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, 2009 or




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




For
the transition period from 
to




Commission
file number 000-27548









LIGHTPATH
TECHNOLOGIES, INC.


(Exact
name of registrant as specified in its charter)









DELAWARE
              
              86-0708398(State
      or other jurisdiction of incorporation or organization)
              
              (
      I.R.S. Employer Identification No)http://www.lightpath.com2603
      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 thischapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post
such files)..    YES  ̈    NO  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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.  As defined in Rule 12b-2 of the Exchange Act: See the
definition of “Large Accelerated Filer”, “Accelerated Filer”, “Non-accelerated
Filer” or “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 definedin Rule 12b-2 of 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 $4,014,417 as of December
31, 2008.




As of
September 15, 2009, the number of shares of the registrant’s Class A Common
Stock outstanding was 8,035,739.










LightPath
Technologies, Inc.


Form
10-K




Table
of Contents





PART
      I
                                                                    
                                                                    3Item
      1.
                                                                    Business
                                                                    3General
                                                                    3Business
      Strategy
                                                                    4Sales
      and Marketing
                                                                    6Competition
                                                                    6Manufacturing
                                                                    7Patents
      and Other Proprietary Intellectual Property
                                                                    9Environmental
      and Governmental Regulation
                                                                    9New
      Product Development
                                                                    9Employees
                                                                    10Item
      2.
                                                                    Properties
                                                                    10Item
      3.
                                                                    Legal
      Proceedings
                                                                    11Item
      4.
                                                                    Submission
      of Matters to a Vote of Security Holders
                                                                    11PART
      II
                                                                    
                                                                    12Item
      5.
                                                                    Market
      for Registrant’s Common Equity and Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                                                    12Item
      7.
                                                                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                                                    13Item
      8.
                                                                    Financial
      Statements and Supplementary Data
                                                                    22Item
      9.
                                                                    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                                                                    22Item
      9A.
                                                                    Controls
      and Procedures
                                                                    22PART
      III
                                                                    
                                                                    23Item
      10.
                                                                    Directors
      and Executive Officers of the Registrant
                                                                    23Item
      11.
                                                                    Executive
      Compensation
                                                                    27Item
      12.
                                                                    Security
      Ownership of Certain Beneficial Owners and Management
                                                                    36Item
      13.
                                                                    Certain
      Relationships and Related Transactions
                                                                    39Item
      14.
                                                                    Principal
      Accountant Fees and Services
                                                                    40PART
      IV
                                                                    
                                                                    40Item
      15.
                                                                    Exhibits,
      Financial Statement Schedules and Reports on Form 8-K
                                                                    40Index
      to Consolidated Financial Statements
                                                                    F-1Signatures
                                                                    S-1Certifications
                                                                    See Exhibits


- 2
-


PART
I




Item
1.    Business.




General
  LightPath
Technologies, Inc. (“LightPath” or “Company”) manufactures optical components
and higher-level assemblies including precision molded glass aspheric optics,
precision molded infrared molded optics, isolators, proprietary 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 do their jobs:
  ·
              Molded glass aspheresare in various high performance optical applications in lasers and
      infrared imaging;


·
            Isolatorsprevent the
      back-reflection of optical signals that can degrade optical transmitter
      and amplifier performance whenever light must enter or exit a fiberoptic
      cable (“fiber”);


·
            Collimatorsare
      assemblies that are used to straighten and make parallel diverging light
      as it exits a fiber, laser delivery applications like fiber lasers;
      and


·
            GRADIUMextends the
      performance of a spherically polished glass lens technology improving
      optical performance, approaching aspheric performance at a fraction of the
      price for larger diameter aspheres.




LightPath
was incorporated under Delaware law in June 1992 as the successor to LightPath
Technologies LP, a New Mexico limited partnership formed in 1989, and its
predecessor, Integrated Solar Technologies Corporation, a New Mexico
corporation, organized in 1985. Our initial business objectives included solar
energy technology, however, over time, we expanded our attention to other optics
applications including those using GRADIUM glass lenses.




During
fiscal 1998, we reorganized our sales and marketing efforts with the purpose of
expanding our attention to include markets such as optoelectronics and photonics
due to the number of potential customer inquiries into the ability of GRADIUM
glass to solve optoelectronic problems, specifically in the areas of fiber
telecommunications. During fiscal 2000 we acquired Horizon Photonics, Inc.
(“Horizon”), a California corporation that utilized animated production
platforms to manufacture passive optical components for the telecommunications
and data communications markets.  As a result of the acquisition we
acquired the use of robotic systems in manufacturing isolators. In September
2000, we also acquired Geltech, Inc. (“Geltech”), a Delaware corporation, that
manufactured precision molded glass aspheric optics used in the active telecom
components market to provide a highly efficient means to couple laser diodes to
fibers or waveguides.




From 1998
through 2002, we were heavily reliant on the telecommunications capital
equipment market, which went through a rapid increase and a subsequent rapid
decrease during this period.  As a result, we consolidated all
production and our corporate headquarters in Orlando, Florida during fiscal 2003
in order to reduce costs and adapt to the changes which occurred in this market.
We reorganized our manufacturing facility in Orlando in order to accommodate all
of the production previously performed in New Mexico for GRADIUM glass lenses
and collimators as well as the isolator product line from
California.  Once we consolidated all Company operations to one site
under one management group and with one sales force, we determined that our
former operating segments of Optical Lenses and Laser Components were no longer
reportable operating segments and, as such, we operate a single business with
the aforementioned optical component product lines.




InNovember 2005,we announced the formation
ofLightPath
Optical Instrumentation (Shanghai) Co., Ltd, 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 overall
production capacity and enables LightPath to compete for larger production
volumes of optical components and assemblies, and strengthen partnerships within
the Asia/Pacific region. It also provided a launching point to drive our sales
expansion in the Asia/Pacific region.




Since
2006, we have focused on leveraging our new facility in Shanghai to address high
volume, lower cost applications.  These applications include laser
tools, laser gun sights and certain imaging applications.   We
have established partnerships with some of the larger OEM customers in these
areas.  During this period, we have also enhanced our sales channels
by adding distribution coverage in North America and Asia, and adding a master
distributor in Europe.  We believe we are now well positioned to take
advantage of new opportunities in these areas.




- 3
-




Business
Strategy




Our
strategy is to leverage our technology and know-how, our established low cost
manufacturing capability and partnerships to grow the business
dramatically.  We leveraged our patents and know-how to develop new
products for applications in blue lasers, infrared imaging, fiber laser delivery
systems, laser based tools and micro projectors. We plan to work with larger
distributors so that we can limit the number of distributors we work with
overall while at the same time increasing our presence in the different markets
we serve.




We plan
to emphasize applications with customers in the industrial and defense and
government markets, such as laser tools, military laser tag and gun sights, all
of which are applications we anticipate will grow during fiscal
2010.  We believe these are performance-driven industries that are
seeking to optimize performance of new and existing optical products.
Accordingly, we have launched new catalog lens designs specifically dedicated to
laser tools and gun sights.  These new products are currently shipping
to several customers.




We also
will continue to serve a number of customers in the preventive maintenance, fire
and safety industries; industries which we believe have growing demand for
infrared imaging.  LightPath is working closely with industrial
partners to develop infrared lens assemblies and has shipped several prototypes
to OEM partners.  We intend to increase our design portfolio of
infrared lens designs that can quickly be incorporated into potential infrared
system designs. We also continue to serve a number of telecom customers; most of
them in a broader market of communications, including datatcom, hybrid-fiber
coax and telecommunications.




Molded
Aspheres




We have
rights under a royalty-free perpetual license to the Precision Molded Optics
process originally developed by Corning, Inc., whose business in this field we
acquired in 1994. Products manufactured using this technology include glass
aspheric lenses, sub-millimeter lenses and lens arrays. These products include
wafer-scale molded glass aspheric lenses, anamorphic lenses and hybrid optical
components like diffractives and our Infrared molded optics introduced during
2005.




Our
molded glass aspheres are used in a wide variety of laser and imaging
applications in optical data storage, high precision printing, barcode scanning,
environmental monitoring, machine vision, sensors, laser-to-fiber coupling, and
medical equipment. We continue to aggressively pursue new sales opportunities
in, for example, the application areas of medical devices, laser tools and
infrared imaging.





We
continue to sell aspheric lenses for various communications applications. Glass
aspheric lenses and lens arrays are used to perform two major tasks. One is the
collimation of light as it emerges from the fiber. The second major task is
coupling and focusing light at the output of a laser diode to a fiber or
waveguide. Glass provides high performance and wavelength stability over
fluctuating temperature.




We
continue to offer more lens designs utilizing our proprietary lead free glass
ECO550 and DZK glasses, used for precision molded aspheric
lenses.  The European Parliament has established a specification, RoHS
(Restriction of Hazardous Substances) and the Japanese have established “Green”
requirements in 2003, for the elimination of certain hazardous substances used
in electronic equipment, both of which are now in effect. ECO550 glass is both
RoHS and “Green” compliant and contains virtually no lead or other restricted
materials.





We
continue to develop our molded infrared aspheric optics product line with new
short (SWIR), mid (MWIR) and long (LWIR) materials; this product line is called
the Black DiamondTM
precision molded glass aspheric optics.  Traditionally our aspheric
lenses have been limited to visible and near-infrared wavelengths. Recent
advances in optical materials now provide a common technology path to produce
molded infrared aspheric optics over the wavelength range of 1 to 14 microns.
Traditionally, infrared optics relies on individually diamond turned, polished
or other lengthy manufacturing methods. Utilizing precision molded aspheric
optics significantly reduces the number of lenses required for typical thermal
imaging systems.




We are
enhancing our precision molded infrared aspheric optics products for imaging
applications in firefighting, predictive maintenance, homeland security,
surveillance, automotive and defense.  Starting in 2008, LightPath
delivered customized lens assemblies to clients and increased our presence in
the market for molding precision infrared optics.  In addition, we are
targeting niche markets, such as infrared laser systems that are used in gas
sensing and environmental monitoring, because the demand for infrared imaging
systems has been growing significantly based on the steep decline in prices of
the infrared detectors.  These growing markets provide a unique
opportunity for high volume molded infrared aspheres.


- 4
-


Overall,
we anticipate the growth of infrared optics and increased requirements for
systems requiring molded aspheric optics over traditional ground and polished
lenses.  As infrared imaging systems become widely available, the cost
of optical components needs to decrease before the market demand will increase.
The commercial market has the potential to be the largest market opportunity
within the infrared market with products such as automotive imaging/warning
systems and infrared cameras.  The aspheric character of LightPath’s
lenses enables systems designers to reduce the lens elements in a system and
provide similar performance at a lower cost.  LightPath’s aspheric
molding process is an enabling technology for the cost reduction of infrared
imaging systems.




Isolators




We
manufacture a qualified family of free-space, laminate and custom isolators, and
sell isolator assemblies for applications in all communication
markets.  Isolators for communications, in general, is a very cost
sensitive product.  We moved  the production of our
isolators to our Shanghai facility in order to help cut costs and improve our
gross margin.




Collimators




We are specifically targeting and
selling high power collimators into diverse markets such as fiber laser systems,
Nd:YAG laser cutting and
welding systems and communications systems. Our standard 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
testedour 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.




In 2008, we introducedthe IsoBeamTMFusion Collimator for the fiber laser
market.  This new collimator combines the high power capabilities of
our Fiber Fusion collimators with a high power optical isolator to prevent
harmful back reflections from reaching the laser.  The
IsoBeamTMis specifically designed for use with
fiber lasers up to 30W, where reducing back reflections is a critical
necessity.  We are working with several fiber laser suppliers to
qualify the IsoBeamTMfor incorporation into their
systems.




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 high
power YAG laser for laser cutting and laser welding.





Because
GRADIUM glass can concentrate light transmission into a much smaller focal spot
than conventional spherical lenses, we believe that GRADIUM glass has the
ability to improve the current standards of laser performance in some
applications. For example, the smaller focused spot that GRADIUM lenses produce
is utilized in the automotive industry to make sharper laser cuts for automotive
body panels and hydroformed rails than what is possible with conventional
lenses.  The smaller spot size produced by GRADIUM lenses is also
utilized in various medical, industrial, and instrumentation
applications.




Our
product strategy for GRADIUM is to increase our emphasis on key laser market
niches in the United States, Europe and Asia and to establish the necessary
partnership alliances to sell into these markets. In the fourth quarter of
fiscal 2002 we sold some of our GRADIUM production equipment to an Asia/Pacific
company as part of a licensing agreement whereby they will manufacture GRADIUM
glass for LightPath and distribute lenses to their own customers in
Asia/Pacific. This agreement was renegotiated in fiscal 2003, whereby we
obtained a royalty for their GRADIUM sales and we will maintain United States
GRADIUM distribution rights. This agreement renews annually each May for an
additional year unless terminated by either party.





Optical
Assemblies




We are
currently producing optical assemblies based on our proprietary technologies. We
are working to design, build and sell optical assemblies into the 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.


- 5
-


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, the markets for our products are highly segmented and no single
marketing approach will allow us to access all available market
segments.




Sales
Organization




Our sales
staff is trained to promote and sell all of our product lines to our customers.
In order to be more accessible to potential customers we have divided our sales
staff into the following territories:




U.S. East
Half & Eastern Canada;


U.S. West
Half & Western Canada;


China/Asia;
and


Europe/ROW.





In
addition, we have formalized relationships with twelve industrial, laser,
optoelectronics and medical component distributors located in foreign countries
and in the United States to assist in distribution of our products
geographically outside the United States and in highly specific target markets.
Because the optics industry is highly fragmented, we utilize these distributors,
certain catalog distributors, our own catalog and our Internet site
(www.lightpath.com) as vehicles for broader promotion of our products. We make
limited use of print media advertisements in various trade magazines and
participate in appropriate domestic and foreign trade shows.




Trade
Shows




We display our product line additions
and enhancements at one or more trade shows each year. For example we
participated in Photonics Westin January 2009 and
SPIE East in April 2009. We also attended CLEO and shows in Europe (Laser Munich
and Optatec) and Asia (ILOPE in Beijing, CIOE in Shenzhen, and AOE in
Shanghai).  Such a strategy also underscores LightPath’s strategic
directive of broadening our base of innovative optical components and
assemblies. These shows provide an opportunity to meet with potential customers,
to distribute information and samples of our products and to discuss test
results from samples previously sent.




New
Products




Our efforts in new product development
are intended to continue to broaden our capabilities to service
marketareas in addition to
the communications markets.  We are specifically choosing target
markets that take advantage of our existing technologies and provide new
products that fit specific requirements for those target markets.In January 2009 we introduceda new line of aspheric
lenses for the laser tool market, and in June 2009 we introduced new Black
Diamond assemblies for the thermal imaging market.  We consider both
of these markets to be strategic.




In addition to the products mentioned
above, we are partnering
withonecustomerto provide optical assemblies that
combine two or more of our current components, such as molded aspheres and an
isolator, into a subassembly. We believe these optical assemblies add
significant value for our customers and may produce higher grossprofit margins for us than individual
components.




Competition




The
market for optical components generally is highly competitive and highly
fragmented. We compete with manufacturers of conventional spherical lens
products 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 radial gradient lenses and optical components. Most
of these competitors have greater financial, manufacturing, marketing and other
resources than we do.




We
believe we can be successful in securing business because of our unique
capabilities in optical design engineering that we make available on the
merchant market, our low cost structure and our substantial presence in China.
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, isolators, infrared
lenses and assembly technology.


- 6
-




Manufacturers
of conventional lenses and optical components include corporations such Nikon,
Olympus Optical Company, Carl Zeiss and Leica AG. In addition to being
substantial producers of optical components, these entities 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. In addition, although these companies do
not manufacture axial gradient lenses, and although we believe that we have
substantial technological expertise in this field, these companies could rapidly
pursue development of an axial gradient product, in light of their substantial
resources. In addition, our products compete with other products currently
produced by these manufacturers.




Aspheric lenses




Manufacturers
of aspheric lenses provide significant competition for our molded glass aspheric
lenses in providing products that improve the shortcomings of conventional
lenses. Aspheric lens system manufacturers include Panasonic, ALP’s and Hoya
Corporation. 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. Plastic molded aspheres, 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 as their measure of success over performance and
durability.




GRADIUM




To a
limited extent, our GRADIUM material competes with manufacturers of other
gradient index lens materials. Currently, processes to produce gradient index
materials include ion-exchange and chemical vapor deposition, both of which
produce small radial gradient index rods with limited applications.
Manufacturers using these processes include Nippon Sheet Glass, Olympus Optical
Company, and Gradient Lens Corporation.  These competitors tend to
produce relatively small lenses for fiber collimation and
coupling.  In comparison, GRADIUM lenses can be made in larger sizes
and thus can be utilized in a more broad range of applications.




Isolators




We
compete with a few specific players in the isolator segment of the components
market. These include Namiki, TDK, Tokin, Kyocera and Sumitomo. Our strategy
does not involve direct competition with the “catalog” offerings of these
companies; rather, we focus our efforts on designing and manufacturing custom
specialty and hybrid components according to particular OEM specifications. We
have transferred the manufacturing of our isolator products to our Shanghai
facility.




Collimators




LightPath’s
collimator line focuses on high power laser in the fiber laser market. There are
currently only a handful of direct competitors for our collimators. These
include Optoskand and Oz Optics. The key difference between our collimators and
our competitor’s is in our fiber fusion technology.  This fusion
technology eliminates the air interface at the tip of a fiber and allows light
to expand in glass, lowering the power density and providing a more robust,
reliable construction than our competition can offer for high power
applications.




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 foreseeable needs. Both facilities
feature areas for each step of the manufacturing process including tooling and
coating work areas, pre-form manufacturing, and a clean room for pressing and
integrated assembly. Both facilities include new product development labs and
space that includes development and metrology equipment.




In 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 lens holders; and the fabrication of proprietary
press workstations and mold equipment.  In Orlando, we have glass
coring equipment for our current needs of GRADIUM product sales in the United
States and Europe.  We obtain GRADIUM boules from Hikari Glass in
Japan.  Our Orlando facility 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.  They are all International Traffic in Arms and Regulations
(ITAR) compliant.


- 7
-


Our
Shanghai facility also features a molded glass aspheres manufacturing area,
which includes lens pressing equipment, high precision mold production
equipment, advanced metrology and inspection equipment and coating
facilities.The clean
room in our Shanghai facility features our isolator manufacturing equipment,
which includes dual beam laser welding stations, sub-micron alignment engines,
automated dispensing systems and precision dicing equipment.




We are
ISO 9001:2000 certified in both of our 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 Telcordia
requirements and other customer required product specifications. Our New Product
Development department has CAD tools and technical support. The continuing
implementation of various statistical process controls (SPC’s) is being pursued
to improve product yields and allow 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 demand
rigorous testing prior to their purchase of our products.




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
some lenses, polishing certain lenses where required, and coating them. We have
taken steps to protect our proprietary methods of repeatable high quality
manufacturing by patent disclosures and internal trade secret
controls.




Our
proprietary GRADIUM boules are produced by Hikari Glass, which also remits a
royalty to us for its sales to customers in the Asia/Pacific region. This
arrangement also allows our GRADIUM boules related products to gain sales
exposure in the Asia/Pacific region.





Suppliers




We utilize a number of glass
compositions for the manufacture of our molded glass aspheres and lens array
products.  Previously, Corning, Inc. (“Corning”) was our
sole source for our primary glass composition; however, Corning discontinued
production of this glass composition in 2007. We have converted a significant
majority of our products to different, lower cost glass compositions made by
Hikari, Ohara, CDGM and other suppliers.  We have also put an
inventory of the Corning glass in stock to cover a small number of applications
that may take an extended time to convert.  We expect that we will see
significant cost savings due to the use of new
glass compositions and do not believe the inability to use the Corning glass
composition will adversely affect our production in any material
respect.




Base
optical materials, used in both GRADIUM and collimator products, are
manufactured and supplied by a number of major optical and glass manufacturers.
Optical fiber and collimator housings are manufactured and supplied by a number
of major manufacturers. 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
chemicals and inert gases, specialty ceramics, UV and AR coatings, and other
specialty coatings. To date, we have found a suitable number of qualified
vendors for these materials and services.





We
currently purchase a few key materials from single or limited sources. The
polarizing glass used in our isolator products is supplied by Corning and Hoya.
To date, we have been able to acquire an ample supply of polarizing glass.
Garnet and other crystals used in our isolator products are provided by a number
of vendors, including Sumitomo, TDK and Triquint. We believe that the available
quantities of garnet we will need are available at stable, adequate prices and
are available in the open market. 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.




We rely
on local and regional vendors for component materials such as housings, fixtures
and magnets. In addition, certain products require external processing such as
brazing and metallization. To date, we have found a suitable number of qualified
vendors.





- 8
-




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, robotic assembly and
micro-fabrication. The first of our issued patents expired in 2006; the
remainder expire at various times through 2019.  We do not expect a
material effect in operations to result from the expiration of the patent in
2006. Patent applications corresponding to some of our United States
applications have been filed in the patent offices in Europe and Japan pursuant
to the Patent Cooperation Treaty. Under the Patent Cooperation Treaty, a patent
applicant may file one patent application and have it acknowledged as an
accepted filing in as many member nations to the Patent Cooperation Treaty as
the applicant elects.




