr. Khan’s experience in venture financing, specifically technology investments, is an invaluable asset Mr. Khan contributes to the Board composition. In addition, Mr. Khan’s significant experience in executive management, profit and loss management, mergers and acquisitions, and capital raising, as well as his background in engineering qualifies him for service as a director of our Company.
   
Dr. Steven Brueck, 69
Director
 
Dr. Brueck has served as a director of the Company since July 2001. He is the Director of the Center for High Technology Materials (CHTM) and Distinguished Professor of Electrical and Computer Engineering and Professor of Physics at the University of New Mexico in Albuquerque, New Mexico, which he joined in 1985. 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 serves on the Company’s Audit Committee. Dr. Brueck’s expertise in optics and optics applications, as well as his extensive research experience in nanoscale lithography, visible infrared optics and semiconductor components, qualify him for service as a director of our Company.
   
M. Scott Faris, 48
Director
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. Mr. Faris is the founder and CEO of MicroVapor Devices, LLC, a privately held developer and manufacturer of advanced medical devices since June 2013. Mr. Faris also founded the Astralis Group, a strategy advisor, in 2002 and he provides consulting to start-up companies. Mr. Faris was the founder and Chief Executive Officer of Planar Energy, a company that developed transformational ceramic solid state battery technology and products. Planar Energy is a spin-out of the U.S. Department of Energy’s National Renewable Energy Laboratory. Mr. Faris founded Planar Energy in June 2007.  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. From September 2001 to October 2004, Mr. Faris was the Chairman and Chief Executive Officer of Waveguide Solutions, a developer of planar optical light wave circuit and micro system products, a spin out of the University of North Carolina, Charlotte.  From August 1997 to September 2001, he was 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 and served as a director of the Florida Seed Capital Fund and Technology Commercialization at the Center for Microelectronics Research.  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 also serves on the Company’s Audit Committee. 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 a director of our Company.
 
 
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Class III Directors
Louis Leeburg, 59
Director
 
Mr. Leeburg has served as a director of the Company since May 1996.  Mr. Leeburg is currently a self-employed business consultant.  From 1988 until 1993 he was the Vice President for Finance of The Fetzer Institute, Inc. From 1980 to 1988 he was in financial positions with different organizations with an emphasis in financial management.  Mr. Leeburg was an audit manager for Price Waterhouse & Co. until 1980.  Mr. Leeburg received a Bachelor of Science degree in Accounting from Arizona State University.  He is a member of Financial Foundation Officers Group and the treasurer and trustee for the John E. Fetzer Memorial Trust Fund and The Institute for Noetic Sciences.  Mr. Leeburg also serves on the Company’s Audit and Finance Committees. 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 CPA add invaluable knowledge to our Board and qualify him for service as a director of our Company.
 
Gary Silverman, 74
Director
 
Mr. Silverman has served as a director of the Company since September 2001.  Mr. Silverman is currently the managing partner of GWS Partners, established in 1995 to conduct searches for senior-level executives and board of director candidates for a broad cross section of publicly held corporations.  From 1983 to 1995 he worked for Korn/Ferry International as an executive recruiter and held the position of Managing Director. He spent fourteen years with Booz, Allen & Hamilton, and in his last position as Vice President and Senior Client Officer was responsible for generation of new business, the management of client assignments and the development of professional staff.  Mr. Silverman is a graduate of the University of Illinois with both a Bachelor of Science degree and Masters of Science degree in Finance.  Mr. Silverman also serves on the Company’s Compensation Committee and Audit Committee. Mr. Silverman contributes a unique attribute to our Board in that he has extensive experience in human resource management, financial management and control and strategic management. Mr. Silverman’s background in advising companies in the development of professional staff qualifies him for service as a director of our Company.
 
 
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Executive Officers Who Do Not Serve as Directors

Dorothy Cipolla, 57
Chief Financial Officer,
Secretary and Treasurer
 
Ms. Cipolla has been the Company’s Chief Financial Officer, Secretary and Treasurer since February 2006. Ms. Cipolla has also been a director of LPOI since 2006. Ms. Cipolla was Chief Financial Officer and Secretary of LaserSight Technologies, Inc., (“LaserSight”) from March 2004 to February 2006. 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.
   
Alan Symmons, 41
Corporate Vice President of Engineering
 
Mr. Symmons has been the Company’s Director of Engineering since October 2006. In September 2010, he was promoted to Corporate Vice President of Engineering. Prior to joining LightPath, 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 Securities Exchange Act of 1934, as amended (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 except with respect to Berg & Berg Enterprises, LLC, a beneficial owner of more than 10% of our common stock. Berg & Berg Enterprises, LLC failed to file a Form 4 during fiscal 2013 with respect to the sale of shares of common stock and the exercise of certain warrants. In making these statements, the Company has relied solely on its review of copies of the reports furnished to the Company, representations that no other reports were required and other knowledge relating to transactions involving Reporting Persons.
 
Code of Ethics

The Company has adopted a Code of Ethics that applies to all of its employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions.  The text of the Company’s Code of Conduct and Ethics is available on the Company’s 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. A copy of our Code of Ethics is filed as an exhibit to this Annual Report on Form 10-K.

Audit Committee and Audit Committee Financial Expert

The Audit Committee, which consists of Dr. Steven Brueck, M. Scott Faris, Louis Leeburg (Chairman) and Gary Silverman, met four times during fiscal 2013, which meetings included discussions with management and with the Company’s independent auditors to discuss the interim and annual financial statements and the annual report of the Company, and the effectiveness of the Company’s financial and accounting functions and organization.  The Audit Committee acts pursuant to a written charter adopted by the Board of Directors, a copy of which is available on the Company’s website at www.lightpath.com.  The Audit Committee’s responsibilities include, among others, direct responsibility for the engagement and termination of the Company’s independent accountants, and overseeing the work of the accountants and determining the compensation for their engagement(s).  The Board of Directors has determined that the Audit Committee is comprised entirely of independent members as defined under applicable listing standards set out by the SEC, the National Association of Securities Dealers (NASD) and the NCM.  The Board of Directors 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.  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 Executive Officers
 
The following table sets forth certain compensation awarded to, earned by or paid to (i) the Chief Executive Officer and (ii) the two other most highly compensated executive officers of the Company serving as executive officers at the end of fiscal 2013, which includes the Chief Financial Officer. The Company 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 of the Company as of the end of fiscal 2013.

