LightPath Technologies, Inc. — Q2 FY2012 Form 10-Q
Reporting period: Fiscal quarter and six months ended December 31, 2011. The interim financial statements are unaudited. LightPath manufactures precision molded and specialty optical products for industrial, medical, defense, test and measurement, and telecommunications markets.
Financial performance
| Metric | Q2 FY2012 | Q2 FY2011 | Six months FY2012 | Six months FY2011 |
|---|---|---|---|---|
| Revenue | $2.672 million | $2.528 million | $5.405 million | $4.782 million |
| Gross margin | $844,000 (32%) | $1.000 million (40%) | $1.926 million (36%) | $1.827 million (38%) |
| Operating loss | $320,000 | $254,000 | $529,000 | $729,000 |
| Net loss | $343,000 | $374,000 | $542,000 | $1.227 million |
| Loss per share, basic and diluted | $0.04 | $0.04 | $0.06 | $0.13 |
- Six-month operating cash flow was positive $257,000, compared with $55,000 a year earlier. Capital expenditures were $543,000, resulting in a $334,000 cash decrease after financing and foreign-exchange effects; cash ended the period at $595,000.
- At December 31, current assets were $4.613 million and current liabilities $1.851 million. Total assets were $7.091 million; stockholders’ equity was $3.748 million. The accumulated deficit was $204.3 million.
- Outstanding 8% convertible debentures totaled $1.088 million, including $1.013 million held by related parties. They are secured by substantially all previously unencumbered assets, guaranteed by subsidiaries, and mature August 1, 2013. The filing reports no borrowing availability or committed financing.
- Management’s non-GAAP EBITDA was positive $77,000 for the first half, versus negative $306,000 a year earlier.
Changes versus comparable periods
- Revenue rose 6% in the quarter and 13% for the half. Precision molded optics drove much of the growth; the company reported 50% more lens units sold in the half, but average selling price per unit was 20% lower.
- Gross margin declined in both periods. Management cited sales mix, lower-than-planned revenue, a greater proportion of higher-cost glass, labor and benefit costs, severance, and a customer product return following specification changes.
- First-half net loss narrowed by about $685,000, mainly because prior-year interest expense included accelerated debt-conversion-related charges. SG&A fell $189,000 for the half, while new-product development expense increased $88,000.
Outlook, commentary and risks
- Management expects modest revenue increases in the remaining FY2012 quarters and anticipates improved operating cash flow, citing booking and quote activity and the 12-month backlog. The backlog was reported at $3.83 million, down $46,000 from June 30, 2011; the filing also says it increased approximately $554,000 compared with the prior-year period.
- The company withdrew its proposed public offering on January 27, 2012, citing business, economic and market conditions. Approximately $220,000 of prepaid offering costs is expected to be written off in the third fiscal quarter.
- Management is pursuing cost reductions through lower-cost glass, longer tooling life, better yields and production efficiency. It expects new-product development spending to increase for the remainder of FY2012, particularly for infrared products.
- Liquidity is a significant risk: the company has a history of operating losses, limited cash, no available borrowing facilities, and may need external financing. There is no assurance financing will be available on acceptable terms or that sales growth and margin improvements will sustain operations. Management cites risks including weaker revenue or collections, higher material and labor costs, unrealized efficiency gains, and discretionary spending.
- Telecommunications customers delayed deliveries and orders amid weak market conditions; slower Chinese construction also weighed on industrial-tool demand. Growth from defense, industrial and collimator/custom optics customers partly offset these effects. Lower sales could leave fixed costs under-absorbed and pressure margins.
- Management reported disclosure controls were effective as of December 31, 2011 and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether backlog converts to shipments and cash collections, especially given the reported backlog decline since June and sales below forecast.
- Cash runway, near-term financing alternatives, and the consequences of the withdrawn offering and anticipated $220,000 cost write-off.
- Debenture terms, related-party ownership, security interests, August 2013 maturity, and potential dilution from convertible debt, warrants and equity awards.
- Whether product mix, pricing, glass costs, labor costs and production improvements support a recovery in gross margins.
- Whether the filing’s backlog comparison figures—up approximately $554,000 year over year but down $46,000 since June—are consistent with the company’s underlying order data.