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.




LightPath®
is registered as a service mark in the United States and BLACK DIAMOND®and
GRADIUM®
are also registered trademarks. Other trademarks are held out and used by us
under common law, such as Circulight.TM




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.




Environmental and Governmental
Regulation




Currently,
emissions and waste from our present manufacturing processes are at such low
levels that no special environmental permits or licenses are required. In the
future, we may need to obtain special permits for disposal of increased waste
by-products. The glass materials we utilize contain lead and other 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
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.




The
European Parliament established a specification, RoHS (Restriction of Hazardous
Substances) and the Japanese established a “Green” requirement, for the
elimination of certain hazardous substances used in electronic equipment. Our
proprietary lead free glass, ECO550 is both RoHS and “Green” compliant and
contains virtually no lead or other restricted materials.




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, isolators and collimators. Today, however, as part of our cash
conservation strategy, we conduct no basic research and development. Our efforts
in this area are concentrated on product development to support existing and new
customers in the design and manufacture of items in our three basic product
lines: lenses, isolators and collimators.


- 9
-


As a
result, our present new product development efforts are focused on markets that
include Infrared Optics for imaging, blue lens applications, YAG lasers, fiber
lasers, defense, medical devices, industrial, optical data storage, machine
vision, sensors and environmental monitoring. We incurred expenditures for new
product development during the fiscal years 2009 and 2008 of $887,400 and
$1,214,269, respectively. We currently plan to expend approximately $808,000 for
new product development during fiscal 2010, which could vary depending upon
revenues levels, customer requirements and perceived market opportunities. For
more difficult or customized products, we bill our customers for engineering
services as a non-recurring engineering fee (“NRE”).




Concentration of Customer
Risk




In fiscal
2009 sales to two customers, Crimson Trace and ThorLabs individually comprised
at least 7% of our annual sales, with sales to Crimson Trace at 9% and sales to
ThorLabs at 7%. In fiscal 2008 sales to two customers, Santur and ThorLabs
individually comprised at least 8% of our annual sales, with sales to Santur at
9% and sales to ThorLabs at 8%. The loss of any of these customers, or a
significant reduction in sales to any such customer, would adversely affect our
revenues.




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 “Disclosure Backlog” as that which is requested by the customer
for delivery within one year and which is reasonably likely to remain in the
backlog and be converted into revenues. This includes customer purchase orders
and may include amounts under supply contracts if they meet the aforementioned
criteria. Generally, a higher backlog is better for the Company.




Disclosure
Backlog, as defined above, has been as follows in the immediately preceding six
fiscal quarters:





Fiscal
                  Quarter
                
                Ended
                
                Approximate
                  Disclosure
                  BacklogQ4-2009
                
                6/30/2009
                
                $
                2,278,000Q3-2009
                
                3/31/2009
                
                $
                3,425,000Q2-2009
                
                12/31/2008
                
                $
                3,004,000Q1-2009
                
                9/30/2008
                
                $
                3,208,000Q4-2008
                
                6/30/2008
                
                $
                2,995,000Q3-2008
                
                3/31/2008
                
                $
                3,054,000





Employees




At June
30, 2009, we had 124 full-time equivalent employees, with 45 in Florida and 79
in China. Any employee additions or terminations over the next twelve months
will be dependent upon the actual sales levels realized during fiscal 2010.
Sixteen of our employees are engaged in management, administrative and clerical
functions, thirteen in new product development, fourteen in sales and marketing
and 81 are 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,
manufacturing management and some manufacturing operations. Lease terms on our
Orlando facility call for monthly rental payments of approximately $42,000
through April 2015, which includes all charges, including common area
maintenance, escalation, and certain pass-throughs of taxes and other operating
costs.  Due to the transfer of manufacturing for over 95% of our
production requirements for our precision molded optic line to our Shanghai
facility, we reduced the leased space in our Orlando facility from 41,063 square
feet to 21,557 square feet.  The third and fourth amendments to the
Orlando facility lease, effective December 1, 2007 and May 1, 2009,
respectively, reflect this reduction in leased space and the related rental
obligations. The lease term was also extended from November 30, 2008, to April
31, 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.  The third
lease amendment required the payment of a lease termination fee of $150,000,
which was paid in three installments in December 2007, January 2008 and February
2008 and expensed in the second quarter of fiscal 2008.


- 10
-


We also
lease a 16,000 square foot facility located in Jiading, People’s Republic of
China. In May 2009 the Chinese government paid us to move to a new facility in
the Jiading Industrial Zone near Shanghai. We signed a new five year lease that
will expire April 30, 2014.  The Shanghai facility houses 79
employees. The rent is approximately $6,000 per month. The facility is used
primarily for manufacturing operations and has increased the 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.  We believe our facilities are
suitable for our production needs and adequate to meet our future needs. Current
production levels for both of our facilities are at 37% of capacity and
therefore, we have the ability to add equipment and additional work shifts to
meet forecasted demand.




The
territorial sales personnel maintain an office from their homes to serve their
geographical territories.




Item 3.    Legal
Proceedings




In July 2007weraised gross proceeds of approximately
$3,200,000 by way of the sale of newly issued common stock and warrants to
certain institutional and private investors.  Professional fees of $229,500
were paid to First Montauk Securities Corp. (“First Montauk”), for its role as exclusive placement
agent and financial advisor, attorney and escrow agent
fees.Wereceived proceeds of
$2,979,500.   We issued 800,000 shares of common stock at $4.00
per share.  The investors along with First Montauk and its designees, also
received warrants which vested 100% on January 26, 2008 and can be exercised
through January 26, 2013 for the future purchase of 320,000 shares ofourcommon stock at an exercise price of
$5.50 per share.




On September24, 2007,wereceived a letter from one of the
investors, Harborview Master Fund, LP, that purchased $500,000 of common stock
issued in the offering demanding rescission of its investment and
reimbursement of its expenses incurred in connection with transaction.  The demand was based on the
investor's allegations that we failed to disclose facts material to the
investor in making its investment decision. The alleged material
omissions include facts relating to the prospective termination of the
employmentof Kenneth J. Brizel, our then Chief
Executive Officer and our financial condition, and alleged breaches of
certain representations and warranties set forth in the Securities Purchase
Agreement executed with respect to the transaction.  We believed there
was no merit to the investor's claims
and rejected the demand.




On October 24, 2007, we were served with
a complaint filed by the investor against the Company, Mr. Brizel, and Mr. Ripp,
our Chairman, in the United States District Court for the Southern
District of New York (the
“Federal
Action”).  In the
complaint, the investor sought, among other things, rescission of its purchase
and the return of its $500,000 investment, as well as reimbursement of its
expenses incurred in connection with its investment.On January 31, 2008, after we filed a
motion to dismiss the original complaint, the investor filed an amended
complaint making substantially the same allegations and seeking the same
relief.  On January 30, 2009 the district court dismissed the
case.




On March 9, 2009 we were served with a
complaint filed by the same investor who filed the Federal Action against the
Company in the New York State Supreme Court of New York County(the “State Action”).  In the complaint, the
investor is seeking damages for theloss of value in its investment as well
as reimbursement of its expenses incurred in connection with its
investment.  We filed a motion to dismiss in the State action, which was
subsequently denied.We believe there is no merit to the
investor’s claims and intend to vigorously defend
against this litigation.




The
Company from time to time is involved in various legal actions arising in the
normal course of business. Management, after reviewing with legal counsel all of
these actions and proceedings, believes that the aggregate losses, if any, will
not have a material adverse effect on our financial position or results of
operations.




Item
4.    Submission of Matters to a Vote of Security Holders.




No matter
was submitted during the fourth quarter of fiscal 2009 to a vote of security
holders, through the solicitation of proxies or otherwise.


- 11
-
  PART
II
  Item 5.    Market
for Registrant’s Common Equity, Related Stockholder Mattersand 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 from the appropriate
market. The quotation information below reflects inter-dealer prices, without
retail mark-up, markdown or commission, and may not represent actual
transactions.
  Class
      A Common
                          StockHigh
                        
                        LowFiscal
      Year Ended June 30, 2009Quarter
      ended June 30, 2009
                        
                        $
                        1.44
                        
                        
                        $
                        0.47Quarter
      ended March 31, 2009
                        
                        $
                        1.14
                        
                        
                        $
                        0.40Quarter
      ended December 31, 2008
                        
                        $
                        1.62
                        
                        
                        $
                        0.59Quarter
      ended September 30, 2008
                        
                        $
                        1.82
                        
                        
                        $
                        1.21Fiscal
      Year Ended June 30, 2008Quarter
      ended June 30, 2008
                        
                        $
                        1.85
                        
                        
                        $
                        1.16Quarter
      ended March 31, 2008
                        
                        $
                        2.33
                        
                        
                        $
                        1.36Quarter
      ended December 31, 2007
                        
                        $
                        4.22
                        
                        
                        $
                        1.85Quarter
      ended September 30, 2007
                        
                        $
                        5.09
                        
                        
                        $
                        3.18
  Holders
 
 As of
September 1, 2009, we estimate there were approximately 366 holders of record
and approximately 3,907 street name holders of the Class A common
stock.
  Dividends
 
 We have
never declared or paid any cash dividends on our common stock and we 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. We are currently
prohibited from declaring
dividends without the prior written consent of the holders of at least 80% in
principal amount of the then outstanding debentures issued on August 1,
2008.  In addition, the payment of dividends, if any, in the
future, will depend on our earnings, capital requirements, financial conditions
and other relevant factors.
 
 Securities
Authorized For Issuance Under Equity Compensation Plans
 
 The
following table sets forth information with respect to compensation plans under
which equity securities of the Company are authorized for issuance as of the end
of fiscal 2009:
 Equity
Compensation Plans
 Plan category
                              
                              Number of securitiesto
                                be issued uponexercise
                                ofoutstanding options,
                                warrants and rights
                              
                              
                              Weighted averageexercise
                                and grant priceof
                                outstanding options,
                                warrants and rights
                              
                              
                              Number of
                                securities
                                remaining
                                available for
                                futureissuanceEquity
      compensation plans approved by security holders
                              
                              
                              1,715,625
                              
                              
                              $
                              5.77
                              
                              
                              
                              637,263
 
 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.
 
 - 12
-
  Liquidity
and Capital Resources
  History and
Background:
 
 From
February 1996 (when our IPO occurred) through fiscal 2009, inclusive, we have
raised a net total of approximately $99.6 million from the issuance of common
and preferred stock, the sale of convertible debt and the exercise of options
and warrants for our capital stock.
 
 Our
optical product markets experienced a severe downturn beginning in fiscal 2001
and resulted in a significant decline in the demand for our optical
products.  Despite the downturn in the optical product markets, we
believe that some improvement occurred in recent fiscal years, including fiscal
2009, with respect to the demand for our products in several of our other
markets, particularly the precision molded optics for laser tools and infrared
optics for fire safety. Nevertheless, we did not reach a status of positive cash
flow or profitability during fiscal 2009 or 2008.
 
 We
have developed our operating plan for fiscal 2010 and forecasted revenues and
cash flows.  We believe we currently have adequate financial
resources for implementation and achievement of our fiscal 2010
operating plan and to sustain operations as currently conducted in the coming
year. The cost savings generated in fiscal 2008 and 2009 due to the reduced rent
obligations on the facility in Orlando and the salary reductions in Orlando is
expected to continue through fiscal 2010.
  We have
taken certain actions to conserve our cash including extending payment terms
with certain of our suppliers. We have negotiated payment plans with some key
vendors and are working with other vendors to develop payment plans. During the
fourth quarter of fiscal 2009, we delayed payments to one of our secured note
holders, however as of September 2009 all payments which were past due have been
paid and we are in compliance with the terms of the note.
  We have
instituted a cost reduction program and have reduced headcount in our Orlando
and Shanghai facilities and reduced costs for medical insurance for our Orlando
employees. In March 2009 the Orlando staff was reduced to a four day work
week.  This cost reduction program is expected to save $663,000 per
year in wages and benefits. In addition, we have redesigned certain product
lines – collimators and precision molded optics, increased sales prices on
GRADIUM products, obtained more favorable material costs by sourcing some
purchased components in China, and have instituted more efficient management
techniques which have improved our product yields.We believe these factors
will contribute towards achieving profitability assuming we meet our sales
targets. The financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern.
  During the third quarter
of fiscal 2009 we faced financial challenges along with many in the industries
we do business with, as the worldwide economic instability continued to create
turbulence in the market.We engaged in continuing efforts to
keep costs under control as we sought renewed sales growth. Our efforts were
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. On
September 21, 2009, the Company had a book cash balance of approximately
$1,312,457.
  Cash Flows - Recent
Financings:
 
 In fiscal 2009 we had a convertible
debenture offering with twenty-four institutional and private
investors.  On August 1, 2008, we executed a Securities Purchase
Agreement with respect to the private placement of 8% senior convertible
debentures (the “Debentures”). The Debentures are secured by substantially all
of our previously unencumbered assets pursuant to a Security Agreement and are
guaranteed by our wholly-owned subsidiaries, Geltech Inc. andLightPath
Optical Instrumentation (Shanghai) Co., Ltdpursuant to a Subsidiary
Guarantee.  The sale of the Debentures generated gross proceeds of
approximately $2,929,000 and net proceeds of $2,568,749.  We used the
funds to provide working capital for our operations.  Among the
investors were Steven Brueck, J. James Gaynor, Louis Leeburg, Robert Ripp, Gary
Silverman and James Magos, all of whom were directors or officers of LightPath
as of August 1, 2008. Mr. Magos resigned effective September 2,
2008.
 
 - 13
-
  The maturity date of the Debentures is
August 1, 2011, on which date the outstanding principal amount of the Debentures
will be due.  Interest of $39,053 was due on October 1, 2008 and was
prepaid by the Company on August 1, 2008 by issuing 27,893 shares of common
stock in payment of such interest based upon the closing price of $1.40 per
share.  The remaining interest on the Debentures was prepaid by
issuing common stock in December 2008.
 
 Upon issuance the Debentures were
immediately convertible into 1,901,948 shares of common stock, based on a
conversion price of $1.54 per share, which was 110% of the closing bid price of
our common stock on the NASDAQ Capital Market on July 31, 2008. Investors alsoreceived warrants to purchase up to
950,974 shares of our common stock (the “Warrants”).  The Warrants are
exercisable for a period of five years beginning on August 1, 2008 with 65% of
the Warrants, exercisable for 618,133 shares, priced at $1.68 per share and the
remaining 35% of the Warrants, exercisable for 332,841 shares, of the Warrants
priced at $1.89 per share.  If all of the Warrants were exercised at
that time, we would have received additional proceeds in the amount of
$1,645,184.
 
 Investors who participated in our July
2007 common stock private placement were offered an incentive to invest in the
convertible debenture offering.  Four investors from the July 2007
offering participated in the convertible debenture offering and as a result we
reduced the exercise price of the warrants they received in the July 2007
offering from $5.50 per share to $2.61 per share.  The reduced
exercise price lowered potential proceeds on the exercise of the warrants from
the July 2007 offering by $119,212 to $107,663.  Additionally, such
investors were issued an aggregate of 73,228 incentive common shares (the
“Incentive Shares”), valued at $75,131.
 
 We paid a commission to the exclusive
placement agent for the offering, First Montauk Securities Corp. (“First
Montauk”), in an amount equal to $216,570 plus costs and expenses.  We
also issued to First Montauk and its designees warrants to purchase an aggregate
of 190,195 shares of our common stock at an exercise price equal to $1.68 per
share, which was 120% of the closing bid price of the our common stock on the
NASDAQ Capital Market on July 31, 2008. The Warrants are exercisable for a
period of five years beginning on August 1, 2008.  In addition, the
exercise price of 50% of the warrants previously issued to the First Montauk and
its designees at the closing of the July 2007 financing was reduced from $5.50
to $2.61 per share. This reduced warrant exercise price lowered potential
proceeds on the exercise of the warrants issued to First Montauk from the July
2007 offering by $115,600 to $104,400.
 
 The private placement is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4(2) of the Act (in that we sold the Debentures and Warrants
in a transaction not involving any public offering) and pursuant to Rule 506 of
Regulation D promulgated thereunder.  The shares into which the
Debentures are convertible, the shares issuable upon exercise of the Warrants
and the Incentive Shares have been registered for resale under the Securities
Act of 1933, as amended.  The registration was declared effective on
October 16, 2008.
 
 The Warrants and the Incentive Shares
issued to the Debenture holders were valued at $790,830 and recorded as a
discount on the debt. The Incentive Shares were valued using the fair market
value of our stock on the date of issuance. The Warrants were valued using the
Black-Scholes valuation model using assumptions similar to those used to value
our stock options and RSU’s. In addition a beneficial conversion feature
associated with the Debentures was valued at $600,635 and was recorded as a
discount on the debt. The total debt discount of $1,391,465 will be amortized
using the effective interest method over the 36-month term of the
Debentures.
 
 On December 31, 2008 the Debentures were
amended to allow debenture holders to convert 25% of their debentures into
common stock.  As a result, $732,250 of the debentures were converted
into 475,496 common shares.  As an inducement to convert the
debentures, we issued additional warrants (valued at $215,975 using the
Black-Scholes method) and prepaid the interest of $453,995 on the unconverted
portion of the Debentures through the maturity date of August 1, 2011, which
resulted in the issuance of 589,614 shares of common stock.  Interest
payment of $58,580 for the quarter ended December 31, 2008 resulted in the
issuance of 76,078 shares of common stock.  As a result of the
Debenture conversion, $304,382 of debt discount was written off to interest
expense.  During the year ended June 30, 2009, $640,695 of the debt
discount was amortized through interest expense on the condensed consolidated
statement of operations and the remaining unamortized debt discount was $750,770
at June 30, 2009. For the quarter ended June 30, 2009, $81,997 of the amortized
debt discount was amortized through interest expense. On May 29, 2009 we filed a
registration statement to register those additional interest shares and warrants
which were issued in December 2008. The registration statement was declared
effective on June 16, 2009.
 
 - 14
-
  We also incurred debt issuance costs
associated with the issuance of the Debentures of $554,308 which will be
amortized over the 36-month term using the effective interest
method.  The costs were for broker commissions, legal and accounting
fees, filing fees and $194,057 representing the fair value of the 190,195
warrants shares issued to First Montauk.  We used the Black-Scholes
model to determine fair value of the Warrants. The Warrants carry a five year
term, expiring on August 1, 2013, and are immediately exercisable at a per share
price of $1.68 for one-third of the warrants and $1.89 for two-thirds of the
warrants. As of June 30, 2009, $255,228 of the debt issuance costs were
amortized through interest expense on the condensed consolidated statement of
operations and the remaining unamortized balance was
$299,080.
 
 Total principal outstanding on the
Debenture and the amount outstanding for directors’ and officers’ purchases
under the Debentures was $2,196,750 and $266,250, respectively at June 30, 2009,
less unamortized debt discount of $750,770 and $90,995,
respectively.
 
 Subsequent
to the end of fiscal 2009, we had a private placement offering.  On
August 19, 2009, we executed a Securities Purchase Agreement with thirty-three
institutional and private investors with respect to a private placement of an
aggregate of 1,298,827 shares of our common stock at $1.26 per share and
warrants to purchase 649,423 shares of our common stock at an exercise price of
$1.73 per share (the “August 2009 Warrants”). The August 2009 Warrants are
exercisable for a period of five years beginning on February 19, 2010. We
received aggregate gross cash proceeds from the issuance of the common stock
(exclusive of proceeds from any future exercise of the August 2009 Warrants) in
the amount $1,636,500.  We will use the funds to provide working
capital for our operations.
 
 We paid a
commission to the exclusive placement agent for the offering, Garden State
Securities, Inc. (“Garden State”), in an amount equal to $148,100 plus costs and
expenses.  We also issued to Garden State and its designees warrants
to purchase an aggregate of 155,860 shares of our common stock at exercise price
equal to $1.73 per share, for a five-year term beginning February 19,
2010.
 
 The
private placement is exempt from the registration requirements of the Act,
pursuant to Section 4(2) of the Act (in that the shares of common stock
were sold by the Company in a transaction not involving any public offering) and
pursuant to Rule 506 of Regulation D promulgated thereunder. The shares of
common stock and the shares of common stock underlying the August 2009 Warrants
are restricted securities that have not been registered under the Act and may
not be offered or sold absent registration or applicable exemption from
registration requirements.
 
 The
Company and the investors also executed a Registration Rights Agreement dated
August 19, 2009, pursuant to which we have undertaken the obligation to file
with the Securities and Exchange Commission, and cause to be declared effective,
a registration statement to register the shares of common stock issued in the
private placement and the shares of common stock underlying the August 2009
Warrants.
 
 Cash Flows – Operating and
Investing:
 
 Cash used
by operations during fiscal 2009 was approximately $1.5 million, a decrease of
approximately $1.9 million from fiscal 2008. We anticipate lower glass costs by
replacing an internally fabricated material with purchased materials from
suppliers in Asia and lower coating costs due to larger unit volumes which are
expected to improve our cash flow in future years.
 