           
 
             
           
Option
   
All Other Compensation
   
Total
 
Name and Position   
Fiscal
 
Salary
   
Awards
   
Compensation
   
($)
 
 
Year
 
($)
   
($)**
   
($) *
       
(a)
(b)
 
(c)
   
(f)
   
(i)
   
(j)
 
J. James Gaynor
2013
    214,616       37,385             252,001  
President & Chief Executive Officer
2012
    218,943       37,702             256,645  
Dorothy M. Cipolla
2013
    157,385       10,081             167,466  
Chief Financial Officer, Treasurer & Secretary
2012
    159,289       9,587             168,876  
Alan Symmons
2013
    133,538       9,409             142,947  
Corporate Vice President of Engineering
2012
    135,154       8,460             143,614  
 
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 the Company’s contribution toward the premium cost for employee and dependent medical, dental, life and disability income insurances.
 
** For valuation assumptions on restricted stock units and stock option awards refer to note 9 to the Consolidated Financial Statements of this Annual Report on Form 10-K for fiscal 2013. The disclosed amounts reflect the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2013 in accordance with FASB ASC Topic 718 and thus may include amounts from awards granted in and prior to fiscal 2013.
 
Narrative Discussion of Summary Compensation Table of Executive Officers
 
The following is a narrative discussion of the material information which we believe is necessary to understand the information disclosed in the foregoing Summary Compensation Table. The following narrative disclosure is separated into sections, with a separate section for each of our executive officers. Each executive officer receives a base salary, and is eligible for 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.
 
The goals set for the fiscal 2012 and 2013 incentive bonus plans were not met, so no bonus payments were made to the executive officers. The Compensation Committee did award discretionary stock options to the executive officers for fiscal 2012 and 2013.
 
J. James Gaynor

Cash Compensation (Base Salary).

Mr. Gaynor earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $214,616. This represents his annual base salary for fiscal 2013.  The base salary paid to Mr. Gaynor for fiscal 2013 constituted approximately 85% of the total compensation paid to Mr. Gaynor as set forth in the “Total” column in the Summary Compensation Table. 

 
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Stock Option Awards.
 
On November 6, 2007, Mr. Gaynor was granted an option to purchase 15,000 shares, all of which is now vested. Based on the vesting schedule of the option, we recognized compensation expense of $2,066 in fiscal 2012 under ASC Topic 718, Stock Compensation.

On January 31, 2008, Mr. Gaynor was granted an option to purchase 30,000 shares, all of which is now vested. Based on the vesting schedule of the option, we recognized $4,241 of compensation expense for fiscal 2012 under ASC Topic 718, Stock Compensation.

On February 4, 2010, Mr. Gaynor was granted an option to purchase 50,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, we recognized $17,762 of compensation expense for fiscal 2012 and $17,762 in fiscal 2013. We expect to recognize compensation expense of approximately $10,363 in fiscal 2014 under ASC Topic 718, Stock Compensation.

On November 3, 2010, Mr. Gaynor was granted an option to purchase 25,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date.  Based on the vesting schedule of the option, we recognized $8,388 of compensation expense for fiscal 2012 and $8,388 for fiscal 2013. We expect to recognize compensation expense of approximately $8,388 in fiscal 2014 and $2,797 in fiscal 2015 under ASC Topic 718, Stock Compensation.

On October 27, 2011, Mr. Gaynor was granted an option to purchase 40,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, we recognized $5,245 of compensation expense for fiscal 2012 and $6,992 for fiscal 2013. We expect to recognize compensation expense of approximately $6,992 in each of fiscal 2014 and fiscal 2015 and $1,747 in fiscal 2016 under ASC Topic 718, Stock Compensation.

On October 25, 2012, Mr. Gaynor was granted an option to purchase 40,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, we recognized $3,565 of compensation expense for fiscal 2013. We expect to recognize compensation expense of approximately $4,752 in each of fiscal 2014, fiscal 2015 and fiscal 2016 and $1,188 in fiscal 2017 under ASC Topic 718, Stock Compensation.

On January 31, 2013, Mr. Gaynor was granted an option to purchase 13,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date.  Based on the vesting schedule of the options, we recognized $678 of compensation expense for fiscal 2013. We expect to recognize compensation expense of approximately $1,355 in each of fiscal 2014, fiscal 2015 and fiscal 2016 and $677 in fiscal 2017 under ASC Topic 718, Stock Compensation.
 
All Other Compensation.

Mr. Gaynor is eligible to participate in COBRA health insurance and in any other benefits generally available to our employees. He received “other compensation” for these benefits generally available to all of our employees, including insurance payments for health insurance, dental insurance, life insurance, short term disability and long term disability premiums.

Change of Control Agreement.

Mr. Gaynor is eligible to receive twenty-four months compensation in the event of a change-of-control. For additional details, please see the section titled “Potential Payments Upon Termination or Change-of-Control”.

Dorothy Cipolla
 
Cash Compensation (Base Salary).
 
Ms. Cipolla earned total cash compensation for her services to the Company in fiscal 2013 in the amount of $157,385. This represents her annual base salary for fiscal 2013. The base salary paid to Ms. Cipolla for fiscal 2013 constituted approximately 94% of the total compensation paid to Ms. Cipolla as set forth in the “Total” column in the Summary Compensation Table.
 
Stock Option Awards.
 
On November 6, 2007, Ms. Cipolla was granted an option to purchase 10,000 shares, all of which are now vested.  Based on the vesting schedule of the option, the Company recognized compensation expense of $1,375 in fiscal 2012 under ASC Topic 718, Stock Compensation.
 
On February 4, 2010, Ms. Cipolla was granted an option to purchase 10,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, the Company recognized compensation expense of $3,553 in fiscal 2012 and approximately $3,553 in fiscal 2013 and expects to recognize $2,072 in fiscal 2014 under ASC Topic 718, Stock Compensation.
 
