LightPath Technologies, Inc. — Form 10-Q Summary
Period: Quarter ended March 31, 2012 (the third quarter of fiscal 2012, not 2011 as stated in the request metadata). Financial statements are unaudited. LightPath manufactures specialty optical products for industrial, medical, defense, test-and-measurement, and telecommunications markets.
Financial performance
| Metric | Three months ended March 31, 2012 | Three months ended March 31, 2011 | Nine months ended March 31, 2012 | Nine months ended March 31, 2011 |
|---|---|---|---|---|
| Revenue | $2.78 million | $2.43 million | $8.18 million | $7.22 million |
| Gross margin | $880,000; 32% | $977,000; 40% | $2.81 million; 34% | $2.80 million; 39% |
| Operating loss | $506,000 | $151,000 | $1.04 million | $879,000 |
| Net loss | $519,000 | $376,000 | $1.06 million | $1.60 million |
| Loss per share, basic and diluted | $0.05 | $0.04 | $0.11 | $0.17 |
- Quarterly revenue rose 14% and nine-month revenue rose 13% year over year. Precision molded optics unit sales increased 12% in the quarter and 35% over nine months.
- Gross margin weakened as manufacturing costs, coating costs, and development-related labor rose; the nine-month average selling price per unit fell 15%, partly offset by an 8% reduction in average unit cost.
- Nine-month EBITDA, a company-defined non-GAAP measure, was a loss of $134,000 versus a loss of $232,000. Quarterly EBITDA was a loss of $210,000 versus income of $73,000.
- Cash from operations was $97,000 for the nine months, compared with cash used of $67,000 in the prior-year period. Investing activities used $581,000, principally for tooling and infrared-product equipment; financing provided $14,000. Cash declined $439,000 to $490,000 at March 31. Management reported cash of approximately $720,000 on May 7, 2012.
Balance sheet, debt, and liquidity
- At March 31, 2012, cash was $490,000, current assets $4.71 million, current liabilities $2.17 million, and total assets $6.94 million. Stockholders’ equity was $3.31 million, down from $4.04 million at June 30, 2011.
- Accounts receivable increased to $2.40 million from $1.83 million at June 30, 2011. Management said DSO was 79 days, versus 60 days in the comparable prior-year period, attributing the elevated level partly to late-quarter shipments.
- Inventory was $1.56 million, compared with $1.62 million at June 30, 2011. Accounts payable rose to $1.30 million from $929,000; the company said it had extended some supplier terms and arranged payment plans with certain vendors.
- The balance sheet reports $1.09 million of 8% convertible debentures, including $1.01 million owed to related parties. The debt is secured by substantially all previously unencumbered assets, guaranteed by subsidiaries, and extended to August 1, 2013. The debentures prohibit dividends. The company has no borrowing availability under loan or equipment-lease facilities and no committed additional financing.
- Accumulated deficit was $204.8 million. The company reported a history of operating losses and warned that additional financing may be needed if cash flow and profitability do not improve.
Material changes and unusual items
- The quarterly net loss increased year over year, principally because the company expensed approximately $227,000 of costs for a planned public offering that it withdrew in January 2012. The offering was judged not to be in the company’s best interests under prevailing business, economic, and market conditions.
- Nine-month net loss improved from the prior year mainly because prior-year results included substantial debt discount and issuance-cost amortization and a debt-extinguishment loss. Interest expense was $69,000 for the current nine-month period versus $583,000 a year earlier.
- Deferred revenue of $282,000 relates to a $1.1 million Raytheon Vision Systems purchase order for infrared manufacturing-process development, supporting a DARPA program. By March 31, LightPath had invoiced $425,000, recognized $143,000 as revenue, and recorded $425,000 in related receivables. Completion was expected by July 2013.
- Foreign-currency translation generated a $31,000 gain over the nine months. Approximately $4.2 million of assets and $3.3 million of net assets were located at the Shanghai subsidiary.
- Management stated that disclosure controls were effective as of March 31, 2012 and reported no material change in internal control over financial reporting during the quarter.
Outlook, commentary, and risks
- Management expected modest revenue increases in the remaining fiscal 2012 quarter and said it expected operating cash flow to improve, citing bookings, quote activity, and a 12-month backlog of $4.39 million at March 31, up approximately $518,000 from June 30, 2011. The filing identifies the Raytheon order and broader product-line increases as contributors.
- Management cited growth opportunities in low-cost precision molded lenses, infrared optics, and collimators. It expected modestly higher product-development spending as infrared and collimator development continued.
- In the fourth quarter, after the reported period, the company reduced Orlando staff and cut all Orlando salaries by 5%; it estimated an annual gross-margin benefit of $400,000. It also cited potential savings from lower-cost glass, longer tooling life, improved yields, and production efficiencies.
- Key risks include limited cash resources and uncertain access to financing; revenue shortfalls or weaker collections; dependence on a few key customers; higher materials, labor, or discretionary costs; failure to realize productivity improvements; and difficulty funding high-volume customer requirements. Management noted that strategic alternatives could become necessary if financing and operating improvements prove insufficient.
Important facts for investors to verify
- Whether subsequent filings confirm cash generation, cash balances, and progress toward profitability, given the low March 31 cash balance and lack of committed financing.
- Collection timing and credit quality of receivables, especially the $425,000 Raytheon balance, and whether the project remains on schedule and within estimated costs.
- Whether backlog converts to shipments and revenue, and whether unit pricing and gross margins stabilize as product mix and production volumes change.
- Whether the Orlando cost reductions and manufacturing-efficiency initiatives deliver the estimated savings without impairing output or customer service.
- The terms, maturity, related-party exposure, and potential dilution from the convertible debentures and outstanding warrants, options, and restricted stock units.