 While
progress has been made to reduce operating cash outflow since fiscal 2004,
significant risk and uncertainty remains. Our cash provided by operations was
approximately $644,000 for the fourth quarter of fiscal 2009. Cost cutting
measures were implemented in fiscal 2008 and 2009 but revenues were not high
enough to cover fixed costs.  The fiscal 2010 operating plan and
related financial projections which we have developed anticipate continued 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.
  During
fiscal 2009, we expended approximately $564,000 for capital equipment in
comparison to $660,000 during fiscal 2008. The majority of the capital
expenditures during fiscal 2009 were related to equipment used to enhance or
expand our production capacity and for tenant improvements due to the
re-location of the Shanghai facility.  The majority of the capital
expenditures during fiscal 2008 were related to equipment used to enhance or
expand our production capacity and for tenant improvements due to the reduction
in space at our Orlando facility.  Our operating plan for fiscal 2010
estimates expenditures at similar levels to enhance or expand our capacity,
however, we may spend more or less depending on opportunities and
circumstances.
  - 15
-




Results
of Operations





Operating Results for Fiscal
Year Ended June 30, 2009 compared to the Fiscal Year Ended June 30,
2008:





Our
consolidated revenues totaled $7.5 million for fiscal 2009, a decrease of
approximately $1.3 million or 15% compared to revenues for fiscal 2008 of $8.8
million. The decrease was attributable to decreases in sales of aspheric lenses,
collimators and GRADIUM product sales. In our operating plan for fiscal 2010 we
expect to see revenue gains in aspheric lenses and infrared lenses while
collimators, GRADIUM and isolator sales are expected to remain at current
levels. We expect significant mix change in our revenue number in fiscal 2010 as
we increase the volume of low cost lenses sold and continue to transform the
Company into a high volume molded optical manufacturer. We anticipate our growth
will come from the laser tool market in fiscal 2010.





Fiscal
2009 consolidated cost of sales of $5.4 million was approximately 73% of net
revenues of $7.5 million, which is a decrease over fiscal 2008 when our cost of
sales was approximately 86% of net revenues. This percentage decrease was caused
by several factors. Among them, during the year we were successful in shifting a
higher percentage of production of molded optics to our Shanghai facility,
reducing materials cost by incorporating lower cost glass into our products and
manufacturing lens holders in-house at a reduced cost, all of which we
anticipate will result in continued improvements to our
margins.  These cost reductions have lowered our cost structure and
enabled us to bid on the high volume low cost business. Lower revenues were not
sufficient to absorb our fixed costs and overhead costs.  Our two
plants were at a combined 37% capacity for fiscal 2009. Our plant capacity and
overhead structure are sufficient to handle much higher levels of
production.  Going forward into fiscal 2010, the emphasis will be
continued unit cost reductions driven by efficient purchasing and more sourcing
in China of raw materials and coating services and higher yields due to a more
experienced workforce at the Shanghai facility. Over the course of fiscal 2009,
as our manufacturing shifted to our Shanghai facility, we reduced our headcount
in Orlando from 71 to 45. As of June 30, 2009, over 95% of our precision molded
optics production had been transferred to our Shanghai facility. This line
comprises 73% of our total revenue and with the majority of the manufacturing
now at the Shanghai facility our gross margin will continue to improve as we
have not yet seen the full year impact of this transfer. We are starting to
transfer isolator and GRADIUM production to our Shanghai facility as
well.





Selling,
general and administrative expenses decreased by approximately $1.8 million to
$3.7 million in fiscal 2009 from $5.4 million in fiscal 2008. We reduced
expenses through a reduction of salaries and benefits, reduction of board
compensation, decreased stock compensation expense for stock options and
restricted stock issued, decreased legal costs for litigation and the
elimination in fiscal 2009 of severance and search fees related to the
replacement of our Chief Executive Officer that were incurred in fiscal 2008. In
the fourth quarter of fiscal 2009 there were two one-time events resulting in
reductions to general and administrative expenses; receipt of $183,000 from our
D&O insurance carrier as a refund of legal expenses and receipt of
$186,000 from the Chinese government related to the move of our
manufacturing facility in Shanghai. Our operating plan for fiscal 2010 projects
business levels that will require selling, general and administrative expenses
to remain level. We plan to manage the Orlando workforce size to meet profit and
cash flow goals.





New
product development costs in fiscal 2009 decreased by approximately $327,000 to
approximately $887,000.  This decrease was primarily due to decreased
product development materials and labor costs. Our operating plan for fiscal
2010 projects that product development spending will be level to fiscal
2009.





In fiscal
2009 our amortization of intangibles remained at approximately $33,000 and is
expected to remain at this level for fiscal 2010.





Interest
expense increased by approximately $1.2 million to approximately $1.3 million
compared to approximately $87,000 in fiscal 2008. This is primarily due to
interest on the convertible debentures payable in shares issued in August 2008
and related amortization of debt discount and debt costs and the fair value of
warrants issued to induce conversion of the debentures in December 2008 recorded
as interest expense.





Investment
and other income decreased by approximately $57,000 to $22,000 in fiscal 2009
from approximately $79,000 in fiscal 2008, due to a decrease in interest earned
on lower cash balances and lower royalty fees earned.





Net loss
for fiscal 2009 was approximately $3.9 million compared with approximately $5.5
million in fiscal 2008, a decline of approximately $1.6 million. This
improvement in the current year was comprised principally of:





·
            Gross
      margin improvement of $812,000 or 13% primarily due to reduced salaries
      and benefits of $639,000 and lower building costs, better production
      yields and lower material costs;


·
            Reduced
      SG&A salaries and benefits of
$895,000;


·
            Decreased
      legal fees of $345,000;


·
            Decreased
      recruitment fees of $143,000;


·
            Decreased
      stock compensation expense of
$259,000;


- 16
-


·
            Decreased
      building costs of $163,000 for
SG&A;


·
            Decreased
      travel costs of $76,000 for
SG&A;


·
            Decreased
      advertising costs of $43,000;


·
            Decreased
      R&D of $328,000 due to lower salaries and benefits and lower material
      purchases; and


·
            Increased
      interest expense of $1.2 million due to interest and amortization of debt
      discount and debt costs on
debentures.





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. A key
business objective is to convert as much of our business to the design win and
annuity model as is possible. We have several challenges in doing
so:





·
            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.


- 17
-





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.





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 “Disclosure Backlog” as that which is requested by the customer
for delivery within one year and which is reasonably likely to remain in the
backlog and be converted into revenues. This includes customer purchase orders
and may include amounts under supply contracts if they meet the aforementioned
criteria. Generally, higher backlog is better for us.





Disclosure
Backlog, as defined above, has been as follows in the immediately preceding six
fiscal quarters:





Fiscal
                        Quarter
                      
                      Ended
                      
                      Approximate
                        Disclosure
                        BacklogQ4-2009
                      
                      6/30/2009
                      
                      $
                      2,278,000Q3-2009
                      
                      3/31/2009
                      
                      $
                      3,425,000Q2-2009
                      
                      12/31/2008
                      
                      $
                      3,004,000Q1-2009
                      
                      9/30/2008
                      
                      $
                      3,208,000Q4-2008
                      
                      6/30/2008
                      
                      $
                      2,995,000Q3-2008
                      
                      3/31/2008
                      
                      $
                      3,054,000





Our
disclosure backlog at June 30, 2009 was $2.3 million. Due to market conditions,
throughout fiscal 2009 new orders were lower from the previous
year.  In fiscal 2009 we de-booked some orders due to customer
cancellation and new bookings were at a lower level than shipments.





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 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."




Our
EBITDA as defined above, has been as follows in the immediately preceding six
fiscal quarters:


- 18
-





Fiscal
                        Quarter
                      
                      Ended
                      
                      EBITDAQ4-2009
                      
                      6/30/2009
                      
                      $
                      (21,143
                      )Q3-2009
                      
                      3/31/2009
                      
                      $
                      (483,258
                      )Q2-2009
                      
                      12/31/2008
                      
                      $
                      (727,717
                      )Q1-2009
                      
                      9/30/2008
                      
                      $
                      (688,434
                      )Q4-2008
                      
                      6/30/2008
                      
                      $
                      (964,070
                      )Q3-2008
                      
                      3/31/2008
                      
                      $
                      (1,053,747
                      )





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)Q4-2009
                      
                      6/30/2009
                      
                      
                      84Q3-2009
                      
                      3/31/2009
                      
                      
                      89Q2-2009
                      
                      12/31/2008
                      
                      
                      73Q1-2009
                      
                      9/30/2008
                      
                      
                      63Fiscal
      2009 average
                      
                      
                      77Q4-2008
                      
                      6/30/2008
                      
                      
                      66Q3-2008
                      
                      3/31/2008
                      
                      
                      81Q2-2008
                      
                      12/31/2007
                      
                      
                      70Q1-2008
                      
                      9/30/2007
                      
                      
                      78Fiscal
      2008 average
                      
                      
                      74





In
comparison, our days cost of sales in inventory at June 30, 2008 was 66,
comparing to 84 at June 30, 2009. We believe this upward trend in inventory was
principally caused by the standard cost re-evaluation in May 2009 reflecting
lower costs due to manufacturing in China and an increase to the inventory
reserve. We expect inventory levels to decline through fiscal 2010 as we
continue to reduce costs.





Accounts receivable levels
and quality:


Similarly,
we manage accounts receivable levels to minimize investment in working capital.
Weekly we review all receivables that are sixty days past terms. These 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 immediately preceding eight fiscal quarters:





Fiscal
                        Quarter
                      
                      Ended
                      
                      DSO (days)Q4-2009
                      
                      6/30/2009
                      
                      
                      68Q3-2009
                      
                      3/31/2009
                      
                      
                      58Q2-2009
                      
                      12/31/2008
                      
                      
                      63Q1-2009
                      
                      9/30/2008
                      
                      
                      61Fiscal
      2009 average
                      
                      
                      62Q4-2008
                      
                      6/30/2008
                      
                      
                      51Q3-2008
                      
                      3/31/2008
                      
                      
                      59Q2-2008
                      
                      12/31/2007
                      
                      
                      53Q1-2008
                      
                      9/30/2007
                      
                      
                      53Fiscal
      2008 average
                      
                      
                      55


- 19
-





Our days
sales outstanding at June 30, 2008 was 51, compared to 68 at June 30, 2009. We
plan to monitor our collections efforts to keep this key indicator as low as
reasonably possible and strive to have it no higher than 55. We have noticed an
increase in DSO as 50% of our quarterly revenue was shipped in the last month of
the quarter.




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 obsolesense, 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 Annual Report on
Form 10-K. Our critical and significant accounting policies are described in
Note 1 of our financial statements in Item 8. The critical accounting policies
used by management and the methodology for its estimates and assumptions are as
follows:




Allowance
for accounts receivableis calculated by
taking 100% of the total of invoices that are over 90 days past due from due
date and 10% of the total of invoices that are over 60 days past due from due
date. Accounts receivable are customer obligations due under normal trade terms.
The Company performs 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 the
Company’s actual collection experience changes, revisions to its allowance may
be required. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance.




Inventory obsolesence reserve
is calculated by reserving 100% for items that have not been sold in two years
or that have not been purchased in two years and 25% for products which we have
more than a two year supply, as well as reserving 50% for other items deemed to
be slow moving within the last 12 months and reserving 25% for items deemed to
have low material usage within the last six months.




Revenue is recognized from
product sales when products are shipped to the customer, provided that the
Company has received a valid purchase order, the price is fixed, title has
transferred, collection of the associated receivable is reasonably assured, and
there are no remaining significant obligations. Revenues from product
development agreements are recognized as milestones are completed in accordance
with the terms of the agreements and upon shipment of products, reports or
designs to the customer.




Stock based compensation is
expensed in accordance with SFAS 123(R), “Share-Based Payment”, which
requires the recognition of the cost of employee or director services received
in exchange for an award of equity instruments in the financial statements and
is measured based on the grant date fair value of the award. SFAS 123(R) also
requires the stock option compensation expense to be recognized over the period
during which an employee is required to provide service in exchange for the
award (typically, the vesting period).





The
Company estimates the fair value of each option award issued under its stock
option plans on the date of grant using a Black-Scholes option-pricing model
that uses the assumptions noted in footnote 9 to the Consolidated Financial
Statements in accordance with SFAS 123(R). The Company estimates the volatility
of its common stock at the date of grant based on the historical volatility of
its common stock. These historical periods may exclude portions of time when
unusual transactions occurred. The Company determines the expected life based on
historical experience with similar awards, giving consideration to the
contractual terms, vesting schedules and post-vesting forfeitures. For shares
that vest contingent upon achievement of certain performance criteria, an
estimate of the probability of achievement is applied in the estimate of fair
value. If the goals are not met, no compensation cost is recognized and any
previously recognized compensation cost is reversed. The Company bases the
risk-free interest rate on the implied yield currently available on U.S.
Treasury issues with an equivalent remaining term approximately equal to the
expected life of the award. The Company has never paid any cash dividends on its
common stock and does not anticipate paying any cash dividends in the
foreseeable future. In addition, the Company separates the grants into
homogeneous groups and analyzes the assumptions for each group. The Company then
computes the expense for each group utilizing these
assumptions.


- 20
-





Beneficial Conversion and Warrant
Valuation. The Company records a beneficial conversion feature
(“BCF”) related to the issuance of convertible debt instruments that have
conversion features at fixed rates that are in-the-money when issued, and the
fair value of warrants issued in connection with those instruments. The BCF for
the convertible instruments is recognized and measured by allocating a portion
of the proceeds to warrants, based on their relative fair value using the
black-scholes pricing model, and as a reduction to the carrying amount of the
convertible instrument equal to the intrinsic value of the conversion
feature.  The discounts recorded in connection with the BCF and warrant
valuation are recognized as non-cash interest expense over the term of the
convertible debt, using the effective interest method.




Recent Accounting
Pronouncements




In
December 2007, the FASB issued Statement No. 141 (revised), Business Combinations (“SFAS
141(R)”). The standard changes the accounting for business combinations
including the measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the
accounting for pre-acquisition gain and loss contingencies, the recognition of
capitalized in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the acquirer’s
income tax valuation allowance. SFAS 141(R) is effective for the Company’s
fiscal year beginning July 1, 2009, with early adoption prohibited. The Company
does not believe that the impact of the pending adoption of SFAS 141(R) will
have a material effect on the Company’s consolidated financial statements,
results of operations and cash flows.





In April
2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arises from Contingencies(“FAS 141(R)-1”), which amends and clarifies SFAS No. 141(R) to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination.  FAS 141(R)-1 it to be
applied prospectively to business combinations for which the acquisition date is
on or after July 1, 2009 for the Company.  The adoption of SFAS 141(R)
may have an effect on the Company’s operating results with respect to future
acquisitions, if any.





In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 amends
and expands the disclosure requirements of Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.It requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about credit-risk-related contingent features in derivative
agreements. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company does
not anticipate the adoption of SFAS No. 161 will have a material impact on its
results of operations, cash flows or financial condition.





In April
2008, the FASB issued Staff Position No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”).  This FSP amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible
Assets (“SFAS No. 142”). This FSP also adds certain disclosures to those
already prescribed in SFAS No. 142. FSP 142-3 becomes effective for fiscal
years, and interim periods within those fiscal years, beginning in the Company’s
fiscal 2010. The guidance for determining useful lives must be applied
prospectively to intangible assets acquired after the effective date. The
disclosure requirements must be applied prospectively to all intangible assets
recognized as of the effective date.





In May
2008, the FASB issued Staff Position APB No. 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB No. 14-1”),which requires issuers
of convertible debt that may be settled wholly or partly in cash when converted
to account for the debt and equity components separately. FSP APB No. 14-1 is
effective for fiscal years beginning after December 15, 2008, which will be the
Company's fiscal year 2010, and must be applied retrospectively to all periods
presented. The Company is evaluating the financial impact that FSP APB No. 14-1
will have on its consolidated financial statements.





In June
2008, the FASB issued Staff Position No. EITF No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF No. 03-6-1”). According to FSP EITF No. 03-6-1, unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are considered participating securities under SFAS No. 128. As such,
they should be included in the computation of basic earnings per share (“EPS”)
using the two-class method. FSP EITF No. 03-6-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, as well as
interim periods within those years. Once effective, all prior-period EPS data
presented must be adjusted retrospectively. The Company does not expect FSP EITF
No. 03-6-1 to have a material impact on the Company’s financial position or
results of operations.


- 21
-





In June
2008, the FASB’s Emerging Issues Task Force reached a consensus regarding EITF
Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”).
EITF 07-5 outlines a two-step approach to evaluate the instrument’s contingent
exercise provisions, if any, and to evaluate the instrument’s settlement
provisions when determining whether an equity-linked financial instrument (or
embedded feature) is indexed to an entity’s own stock. EITF 07-5 is effective
for fiscal years beginning after December 15, 2008 and must be applied to
outstanding instruments as of the beginning of the fiscal year of adoption as a
cumulative-effect adjustment to the opening balance of retained earnings. Early
adoption is not permitted. The Company does not anticipate the adoption of EITF
07-5 will have a material impact on its results of operations, cash flows or
financial condition.





In
April 2009, the FASB issued FSP FAS 107-1 and APB Opinion No. 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which requires disclosures about fair value of
financial instruments for interim reporting periods as well as in annual
financial statements.  This FSP will not impact the consolidated
financial results as the requirements are disclosure-only in nature and is
effective for interim reporting periods ending after June 15,
2009.





In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standard
CodificationTM (“Codification”) and the Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 168”), effective for interim and annual
reporting periods ending after September 15, 2009. This statement replaces
SFAS 162, “The Hierarchy
of Generally Accepted Accounting Principles” and establishes the
Codification as the source of authoritative accounting principles used in the
preparation of financial statements in conformity with generally accepted
accounting principles. The Codification does not replace or affect guidance
issued by the SEC or its staff. After the effective date of this statement, all
non-grandfathered non-SEC accounting literature not included in the Codification
will be superseded and deemed non-authoritative.




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, 2009.




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, 2009, LightPath carried out an
evaluation, under the supervision and with the participation of members of our
management, including our Chief Executive Officer (or CEO) and our Chief
Financial Officer (or 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, 2009, 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.


- 22
-




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, 2009 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 registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary 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, 2009 that have materially affected, or are reasonably likely
to materially affect, LightPath’s internal control over financial
reporting.




PART
III




Item
10.    Directors and Executive Officers of the
Registrant.




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.





Class
I Directors Continuing in Office Until the 2011 Annual Meeting





Robert
      Ripp, 68
                Director
      (Chairman of the
                Board)
              
              Mr.
      Ripp has served as Chairman of the Company since November 1999. During
      portions of fiscal year 2002 he also served as the Company’s Interim
      President and Chief Executive Officer.  Mr. Ripp was Chairman
      and CEO of AMP Incorporated from August 1998 until April 1999, when AMP
      was sold to TYCO International Ltd.  Mr. Ripp held various
      executive positions at AMP from 1994 to August 1999.  Mr. Ripp
      previously spent 29 years with IBM of Armonk, NY.  He held
      positions in all aspects of operations within IBM culminating in the last
      four years as Vice President and Treasurer and 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., and PPG
      Industries, all of which are listed on the New York Stock
      Exchange.  Mr. Ripp also serves on the Company’s Compensation
      and Finance Committees.


- 23
-





J.
      James Gaynor, 58
                President
      & Chief Executive
                Officer
              
              Mr.
      Gaynor was appointed President & Chief Executive Officer and Director
      on February 1, 2008. Mr. Gaynor was previously Interim Chief Executive
      Officer from September 18, 2007. Prior to that he was the Company’s
      Corporate Vice President Operations since July 2006. Mr. Gaynor is a
      mechanical engineer with over 25 years business and manufacturing
      experience in volume component manufacturing in 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, and cost reduction,
      acquisitions and business start-up and turnaround success. Mr. Gaynor
      holds a Bachelor of Mechanical Engineering degree from the Georgia
      Institute of Technology and has worked in manufacturing industries since
      1976.





Class
III Directors Continuing in Office Until the 2010 Annual Meeting





Sohail
      Khan, 55
                  Director
                
                Mr.
      Khanhas
      served as a Director of the Company since February 2005. Mr. Khan serves
      on the board of directors for Gainspan Corporation and Sandbridge
      Corporation, and is currently President and Chief Executive Officer of
      SiGe Semiconductor. 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.Dr.
      Steven Brueck, 65
                  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 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 OSA, the IEEE and the AAAS.
      Dr. Brueck serves on the Company’s Audit Committee and is Chairman of
      the Company’s Technical Advisory
Board.




Class
II Directors Continuing in Office Until the 2012 Annual Meeting





Louis
      Leeburg, 56
                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
      investment management.  Mr. Leeburg was an audit manager for
      Price Waterhouse & Co. until 1980.  Mr. Leeburg is currently
      on the board of directors of BioValve Inc., a private venture capital
      backed company. 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.


- 24
-





Gary
      Silverman, 70
                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 his last position was Vice President and Senior Client
      officer and he 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.