 
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On November 3, 2010, Ms. Cipolla was granted an option to purchase 9,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, the Company recognized compensation expense of $3,020 in fiscal 2012 and $3,020 in fiscal 2013 and expects to recognize compensation expense of approximately $3,020 in fiscal 2014 and $1,007 in fiscal 2015 under ASC Topic 718, Stock Compensation.
 
On October 27, 2011, Ms. Cipolla was granted an option to purchase 12,500 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, the Company recognized compensation expense of $1,640 in fiscal 2012 and $2,185 in fiscal 2013 and expects to recognize compensation expense of approximately $2,185 in each of fiscal 2014 and fiscal 2015 and $545 in fiscal 2016 under ASC Topic 718, Stock Compensation.

On October 25, 2012, Ms. Cipolla was granted an option to purchase 12,500 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date.  Based on the vesting schedule of the option, we recognized $1,114 of compensation expense for fiscal 2013. We expect to recognize compensation expense of approximately $1,485 in each of fiscal 2014, fiscal 2015 and fiscal 2016 and $371 in fiscal 2017 under ASC Topic 718, Stock Compensation.

On January 31, 2013, Ms. Cipolla was granted an option to purchase 4,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date.  Based on the vesting schedule of the option, we recognized $209 of compensation expense for fiscal 2013. We expect to recognize compensation expense of approximately $417 in each of fiscal 2014, fiscal 2015 and fiscal 2016 and $208 in fiscal 2017 under ASC Topic 718, Stock Compensation.
 
All Other Compensation.
 
Ms. Cipolla is eligible to participate in COBRA health insurance and in any other benefits generally available to our employees. She received “other compensation” for these benefits generally available to all of our employees, including insurance payments for health insurance, life insurance, short term disability and long term disability premiums.
 
Change of Control Agreement.
 
Ms. Cipolla is eligible to receive three months compensation in the event of a change-of-control.  For additional details, please see the section titled “Potential Payments Upon Termination or Change-of-Control”.
 
Alan Symmons
 
Cash Compensation (Base Salary).
 
Mr. Symmons earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $133,538. This represents his annual base salary for fiscal 2013. The base salary paid to Mr. Symmons for fiscal 2013 constituted approximately 93% of the total compensation paid to Mr. Symmons as set forth in the “Total” column in the Summary Compensation Table.
 
Stock Options Awards.
 
On December 3, 2007, Mr. Symmons was granted an option to purchase 5,000 shares, all of which are now vested. Based on the vesting schedule of the option, the Company recognized compensation expense of approximately $919 in fiscal 2012 under ASC Topic 718, Stock Compensation.
 
On February 4, 2010, Mr. Symmons was granted an option to purchase 10,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, the Company recognized compensation expense of $3,553 in fiscal 2012 and fiscal 2013 and expects to recognize compensation expense of approximately $2,072 in fiscal 2014 under ASC Topic 718, Stock Compensation.
 
On November 3, 2010, Mr. Symmons was granted an option to purchase 7,000 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, the Company recognized compensation expense of $2,349 in fiscal 2012 and $2,349 in fiscal 2013 and expects to recognize compensation expense of approximately $2,349 in fiscal 2014 and $784 in fiscal 2015 under ASC Topic 718, Stock Compensation.
 
On October 27, 2011, Mr. Symmons was granted an option to purchase 12,500 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date. Based on the vesting schedule of the option, the Company recognized compensation expense of $1,640 in fiscal 2012 and $2,185 in fiscal 2013 and expects to recognize compensation expense of approximately $2,185 in each of fiscal 2014 and fiscal 2015 and $545 in fiscal 2016 under ASC Topic 718, Stock Compensation.

On October 25, 2012, Mr. Symmons was granted an option to purchase 12,500 shares. One-fourth of the option shares vests on each of the first, second, third and fourth anniversaries of the grant date.  Based on the vesting schedule of the option, we recognized $1,114 of compensation expense for fiscal 2013. We expect to recognize compensation expense of approximately $1,485 in each of fiscal 2014, fiscal 2015 and fiscal 2016 and $371 in fiscal 2017 under ASC Topic 718, Stock Compensation.
 
 
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On January 31, 2013, Mr. Symmons was granted an option to purchase 4,000 shares. One-fourth of the options shares vests on each of the first, second, third and fourth anniversaries of the grant date.  Based on the vesting schedule of the option, we recognized $209 of compensation expense for fiscal 2013. We expect to recognize compensation expense of approximately $417 in each of fiscal 2014, fiscal 2015 and fiscal 2016 and $208 in fiscal 2017 under ASC Topic 718, Stock Compensation.
 
All Other Compensation.
 
Mr. Symmons is eligible to participate in COBRA health insurance and in any other benefits generally available to our employees. He received “other compensation” for these benefits generally available to all of our employees, including insurance payments for health insurance, life insurance, short term disability and long term disability premiums. 
 
Change of Control Agreement.
 
Mr. Symmons is eligible to receive three months compensation in the event of a change-of-control.  For additional details, please see below.
 
Potential Payments Upon Termination or Change-of-Control
 
The following table provides change-of-control payments due to the executive officers named in the Summary Compensation Table. These payments would be due to the executive officers in the event of a change-of-control.
 
   
Amount of Payment Upon
 
Executive Officer
 
A Change of Control (1)
 
J. James Gaynor (2)
  $ 450,000  
Dorothy Cipolla (3)
  $ 41,250  
Alan Symmons (3)
  $ 35,000  
 
All unvested stock options for Mr. Gaynor immediately vests upon a change of control.  If Mr. Gaynor is terminated without cause, he is entitled to three months paid COBRA benefits.
 
 
(1)
A change-of-control is defined as any of the following transactions occurring:
 
 
·
The dissolution or liquidation of the Company,
 
 
·
The stockholders of the Company approve an agreement providing for a sale, lease or other disposition of all or substantially all of the assets of the Company and the transactions contemplated by such agreement are consummated,
 
 
·
A merger or a consolidation in which the Company is 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 the common stock of the Company shall not be considered a change-of-control.
 
 
(2)
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 the Company.
 
 
(3)
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 the Company.
 
 
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Outstanding Equity Awards at Fiscal Year-End
 
(a)
 
(b)
   
(c)
   
(e)
   
(f)
 
Name
 
Number of
   
Number of
   
Option
 
Vesting
Option
 
   
Securities
   
Securities
   
Exercise
 
Schedule
Expiration
 
   
Underlying
   
Underlying
   
Price ($)
   
Date
 
   
Unexercised
   
Unexercised
             
   
Options (#)
   
Options (#)
             
   
Exercisable
   
Unexercisable
             
                         
J. James Gaynor
    15,000           $ 3.47  
2 year cliff
7/24/2016
 
      20,000           $ 4.80  
25%/yr for 4 yrs
10/27/2016
 
      15,000           $ 3.05  
25%/yr for 4 yrs
11/6/2017
 
      30,000           $ 2.10  
25%/yr for 4 yrs
1/31/2018
 
      37,500       12,500     $ 2.66  
25%/yr for 4 yrs
2/4/2020
 
      12,500       12,500     $ 2.69  
 25%/yr for 4 yrs
11/3/2020
 
      10,000       30,000     $ 1.39  
 25%/yr for 4 yrs
10/27/2021
 
            40,000     $ 0.98  
 25%/yr for 4 yrs
10/25/2022
 
            13,000     $ 0.87  
 25%/yr for 4 yrs
1/31/2023
 
Dorothy Cipolla
    15,000           $ 4.53  
2 year cliff
2/28/2016
 
      20,000           $ 4.80  
25%/yr for 4 yrs
10/27/2016
 
      10,000           $ 3.05  
25%/yr for 4 yrs
11/6/2017
 
      7,500       2,500     $ 2.66  
25%/yr for 4 yrs
2/4/2020
 
      4,500       4,500     $ 2.69  
 25%/yr for 4 yrs
11/3/2020
 
      3,125       9,375     $ 1.39  
 25%/yr for 4 yrs
10/27/2021
 
            12,500     $ 0.98  
 25%/yr for 4 yrs
10/25/2022
 
            4,000     $ 0.87  
 25%/yr for 4 yrs
1/31/2023
 
Alan Symmons
    5,000           $ 5.24  
4 year cliff
10/18/2016
 
      5,000           $ 3.27  
25%/yr for 4 yrs
12/3/2017
 
      7,500       2,500     $ 2.66  
25%/yr for 4 yrs
2/4/2020
 
      3,500       3,500     $ 2.69  
 25%/yr for 4 yrs
11/3/2020
 
      3,125       9,375     $ 1.39  
 25%/yr for 4 yrs
10/27/2021
 
            12,500     $ 0.98  
 25%/yr for 4 yrs
10/25/2022
 
            4,000     $ 0.87  
 25%/yr for 4 yrs
1/31/2023
 

The stock options are issued pursuant to the Company’s Amended and Restated Omnibus Incentive Plan and have a ten year life. The awards will terminate 90 days after termination of employment.
 
Director Compensation
 
The Company uses a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on its Board of Directors. In setting director compensation, the Company considers the significant amount of time that directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of the Board of Directors.
 
 
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Cash Compensation Paid to Board Members
 
For fiscal year 2005 and beyond, all non-employee members of the Board of Directors receive a retainer of $2,000 per month, paid quarterly. There are no meeting attendance fees paid unless, by action of the Board of Directors, such fees are deemed advisable due to a special project or other effort requiring extra-normal commitment of time and effort. Additionally, the following fees are paid to the Chairman of the Board and Committee Chairmen on a quarterly basis for their responsibilities overseeing their respective functions:
 
   
Amount
   
Chairman of the Board
  $ 15,000    
Audit Committee Chairman
  $ 2,000    
Compensation Committee Chairman
  $ 1,000    
Finance Committee Chairman
  $ 1,000    
 
The Directors earned the amounts above for fiscal 2013, which amounts reflect a 5% reduction from the normal base fee amount. This reduction was put in place when the Orlando staff received a pay reduction in April 2012. The board fees reverted to the normal base fee amounts when the Orlando pay reduction was eliminated in the fourth quarter of fiscal 2013. Directors who are employees of the Company receive no compensation for their service as directors.
 
Stock Option/Restricted Stock Program
 
All directors are eligible to receive equity incentives under the Company’s Amended and Restated Omnibus Incentive Plan, including stock options, restricted stock awards or units. In fiscal 2013, the following directors received grants under the Company’s Amended and Restated Omnibus Incentive Plan:

   
Restricted Stock Units
 
Name of Director
 
Number of Units Granted
 
Grant Date
 
Fair Value Price Per Share
 
  Dr. Steve Brueck
    40,000  
1/31/2013
  $ 0.87  
  Sohail Khan
    40,000  
1/31/2013
  $ 0.87  
  Louis Leeburg
    40,000  
1/31/2013
  $ 0.87  
  Robert Ripp
    40,000  
1/31/2013
  $ 0.87  
  Gary Silverman
    40,000  
1/31/2013
  $ 0.87  
  M. Scott Faris
    40,000  
1/31/2013
  $ 0.87  
      240,000            

Director Summary Compensation Table
 
The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal year ended June 30, 2013.
 
                         
                         
Name (1)
 
Fees Earned or
   
Stock
   
All Other
   
Total
 
   
Paid in Cash
   
Awards
   
Compensation
   
($)
 
   
($)(2)
   
($)(3)
   
($)
       
(a)
 
(b)
   
(c)
   
(g)
   
(h)
 
Robert Ripp
  $ 79,800     $ 38,461     $ 11,594 (4)   $ 129,855  
Sohail Khan
  $ 22,800     $ 38,461     $     $ 61,261  
Steve Brueck
  $ 22,800     $ 38,461     $     $ 61,261  
Louis Leeburg
  $ 30,400     $ 38,461     $     $ 68,861  
Gary Silverman
  $ 26,600     $ 38,461     $     $ 65,061  
M. Scott Faris
  $ 22,800     $ 10,717     $     $ 33,517  
 
(1)
J. James Gaynor, the Company’s President and Chief Executive Officer during fiscal 2013, is not included in this table as he was an employee of the Company and thus received no compensation for his services as director. The compensation received by Mr. Gaynor as an employee of the Company is shown in the Summary Compensation Table on page 26.
 