Executive
Officers Who Do Not Serve as Directors





Dorothy
      Cipolla, 53
                Corporate
      Vice President,  Chief Financial Officer,
                Secretary
      and Treasurer
              
              Ms.
      Cipolla has been the Company’s Chief Financial Officer, Secretary and
      Treasurer since February 2006. Ms. Cipolla was Chief Financial Officer and
      Secretary of LaserSight Technologies, Inc., 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 Bachelors of Science
      degree in Accounting from Northeastern University and is a Certified
      Public Accountant in
Massachusetts.





Other
Significant Employees





Michael
      Lancaster, 44
                      Director
      of Operations
                    
                    Mr.
      Lancaster has been Director of Operations since November 2006. Mr.
      Lancaster was Materials Manager for Bolton Medical from August 2005 to
      November 2006. Prior to joining Bolton Medical he held the position of
      Logistics/Materials Manager for Hydro Aluminum from March 2000 to May
      2005. At Yuasa, Inc. he was the Materials Manager. He obtained a Masters
      of Business Administration degree and a Bachelors of Arts degree in
      Industrial Relations from Western Illinois University.Alan
      Symmons, 37
                      Director
      of Engineering
                    
                    Mr.
      Symmons has been Director of Engineering since October 2006. Mr. Symmons
      was Engineering Manager for Aurora Optical from December 2000 to October
      2006. Prior to joining Aurora Optical he was Senior Mechanical Engineer
      for Ryobi, North America from December 1998 to December 2000. He served as
      Mechanical Engineer for SatCon Technology from 1995 to 1998 and General
      Dynamics from 1993 to 1998. He obtained a Masters of Business
      Administration degree from University of Arizona with graduate work in
      Optical Sciences. He received his Bachelors of Science degree in
      Mechanical Engineering from Rensselaer Polytechnic
    Institute.Ray
      Pini, 39
                      Director
      of Marketing
                    
                    Mr.
      Pini has been the Company’s Director of Marketing since August 2008.Mr.
      Pini was Marketing Manager from October 2006.  Prior to joining
      LightPath Mr. Pini was Marketing Applications Manager for Horiba Jobin
      Yvon, Optical Spectroscopy Division from October 1994 to October 2006. His
      noted publications include “Photoluminescence in the NIR with an Array
      Detector”, “Optical Emissions Studies for the Characterization of Pulsed
      Magnetron Sputtering Systems” and “Resolving Resolution”. He is a member
      of Optical Society of America, SPIE- The International Society for Optical
      Engineering and The Society for Applied Spectroscopy. He obtained a
      Masters of Business Administration degree from Rider University and a
      Master of Science in Physics at the University of
  Oregon.




- 25
-





Rob
      Myers, 35
              Director
      of Sales
            
            Mr.
      Myers was appointed Director of Sales of the Company in September
      2008.  An employee of LightPath for 10 years, Mr. Myers has
      previously served in various Sales, Marketing, and Product Management
      positions within the Company.  Prior to LightPath, Mr. Myers was
      a Senior Sales Engineer with NSG America, a leading optical gradient index
      lens manufacturer, and Hamamatsu Corporation, where he specialized in
      infrared detectors and emitters.  Mr. Myers' management
      experience also includes 12 years of service as a Military Intelligence
      Officer in the US Army.  He holds a Bachelors of Science degree
      in Electrical Engineering from the Illinois Institute of Technology and
      has worked in the optics industry since 1996.Mr.
      Bill Moreshead, 57
              Director
      of Quality and Manufacturing Engineering Manager
            
            Mr.
      Moreshead has been with LightPath since March 1987. Mr. Moreshead has
      served as Senior Research Engineer, Mold Production Manager, Senior
      Development/Product Engineer. From 2002 to 2007 he held the position of
      Quality Assurance Director. Starting in 2007, he then took on
      responsibilities as Manufacturing Engineering Manager. He holds a Master
      of Science in Chemistry and is currently enrolled as a graduate student in
      a Ph.D. program in Chemistry. He was the principal scientist and research
      assistant of a team that developed porous silica materials for use in
      carbon monoxide detectors. He is co-author of winning proposals for a NIST
      Advanced Technology program as well as several
    publications.Xueguan
      Cao, 44
              LightPath
      (Shanghai) General Manager
            
            Mr.
      Xueguan Cao began to serve for LightPath (Shanghai) in October 2007 as an
      Operation Manager. In the following years, he was appointed Deputy General
      Manager in November 2007, LightPath (Shanghai) General Manager in
      September 2008 and Director of LightPath Optical Instrumentation
      (Shanghai) Co. in May 2009. Mr. Cao was Technical Deputy General Manager,
      Executive GM and Managing Director in succession for Guangdong Shunyon /
      Longde Group from 2004 to 2007. Prior to serving in Guangdong Shunyon /
      Longde Group, he was an Engineer, Senior Engineer, Project Manager and
      Engineering Department Manager of II-VI Optics (Suzhou) Co., Ltd, a NASD
      listed company, in succession from 1999 to 2004. When he graduated from
      Nanjing University of Science and Technology with Master degree in 1993,
      he stepped into Xi'an Applied Optics Institute as an optical designer and
      project manager until 1999. Mr. Cao has rich working experience in
      management, engineering, quality etc. He is specially expert in new
      company preparation and construction, factory layout, engineering
      management, quality (ISO system) management, production management,
      workshop trouble shooting, personnel management, corporation developing
      strategy planning etc. Mr. Xueguan Cao has broad and profound knowledge
      and experienced skill, such as optical design, optical glass processing,
      optical pickup manufacturing, plastic injection molding, hardware
      stamping, mini DC motor manufacturing
etc.





Section
16(a) Beneficial Ownership Reporting Compliance





To the
best of our knowledge, no officer, director and/or beneficial owner of more than
10% of our common stock, failed to file reports as required by Section 16(a) of
the Securities Exchange Act of 1934 during the period covered by this
report.  In making the above statements, the Company has relied solely
on its review of copies of the reports furnished to the Company and written
representations from certain 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.  A
copy of our Code of Ethics is filed as an exhibit to this Annual Report on Form
10-K


- 26
-





Audit
Committee and Audit Committee Financial Expert





The Audit
Committee, which consists of Dr. Steven Brueck, Louis Leeburg (Chairman) and
Gary Silverman, met five times during fiscal year 2009, 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 NASDAQ Capital Market.  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 Security and
Exchange Commission’s rules.  Mr. Leeburg’s business experience that
qualifies him to be determined an “audit committee financial expert’ is
described above.





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, (ii) the one other most highly compensated
executive officers of the Company serving as executive officers at the end of
fiscal year 2009, and (iii) up to two additional individuals for whom disclosure
would have been provided pursuant to clauses (i) and (ii) above but for the fact
that the individual was not serving as an executive officer of the Company as of
the end of fiscal year 2009, for services rendered in executive officer
capacities to the Company during fiscal years 2009 and 2008.





StockAwards
                                                  
                                                  
                                                  Options
                                                  
                                                  
                                                  All
      Other
                                                  
                                                  
                                                  TotalName
      and Position
                                                  
                                                  Fiscal
                                                  
                                                  Salary
                                                  
                                                  
                                                  Bonus
                                                  
                                                  
                                                  ($)
                                                  
                                                  
                                                  Awards
                                                  
                                                  
                                                  ($)
      *
                                                  
                                                  
                                                  ($)Year
                                                  
                                                  ($)
                                                  
                                                  
                                                  ($)
                                                  
                                                  
                                                  **
                                                  
                                                  
                                                  ($)**(a)
                                                  
                                                  (b)
                                                  
                                                  (c)
                                                  
                                                  
                                                  (d)
                                                  
                                                  
                                                  (e)
                                                  
                                                  
                                                  (f)
                                                  
                                                  
                                                  (i)
                                                  
                                                  
                                                  (j)J.
      James Gaynor
                                                  
                                                  2009
                                                  
                                                  
                                                  210,289
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  50,345
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  260,634President
      & Chief Executive Officer (1)
                                                  
                                                  2008
                                                  
                                                  
                                                  178,073
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  42,524
                                                  
                                                  
                                                  
                                                  10,952
                                                  
                                                  
                                                  
                                                  231,549James
      Magos Corporate Vice
                                                  
                                                  2009
                                                  
                                                  
                                                  59,480
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  59,480President
      of Sales & Marketing (2)
                                                  
                                                  2008
                                                  
                                                  
                                                  177,935
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  32,719
                                                  
                                                  
                                                  
                                                  17,208
                                                  
                                                  
                                                  
                                                  227,862Dorothy
      M. Cipolla
                                                  
                                                  2009
                                                  
                                                  
                                                  140,481
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  48,730
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  189,211Corporate
      Vice President, Chief
                                                  
                                                  2008
                                                  
                                                  
                                                  143,365
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  28,145
                                                  
                                                  
                                                  
                                                  15,112
                                                  
                                                  
                                                  
                                                  186,622Financial
      Officer, Treasurer & Secretary(3)Zhouling
      ("Joe") Wu, President - China
                                                  
                                                  2009
                                                  
                                                  
                                                  58,007
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  58,007Operations
      & Corporate Vice President(4)
                                                  
                                                  2008
                                                  
                                                  
                                                  145,599
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  36,782
                                                  
                                                  
                                                  
                                                  33,021
                                                  
                                                  
                                                  
                                                  215,402





Notes:


* Other
Annual Compensation, as defined by SEC rules except 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.
The nature of these compensatory items include the Company’s matching of
elective employee 401(k) deferrals, the Company’s contribution toward the
premium cost for employee and dependent medical, dental, life and disability
income insurances, and in the case of Mr. Magos, a taxable automobile
allowance.




** For
valuation assumptions on restricted stock and stock option awards refer to note
9 to the Consolidated Financial Statements of this Annual Report on Form 10-K
for fiscal 2009. Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal year ended June 30, 2009 in accordance
with FAS 123(R) and thus may include amounts from awards granted in and prior to
2009.


- 27
-


(1) The
Company employed Mr. Gaynor on July 24, 2006 as Vice President of Operations.
Mr. Gaynor’s other compensation include the Company’s matching of elective
employee 401(k) deferrals, the Company’s contribution toward the premium cost
for employee and dependent medical, dental, life and disability income
insurances.




(2) Mr.
Magos’ salary included commissions of $10,496 and $24,733 for 2009 and 2008,
respectively.  Mr. Magos’s other compensation include the Company’s
matching of elective employee 401(k) deferrals, the Company’s contribution
toward the premium cost for employee and dependent medical, dental, life and
disability income insurances.




Mr.
Magos resigned from the Company as an officer and employee, effective September
2, 2008. Options awards valued at $58,989 for 2008 were forfeited for not
meeting option conditions and termination of employment, as described below in
the Narrative Discussion of Summary Compensation Table for Executive
Officers.




(3) Ms.
Cipolla’s other compensation include the Company’s matching of elective employee
401(k) deferrals, the Company’s contribution toward the premium cost for
employee and dependent medical, dental, life and disability income
insurances.




(4)
Mr. Wu’s other compensation include the Company’s matching of elective employee
401(k) deferrals, the Company’s contribution toward the premium cost for
employee and dependent medical, dental, life and disability income insurances.
Other compensation for 2009 also includes $4,500 towards living expenses in
Shanghai and $18,000 for 2008.




Mr. Wu
resigned from the Company as an officer and employee, effective October 1, 2008.
Options awards valued at $97,980 for 2008 were forfeited for not meeting
option conditions and termination of employment, as described below in the
Narrative Discussion of Summary Compensation Table for Executive
Officers.




Narrative
Discussion of Summary Compensation Table of Executive Officers




The
following is a narrative discussion of the material factors which we believe are
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.





J. James
Gaynor





Cash Compensation (Base Salaries and
Bonuses). Mr. Gaynor was awarded total cash compensation for his services
to us in fiscal 2009 in the amount of $210,289. This represents his annual base
salary for fiscal 2009.  The base salary paid to Mr. Gaynor for fiscal
2009 constituted approximately 81% of the total compensation paid to Mr. Gaynor
as set forth in the “Total” column in the Summary Compensation
Table. Effective February 1, 2008 Mr. Gaynor was appointed President and
CEO and his annual compensation was adjusted to $225,000. In January and
February 2009, Mr. Gaynor had a 10% pay reduction and in March 2009 the
reduction was adjust up to 20%.





Long-Term Equity Incentive
Awards.  The Compensation Committee did not award Mr. Gaynor
any compensation for achieving fiscal 2008 or 2009 goals. On July 24, 2006, Mr.
Gaynor was granted an option to purchase 15,000 shares which vested on July 24,
2008.  Based on the vesting schedule of the options, we recognized
compensation expense of approximately $8,672 in 2008, and $723 in 2009 as a
result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006,  Mr. Gaynor was granted an option to purchase 20,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
October 27, 2010.  Based on the vesting schedule of the options, we
recognized compensation expense of approximately $24,000 in each of 2008, 2009
and expect to recognize $24,000 in 2010 and $8,000 in 2011 as a result of the
adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 6, 2007, Mr. Gaynor was granted an option to purchase 15,000 shares
which vests one-fourth of the shares on each of the first, second and third
anniversaries of the grant date, and vests as to the last fourth on November 6,
2011.  Based on the vesting schedule of the options, we recognized
compensation expense of approximately $8,578 in 2008 and $11,438 in 2009, we
expect to recognize $11,438 in 2010 and 2011 and $2,859 in 2012 as a result of
the adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 6, 2007, Mr. Gaynor was granted an option to purchase 15,000 shares
which vests in thirteen months on December 6, 2008 if certain performance
targets are met.  The targets were not met and the option was
terminated. We did not recognize compensation expense in 2008 or in 2009, as a
result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
January 31, 2008, Mr. Gaynor was granted an option to purchase 30,000 shares
which vests one-fourth of the shares on each of the first, second and third
anniversaries of the grant date, and vests as to the last fourth on January 31,
2012.  Based on the vesting schedule of the options, we recognized
$6,523 of compensation expenses for 2008 and $15,750 for 2009, we expect to
recognize compensation expense of approximately $15,750 in each of 2010 and 2011
and $9,188 in 2012 as a result of the adoption of FASB Statement No. 123-R,
Share-Based
Payment.


- 28
-





All Other Compensation. Mr.
Gaynor is eligible to participate in COBRA health insurance and in any other
benefits generally available to our executive officers. He received other
compensation of $5,219 for fiscal 2009 payments made for matching 401k
contributions and 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.  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 least 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.


- 29
-




James
Magos




Cash Compensation (Base Salaries and
Bonuses). Mr. Magos was awarded total cash compensation for his
services to the Company in fiscal 2009 in the amount of $67,980. This represents
his annual base salary of $48,084, unrestricted stock in the amount of $8,500,
commissions of $10,496 and an automobile allowance of $900 for fiscal 2009. The
base salary paid to Mr. Magos for fiscal 2009 constituted approximately
100% of the total compensation paid to Mr. Magos as set forth in the
“Total” column in the Summary Compensation Table. Mr. Magos resigned from
the Company as an officer and employee, effective September 2,
2008.




Long-Term Equity Incentive
Awards. The Compensation Committee awarded Mr. Magos a discretionary
bonus of 5,000 restricted stock shares in August 2006 for achievements in fiscal
2005. The Compensation Committee did not award Mr. Magos any compensation
for achieving fiscal 2006 goals but did award a discretionary bonus of 20,000
stock options at its October 2007 meeting. On August 3, 2006,
Mr. Magos was granted restricted stock of 5,000 shares which vested
one-half of the shares on each of the first and second anniversaries of the
grant date. Based on the vesting schedule of the shares, the Company recognized
compensation expense of approximately $9,173 in 2008 and $764  in 2009
as a result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Mr. Magos was granted an option to purchase 20,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
October 27, 2010. Based on the vesting schedule of the options, the Company
recognized compensation expense of approximately $24,000 in 2008 and reversed
out $20,090 in 2009 upon his resignation as a result of the adoption of FASB
Statement No. 123-R, Share-Based Payment. On
November 6, 2007, Mr. Magos was granted an option to purchase 10,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
November 6, 2011. Based on the vesting schedule of the options, the Company
recognized compensation expense of $5,719 in 2008 and reversed out $5,719 in
2009 upon his resignation as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On November 6, 2007, Mr. Magos was granted an option
to purchase 10,000 shares which vests in thirteen months on December 6,
2008 if certain performance targets were met. Based on his resignation from the
Company these options were terminated and we did not recognize compensation
expense in 2008 or expect to recognize it in 2009, as a result of the adoption
of FASB Statement No. 123-R, Share-Based
Payment.




All Other Compensation.
Mr. Magos was eligible to participate in COBRA health insurance and in any
other benefits generally available to the Company’s executive officers. He
received other compensation of $3,287 in fiscal 2009 for payments made for
matching 401k contributions and insurance payments for health insurance, life
insurance, short term disability and long term disability premiums.




Change of Control Agreement.
Mr. Magos was eligible to receive three months compensation in the event of
a change of control.





Dorothy
Cipolla







Cash Compensation (Base Salaries and
Bonuses). Ms. Cipolla was awarded total cash compensation for her
services to the Company in fiscal 2009 in the amount of $140,481. This
represents her annual base salary for fiscal 2009. The base salary paid to
Ms. Cipolla for fiscal 2009 constituted approximately 74% of the total
compensation paid to Ms. Cipolla as set forth in the “Total” column in the
Summary Compensation Table.




Long-Term Equity Incentive
Awards. On February 28, 2006, Ms. Cipolla was granted a stock
option for 15,000 shares which vested on the second anniversary of the grant
date. Based on the vesting schedule of the shares, the Company recognized
compensation expense of approximately $19,317 in 2008 as a result of the
adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Ms. Cipolla was granted an option to purchase 20,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
October 27, 2010. Based on the vesting schedule of the options, the Company
recognized compensation expense of approximately $24,000 in 2008 and 2009 and
expects to recognize $24,000 in 2010 and $8,000 in 2011 as a result of the
adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 6, 2007, Ms. Cipolla was granted an option to purchase 10,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
November 6, 2011. Based on the vesting schedule of the options, the Company
recognized compensation expense of $5,719 in 2008 and $6,746 in 2009 and expects
to recognize compensation expense of approximately $7,122 in each of 2010 and
2011 and $1,781 in 2012 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On November 6, 2007, Ms. Cipolla was granted an option
to purchase 10,000 shares which vests in thirteen months on December 6,
2008 if certain performance targets are met. The targets were not met and we did
not recognize compensation expense in 2008 or 2009 and the options were
terminated in 2009, as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment.




- 30
-




All Other Compensation.
Ms. Cipolla is eligible to participate in COBRA health insurance or in any
other benefits generally available to the Company’s executive officers. She
received other compensation of $2,936 in fiscal 2009 for payments made for
matching 401k contributions and 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.





Zhouling (“Joe”)
Wu




Cash Compensation (Base Salaries and
Bonuses). Mr. Wu was awarded total cash compensation for his
services to the Company in fiscal 2009 in the amount of $58,007, and includes an
award of $5,000 in restricted stock. This represents his annual base salary for
fiscal 2009. The base salary paid to Mr. Wu for fiscal 2009 constituted
approximately 100% of the total compensation paid to Mr. Wu as set forth in
the “Total” column in the Summary Compensation Table. Mr. Wu resigned from
the Company as an officer and employee, effective October 1,
2008.




Long-Term Equity Incentive
Awards. The Compensation Committee awarded Mr. Wu a discretionary
bonus of 5,000 restricted stock shares in August 2006 for achievements in fiscal
2005. The Compensation Committee did not award Mr. Wu any compensation for
achieving fiscal 2006 goals but did award a discretionary bonus of 20,000 stock
options at its October 2007 meeting. On August 3, 2006, Mr. Wu was
granted restricted stock of 5,000 shares which vested one-half of the shares on
each of the first and second anniversaries of the grant date. Based on the
vesting schedule of the shares, the Company recognized compensation expense of
approximately $9,173 in 2008 and $764 in 2009 as a result of the adoption of
FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Mr. Wu was granted an option to purchase 20,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
October 27, 2010. Based on the vesting schedule of the options, the Company
recognized compensation expense of approximately $27,000 in 2008, and reversed
out $21,001 in 2009 upon his resignation as a result of the adoption of FASB
Statement No. 123-R, Share-Based Payment. On
November 6, 2007, Mr. Wu was granted an option to purchase 10,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
November 6, 2011. Based on the vesting schedule of the options, the Company
recognized compensation expense of $5,719 in 2008 and expects reversed out
$5,719 in 2009 upon his resignation as a result of the adoption of FASB
Statement No. 123-R, Share-Based Payment. On
November 6, 2007, Mr. Wu was granted an option to purchase 10,000
shares which vests in thirteen months on December 6, 2008 if certain
performance targets are met. Based on his resignation from the Company these
options were terminated and we did not recognize compensation expense in 2008 or
expect to recognize it in 2009, as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment.




All Other Compensation.
Mr. Wu was eligible to participate in COBRA health insurance or in any
other benefits generally available to the Company’s executive officers. He
received other compensation of $7,127 in fiscal 2009 for payments made for
matching 401k contributions and insurance payments for health insurance, life
insurance, short term disability and long term disability premiums. Mr. Wu was
paid $4,500 towards living expenses in Shanghai.