 
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(2)
Total fees earned for fiscal 2013, includes all fees earned, including earned but unpaid fees. The amounts of unpaid fees for each director are as follows: Mr. Ripp - $19,950, Mr. Leeburg - $7,600, Mr. Silverman - $6,650, Dr. Brueck - $5,700, Mr. Khan -  $5,700 and Mr. Faris - $5,700.
 
(3)
Reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended June 30, 2013 in accordance with ASC Topic 718 and thus may include amounts from awards granted in and prior to 2013.
 
(4)
Mr. Ripp’s “other compensation” includes monies received for travel reimbursement for fiscal 2013.  This amount includes parking, mileage and toll expenses for Company related meetings and leased aircraft fees for travel to one board meeting.
 
Narrative Disclosure of Summary Compensation Table of Directors

The following is a narrative discussion of the material information which we believe is necessary to understand the information disclosed in the previous tables.  The following narrative disclosure is separated into sections, with a separate section for each of our directors, expect for Mr. Gaynor.
 
Robert Ripp
 
Cash Compensation (Base Fees and Position Fees).
 
Mr. Ripp earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $79,800 of which $19,950 was due in accounts payable at year end. This represents his retainer and chairman fees for fiscal 2013. The base fees to Mr. Ripp for fiscal 2013 constituted approximately 61% of the total fees paid to Mr. Ripp as set forth in the “Total” column in the Summary Compensation Table.
 
Long-Term Equity Incentive Awards.
 
On February 4, 2010, Mr. Ripp was granted a restricted stock unit for 15,000 shares, all of which are now vested. Based on the vesting schedule of the stock, the Company recognized compensation expense of $9,950 in fiscal 2012 and $5,807 in fiscal 2013 in accordance with ASC Topic 718, Stock Compensation.
 
On November 3, 2010, Mr. Ripp was granted a restricted stock unit for 15,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $13,450 in fiscal 2012 and $13,450 in fiscal 2013 and expects to recognize $4,487 in fiscal 2014 in accordance with ASC Topic 718, Stock Compensation.
 
On October 27, 2011, Mr. Ripp was granted a restricted stock unit for 29,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $10,078 in fiscal 2012 and $13,437 in fiscal 2013 and expects to recognize $13,437 in fiscal 2014 and $3,358 in fiscal 2015 in accordance with ASC Topic 718, Stock Compensation.
 
On January 31, 2013, Mr. Ripp was granted a restricted stock unit for 40,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $5,767 in fiscal 2013 and expects to recognize $11,533 in fiscal 2014 and fiscal 2015 and $5,766 in fiscal 2016 in accordance with ASC Topic 718, Stock Compensation.

Sohail Khan
 
Cash Compensation (Base Fees and Position Fees).
 
Mr. Khan earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $22,800 of which $5,700 was due in accounts payable at year end. This represents his retainer for fiscal 2013. The base fees to Mr. Khan for fiscal 2013 constituted approximately 37% of the total fees paid to Mr. Khan as set forth in the “Total” column in the Summary Compensation Table.
 
 
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Long-Term Equity Incentive Awards.
 
On February 4, 2010, Mr. Khan was granted a restricted stock unit for 15,000 shares, all of which are now vested. Based on the vesting schedule of the stock, the Company recognized compensation expense of $9,950 in fiscal 2012 and $5,807 in fiscal 2013 in accordance with ASC Topic 718, Stock Compensation.
 
On November 3, 2010, Mr. Khan was granted a restricted stock unit for 15,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $13,450 in fiscal 2012 and $13,450 in fiscal 2013 and expects to recognize $4,487 in fiscal 2014 in accordance with ASC Topic 718, Stock Compensation.
 
On October 27, 2011, Mr. Khan was granted a restricted stock unit for 29,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $10,078 in fiscal 2012 and $13,437 in fiscal 2013 and expects to recognize $13,437 in fiscal 2014 and $3,358 in fiscal 2015 in accordance with ASC Topic 718, Stock Compensation.
 
On January 31, 2013, Mr. Khan was granted a restricted stock unit for 40,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $5,767 in fiscal 2013 and expects to recognize $11,533 in fiscal 2014 and fiscal 2015 and $5,766 in fiscal 2016 in accordance with ASC Topic 718, Stock Compensation.
 
Steven Brueck
 
Cash Compensation (Base Fees and Position Fees).
 
Dr. Brueck earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $22,800 of which $5,700 due in accounts payable at year end. This represents his retainer for fiscal 2013. The base fees to Dr. Brueck for fiscal 2013 constituted approximately 37% of the total fees paid to Dr. Brueck as set forth in the “Total” column in the Summary Compensation Table. 
 
Long-Term Equity Incentive Awards.
 
On February 4, 2010, Dr. Brueck was granted a restricted stock unit for 15,000 shares, all of which are now vested. Based on the vesting schedule of the stock, the Company recognized compensation expense of $9,950 in fiscal 2012 and $5,807 in fiscal 2013 in accordance with ASC Topic 718, Stock Compensation.
 
On November 3, 2010, Dr. Brueck was granted a restricted stock unit for 15,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $13,450 in fiscal 2012 and $13,450 in fiscal 2013 and expects to recognize $4,487 in fiscal 2014 in accordance with ASC Topic 718, Stock Compensation.
 
On October 27, 2011, Dr. Brueck was granted a restricted stock unit for 29,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $10,078 in fiscal 2012 and $13,437 in fiscal 2013 and expects to recognize $13,437 in fiscal 2014 and $3,358 in fiscal 2015 in accordance with ASC Topic 718, Stock Compensation.
 
On January 31, 2013, Dr. Brueck was granted a restricted stock unit for 40,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $5,767 in fiscal 2013 and expects to recognize $11,533 in fiscal 2014 and fiscal 2015 and $5,766 in fiscal 2016 in accordance with ASC Topic 718, Stock Compensation.

Louis Leeburg
 
Cash Compensation (Base Fees and Position Fees).
 
Mr. Leeburg earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $30,400 of which $7,600 was due in accounts payable at year end. This represents his retainer and fee for audit committee chair for fiscal 2013. The base fees to Mr. Leeburg for fiscal 2013 constituted approximately 44% of the total fees paid to Mr. Leeburg as set forth in the “Total” column in the Summary Compensation Table. 
 
Long-Term Equity Incentive Awards.
 
On February 4, 2010, Mr. Leeburg was granted a restricted stock unit for 15,000 shares, all of which are now vested. Based on the vesting schedule of the stock, the Company recognized compensation expense of $9,950 in fiscal 2012 and $5,807 in fiscal 2013 in accordance with ASC Topic 718, Stock Compensation.
 
 
32

 
 
On November 3, 2010, Mr. Leeburg was granted a restricted stock unit for 15,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $13,450 in fiscal 2012 and $13,450 in fiscal 2013 and expects to recognize $4,487 in fiscal 2014 in accordance with ASC Topic 718, Stock Compensation.
 
On October 27, 2011, Mr. Leeburg was granted a restricted stock unit for 29,000 shares. One-third of the shares on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $10,078 in fiscal 2012 and $13,437 in fiscal 2013 and expects to recognize $13,437 in fiscal 2014 and $3,358 in fiscal 2015 in accordance with ASC Topic 718, Stock Compensation.
 
On January 31, 2013, Mr. Leeburg was granted a restricted stock unit for 40,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $5,767 in fiscal 2013 and expects to recognize $11,533 in fiscal 2014 and fiscal 2015 and $5,766 in fiscal 2016 in accordance with ASC Topic 718, Stock Compensation.

Gary Silverman
 
Cash Compensation (Base Fees and Position Fees).
 
Mr. Silverman earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $26,600 of which $6,650 was due in accounts payable at year end. This represents his retainer and fee for compensation committee chair for fiscal 2013. The base fees to Mr. Silverman for fiscal 2013 constituted approximately 41% of the total fees paid to Mr. Silverman as set forth in the "Total" column in the Summary Compensation Table. 
 
Long-Term Equity Incentive Awards.
 
On February 4, 2010, Mr. Silverman was granted a restricted stock unit for 15,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $9,950 in fiscal 2012 and $5,807 in fiscal 2013 in accordance with ASC Topic 718, Stock Compensation.
 
On November 3, 2010, Mr. Silverman was granted a restricted stock unit for 15,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $13,450 in fiscal 2012 and $13,450 in fiscal 2013 and expects to recognize $4,487 in fiscal 2014 in accordance with ASC Topic 718, Stock Compensation.
 
On October 27, 2011, Mr. Silverman was granted a restricted stock unit for 29,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $10,078 in fiscal 2012 and $13,437 in fiscal 2013 and expects to recognize $13,437 in fiscal 2014 and $3,358 in fiscal 2015 in accordance with ASC Topic 718, Stock Compensation.
 
On January 31, 2013, Mr. Silverman was granted a restricted stock unit for 40,000 shares. One-third of the shares on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $5,767 in fiscal 2013 and expects to recognize $11,533 in fiscal 2014 and fiscal 2015 and $5,766 in fiscal 2016 in accordance with ASC Topic 718, Stock Compensation.

M. Scott Faris
 
Cash Compensation (Base Fees and Position Fees).
 
Mr. Faris earned total cash compensation for his services to the Company in fiscal 2013 in the amount of $22,800 of which $5,700 was due in accounts payable at year end. This represents his retainer and fee for compensation committee chair for fiscal 2013. The base fees to Mr. Faris for fiscal 2013 constituted approximately 68% of the total fees paid to Mr. Faris as set forth in the "Total" column in the Summary Compensation Table. 
 
Long-Term Equity Incentive Awards.
 
On December 23, 2011, Mr. Faris was granted a restricted stock unit for 15,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $2,889 in fiscal 2012 and $4,950 in fiscal 2013 and expects to recognize $4,950 in fiscal 2014 and $2,061 in fiscal 2015 in accordance with ASC Topic 718, Stock Compensation.
 
On January 31, 2013, Mr. Faris was granted a restricted stock unit for 40,000 shares. One-third of the shares vests on each of the first, second and third anniversaries of the grant date. Based on the vesting schedule of the stock, the Company recognized compensation expense of $5,767 in fiscal 2013 and expects to recognize $11,533 in fiscal 2014 and fiscal 2015 and $5,766 in fiscal 2016 in accordance with ASC Topic 718, Stock Compensation.
 
 
33

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management.
 
Equity Compensation Plan Information
 
The following table sets forth as of June 30, 2013, the end of the Company's 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
 
Plan category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
   
Weighted average exercise and grant price of outstanding options, warrants and rights
   
Number of securities remaining available for future issuance
 
                   
Equity compensation plans approved by security holders
    2,715,625     $ 2.38       848,012  
Equity compensation plans not approved by security holders
                 
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of September 5, 2013, the number and percentage of outstanding shares of the Company's 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) directors and named executive officers of the Company as a group, and (iv) each person known by the Company to be the beneficial owner of more than 5% of the outstanding Class A common stock of the Company.

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 September 5, 2013, 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. The information for our stockholders beneficially owning greater than 5% of our Class A common stock is based on previous information supplied or filed by such stockholders.
 
 
34

 
 
         
 
Percent
 
  Securities     Owned  
   
Class A Common Stock
               
 
   
(% )
 
Name and Address (1)
 
Restricted (2)
   
Unrestricted
   
Warrants
   
Options
   
Amount of Shares of Class A Common Stock Beneficially Owned
       
Robert Ripp, Director
    155,700       579,526       131,581       36,100       902,907 (3) (4)     6.1 %
Gary Silverman, Director
    155,700       44,955       3,158       21,100       224,913 (5)     1.6 %
Louis Leeburg, Director
    155,700       57,898       455       6,100       220,153 (6)     1.6 %
Sohail Khan, Director
    156,900                   6,100       163,000 (7)     1.2 %
Dr. Steven Brueck, Director
    155,700       42,919       3,158       6,100       207,877 (8)     1.5 %
M. Scott Faris, Director
    55,000                         55,000       0.4 %
J. James Gaynor, President & CEO
          43,442       3,386       248,000       294,828 (9)     1.5 %
Dorothy Cipolla, CFO, Secretary & Treasurer
                      93,000       93,000       *  
Alan Symmons, Vice President of Engineering
                      56,000       56,000       *  
                                                 
All directors and named executive officers currently holding office as a group (9 persons)
    834,700       768,740       141,738       472,500       2,217,678       13.1 %
                                                 