- 31
-




Outstanding
Equity Awards at Fiscal Year-End




Option
      Awards
                                                                        
                                                                        
                                                                        
                                                                        Restricted
      Stock Awards(a)
                                                                        
                                                                        (b)
                                                                        
                                                                        
                                                                        (c)
                                                                        
                                                                        
                                                                        (e)
                                                                        
                                                                        
                                                                        
                                                                        (f)
                                                                        
                                                                        (g)
                                                                        
                                                                        
                                                                        (h)Name
                                                                        
                                                                        Number
      of
                                                                        
                                                                        
                                                                        Number
      of
                                                                        
                                                                        
                                                                        Option
                                                                        
                                                                        Vesting
                                                                        
                                                                        Option
                                                                        
                                                                        Number of
                                                                        
                                                                        
                                                                        MarketSecurities
                                                                        
                                                                        
                                                                        Securities
                                                                        
                                                                        
                                                                        Exercise
                                                                        
                                                                        Schedule
                                                                        
                                                                        Expiration
                                                                        
                                                                        Shares
      or
                                                                        
                                                                        
                                                                        Value ofUnderlying
                                                                        
                                                                        
                                                                        Underlying
                                                                        
                                                                        
                                                                        Price
      ($)
                                                                        
                                                                        
                                                                        
                                                                        Date
                                                                        
                                                                        Units
      of
                                                                        
                                                                        
                                                                        Shares orUnexercised
                                                                        
                                                                        
                                                                        Unexercised
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        Stock That
                                                                        
                                                                        
                                                                        Units
      ofOptions
      (#)
                                                                        
                                                                        
                                                                        Options
      (#)
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        Have
      Not
                                                                        
                                                                        
                                                                        StockExercisable
                                                                        
                                                                        
                                                                        Unexercisable
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        Vested
                                                                        
                                                                        
                                                                        ThatHave
      NotVestedJ.
      James Gaynor
                                                                        
                                                                        
                                                                        15,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        3.47
                                                                        
                                                                        2
      year cliff
                                                                        
                                                                        7/24/2016
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -10,000
                                                                        
                                                                        
                                                                        
                                                                        10,000
                                                                        
                                                                        
                                                                        $
                                                                        4.80
                                                                        
                                                                        25%/yr
      for 4 yrs
                                                                        
                                                                        10/27/2016
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -3,750
                                                                        
                                                                        
                                                                        
                                                                        11,250
                                                                        
                                                                        
                                                                        $
                                                                        3.05
                                                                        
                                                                        25%/yr
      for 4 yrs
                                                                        
                                                                        11/6/2017
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -7,500
                                                                        
                                                                        
                                                                        
                                                                        22,500
                                                                        
                                                                        
                                                                        $
                                                                        1.86
                                                                        
                                                                        25%/yr
      for 4 yrs
                                                                        
                                                                        1/31/2018
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -Dorothy
      Cipolla
                                                                        
                                                                        
                                                                        15,000
                                                                        
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        $
                                                                        4.53
                                                                        
                                                                        2
      year cliff
                                                                        
                                                                        2/28/2016
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -10,000
                                                                        
                                                                        
                                                                        
                                                                        10,000
                                                                        
                                                                        
                                                                        $
                                                                        4.80
                                                                        
                                                                        25%/yr
      for 4 yrs
                                                                        
                                                                        10/27/20162,500
                                                                        
                                                                        
                                                                        
                                                                        7,500
                                                                        
                                                                        
                                                                        $
                                                                        3.05
                                                                        
                                                                        25%/yr
      for 4 yrs
                                                                        
                                                                        11/6/2017
                                                                        
                                                                        
                                                                        -
                                                                        
                                                                        
                                                                        
                                                                        -




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.




Cash
Compensation Paid to Board Members




For
fiscal year 2005 and beyond, all non-employee members of the Board of Directors
will receive a retainer of $2,000 per month, paid quarterly. There will be 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
will be paid to the Chairman of the Board and Committee Chairmen on a quarterly
basis for their responsibilities overseeing their respective
functions:




Chairman
      of the Board
                  
                  $
                  15,000Audit
      Committee Chairman
                  
                  $
                  2,000Compensation
      Committee Chairman
                  
                  $
                  1,000Finance
      Committee Chairman
                  
                  $
                  1,000




The
Directors earned the amounts above for the first two quarters of the fiscal year
and took a 10% reduction in the third quarter and a 20% reduction in the fourth
quarter. Directors who are employees of the Company receive no compensation for
their service as directors.


- 32
-




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, 2009.




Name
      (1)
                      
                      Fees Earned or
                      
                      
                      Stock
                      
                      
                      Option
                      
                      
                      TotalPaid
      in Cash
                      
                      
                      Awards
                      
                      
                      Awards
                      
                      
                      ($)($)(2)
                      
                      
                      ($)(3)
                      
                      
                      ($)(4)(a)
                      
                      (b)
                      
                      
                      (c)
                      
                      
                      (d)
                      
                      
                      (h)Robert
      Ripp
                      
                      $
                      42,000
                      
                      
                      $
                      23,735
                      
                      
                      $
                      2,293
                      
                      
                      $
                      68,028Sohail
      Khan
                      
                      $
                      12,000
                      
                      
                      $
                      23,735
                      
                      
                      $
                      2,293
                      
                      
                      $
                      38,028Steve
      Brueck
                      
                      $
                      12,500
                      
                      
                      $
                      23,735
                      
                      
                      $
                      2,293
                      
                      
                      $
                      38,528Louis
      Leeburg
                      
                      $
                      16,000
                      
                      
                      $
                      23,735
                      
                      
                      $
                      2,293
                      
                      
                      $
                      42,028Gary
      Silverman
                      
                      $
                      14,000
                      
                      
                      $
                      23,735
                      
                      
                      $
                      2,293
                      
                      
                      $
                      40,028





(1)
            J.
      James Gaynor, the Company’s President and Chief Executive Officer of the
      end of fiscal year 2009, 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
      27.





(2)
            Does
      not include earned but unpaid board fees at year end as follows: Mr. Ripp
      $35,700, Mr. Leeburg $13,600, Mr. Silverman $11,900, Mr. Brueck $10,200
      and Mr. Khan $10,200.





(3)
            Reflects
      the dollar amount recognized for financial statement reporting purposes
      for the fiscal year ended June 30, 2009 in accordance with FAS 123(R)
      and thus may include amounts from awards granted in and prior to
      2009.





(4)
            Reflects
      the dollar amount recognized for financial statement reporting purposes
      for the fiscal year ended June 30, 2009 in accordance with FAS 123(R)
      and thus may include amounts from awards granted in and prior to
      2009.




Narrative
Disclosure of Summary Compensation Table of Directors





Robert
Ripp




Cash Compensation (Base Fees and
Position Fees). Mr. Ripp earned total cash compensation for his
services to the Company in fiscal 2009 in the amount of $77,700. This represents
his retainer and chairman fees for fiscal 2009. Fees paid were $42,000 with
$35,700 due in accounts payable at year end. The base fees to Mr. Ripp for
fiscal 2009 constituted approximately 62% 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 November 10, 2005, Mr. Ripp was granted a stock
option for 6,100 shares which vested one-third each on the first, second and
third anniversary of the grant date. Based on the vesting schedule of the
shares, the Company recognized compensation expense of approximately $2,293 in
2009 as a result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
February 1, 2008, Mr. Ripp was granted an option to purchase 30,000
shares which vests one-fourth of the shares on each of the first, second and
third anniversaries of the grant date, and vests as to the last fourth on
February 1, 2012. Based on the vesting schedule of the options, the Company
recognized compensation expense of approximately $51,810 in 2008 as a result of
the adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 10, 2005, Mr. Ripp was granted a restricted stock units for
10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
November 10, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $8,033 in 2008 and $1,268 in 2009 as a result
of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Mr. Ripp was granted a restricted stock unit for
10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
October 27, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $11,908 in 2008 and $12,920 in 2009 and
expect to recognize $3,348 in 2010 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On November 6, 2007, Mr. Ripp was granted a restricted
stock unit for 10,000 shares which vests on November 6, 2011. Based on the
vesting schedule of the stock, the Company recognized compensation expense of
$3,177 in 2008 and $7,507 in 2009 and expects to recognize $7,123 in 2010 and
2011 and $3,561 in 2012 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On October 30, 2008, Mr. Ripp was granted a restricted
stock unit for 15,000 shares which vests one-third of the shares on each of the
first and second anniversaries of the grant date, and vests as to the last third
on October 30, 2011. Based on the vesting schedule of the stock, the
Company recognized compensation expense of $2,040 in 2009 and expects to
recognize $3,060 in 2010 and 2011 and $1,020 in 2012 as a result of the adoption
of FASB Statement No. 123-R, Share-Based
Payment.


- 33
-


Sohail
Khan




Cash Compensation (Base Fees and
Position Fees). Mr. Khan earned total cash compensation for his
services to the Company in fiscal 2009 in the amount of $22,200. This represents
his retainer for fiscal 2009. Fees paid were $10,000 with $12,200 due in
accounts payable at year end. The base fees to Mr. Khan for fiscal 2009
constituted approximately 32% of the total fees paid to Mr. Khan as set
forth in the “Total” column in the Summary Compensation
Table.




Long-Term Equity Incentive
Awards. On November 10, 2005, Mr. Khan was granted a stock
option for 6,100 shares which vested one-third each on the first, second and
third anniversary of the grant date. Based on the vesting schedule of the
shares, the Company recognized compensation expense of approximately $2,293 in
2009 as a result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 10, 2005, Mr. Khan was granted a restricted stock units for
10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
November 10, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $8,033 in 2008 and $1,268 in 2009 as a result
of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Mr. Khan was granted a restricted stock unit for
10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
October 27, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $11,908 in 2008 and $12,920 in 2009 and
expect to recognize $3,348 in 2010 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On November 6, 2007, Mr. Khan was granted a restricted
stock unit for 10,000 shares which vests on November 6, 2011. Based on the
vesting schedule of the stock, the Company recognized compensation expense of
$3,177 in 2008 and $7,507 in 2009 and expects to recognize $7,123 in 2010 and
2011 and $3,561 in 2012 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On October 30, 2008, Mr. Khan was granted a restricted
stock unit for 15,000 shares which vests one-third of the shares on each of the
first and second anniversaries of the grant date, and vests as to the last third
on October 30, 2011. Based on the vesting schedule of the stock, the
Company recognized compensation expense of $2,040 in 2009 and expects to
recognize $3,060 in 2010 and 2011 and $1,020 in 2012 as a result of the adoption
of FASB Statement No. 123-R, Share-Based
Payment.





Steven
Brueck




Cash Compensation (Base Fees and
Position Fees). Mr. Brueck earned total cash compensation for his
services to the Company in fiscal 2009 in the amount of $22,700. This represents
his retainer for fiscal 2009. Fees paid were $12,500 with $10,200 due in
accounts payable at year end. The base fees to Mr. Khan for fiscal 2009
constituted approximately 32% of the total fees paid to Mr. Khan as set
forth in the “Total” column in the Summary Compensation
Table.




Long-Term Equity Incentive
Awards. On November 10, 2005, Mr. Brueck was granted a stock
option for 6,100 shares which vested one-third each on the first, second and
third anniversary of the grant date. Based on the vesting schedule of the
shares, the Company recognized compensation expense of approximately $2,293 in
2009 as a result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 10, 2005, Mr. Brueck was granted a restricted stock units for
10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
November 10, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $8,033 in 2008 and $1,268 in 2009 as a result
of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Mr. Brueck was granted a restricted stock unit for
10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
October 27, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $11,908 in 2008 and $12,920 in 2009 and
expect to recognize $3,348 in 2010 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On November 6, 2007, Mr. Brueck was granted a restricted
stock unit for 10,000 shares which vests on November 6, 2011. Based on the
vesting schedule of the stock, the Company recognized compensation expense of
$3,177 in 2008 and $7,507 in 2009 and expects to recognize $7,123 in 2010 and
2011 and $3,561 in 2012 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On October 30, 2008, Mr. Brueck was granted a
restricted stock unit for 15,000 shares which vests one-third of the shares on
each of the first and second anniversaries of the grant date, and vests as to
the last third on October 30, 2011. Based on the vesting schedule of the
stock, the Company recognized compensation expense of $2,040 in 2009 and expects
to recognize $3,060 in 2010 and 2011 and $1,020 in 2012 as a result of the
adoption of FASB Statement No. 123-R, Share-Based
Payment.


- 34
-


Louis
Leeburg




Cash Compensation (Base Fees and
Position Fees). Mr. Leeburg earned total cash compensation for his
services to the Company in fiscal 2009 in the amount of $29,600. This represents
his retainer and fee for audit committee chair for fiscal 2009. Fees paid were
$16,000 with $13,600 due in accounts payable at year end. The base fees to
Mr. Leeburg for fiscal 2009 constituted approximately 38% 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 November 10, 2005, Mr. Leeburg was granted a stock
option for 6,100 shares which vested one-third each on the first, second and
third anniversary of the grant date. Based on the vesting schedule of the
shares, the Company recognized compensation expense of approximately $2,293 in
2009 as a result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 10, 2005, Mr. Leeburg was granted a restricted stock units
for 10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
November 10, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $8,033 in 2008 and $1,268 in 2009 as a result
of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Mr. Leeburg was granted a restricted stock unit for
10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
October 27, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $11,908 in 2008 and $12,920 in 2009 and
expect to recognize $3,348 in 2010 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On November 6, 2007, Mr. Leeburg was granted a
restricted stock unit for 10,000 shares which vests on November 6, 2011.
Based on the vesting schedule of the stock, the Company recognized compensation
expense of $3,177 in 2008 and $7,507 in 2009 and expects to recognize $7,123 in
2010 and 2011 and $3,561 in 2012 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On October 30, 2008, Mr. Leeburg was granted a
restricted stock unit for 15,000 shares which vests one-third of the shares on
each of the first and second anniversaries of the grant date, and vests as to
the last third on October 30, 2011. Based on the vesting schedule of the
stock, the Company recognized compensation expense of $2,040 in 2009 and expects
to recognize $3,060 in 2010 and 2011 and $1,020 in 2012 as a result of the
adoption of FASB Statement No. 123-R, Share-Based
Payment.





Gary
Silverman




Cash Compensation (Base Fees and
Position Fees). Mr. Silverman earned total cash compensation for his
services to the Company in fiscal 2009 in the amount of $25,900. This represents
his retainer and fee for compensation committee chair for fiscal 2009. Fees paid
were $14,000 with $11,900 due in accounts payable at year end. The base fees to
Mr. Silverman for fiscal 2009 constituted approximately 35% 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 November 10, 2005, Mr. Silverman was granted a stock
option for 6,100 shares which vested one-third each on the first, second and
third anniversary of the grant date. Based on the vesting schedule of the
shares, the Company recognized compensation expense of approximately $2,293 in
2009 as a result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
February 1, 2008, Mr. Silverman was granted a stock option for 15,000
shares which vested on the one third each on the first, second and third
anniversary of the grant date. Based on the vesting schedule of the shares, the
Company recognized compensation expense of approximately $22,905 in 2008 as a
result of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
November 10, 2005, Mr. Silverman was granted a restricted stock units
for 10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
November 10, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $8,033 in 2008 and $1,268 in 2009 as a result
of the adoption of FASB Statement No. 123-R, Share-Based Payment. On
October 27, 2006, Mr. Silverman was granted a restricted stock unit
for 10,000 shares which vests one-third of the shares on each of the first and
second anniversaries of the grant date, and vests as to the last third on
October 27, 2009. Based on the vesting schedule of the stock, the Company
recognized compensation expense of $11,908 in 2008 and $12,920 in 2009 and
expect to recognize $3,348 in 2010 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On November 6, 2007, Mr. Silverman was granted a restricted
stock unit for 10,000 shares which vests on November 6, 2011. Based on the
vesting schedule of the stock, the Company recognized compensation expense of
$3,177 in 2008 and $7,507 in 2009 and expects to recognize $7,123 in 2010 and
2011 and $3,561 in 2012 as a result of the adoption of FASB Statement
No. 123-R, Share-Based
Payment. On October 30, 2008, Mr. Silverman was granted a
restricted stock unit for 15,000 shares which vests one-third of the shares on
each of the first and second anniversaries of the grant date, and vests as to
the last third on October 30, 2011. Based on the vesting schedule of the
stock, the Company recognized compensation expense of $2,040 in 2009 and expects
to recognize $3,060 in 2010 and 2011 and $1,020 in 2012 as a result of the
adoption of FASB Statement No. 123-R, Share-Based
Payment.




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.


- 35
-




In fiscal
year 2009, the following directors received grants under the Company’s Amended
and Restated Omnibus Incentive Plan:




RestrictedStockUnitsName of Director
                  
                  Number of Units
                    Granted
                  
                  Grant Date
                  
                  Fair Value
                    Price Per
                    ShareDr.
      Steve Brueck
                  
                  
                  15,000
                  
                  10/30/2008
                  
                  $
                  0.81Sohail
      Khan
                  
                  
                  15,000
                  
                  10/30/2008
                  
                  $
                  0.81Louis
      Leeburg
                  
                  
                  15,000
                  
                  10/30/2008
                  
                  $
                  0.81Robert
      Ripp
                  
                  
                  15,000
                  
                  10/30/2008
                  
                  $
                  0.81Gary
      Silverman
                  
                  
                  15,000
                  
                  10/30/2008
                  
                  $
                  0.8175,000





Item
12.    Security Ownership of Certain Beneficial Owners and
Management.




Equity
Compensation Plan Information




The
following table sets forth as of June 30, 2009, the end of the Company’s
most recent fiscal year, information regarding (i) all compensation plans
previously approved by the stockholders and (ii) all compensation plans not
previously approved by the stockholders:




Equity
Compensation Plans




Equity Compensation PlansPlan category
                  
                  Number of securitiesto<

      /di v>

                      be issued uponexercise&a
mp;a
      mp;l t;/di v>

                        ofoutstanding options,
                        warrants and rights
                  
                  
                  Weighted averageexercise

                    and grant priceof

                    outstanding options,
                    warrants and rights
                  
                  
                  Number of
                    securities
                    remaining
                    available for
                    futureissuanceEquity
      compensation plans approved by security holders
                  
                  
                  1,715,625
                  
                  
                  $
                  5.77
                  
                  
                  
                  637,263




Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters





The
following table sets forth, as of September 15, 2009, 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 officers
named in the Summary Compensation Table below, (iii) directors and executive
officers of the Company as a group at such date, 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 at such date.





The
number of shares beneficially owned by each director or executive officer 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 15, 2009, 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
by the executive officer, directors and principal stockholders and a Schedule
13G filed with the SEC.


- 36
-





Securities
                                
                                
                                Percent
                                  OwnedCommon Stock Class A
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (%)Name and Address(1)
                                
                                Restricted
                                
                                
                                Unrestricted
                                
                                
                                Warrants
                                
                                
                                Debentures
                                
                                
                                Options
                                
                                
                                Amount of
                                  Shares ofClass
                                  ACommon
                                  Stock
                                  Beneficially
                                  OwnedRobert
      Ripp, Director(2)(3)
                                
                                
                                56,700
                                
                                
                                
                                267,648
                                
                                
                                
                                247,906
                                
                                
                                
                                121,753
                                
                                
                                
                                36,100
                                
                                
                                
                                730,107
                                
                                
                                
                                8
                                %Gary
      Silverman, Director (4)
                                
                                
                                56,700
                                
                                
                                
                                19,042
                                
                                
                                
                                11,276
                                
                                
                                
                                12,175
                                
                                
                                
                                21,100
                                
                                
                                
                                120,293
                                
                                
                                
                                1
                                %Louis
      Leeburg, Director (5)
                                
                                
                                56,700
                                
                                
                                
                                16,163
                                
                                
                                
                                11,276
                                
                                
                                
                                12,175
                                
                                
                                
                                6,100
                                
                                
                                
                                102,414
                                
                                
                                
                                1
                                %Sohail
      Khan, Director(6)
                                
                                
                                57,900
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                6,100
                                
                                
                                
                                64,000
                                
                                
                                
                                1
                                %Dr.
      Steve Brueck, Director(7)
                                
                                
                                56,700
                                
                                
                                
                                9,980
                                
                                
                                
                                11,276
                                
                                
                                
                                12,175
                                
                                
                                
                                6,100
                                
                                
                                
                                96,231
                                
                                
                                
                                1
                                %James
      Gaynor, President & CEO(8)
                                
                                
                                -
                                
                                
                                
                                9,980
                                
                                
                                
                                11,276
                                
                                
                                
                                12,175
                                
                                
                                
                                80,000
                                
                                
                                
                                113,431
                                
                                
                                
                                1
                                %Dorothy
      Cipolla, CVP, CFO, Secreatary & Treasurer
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                
                                
                                
                                
                                45,000
                                
                                
                                
                                45,000
                                
                                
                                
                                *All
      directors and named executive officers currently holding office as a group
      (7 persons)
                                
                                
                                284,700
                                
                                
                                
                                322,813
                                
                                
                                
                                293,010
                                
                                
                                
                                170,453
                                
                                
                                
                                200,500
                                
                                
                                
                                1,271,476
                                
                                
                                
                                12
                                %Carl
      E. Berg (9)
                                
                                
                                -
                                
                                
                                
                                1,215,906
                                
                                
                                
                                478,759
                                
                                
                                
                                487,013
                                
                                
                                
                                -
                                
                                
                                
                                2,181,678
                                
                                
                                
                                21
                                %Crescent
      International Ltd (10)
                                
                                
                                -
                                
                                
                                
                                172,999
                                
                                
                                
                                135,300
                                
                                
                                
                                146,104
                                
                                
                                
                                -
                                
                                
                                
                                454,403
                                
                                
                                
                                5
                                %





* 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,
officers and other persons above is “in care of” LightPath Technologies, Inc.,
2603 Challenger Tech Court, Suite 100, Orlando, FL 32826. The address for Mr.
Berg as filed on a Form 4 filed February 14, 2008 is 10050 Bandley Drive,
Cupertino, CA, 94014.