Berg & Berg Enterprises, LLC
          2,574,007                   2,574,007 (10)     18.5 %
Pudong Science and Technology (Cayman) Co., Ltd.
          1,021,855                   1,021,855 (11)     6.9 %
 
* 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 shares until after they leave the Board, either by reason of resignation, termination or otherwise, therefore these shares remain unissued. All unvested restricted stock units for directors will vest upon their resignation or termination from the Board. The amount of restricted stock above reflects both vested and unvested shares included in the restricted stock unit awards. The amounts of vested shares for each director are as follow: Mr. Ripp – 91,366, Mr. Silverman – 91,366, Mr. Leeburg – 91,366, Mr. Khan – 92,566, Dr. Brueck – 91,366 and Mr. Faris – 5,000.
(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.
(4)  Includes 167,681 shares of Class A common stock with respect to which Mr. Ripp has the right to acquire. Mr. Ripp holds warrants which are currently exercisable for an aggregate of 131,581 shares of Class A common stock and options which are currently exercisable for an aggregate of 36,100 shares of Class A common stock.
(5)  Includes 24,258 shares of Class A common stock with respect to which Mr. Silverman has the right to acquire. Mr. Silverman holds warrants which are currently exercisable for an aggregate of 3,158 shares of Class A common stock and options which are currently exercisable for an aggregate of 21,100 shares of Class A common stock.
(6)  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.
(7)  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.
 
 
35

 
 
(8) Includes 9,258 shares of Class A common stock with respect to which Dr. Brueck has the right to acquire. Dr. Brueck holds warrants which are currently exercisable for an aggregate of 3,158 shares of Class A common stock and options which are currently exercisable for an aggregate of 6,100 shares of Class A common stock.
(9) Includes 251,386 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 3,386 shares of Class A common stock and options which are currently exercisable for an aggregate of 248,000 shares of Class A common stock.
(10) Excludes 199,556 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 199,556 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 18.5% of the issued and outstanding share of Class A common stock, the warrants cannot be exercised.
(11) Pudong Science and Technology (Cayman) Co., Ltd. is wholly owned by Shanghai Pudong Science and Technology Investment Co., Ltd., and for purposes hereof is also deemed as 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 the Company is 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 of Directors (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, they are discussed by the full Board of Directors and documented in the board minutes.

There were no transactions with related persons during fiscal 2013 that are required to be disclosed pursuant to applicable SEC rules.
 
Director Independence
 
In accordance with NCM and SEC rules, the Board of Directors 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 of Directors has determined that each of the following non-employee directors is independent and has no relationship with the Company, except as a director and stockholder of the Company.
 
Robert Ripp
 
Steven Brueck
     
Gary Silverman
 
Sohail Khan
     
Louis Leeburg
 
M. Scott Faris
 
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 Cross, Fernandez & Riley, LLP ("CFR") for the audit of the Company's annual financial statements during the years ended June 30, 2013 and 2012, and fees billed for other services rendered by CFR:
 
   
Fiscal 2013
   
Fiscal 2012
 
Audit Fees (1)
    118,650       119,385  
Audit-Related Fees
             
Tax Fees
           
All Other Fees
          14,250  
Total All Fees
  $ 118,650     $ 133,635  
 
 
36

 
 
(1)
Audit Fees consisted of fees billed for professional services rendered for the audit of the Company's 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. Other fees in fiscal 2012 related to fees for a withdrawn shelf offering.

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. 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 report:
     
   (1)
   Financial Statements – See Index on page F-1
     
   
Report of Independent Registered Public Accounting Firm
     
   
Consolidated Balance Sheets—As of June 30, 2013 and 2012
     
   
Consolidated Statements of Operations and Comprehensive Income—For the years ended June 30, 2013 and 2012
     
   
Consolidated Statements of Stockholders' Equity—For the years ended June 30, 2013 and 2012
     
   
Consolidated Statements of Cash Flows—For the years ended June 30, 2013 and 2012
     
   
Notes to Consolidated Financial Statements
     
(b)
The following exhibits are filed herewith as a part of this report.
 
Exhibit Number
 
Description
 
Notes
 
 
 
 
 
3.1.1
 
Certificate of Incorporation of Registrant, filed June 15, 1992 with the Secretary of State of Delaware
 
1
 
 
 
   
3.1.2
 
Certificate of Amendment to Certificate of Incorporation of Registrant, filed October 2, 1995 with the Secretary of State of Delaware
 
1
 
 
 
   
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
 
1
 
 
 
   
3.1.4
 
Certificate of Designation of Series A Preferred Stock of Registrant, filed July 9, 1997 with the Secretary of State of Delaware
 
2
 
 
 
   
3.1.5
 
Certificate of Designation of Series B Stock of Registrant, filed October 2, 1997 with the Secretary of State of Delaware
 
3
 
 
 
   
3.1.6
 
Certificate of Amendment of Certificate of Incorporation of Registrant, filed November 12, 1997 with the Secretary of State of Delaware
 
3
 
 
 
   
3.1.7
 
Certificate of Designation of Series C Preferred Stock of Registrant, filed February 6, 1998 with the Secretary of State of Delaware
 
4
 
 
 
   
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
 
5

3.1.9
 
Certificate of Designation of Series F Preferred Stock of Registrant, filed November 2, 1999 with the Secretary of State of Delaware
 
6
 
 
37

 
 
 
 
 
   
3.1.10
 
Certificate of Amendment of Certificate of Incorporation of Registrant, filed February 28, 2003 with the Secretary of State of Delaware
 
7
 
 
 
   
3.2
 
Bylaws of Registrant
 
1
 
 
 
   
4.1
 
Rights Agreement dated May 1, 1998, between Registrant and Continental Stock Transfer & Trust Company
 
5
 
 
 
   
4.2
 
First Amendment to Rights Agreement dated as of February 28, 2008, between LightPath Technologies, Inc. and Continental Stock Transfer & Trust Company
 
12
 
 
 
   
10.1
 
Directors Compensation Agreement dated November 11, 1999 between Robert Ripp and LightPath Technologies, Inc. and First Amendment thereto
 
8
 
 
 
   
10.2
 
Amended and Restated Omnibus Incentive Plan dated October 15, 2002
 
9
 
 
 
   
10.3
 
Employee Letter Agreement dated June 12, 2008, between LightPath Technologies, Inc., and J. James Gaynor, its Chief Executive Officer & President
 
10
 
 
 
   
10.4
 
Form of Common Stock Purchase Warrant dated as of December 31, 2008, issued by LightPath Technologies, Inc., to certain investors
 
11
 
10.5
 
 
Form of Common Stock Purchase Warrant dated August 19, 2009 issued by LightPath Technologies, Inc., to certain investors
 
 
13
 
10.6
 
Form of Common Stock Purchase Warrant dated as of April 8, 2010, issued by LightPath Technologies, Inc. to certain investors
 
14
 
 
 
   
10.7
 
2004 Employee Stock Purchase Plan dated December 6, 2004
 
15
         
10.8
 
Form of Common Stock Purchase Warrant dated as of June 11, 2012, issued by LightPath Technologies, Inc. to certain investors
 
16
 
 
 
   
10.9
 
Securities Purchase Agreement dated as of June 11, 2012, by and among LightPath Technologies, Inc. and certain investors
 
16
 
 
 
   
10.10
 
Registration Rights Agreement dated as of June 11, 2012, by and among LightPath Technologies, Inc., and certain investors
 
16
         
10.11
 
Memorandum of Understanding Governing the License of Intellectual Property and Manufacturing, Sales and Distribution of Gradium  dated as of September 11, 2012, by and among LightPath Technologies, Inc., and Hubei, New HuaGuang Information Materials Company, Ltd. (NHG)
 
17
         
10.12
 
Conversion Agreement dated March 25, 2013 between the Company and certain debenture holders of our 8% convertible debentures
 
18
 
 
 
38

 
 
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code  
*
 
     
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code  
*
 
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 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.    This exhibit was filed as an exhibit to our annual report on Form 10-KSB filed with the Securities and Exchange Commission on August 31, 2000 and is incorporated herein by reference thereto.

9.    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 31, 2013, were filed as an exhibit to our Proxy Statement filed with the Securities and Exchange Commission on December 10, 2012.

10.  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.
 
11.  This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2009, and is incorporated herein by reference thereto.

12.  This exhibit was filed as amendment number 1 to Form 8-K/A filed with the Securities and Exchange Commission on February 28, 2008, and is incorporated herein by reference thereto.
 
 
39

 

13.  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.

14.  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.

15.  This exhibit was filed as an exhibit to our Registration Statement on Form S-8 (File No, 333-121385) filed with the Securities and Exchange Commission on December 17, 2004, 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 June 11, 2012, and is incorporated herein by reference thereto.

17.  This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 11, 2012, and is incorporated herein by reference thereto.

18.  This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 27, 2013, and is incorporated herein by reference thereto.

19.  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.

* Filed herewith.
 
 
40

 
 
LightPath Technologies, Inc.
 
Index to Consolidated Financial Statements
 
 
F-2
   
Consolidated Financial Statements:
 
 
 
F-3
 
F-4
 
F-5
 
F-6
 
F-7
 
 
F-1

 
 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors
LightPath Technologies, Inc.
 
We have audited the accompanying consolidated balance sheets of LightPath Technologies, Inc., and its subsidiaries (the "Company") as of June 30, 2013 and 2012, and the related consolidated statements of operations and comprehensive income, stockholders' equity, and cash flows for the years 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 audits.
 
We conducted our audits 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 audits 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 audits 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, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Cross, Fernandez and Riley, LLP
 
   
Certified Public Accountants
 
   
Orlando, Florida
 
September 5, 2013
 
 
 
F-2

 
 
 Consolidated Balance Sheets
 
   
June 30,
   
June 30,
 
Assets
 
2013
   
2012
 
Current assets:
           
Cash and cash equivalents
  $ 1,565,215     $ 2,354,087  
Trade accounts receivable, net of allowance of $20,617 and $18,214
    2,126,907       2,133,079  
Inventories, net
    1,770,681       1,513,384  
Other receivables
    353,530       41,000  
Prepaid interest expense
          7,250  
Prepaid expenses and other assets
    262,236       201,459  
Total current assets
    6,078,569       6,250,259  
Property and equipment, net
    2,235,781       1,920,950  
Intangible assets, net
    35,397       68,265  
Debt costs, net
          3,882  
Other assets
    27,737       27,737  
Total assets
  $ 8,377,484     $ 8,271,093  
Liabilities and Stockholders' Equity
               
Current liabilities:
               
Accounts payable
  $ 1,065,651     $ 1,129,708  
Accrued liabilities
    110,628       183,910  
Accrued payroll and benefits
    440,462       386,234  
Deferred revenue
    1,966       37,750  
Capital lease obligation, current portion
    3,602       3,602  
Total current liabilities
    1,622,309       1,741,204  
Capital lease obligation, less current portion
    3,302       6,903  
Deferred rent
    220,216       345,726  
Warrant liability
    1,102,021       1,087,296  
8% convertible debentures to related parties
          1,012,500  
8% convertible debentures
          75,000  
Total liabilities
    2,947,848       4,268,629  
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; 12,958,239 and 11,711,952 shares issued and outstanding, respectively
    129,582       117,120  
Additional paid-in capital
    209,645,126       208,410,216  
Accumulated other comprehensive income
    52,736       88,258  
Accumulated deficit
    (204,397,808 )     (204,613,130 )
Total stockholders' equity
    5,429,636       4,002,464  
Total liabilities and stockholders' equity
  $ 8,377,484     $ 8,271,093  
 
The accompanying notes are an integral part of these consolidated statements.
 
 
F-3

 
 
Consolidated Statements of Operations and Comprehensive Income
 
    Year ended  
   
2013
   
2012
 
Product sales, net
  $ 11,783,539     $ 11,284,869  
Cost of sales
    6,608,288       7,250,098  
Gross margin
    5,175,251       4,034,771  
Operating expenses:
               
Selling, general and administrative
    3,990,927       3,880,667  
New product development
    939,025       1,045,535  
Amortization of intangibles
    32,868       32,868  
Loss on disposal of equipment
    2,273        
Total costs and expenses
    4,965,093       4,959,070  
Operating income (loss)
    210,158       (924,299 )
Other income (expense)