(2)  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.


(3)  Includes
405,759 shares of Class A common stock with respect to which Mr. Ripp has the
right to acquire.  Specifically, Mr. Ripp holds a debenture issued by
the Company in the principal amount $187,500, which is currently convertible
into 121,753 shares of Class A common stock.  Mr. Ripp also holds
warrants which are currently exercisable for an aggregate of 247,906 shares of
Class A common stock and options which are currently exercisable for an
aggregate of 36,100 shares of Class A common stock.


(4)  Includes
44,551 shares of Class A common stock with respect to which Mr. Silverman has
the right to acquire.  Specifically, Mr. Silverman holds a debenture
issued by the Company in the principal amount $18,750, which is currently
convertible into 12,175 shares of Class A common stock.  Mr. Silverman
also holds warrants which are currently exercisable for an aggregate of 11,276
shares of Class A common stock and options which are currently exercisable for
an aggregate of 21,100 shares of Class A common stock.


(5)  Includes
29,551 shares of Class A common stock with respect to which Mr. Leeburg has the
right to acquire.  Specifically, Mr. Leeburg holds a debenture issued
by the Company in the principal amount $18,750, which is currently convertible
into 12,175 shares of Class A common stock.  Mr. Leeburg also holds
warrants which are currently exercisable for an aggregate of 11,276 shares of
Class A common stock and options which are currently exercisable for an
aggregate of 6,100 shares of Class A common stock.


- 37
-


(6)
Includes 6,100 shares of Class A common stock with respect to which Mr. Khan has
the right to acquire.  Specifically, Mr. Khan holds options which are
currently exercisable for an aggregate of 6,100 shares of Class A common
stock.


(7)  Includes
29,551 shares of Class A common stock with respect to which Dr. Brueck has the
right to acquire.  Specifically, Dr. Brueck holds a debenture issued
by the Company in the principal amount $18,750, which is currently convertible
into 12,175 shares of Class A common stock.  Dr. Brueck also holds
warrants which are currently exercisable for an aggregate of 11,276 shares of
Class A common stock and options which are currently exercisable for an
aggregate of 6,100 shares of Class A common stock.


(8)
Includes 103,451 shares of Class A common stock with respect to which Mr. Gaynor
has the right to acquire.  Specifically, Mr. Gaynor holds a debenture
issued by the Company in the principal amount $18,750, which is currently
convertible into 12,175 shares of Class A common stock.  Mr. Gaynor
also holds warrants which are currently exercisable for an aggregate of 11,276
shares of Class A common stock and options which are currently exercisable for
an aggregate of 80,000 shares of Class A common stock.


(9)  Includes
965,772 shares of Class A common stock with respect to which Berg & Berg
Enterprises, LLC (“BBE”) may have the right to acquire in the
future.  Specifically, BBE holds a debenture issued by the Company in
the principal amount $750,000, which would be convertible into 487,013 shares of
Class A common stock.  BBE also holds warrants which would be
exercisable for an aggregate of 478,759 shares of Class A common
stock.  However, neither BBE nor the Company is able to effect any
conversion of the debenture or any exercise of the warrants to the extent that
after giving effect to such issuance after conversion or exercise, as the case
may be, 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 conversion or exercise of the debenture or
warrants.  Given that BBE currently holds in excess of 4.99% of the
issued and outstanding share of Class A common stock, the debenture cannot be
converted and the warrants cannot be exercised.


(10)
Includes 281,404 shares of Class A common stock with respect to which
Crescent International Ltd. (“Crescent”) may have the right to acquire in the
future. Specifically, Crescent holds a debenture issued by the Company with a
current principal amount of $225,000, which would be convertible into 146,104
shares of Class A common stock. Crescent also holds warrants which would be
exercisable for an aggregate of 135,300 shares of Class A common stock.
However, neither Crescent nor the Company is able to effect any additional
conversion of the debenture or any exercise of the warrants to the extent that
after giving effect to such issuance after conversion or exercise, as the case
may be, Crescent 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 conversion or exercise of the debenture
or warrants. Given that Crescent currently holds only 5.35% of the issued and
outstanding shares of Class A common stock, Crescent may convert its
debenture or exercise its warrants, as the case may be, only to the extent that,
after giving effect to such issuance after conversion or exercise, Crescent’s
beneficial ownership of Class A common stock does not exceed 400,983 shares
in the aggregate.


- 38
-




Potential
Payments upon Termination or Change-in-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 UponExecutive Officer
                            
                            A Change of Control (1)J.
      James Gaynor (2)
                            
                            $
                            450,000Dorothy
      Cipolla (3)
                            
                            $
                            37,500




(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 least 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 would occur according
      to our normal payroll schedule and would only be paid out in the event the
      individual was no longer employed by the
  Company.




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.





In July
2008, the Board of Directors was presented with a Securities Purchase Agreement
with twenty-four institutional and private investors with respect to a private
placement of 8% senior convertible debentures. Among the investors were Steven
Brueck, J. James Gaynor, Louis Leeburg, Robert Ripp, Gary Silverman and James
Magos, all of whom were directors or officers of LightPath at the time of the
transaction. Mr. Ripp invested $250,000 and the others invested $25,000 or
less. After board discussion and approval, the directors and officers were
allowed to participate in the transaction on the same terms and subject to the
same conditions as the other third party investors.




Director
Independence




In
accordance with NASDAQ Capital Market and SEC rules, the Board affirmatively
determines the independence of each director and nominee for election as a
director in accordance with guidelines it has adopted, which include all
elements of independence set forth in the Nasdaq Capital Market listing
standards. Based on these standards, the Board has determined that each of the
following non-employee directors is independent and has no relationship with the
Company, except as a director and stockholder of the Company:


- 39
-





Robert
      Ripp
                  Steven
      BrueckGary
      Silverman
                  Sohail
      KhanLouis
      Leeburg




Item
14.    Principal Accountant Fees and Services.





The following table
presents fees paid or to be paid for professional audit services rendered by
KPMG and CFR for the audit of the Company’s annual financial statements during
the years ended June 30, 2009 and 2008, and fees billed for other services
rendered by KPMG and CFR:




Fiscal 2009
                              
                              
                              Fiscal 2008KPMG
      Audit Fees (1)
                              
                              $
                              —
                              
                              
                              $
                              8,000CFR
      Audit Fees (1)
                              
                              
                              169,769
                              
                              
                              
                              145,522CFR
      Audit-Related Fees (2)
                              
                              
                              5,828
                              
                              
                              
                              2,277KPMG
      Audit-Related Fees (2)
                              
                              
                              0
                              
                              
                              
                              8,000Tax
      Fees
                              
                              
                              —
                              
                              
                              
                              —All
      Other Fees
                              
                              
                              —
                              
                              
                              
                              —Total
      All Fees
                              
                              $
                              175,597
                              
                              
                              $
                              163,799







(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.


(2)
            Audit-Related
      Fees consisted principally of a review of registration statements and the
      issuance of consent thereto.





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 non-audit work performed by KPMG or CFR.The Audit Committee has
pre-approved all fees for work performed.





The Audit Committee has considered
whether the services provided by KPMG or CFR as disclosed above in the captions
“Audit-Related Fee” and “All Other Fees” and has concluded that such services
are compatible with the independence of KPMG or CFR as the Company’s principal
accountant.





PART
IV




Item
15.    Exhibits, Financial Statement Schedules and Reports
on Form 8-K.




(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, 2009 and 2008




Consolidated
Statements of Operations—For the years ended June 30, 2009 and 2008




Consolidated
Statements of Stockholders’ Equity—For the years ended June 30, 2009 and
2008




Consolidated
Statements of Cash Flows—For the years ended June 30, 2009 and 2008




Notes to
Consolidated Financial Statements




(b)The following
exhibits are filed herewith as a part of this report.


- 40
-




ExhibitNumber
                    
                    Description
                    
                    Notes3.1.1
                    
                    Certificate
      of Incorporation of Registrant, filed June 15, 1992 with the Secretary of
      State of Delaware
                    
                    13.1.2
                    
                    Certificate
      of Amendment to Certificate of Incorporation of Registrant, filed October
      2, 1995 with the Secretary of State of Delaware
                    
                    13.1.3
                    
                    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
                    
                    13.1.4
                    
                    Certificate
      of Designation of Series A Preferred Stock of Registrant, filed July 9,
      1997 with the Secretary of State of Delaware
                    
                    23.1.5
                    
                    Certificate
      of Designation of Series B Stock of Registrant, filed October 2, 1997 with
      the Secretary of State of Delaware
                    
                    33.1.6
                    
                    Certificate
      of Amendment of Certificate of Incorporation of Registrant, filed November
      12, 1997 with the Secretary of State of Delaware
                    
                    33.1.7
                    
                    Certificate
      of Designation of Series C Preferred Stock of Registrant, filed February
      6, 1998 with the Secretary of State of Delaware
                    
                    43.1.8
                    
                    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
                    
                    53.1.9
                    
                    Certificate
      of Designation of Series F Preferred Stock of Registrant, filed November
      2, 1999 with the Secretary of State of Delaware
                    
                    63.1.10
                    
                    Certificate
      of Amendment of Certificate of Incorporation of Registrant, filed February
      28, 2003 with the Secretary of State of Delaware
                    
                    73.2
                    
                    Bylaws
      of Registrant
                    
                    14.1
                    
                    Rights
      Agreement dated May 1, 1998, between Registrant and Continental Stock
      Transfer & Trust Company, First
                    
                    54.2
                    
                    Amendment
      to Rights Agreement dated as of February 28, 2008, between LightPath
      Technologies, Inc. and Continental Stock Transfer & Trust
      Company
                    
                    13510.1
                    
                    Directors
      Compensation Agreement with Amendment for Robert Ripp
                    
                    810.2
                    
                    Amended
      and Restated Omnibus Incentive Plan dated October 15, 2002
                    
                    910.3
                    
                    Employee
      Letter Agreement dated June 12, 2008, between LightPath Technologies,
      Inc., and J. James Gaynor, its CEO & President
                    
                    1010.4
                    
                    Form
      of Common Stock Purchase Warrant dated as of August 1, 2008, issued by
      LightPath Technologies, Inc., to certain investors
                    
                    1110.5
                    
                    Securities
      Purchase Agreement dated as of August 1, 2008, by and among LightPath
      Technologies, Inc., and certain investors
                    
                    1110.6
                    
                    Registration
      Rights Agreement dated as of August 1, 2008, by and among LightPath
      Technologies, Inc., and certain investors
                    
                    1110.7
                    
                    Security
      Agreement dated as of August 1, 2008, by and among LightPath Technologies,
      Inc.
                    
                    1110.8
                    
                    Form
      of Subsidiary Guarantee dated as of August 1, 2008, by Geltech Inc., and
      LightPath Optical Instrumentation (Shanghai), Ltd., in favor
      of  certain investors
                    
                    1110.9
                    
                    Form
      of 8% Senior Secured Convertible Debenture dated as of August 1, 2008,
      issued by LightPath Technologies, Inc. to certain
investors
                    
                    1110.10
                    
                    Termination
      of Joint Venture Contract, dated as of September 28, 2008 between CDGM
      Glass Company, Ltd. and LightPath Technologies, Inc.
                    
                    12


- 41
-





ExhibitNumber
                    
                    Description
                    
                    Notes10.11
                    
                    First
      Amendment to the 8% Senior Secured Convertible Debenture, dated as of
      December 31, 2008
                    
                    1410.12
                    
                    Amendment
      No. 2 to the Amended and Restated LightPath Technologies, Inc. Omnibus
      Incentive Plan, dated as of December 30, 2008
                    
                    1510.
      13
                    
                    Form
      of Common Stock Purchase Warrant dated as of August 1, 2008, issued by
      LightPath Technologies, Inc., to certain investors
                    
                    1610.14
                    
                    Securities
      Purchase Agreement dated as of August 1, 2008, by and among LightPath
      Technologies, Inc., and certain investors
                    
                    1610.15
                    
                    Registration
      Rights Agreement dated as of August 1, 2008, by and among LightPath
      Technologies, Inc., and certain investors
                    
                    1610.16
                    
                    Form
      of Common Stock Purchase Warrant dated as of August 19, 2009, issued by
      LightPath Technologies, Inc. to certain investors
                    
                    1710.17
                    
                    Securities
      Purchase Agreement dated as of August 19, 2009, by and among LightPath
      Technologies, Inc. and certain investors
                    
                    1710.18
                    
                    Registration
      Rights Agreement dated as of August 19, 2009, by and among LightPath
      Technologies, Inc., and certain investors
                    
                    1714.1
                    
                    Code
      of Ethics
                    
                    *23.1
                    
                    Consent
      of Independent Registered Public Accounting Firm
                    
                    *24
                    
                    Power
      of Attorney
                    
                    *31.1
                    
                    Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
      Exchange Act of 1934
                    
                    *31.2
                    
                    Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
      Exchange Act of 1934
                    
                    *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
                    
                    *





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.


- 42
-





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.  This exhibit was filed as
an exhibit to our Proxy Statement filed with the Securities and Exchange
Commission on September 12, 2002 and is incorporated herein by
reference.


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/A filed with
the Securities and Exchange Commission on August 6, 2008, and is incorporated
herein by reference thereto.


12. This
exhibit was filed as an exhibit to our Annual Report on Form 10-K filed with the
Securities and Exchange Commission on September 29, 2008, and is incorporated
herein by reference thereto.


13. 
This exhibit was filed as amendment number 1 to form 8A filed with the
Securities and Exchange Commission on February 28, 2008, 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 January 6, 2009, and is
incorporated herein by reference thereto.


15. 
This exhibit was filed as an exhibit to our Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on February 12, 2009, and is
incorporated herein by reference thereto.


16. 
This exhibit was filed as an exhibit to our Current Report on Form 8-K/A filed
with the Securities and Exchange Commission on August 6, 2008, 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 August 20, 2009, and is
incorporated herein by reference thereto.





*  Filed
herewith.




- 43
-





LightPath
Technologies, Inc.




Index
to Consolidated Financial Statements




Report
      of Independent Registered Public Accounting Firm
                F-2Consolidated
      Financial StatementsConsolidated
      Balance Sheets as of June 30, 2009 and 2008
                F-4Consolidated
      Statements of Operations for the years ended June 30, 2009 and
      2008
                F-5Consolidated
      Statements of Stockholders’ Equity for the years ended June 30, 2009 and
      2008
                F-6Consolidated
      Statements of Cash Flows for the years ended June 30, 2009 and
      2008
                F-7Notes
      to Consolidated Financial Statements
                F-8


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 subsidiaries (“the “Company”) as of June 30, 2009 and 2008, and the
related consolidated statements of operations, 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 LightPath Technologies,
Inc., and subsidiaries as of June 30, 2009 and 2008, 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
25, 2009


F-2





LIGHTPATH TECHNOLOGIES, INC.


Consolidated
Balance Sheets





June
      30,
                            
                            
                            June
      30,2009
                            
                            
                            2008AssetsCurrent
      assets:Cash
      and cash equivalents
                            
                            $
                            579,949
                            
                            
                            $
                            358,457Trade
      accounts receivable, net of allowance of $26,131 and
    $44,862
                            
                            
                            973,634
                            
                            
                            
                            1,334,856Inventories,
      net
                            
                            
                            983,278
                            
                            
                            
                            1,323,555Other
      receivables
                            
                            
                            183,413
                            
                            
                            
                            —Prepaid
      interest expense
                            
                            
                            366,219
                            
                            
                            
                            —Prepaid
      expenses and other assets
                            
                            
                            206,625
                            
                            
                            
                            277,359Total
      current assets
                            
                            
                            3,293,118
                            
                            
                            
                            3,294,227Property
      and equipment - net
                            
                            
                            1,991,828
                            
                            
                            
                            1,937,741Intangible
      assets - net
                            
                            
                            166,869
                            
                            
                            
                            199,737Debt
      costs, net
                            
                            
                            299,080
                            
                            
                            
                            —Other
      assets
                            
                            
                            78,701
                            
                            
                            
                            57,306Total
      assets
                            
                            $
                            5,829,596
                            
                            
                            $
                            5,489,011Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable
                            
                            $
                            1,376,599
                            
                            
                            $
                            1,827,461Accrued
      liabilities
                            
                            
                            181,318
                            
                            
                            
                            196,125Accrued
      severance
                            
                            
                            —
                            
                            
                            
                            97,401Accrued
      payroll and benefits
                            
                            
                            332,609
                            
                            
                            
                            423,222Secured
      note payable
                            
                            
                            —
                            
                            
                            
                            260,828Note
      payable, current portion
                            
                            
                            152,758
                            
                            
                            
                            166,645Capital
      lease obligation, current portion
                            
                            
                            5,050
                            
                            
                            
                            18,603Total
      current liabilities
                            
                            
                            2,048,334
                            
                            
                            
                            2,990,285Deferred
      rent
                            
                            
                            644,056
                            
                            
                            
                            222,818Capital
      lease obligation, excluding current portion
                            
                            
                            —
                            
                            
                            
                            5,050Note
      payable, excluding current portion
                            
                            
                            —
                            
                            
                            
                            111,0978%
      convertible debentures to related parties, net of debt
      discount
                            
                            
                            175,255
                            
                            
                            
                            —8%
      convertible debentures, net of debt discount
                            
                            
                            1,270,725
                            
                            
                            
                            —Total
      liabilities
                            
                            
                            4,138,370
                            
                            
                            
                            3,329,250Stockholders’
      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; 6,696,992 and 5,331,664shares
      issued and outstanding
                            
                            
                            66,970
                            
                            
                            
                            53,317Additional
      paid-in capital
                            
                            
                            203,151,364
                            
                            
                            
                            199,847,356Foreign
      currency translation adjustment
                            
                            
                            58,233
                            
                            
                            
                            21,369Accumulated
      deficit
                            
                            
                            (201,585,341
                            )
                            
                            
                            (197,762,281
                            )Total
      stockholders’ equity
                            
                            
                            1,691,226
                            
                            
                            
                            2,159,761Total
      liabilities and stockholders’ equity
                            
                            $
                            5,829,596
                            
                            
                            $
                            5,489,011





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


F-3





LIGHTPATH
TECHNOLOGIES, INC.


Consolidated
Statements of Operations





Year
      ended2009
                  
                  
                  2008Product
      sales, net
                  
                  $
                  7,489,545
                  
                  
                  $
                  8,826,471Cost
      of sales
                  
                  
                  5,446,518
                  
                  
                  
                  7,595,398Gross
      margin
                  
                  
                  2,043,027
                  
                  
                  
                  1,231,073Operating
      expenses:Selling,
      general and administrative
                  
                  
                  3,636,093
                  
                  
                  
                  5,440,366New
      product development
                  
                  
                  887,400
                  
                  
                  
                  1,214,269Amortization
      of intangibles
                  
                  
                  32,868
                  
                  
                  
                  32,868Loss/(Gain)
      on disposal of equipment
                  
                  
                  (5,244
                  )
                  
                  
                  3,067Total
      operating expenses
                  
                  
                  4,551,117
                  
                  
                  
                  6,690,570Operating
      loss
                  
                  
                  (2,508,090
                  )
                  
                  
                  (5,459,497
                  )Other
      income (expense)Interest
      expense
                  
                  
                  (224,622
                  )
                  
                  
                  (86,801
                  )Interest
      expense - debt discount
                  
                  
                  (640,695
                  )
                  
                  
                  —Interest
      expense - debt costs
                  
                  
                  (255,228
                  )
                  
                  
                  —Interest
      expense - warrants to induce conversion
                  
                  
                  (215,975
                  )
                  
                  
                  —Investment
      and other income
                  
                  
                  21,550
                  
                  
                  
                  78,529Net
      loss
                  
                  $
                  (3,823,060
                  )
                  
                  $
                  (5,467,769
                  )Loss
      per share (basic and diluted)
                  
                  $
                  (0.62
                  )
                  
                  $
                  (1.03
                  )Number
      of shares used in per share calculation - basic and
diluted
                  
                  
                  6,167,827
                  
                  
                  
                  5,327,419





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


F-4





LIGHTPATH TECHNOLOGIES, INC.


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


Year
ended June 30, 2008 and 2009





ForeignClass
      A
                                      
                                      
                                      Additional
                                      
                                      
                                      Currency
                                      
                                      
                                      
                                      
                                      
                                      TotalCommon
      Stock
                                      
                                      
                                      Paid-in
                                      
                                      
                                      Translation
                                      
                                      
                                      Accumulated
                                      
                                      
                                      Stockholders’Shares
                                      
                                      
                                      Amount
                                      
                                      
                                      Capital
                                      
                                      
                                      Adjustment
                                      
                                      
                                      Deficit
                                      
                                      
                                      EquityBalances
      at June 30, 2007
                                      
                                      
                                      4,512,543
                                      
                                      
                                      $
                                      45,125
                                      
                                      
                                      $
                                      196,417,217
                                      
                                      
                                      $
                                      (43,059
                                      )
                                      
                                      $
                                      (192,294,512
                                      )
                                      
                                      $
                                      4,124,771Private
      placement of common stock
                                      
                                      
                                      800,000
                                      
                                      
                                      
                                      8,000
                                      
                                      
                                      
                                      2,970,544
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,978,544Issuance
      of common stock under the Employee Stock Purchase Plan
                                      
                                      
                                      14,121
                                      
                                      
                                      
                                      142
                                      
                                      
                                      
                                      44,407
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      44,549Issuance
      of restriced stock awards,
                                      
                                      
                                      5,000
                                      
                                      
                                      
                                      50
                                      
                                      
                                      
                                      (50
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -net
      of vesting and forfeitures
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Stock
      based compensation
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      415,238
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      415,238Comprehensive
      loss:Foreign
      currency translationadjustment
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      64,428
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      64,248Net
      Loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (5,467,769
                                      )
                                      
                                      
                                      (5,467,769
                                      )Comprehensive
      loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (5,403,521
                                      )Balances
      at June 30, 2008
                                      
                                      
                                      5,331,664
                                      
                                      
                                      
                                      53,317
                                      
                                      
                                      
                                      199,847,356
                                      
                                      
                                      
                                      21,369
                                      
                                      
                                      
                                      (197,762,281
                                      )
                                      
                                      
                                      2,159,761Issuance
      of common stock for:Current
      interest on convertible debentures
                                      
                                      
                                      103,971
                                      
                                      
                                      
                                      1,040
                                      
                                      
                                      
                                      96,593
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      97,633Incentive
      to participate in convertible debenture placement, recorded as debt
      discount
                                      
                                      
                                      73,228
                                      
                                      
                                      
                                      732
                                      
                                      
                                      
                                      74,399
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      75,131Prepayment
      of future interest on convertible debentures
                                      
                                      
                                      589,614
                                      
                                      
                                      
                                      5,896
                                      
                                      
                                      
                                      448,099
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      453,995Conversion
      of 25% of debentures
                                      
                                      
                                      475,496
                                      
                                      
                                      
                                      4,755
                                      
                                      
                                      
                                      727,495
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      732,250Payment
      on consulting service arrangements
                                      
                                      
                                      74,839
                                      
                                      
                                      
                                      748
                                      
                                      
                                      
                                      61,051
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      61,799Vested
      restricted stock units
                                      
                                      
                                      33,400
                                      
                                      
                                      
                                      334
                                      
                                      
                                      
                                      (334
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Employee
      Stock Purchase Plan
                                      
                                      
                                      14,780
                                      
                                      
                                      
                                      148
                                      
                                      
                                      
                                      14,072
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      14,220Issuance
      of warrants to private placement agent
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -recorded
      as debt costs
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      194,057
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      194,057Debt
      discount and  beneficial conversion feature
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -on
      convertible debentures
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,316,334
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,316,334Issuance
      of warrants as inducement
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -to
      convert debentures
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      215,975
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      215,975Stock
      based compensation on stock options
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -and
      restricted stock units
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      156,267
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      156,267Foreign
      currency translation adjustment
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      36,864
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      36,864Net
      loss
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,823,060
                                      )
                                      
                                      
                                      (3,823,060
                                      )Comprehensive
      loss
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (3,786,196
                                      )Balances
      at June 30, 2009
                                      
                                      
                                      6,696,992
                                      
                                      
                                      $
                                      66,970
                                      
                                      
                                      $
                                      203,151,364
                                      
                                      
                                      $
                                      58,233
                                      
                                      
                                      $
                                      (201,585,341
                                      )
                                      
                                      $
                                      1,691,226





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


F-5





LIGHTPATH
TECHNOLOGIES, INC.


Consolidated
Statements of Cash Flows





Years
      EndedJune
      30,2009
                  
                  
                  2008Cash
      flows from operating activitiesNet
      loss
                  
                  $
                  (3,823,060
                  )
                  
                  $
                  (5,467,769
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                  
                  
                  565,988
                  
                  
                  
                  459,351Interest
      from amortization of debt discount
                  
                  
                  640,695
                  
                  
                  
                  -Fair
      value of warrants issued to induce debenture conversion
                  
                  
                  215,975
                  
                  
                  
                  -Interest
      from amortization of debt costs
                  
                  
                  255,228
                  
                  
                  
                  -Issuance
      of common stock for interest on convertible debentures
                  
                  
                  97,633
                  
                  
                  
                  -Gain
      (Loss) on disposal of equipment
                  
                  
                  (5,244
                  )
                  
                  
                  3,067Stock
      based compensation
                  
                  
                  156,267
                  
                  
                  
                  415,238Provision
      for doubtful accounts receivable
                  
                  
                  (18,731
                  )
                  
                  
                  15,894Deferred
      rent
                  
                  
                  421,238
                  
                  
                  
                  61,140Common
      stock issued for payment of consulting services
                  
                  
                  61,799
                  
                  
                  
                  -Changes
      in operating assets and liabilities:Trade
      accounts receivables
                  
                  
                  379,953
                  
                  
                  
                  58,065Other
      receivables
                  
                  
                  (183,413
                  )Inventories
                  
                  
                  340,277
                  
                  
                  
                  529,769Prepaid
      expenses and other assets
                  
                  
                  81,125
                  
                  
                  
                  (56,499
                  )Accounts
      payable and accrued liabilities
                  
                  
                  (653,683
                  )
                  
                  
                  525,780Net
      cash used in operating activities
                  
                  
                  (1,467,953
                  )
                  
                  
                  (3,455,964
                  )Cash
      flows from investing activitiesPurchase
      of property and equipment
                  
                  
                  (563,764
                  )
                  
                  
                  (660,003
                  )Proceeds
      from sale of equipment
                  
                  
                  37,791
                  
                  
                  
                  17,640Net
      cash used in investing activities
                  
                  
                  (525,973
                  )
                  
                  
                  (642,363
                  )Cash
      flows from financing activitiesProceeds
      from sale of common stock, net of costs
                  
                  
                  -
                  
                  
                  
                  2,978,544Proceeds
      from sale of common stock from employee stock purchase
plan
                  
                  
                  14,220
                  
                  
                  
                  44,549Borrowings
      on 8% convertible debenture, net of issuance costs
                  
                  
                  2,568,749
                  
                  
                  
                  -Payments
      on secured note payable
                  
                  
                  (260,828
                  )
                  
                  
                  260,828Payments
      on capital lease obligation
                  
                  
                  (18,603
                  )
                  
                  
                  (16,285
                  )Payments
      on note payable
                  
                  
                  (124,984
                  )
                  
                  
                  (166,644
                  )Net
      cash provided by financing activities
                  
                  
                  2,178,554
                  
                  
                  
                  3,100,992Effect
      of exchange rate on cash and cash equivilents
                  
                  
                  36,864
                  
                  
                  
                  64,428Increase
      (decrease) in cash and cash equivalents
                  
                  
                  221,492
                  
                  
                  
                  (932,907
                  )Cash
      and cash equivalents, beginning of period
                  
                  
                  358,457
                  
                  
                  
                  1,291,364Cash
      and cash equivalents, end of period
                  
                  $
                  579,949
                  
                  
                  $
                  358,457Supplemental
      disclosure of cash flow information:Interest
      paid in cash
                  
                  $
                  34,817
                  
                  
                  $
                  86,801Supplemental
      disclosure of non-cash investing & financing
    activities:Landlord
      credits for leasehold improvements
                  
                  $
                  -
                  
                  
                  $
                  161,678Convertible
      debentures exchanged into common stock
                  
                  $
                  732,250
                  
                  
                  $
                  -Fair
      value of warrants issued to broker of debt financing
                  
                  $
                  194,057
                  
                  
                  $
                  -Fair
      value of warrants & incentive shares issued to debenture
      holders
                  
                  $
                  790,830
                  
                  
                  $
                  -Intrinsic
      value of beneficial conversion feature underlying
      convertible  debentures
                  
                  $
                  600,635
                  
                  
                  $
                  -Prepaid
      interest through the issuance of stock
                  
                  $
                  453,995
                  
                  
                  $
                  -





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


F-6





1.    Organization
and History; Going Concern and Management’s Plans




Organization
and History




LightPath
Technologies, Inc. (“LightPath” or the “Company”) was incorporated in Delaware
in 1992.  It was the successor to LightPath Technologies Limited
Partnership formed in 1989, and its predecessor, Integrated Solar Technologies
Corporation formed in 1985. On April 14, 2000, the Company acquired Horizon
Photonics, Inc. (“Horizon”). On September 20, 2000, the Company acquired
Geltech, Inc. (“Geltech”). LightPath is a manufacturer and integrator of
families of precision molded aspheric optics, high-performance fiber-optic
collimator, isolators, GRADIUM glass lenses and other optical materials used to
produce products that manipulate light. The Company designs, develops,
manufactures and distributes optical components and assemblies utilizing the
latest optical processes and advanced manufacturing technologies. The Company
also performs research and development for optical solutions for the traditional
optics markets and communications markets. As used herein, the terms
(“LightPath” or the “Company”), refer to LightPath individually or, as the
context requires, collectively with its subsidiaries on a consolidated
basis.




During
fiscal year 1996, the Company completed an initial public offering (“IPO”) and
in fiscal years 1997, 1998, 2000, 2004, 2005, 2006 and 2008 the Company
completed seven private placements of securities to raise additional capital.
These funds were used to further the research, development and commercialization
of optical products such as lenses, isolators and collimators. Additionally,
during fiscal year 2000 warrants issued at the IPO and private placement
warrants were exercised for approximately $65.5 million. In fiscal 2009 the
Company raised $2.9 million through the sale of convertible
debentures.





The
Company’s optical product markets experienced a severe downturn beginning in
2001, which continued into 2003 and resulted in a significant decline in the
demand for the Company’s products over that period. Beginning in 2004 and
continuing through 2009, management believes that some volume improvement
occurred in demand for the Company’s products in several of its markets,
particularly the industrial and defense markets. Nevertheless, the Company has
not been able to reach a status of positive cash flow or
profitability.





Going
Concern and Managements Plans





As shown
in the accompanying financial statements, the Company has incurred recurring
losses from operations and as of June 30, 2009 the Company has an accumulated
deficit of approximately $202 million, Cash used in operations was $1.5 million,
$3.4 million and $1.9 million during fiscal 2009, 2008 and 2007, respectively.
Management has instituted a cost reduction program which included a reduction in
labor headcount and fringe costs for medical insurance for its employees. In
addition, we have redesigned certain product lines – collimators and precision
molded optics, increased sales prices on GRADIUM products, obtained more
favorable material costs by sourcing some purchased components in China, and
have instituted more efficient management techniques which have improved our
product yields.
Management believes these factors will contribute towards achieving
profitability assuming we meet out sales targets.





Management
has developed an operating plan for fiscal 2010 and believes the Company has
adequate financial resources for achievement of that plan and to sustain its
current operations in the coming year. Nevertheless, management will be
monitoring the plan closely during the year and should the plan objectives not
be met during the year, remedial actions will be initiated. The Company had a
cash balance of approximately $580,000 at June 30, 2009. As discussed in Note
19, in August 2009, the Company raised approximately $1.5 million from the sale
of common stock and warrants.  The Company may still seek external
debt or equity financing if it can be obtained in an amount and on terms that
are acceptable; however, the Company may be required to seek external financing
regardless of whether the terms would otherwise be acceptable if the Company’s
financial resources are not sufficient to sustain its operations or to pursue
its business plan.





The
fiscal 2010 operating plan and related financial projections we have developed
anticipate sales growth primarily in the infrared products and the low cost high
volume products for the imaging markets in Asia, which are new markets for us.
We expect margin improvements based on production efficiencies and reductions in
product costs as a result of the shifting of our manufacturing operations to
Shanghai, offset by marginal increases in selling, administrative and new
product development expenditures. However, there is no assurance we will be able
to achieve the necessary sales growth and gross margin improvements to sustain
operations. Factors which could adversely affect cash balances in future
quarters include, but are not limited to, a decline in revenue or a lack of
anticipated sales growth, increased material costs, increased labor costs,
planned production efficiency improvements not being realized, increases in
property, casualty, benefit and liability insurance premiums and increases in
other discretionary spending, particularly sales and marketing related. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.


F-7





2.    Summary
of Significant Accounting Policies




Consolidated financial statementsinclude the accounts of the Company, and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.




Cash and cash equivalents
consist of cash in the bank and temporary investments with maturities of 90 days
or less when purchased.




Allowance
for accounts receivable,is calculated by
taking 100% of the total of invoices that are over 90 days past due from due
date and 10% of the total of invoices that are over 60 days past due from due
date. Accounts receivable are customer obligations due under normal trade terms.
The Company performs 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 the
Company’s actual collection experience changes, revisions to its allowance may
be required. After all attempts to collect a receivable have failed, the
receivable is written off against the allowance.




Inventories,which consist
principally of raw materials, work-in-process and finished lenses, isolators,
collimators and assemblies are stated at the lower of cost or market, on a
first-in, first-out basis. Inventory costs include materials, labor and
manufacturing overhead. Fixed costs related to excess manufacturing capacity
have been expensed. Also unusual or abnormal costs, primarily relating to the
start up of the Shanghai facility have been expensed. The inventory obsolescence
reserve is calculated by reserving 100% for items that have not been sold in two
years or that have not been purchased in two years or at 25% of which we have
more than a two year supply, as well as reserving 50% for other items deemed to
be slow moving within the last 12 months and reserving 25% for items deemed to
have low material usage within the last six months.




Property and equipment are
stated at cost and depreciated using the straight-line method over the estimated
useful lives of the related assets ranging from three to 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 assetsare recorded
in accordance with Statement of Financial Accounting Standards No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets(“SFAS No. 144”). In accordance with SFAS
No. 144, long-lived assets, such as property, plant, and equipment, and
purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to 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.




Intangible assets, consisting
of patents and trademarks, are recorded at cost. Upon issuance of the patent or
trademark, the assets are amortized on the straight-line basis over the
estimated useful life of the related assets ranging from two to seventeen
years.




Debt costsconsist of third
party fees incurred and other costs associated with the issuance of long-term
debt. Debt costs are capitalized and amortized to interest expense over the term
of the debt using the effective interest method.




Deferred rent relates to
certain of the Company’s operating leases containing predetermined fixed
increases of the base rental rate during the lease term being recognized as
rental expense on a straight-line basis over the lease term. The Company has
recorded the difference between the amounts charged to operations and amounts
payable under the leases as deferred rent in the accompanying consolidated
balance sheets Deferred rent also included payments received for leasehold
improvements.




Shipping and handling costsrelated to the acquisition of goods from its vendors are accounted for as
cost of sales.




Income taxes are accounted for
under the asset and liability method. Deferred income tax assets and liabilities
are computed on the basis of differences between the financial statement and tax
basis of assets and liabilities that will result in taxable or deductible
amounts in the future based upon enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances have been established to reduce deferred tax assets to the
amount expected to be realized.




The
Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), on July 1, 2007. The Company has not recognized a
liability as a result of the implementation of FIN 48. A reconciliation of the
beginning and ending amount of unrecognized tax benefits has not been provided
since there is no unrecognized benefit since the date of adoption. The Company
has not recognized interest expense or penalties as a result of the
implementation of FIN 48. If there were an unrecognized tax benefit, the Company
would recognize interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses.





The
Company files income tax returns in the U.S. federal jurisdiction, and various
states and foreign jurisdictions. The Company is no longer subject to U.S.
federal, state or local, or non-U.S. income tax examinations by tax authorities
for years before 2003.


F-8


Revenue is recognized from
product sales when products are shipped to the customer, provided that the
Company has received a valid purchase order, the price is fixed, title has
transferred, collection of the associated receivable is reasonably assured, and
there are no remaining significant obligations. Revenues from product
development agreements are recognized as milestones are completed in accordance
with the terms of the agreements and upon shipment of products, reports or
designs to the customer.




Sales to
Crimson Trace were approximately $684,000 and $100,000, which represents 9% and
1% of net revenues for the years ended June 30, 2009 and 2008,
respectively. Sales to ThorLabs were approximately $557,000 for fiscal 2009 and
$719,000 which represents 7% and 8% of net revenues for the years ended June 20,
2009 and 2008, respectively.




New product development costs
are expensed as incurred.




Stock based compensation is
expensed according to Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS
123R”). Stock-based compensation cost 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. The Company elected to use the modified
prospective method for adoption, which requires compensation expense to be
recorded for all unvested stock options and restricted shares beginning in the
first quarter of adoption. For all unvested options outstanding as of
July 1, 2005, and subsequently granted options, the previously measured but
unrecognized compensation expense, based on the fair value at the original grant
date, will be recognized on a straight-line basis in the Consolidated Statements
of Operations over the remaining vesting period. We estimate the fair value of
each stock option as of the date of grant. We use the Black-Scholes pricing
model. Most options granted under our Amended and Restated Omnibus Incentive
Plan vest ratably over two to four years and generally have ten-year contract
lives.  The volatility rate is based on four-year historical trends in
common stock closing prices and the expected term was determined based primarily
on historical experience of previously outstanding options.  The
interest rate used is the U.S. Treasury interest rate for constant maturities.
The likelihood of meeting targets for option grants that are performance based
are evaluated each quarter. If it is determined that meeting the targets is
probable then the compensation expense will be amortized over the remaining
vesting period.





Management makes estimatesand
assumptions during the preparation of the Company’s consolidated financial
statements that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes available, which in turn could impact the amounts
reported and disclosed herein.




Financial instruments are
accounted for in accordance with Statement of Financial Accounting Standards
No. 157 Fair Value
Measurements (“SFAS 157”). SFAS 157 provides a framework for
measuring fair value and expands required disclosure about fair value
measurements of assets and liabilities.  SFAS 157 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. SFAS 157 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; and





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,
2009.  The Company uses the market approach to measure fair value for
its Level 1 financial assets and liabilities, which include cash equivalents of
$226,890 at June 30, 2009.  The market approach uses prices and other
relevant information generated by market transactions involving identical or
comparable assets and liabilities. The Company does not have other financial
assets or liabilities that would be characterized as Level 2 or Level 3
assets.




The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values.  These financial instruments which
include cash, trade and other 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 carrying value of note payable, capital lease obligations
and convertible debentures approximate their fair values because the interest
rates associated with the instruments approximates current interest rates
charged on similar current borrowings.




SFAS
No. 157 is effective for fiscal years beginning after November 15, 2007, except
for non-financial assets and liabilities recognized or disclosed at fair value
on a non-recurring basis, for which the effective date is fiscal years beginning
after November 15, 2008. On July 1, 2008, the Company adopted SFAS No. 157 for
assets and liabilities recognized or disclosed at fair value on a recurring
basis. The adoption of SFAS No. 157 did not have an impact on the Company’s
consolidated results of operations, cash flows or financial condition. The
Company adopted SFAS No. 157 for non-financial assets that are recognized or
disclosed on a non-recurring basis on July 1, 2009 in accordance with FASB Staff
Position 157-2, Effective Date
of FASB Statement No. 157 (“FSP 157-2”). The Company is currently
evaluating the effect, if any, of FSP 157-2 on the Company’s consolidated
results of operations, cash flows or financial condition.


F-9




Derivative Financial
Instruments.The Company accounts
for derivative instruments in accordance with the provisions of SFAS
No. 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS No. 133”), and its related
interpretations, and complies with SFAS No. 138, Accounting for Certain Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133
(“SFAS No. 133”).  SFAS No. 133
and SFAS No. 138 establish accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities.




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 SFAS No. 133 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, and are
evaluated and accounted for in accordance with the provisions of the Emerging
Issues Task Force Issue (“EITF”) No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock
(“EITF No. 00-19”).  Pursuant to EITF
No. 00-19, 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.





Beneficial Conversion and Warrant
Valuation.In accordance with EITF
No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios and EITF No. 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments, the Company
records a beneficial conversion feature (“BCF”) related to the issuance of
convertible debt instruments that have conversion features at fixed rates that
are in-the-money when issued, and the fair value of warrants issued in
connection with those instruments. The BCF for the convertible instruments is
recognized and measured by allocating a portion of the proceeds to warrants,
based on their relative fair value, and as a reduction to the carrying amount of
the convertible instrument equal to the intrinsic value of the conversion
feature.  The discounts recorded in connection with the BCF and warrant
valuation are recognized as non-cash interest expense over the term of the
convertible debt, using the effective interest method.




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 stockholders’ equity. Our other comprehensive income (loss) consists of the
foreign currency translation adjustment. For more information see Note 14
–




Foreign
Operations.




Business segments, pursuant to
SFAS No. 131, Disclosure
about Segments of a Business Enterprise and Related Information, are
required to be reported by the Company. As the Company only operates in
principally one business segment, no additional reporting is
required.




Subsequent Events,  The Organization
has evaluated events and transactions occurring subsequent to June 30,
2009 as of September 25, 2009 which is the date the financial
statements were issued. Subsequent events occurring after September
25, 2009 have not been evaluated by management. No material events have occurred
since June 30, 2009 that require recognition or disclosure in the financial
statements.




Recent Accounting
Pronouncements, which have or will have an effect on the consolidated
financial statements, are as follows:




In
December 2007, the FASB issued Statement No. 141 (revised), Business Combinations (“SFAS
141(R)”). The standard changes the accounting for business combinations
including the measurement of acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the
accounting for pre-acquisition gain and loss contingencies, the recognition of
capitalized in-process research and development, the accounting for
acquisition-related restructuring cost accruals, the treatment of acquisition
related transaction costs and the recognition of changes in the acquirer’s
income tax valuation allowance. SFAS 141(R) is effective for the Company’s
fiscal year beginning July 1, 2009, with early adoption prohibited. The Company
does not believe that the impact of the pending adoption of SFAS 141(R) will
have a material effect on the Company’s consolidated financial statements,
results of operations and cash flows.


F-10


In April
2009, the FASB issued FSP No. FAS 141(R)-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arises from Contingencies(“FAS 141(R)-1”), which amends and clarifies SFAS No. 141(R) to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination.  FAS 141(R)-1 it to be
applied prospectively to business combinations for which the acquisition date is
on or after July 1, 2009 for the Company.  The adoption of SFAS 141(R)
may have an effect on the Company’s operating results with respect to future
acquisitions, if any.





In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS No. 161”). SFAS No. 161 amends
and expands the disclosure requirements of Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.It requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about credit-risk-related contingent features in derivative
agreements. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company does
not anticipate the adoption of SFAS No. 161 will have a material impact on its
results of operations, cash flows or financial condition.





In April
2008, the FASB issued Staff Position No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP 142-3”).  This FSP amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible
Assets (“SFAS No. 142”). This FSP also adds certain disclosures to those
already prescribed in SFAS No. 142. FSP 142-3 becomes effective for fiscal
years, and interim periods within those fiscal years, beginning in the Company’s
fiscal 2010. The guidance for determining useful lives must be applied
prospectively to intangible assets acquired after the effective date. The
disclosure requirements must be applied prospectively to all intangible assets
recognized as of the effective date.





In May
2008, the FASB issued Staff Position APB No. 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) (“FSP APB No. 14-1”),which requires issuers
of convertible debt that may be settled wholly or partly in cash when converted
to account for the debt and equity components separately. FSP APB No. 14-1 is
effective for fiscal years beginning after December 15, 2008, which will be the
Company's fiscal year 2010, and must be applied retrospectively to all periods
presented. The Company is evaluating the financial impact that FSP APB No. 14-1
will have on its consolidated financial statements.





In June
2008, the FASB issued Staff Position No. EITF No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
(“FSP EITF No. 03-6-1”). According to FSP EITF No. 03-6-1, unvested share-based
payment awards that contain nonforfeitable rights to dividends or dividend
equivalents are considered participating securities under SFAS No. 128. As such,
they should be included in the computation of basic earnings per share (“EPS”)
using the two-class method. FSP EITF No. 03-6-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, as well as
interim periods within those years. Once effective, all prior-period EPS data
presented must be adjusted retrospectively. The Company does not expect FSP EITF
No. 03-6-1 to have a material impact on the Company’s financial position or
results of operations.





In June
2008, the FASB’s Emerging Issues Task Force reached a consensus regarding EITF
Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”).
EITF 07-5 outlines a two-step approach to evaluate the instrument’s contingent
exercise provisions, if any, and to evaluate the instrument’s settlement
provisions when determining whether an equity-linked financial instrument (or
embedded feature) is indexed to an entity’s own stock. EITF 07-5 is effective
for fiscal years beginning after December 15, 2008 and must be applied to
outstanding instruments as of the beginning of the fiscal year of adoption as a
cumulative-effect adjustment to the opening balance of retained earnings. Early
adoption is not permitted. The Company does not anticipate the adoption of EITF
07-5 will have a material impact on its results of operations, cash flows or
financial condition.





In
April 2009, the FASB issued FSP FAS 107-1 and APB Opinion No. 28-1, Interim Disclosures about Fair Value
of Financial Instruments, which requires disclosures about fair value of
financial instruments for interim reporting periods as well as in annual
financial statements.  This FSP will not impact the consolidated
financial results as the requirements are disclosure-only in nature and is
effective for interim reporting periods ending after June 15,
2009.


F-11


In
June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standard
CodificationTM (“Codification”) and the Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 168”), effective for interim and annual
reporting periods ending after September 15, 2009. This statement replaces
SFAS 162, “The Hierarchy
of Generally Accepted Accounting Principles” and establishes the
Codification as the source of authoritative accounting principles used in the
preparation of financial statements in conformity with generally accepted
accounting principles. The Codification does not replace or affect guidance
issued by the SEC or its staff. After the effective date of this statement, all
non-grandfathered non-SEC accounting literature not included in the Codification
will be superseded and deemed non-authoritative.





3.
            Inventories
      – net





The
components of inventories include the following:





June 30, 2009
                  
                  
                  June 30, 2008Raw
      material
                  
                  $
                  393,582
                  
                  
                  $
                  563,254Work
      in Process
                  
                  
                  378,360
                  
                  
                  
                  560,495Finished
      Goods
                  
                  
                  563,493
                  
                  
                  
                  433,992Reserve
      for obsolescence
                  
                  
                  (352,157
                  )
                  
                  
                  (234,186
                  )$
                  983,278
                  
                  
                  $
                  1,323,555





4.
            Property
      and Equipment – net


Property
and equipment consist of the following:





Estimated
                  
                  
                  June 30,
                  
                  
                  June 30,Life (Years)
                  
                  
                  2009
                  
                  
                  2008Manufacturing
      equipment
                  
                  
                  5 -
      10
                  
                  
                  $
                  6,982,244
                  
                  
                  $
                  6,867,727Computer
      equipment and software
                  
                  
                  3 -
      5
                  
                  
                  
                  529,259
                  
                  
                  
                  683,972Furniture
      and fixtures
                  
                  
                  5
                  
                  
                  
                  217,669
                  
                  
                  
                  215,766Platinum
      molds
                  
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  44,100Leasehold
      improvements
                  
                  
                  5 -
      7
                  
                  
                  
                  1,244,434
                  
                  
                  
                  826,614Total
      Property and Equipment
                  
                  
                  
                  
                  
                  
                  8,973,606
                  
                  
                  
                  8,638,179Less
      accumulated depreciation  and amortization
                  
                  
                  
                  
                  
                  
                  6,981,778
                  
                  
                  
                  6,700,438Total
      property and equipment, net
                  
                  
                  
                  
                  
                  $
                  1,991,828
                  
                  
                  $
                  1,937,741





Assets
under capital lease totaled $166,959 as of June 30, 2009 and had related
accumulated depreciation of $158,874.





5.
            Intangible
      Assets – net




Intangible
assets consist of the following:





June
      30, 2009
                        
                        
                        June
      30, 2008Gross
      carrying amount
                        
                        $
                        621,303
                        
                        
                        $
                        621,303Accumulated
      amortization
                        
                        
                        (454,434
                        )
                        
                        
                        (421,566
                        )Net
      carrying amount
                        
                        $
                        166,869
                        
                        
                        $
                        199,737





Amortization
expense related to intangible assets totaled approximately $33,000 during the
fiscal years ended June 30, 2009 and 2008.


F-12


The
amount of the June 30, 2009, net intangible asset value to be amortized over
each of the next five years and beyond is as follows:




2010
                        
                        2011
                        
                        
                        2012
                        
                        
                        2013
                        
                        
                        2014
                        
                        
                        2015$
                        32,868
                        
                        $
                        32,868
                        
                        
                        $
                        32,868
                        
                        
                        $
                        32,868
                        
                        
                        $
                        32,868
                        
                        
                        $
                        2,529





6.
            Capital
      lease and note payable





In the
second quarter of fiscal 2005, we entered into a $75,000 capital equipment lease
for equipment to support our molded optics production which has an outstanding
balance of $5,050 as of June 30, 2009. We augmented this financing on January 11, 2006, with a four-year
secured loan agreement that provided for borrowings of up to $500,000.
The four-year secured loan
agreement started as aline of credit and converted to a note payable the
earlier of January 2007 or when our borrowings were at $500,000. The line of
credit converted to a note payable in January 2007. The note payable is at 9.25%
interest and is payable in thiry-six equal monthly payments of principal plus
interest continuing through February 2010. At June 30, 2007 we had drawn
approximately $500,000 on the note. The outstanding balance on the note payable
was $152,758 as of June 30, 2009 of which it all is payable in fiscal 2010. The
collateral for both of these agreements is the underlying capital
equipment.




7.    Stockholders’
Equity




Preferred
stock—The Company’s preferred stock consists of the following:




Authorized
5,000,000 shares of Class D preferred stock, $.01 par value. The stockholders of
Class D preferred stock are entitled to one vote for each share
held.





Common
stock—The Company’s common stock consists of the following:




Authorized
40,000,000 shares of Class A common stock, $.01 par value. The stockholders of
Class A common stock are entitled to one vote for each share held.





In July 2007 the Company raised gross
proceeds of approximately $3,200,000 by way of the sale of newly issued common
stock and warrants to certain institutional and private investors. 
Professional fees of $221,455 were paid to Montauk Securities for its role as
exclusive placement agent and financial advisor, and attorney and escrow agent
fees, netting the proceeds to the Company of $2,978,545.  800,000 shares of
common stock were sold at $4.00 per share.  The investors along with
Montauk Securities and its principals also received warrants which vested 100%
on January 26, 2008 and can be exercised through January 26, 2013 for the future
purchase of 320,000 shares of the Company’s common stock at $5.50 per
share.  If all of the warrants are ultimately exercised an additional
$1,680,000 will be raised. The registration rights agreement required the
Company to register the shares within 45 days.  This deadline was not
met and a waiver of any penalty was requested.





In August 2008 the Company raised
$2,929,000 from the sale of convertible debentures, see note 18 for the details
and terms on these notes.





In August 2009 the Company raised gross
proceeds of $1,636,500 from a private placement, see note 20 for more details on
this transaction.





Warrants




Warrants
outstanding at June 30, 2009 of 2,258,324 include:


·
            warrants
      to purchase up to 35,156 shares of Class A common stock at $48.00 per
      share at any time through November 10, 2009 issued to Robert Ripp, on
      November 5, 1999 in connection with his election to serve as Chairman of
      the Board of Directors;


·
            a
      warrant to purchase up to 100,000 shares of Class A common stock at $3.20
      per share at any time through September 29, 2013 issued to Robert Ripp on
      September 29, 2003 in connection with his providing a line of credit to
      the Company


·
            warrants
      to purchase up to 219,000 shares of Class A common stock at $7.41 per
      share at any time through September 20, 2011 in connection with a private
      placement financing in fiscal 2006;


·
            warrants
      to purchase up to 73,000 shares of Class A common stock at $7.41 per share
      at any time  through September 20, 2011 issued to Dawson James
      and its designees as partial compensation for acting as placement agent in
      connection with a private placement financing in fiscal
    2006;


·
            warrants
      to purchase up to 238,750 shares of Class A common stock at $5.50 per
      share and warrants to purchase up to 81,250 shares of Class A common stock
      at $2.61 at any time through January 26, 2013 in connection with a private
      placement financing in fiscal
2008;


F-13


·
            warrants
      to purchase up to 808,328 shares of Class A common stock at $1.68 per
      share and warrants to purchase up to 332,841 shares of Class A common
      stock at $1.89 at any time through August 1, 2013 in connection with the
      sale of convertible debentures in fiscal
2009;


·
            warrants
      to purchase up to 369,999 shares of Class A common stock at $0.87 per
      share at any time through December 31, 2013 in connection with a
      conversion of 25% of the convertible debentures in fiscal
      2009;




8.    Income
Taxes




Due to
the Company’s losses from operations, there was no provision for income taxes
and no taxes were paid during the years ended June 30, 2009 and 2008. The tax
effects of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities are as follows at June
30:




2009
                      
                      
                      2008Deferred
      tax  assets:Net
      operating loss and credit carryforwards
                      
                      $
                      37,922,000
                      
                      
                      $
                      36,769,000Stock-based
      compensation
                      
                      
                      7,041,000
                      
                      
                      
                      6,980,000Capital
      loss and R&D credits
                      
                      
                      1,289,000
                      
                      
                      
                      1,244,000Research
      development expenses
                      
                      
                      568,000
                      
                      
                      
                      414,000Inventory
                      
                      
                      160,000
                      
                      
                      
                      124,000Accrued
      expenses and other
                      
                      
                      2,748,000
                      
                      
                      
                      2,808,000Gross
      deferred tax  assets
                      
                      
                      49,728,000
                      
                      
                      
                      48,339,000Valuation
      allowance for deferred tax assets
                      
                      
                      (49,623,000
                      )
                      
                      
                      (48,207,000
                      )Total
      deferred tax  assets
                      
                      
                      105,000
                      
                      
                      
                      132,000Deferred
      tax liabilities:Depreciation
      and other
                      
                      
                      (105,000
                      )
                      
                      
                      (132,000
                      )Total
      deferred tax liabilities
                      
                      
                      (105,000
                      )
                      
                      
                      (132,000
                      )Net
      deferred tax liability
                      
                      $
                      -
                      
                      
                      $
                      -




The
reconciliation of income tax attributable to operations computed at the U.S.
federal statutory tax rates and the actual tax provision of zero results
primarily from the change in the valuation allowance.




In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.  Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment.  In order to fully realize the deferred tax asset, the
Company will need to generate future taxable income of approximately $101
million prior to the expiration of net operating loss carry-forwards from 2010
through 2028.  Based on the level of historical taxable income,
management has provided for a valuation adjustment against the deferred tax
assets of $49,623,000 at June 30, 2009, an increase of approximately of
$1,416,000 over June 30, 2008.





At June
30, 2009, the Company has net operating loss carry forwards for Federal income
tax purposes of approximately $101 million, which will expire from 2010 through
2028, if not utilized. The Company also has research and development credit
carry forwards of approximately $1,289,000, which will expire beginning in 2010,
if not previously utilized. A portion of the net operating loss carry forwards
may be subject to certain limitations of the Internal Revenue Code Section 382
which would restrict the annual utilization in future periods due principally to
changes in ownership in prior periods.




9.    Compensatory
Equity Incentive Plan and Other Equity Incentives




Share-based Payment Arrangements
— The Company’s Amended and Restated Omnibus Incentive Plan (the “Plan”)
included several available forms of stock compensation of which incentive stock
options, non-qualified stock options and restricted stock awards have been
granted to date.


F-14




These
plans are summarized below:





Equity
Compensation Plans





Plan category
                  
                  Number of securities to
                    beissued upon exercise
                    ofoutstanding options,
                    warrants and rights
                  
                  
                  Weighted average exercise
                    andgrant price of
                    outstandingoptions,
                    warrants and rights
                  
                  
                  Number of
                    securities
                    remaining
                    available for
                    futureissuanceEquity
      compensation plans approved by security holders
                  
                  
                  1,715,625
                  
                  
                  $
                  5.77
                  
                  
                  
                  637,263




The 2004
Employee Stock Purchase Plan (“ESPP”) permits employees to purchase common stock
through payroll deductions, which may not exceed 15% of an employee’s
compensation, at a price not less than 85% of the market value of the stock on
specified dates (June 30 and December 31). In no event may any participant
purchase more than $25,000 worth of shares in any calendar year and an employee
may purchase no more than 4,000 shares on any purchase date. This discount of
$1,466 and $4,338 for fiscal 2009 and 2008, respectively, is included in
selling, general and administrative expense in the accompanying financial
statements.




Grant Date Fair Values and Underlying
Assumptions; Contractual Terms—The Company estimates the fair value of
each stock option as of the date of grant. The Company uses the Black-Scholes
pricing model. The ESPP fair value is the amount of the discount the employee
obtains at the date of the purchase transaction.




For stock
options and RSU’s granted in the years ended June 30, 2009 and 2008, the Company
estimated the fair value of each stock award as of the date of grant using the
following assumptions:





Year
      Ended
                  
                  
                  Year
      EndedJune
      30, 2009
                  
                  
                  June
      30, 2008Range
      of expected volatilities
                  
                  
                  108%-132
                  %
                  
                  
                  132%-136
                  %Weighted
      average expected volatility
                  
                  
                  119
                  %
                  
                  
                  135
                  %Dividend
      yields
                  
                  
                  0
                  %
                  
                  
                  0
                  %Range
      of risk-free interest rate
                  
                  
                  0.43%-1.79
                  %
                  
                  
                  3.14%
      - 4.47
                  %Expected
      term, in years
                  
                  
                  3-5.5
                  
                  
                  
                  5.5-7




Most
awards granted under the Company’s Plan vest ratably over two to four years and
generally have three-year to ten-year contract lives.  The initial
assumed forfeiture rate used in calculating the fair value of option grants with
both performance and service conditions was 44% during 2006; the rate was
adjusted to 25% for fiscal 2007 and 2008 and 46% for 2009.  The
forfeiture rate for RSU’s was 7% for fiscal 2007 and 2008 and 5% for 2009. The
volatility rate is based on historical trends in common stock closing prices and
the expected term was determined based primarily on historical experience of
previously outstanding awards.  The interest rate used is the treasury
interest rate for constant maturities.




Information Regarding Current
Share-based Payment Awards—A summary of the activity for share-based
payment awards in the years ended June 30, 2009 and 2008 is presented
below:


F-15





RestrictedStock
      Options
                                    
                                    
                                    Stock
      Units ("RSU")Weighted
                                    
                                    
                                    Weighted
                                    
                                    
                                    
                                    
                                    
                                    WeightedAverage
                                    
                                    
                                    Average
                                    
                                    
                                    
                                    
                                    
                                    AverageExercise
                                    
                                    
                                    Remaining
                                    
                                    
                                    
                                    
                                    
                                    RemainingPrice
                                    
                                    
                                    Contract
                                    
                                    
                                    
                                    
                                    
                                    ContractShares
                                    
                                    
                                    (per
      share)
                                    
                                    
                                    Lifes
      (YRS)
                                    
                                    
                                    Shares
                                    
                                    
                                    Lifes
      (YRS)June
      30, 2007
                                    
                                    
                                    299,530
                                    
                                    
                                    
                                    11.35
                                    
                                    
                                    
                                    8.0
                                    
                                    
                                    
                                    223,100
                                    
                                    
                                    
                                    1.0Granted
                                    
                                    
                                    211,000
                                    
                                    
                                    
                                    2.66
                                    
                                    
                                    
                                    9.3
                                    
                                    
                                    
                                    50,000
                                    
                                    
                                    
                                    3.4Exercised
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (5,000
                                    )
                                    
                                    
                                    -Cancelled
                                    
                                    
                                    (100,299
                                    )
                                    
                                    
                                    4.62
                                    
                                    
                                    
                                    8.7
                                    
                                    
                                    
                                    (2,500
                                    )
                                    
                                    
                                    -June
      30, 2008
                                    
                                    
                                    410,231
                                    
                                    
                                    $
                                    8.50
                                    
                                    
                                    
                                    8.0
                                    
                                    
                                    
                                    265,600
                                    
                                    
                                    
                                    1.0Granted
                                    
                                    
                                    90,174
                                    
                                    
                                    
                                    1.05
                                    
                                    
                                    
                                    9.5
                                    
                                    
                                    
                                    75,000
                                    
                                    
                                    
                                    2.3Exercised
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (33,400
                                    )
                                    
                                    
                                    -Cancelled
                                    
                                    
                                    (130,465
                                    )
                                    
                                    
                                    4.58
                                    
                                    
                                    
                                    7.1
                                    
                                    
                                    
                                    (2,500
                                    )
                                    
                                    
                                    -June
      30, 2009
                                    
                                    
                                    369,940
                                    
                                    
                                    $
                                    8.10
                                    
                                    
                                    
                                    7.6
                                    
                                    
                                    
                                    304,700
                                    
                                    
                                    
                                    0.9Awards
      exercisable/vested
      as ofJune
      30, 2009
                                    
                                    
                                    168,846
                                    
                                    
                                    $
                                    14.99
                                    
                                    
                                    
                                    6.3
                                    
                                    
                                    
                                    163,030
                                    
                                    
                                    
                                    -Awards
      unexercisable/unvested
      as ofJune
      30, 2009
                                    
                                    
                                    201,094
                                    
                                    
                                    $
                                    2.08
                                    
                                    
                                    
                                    8.7
                                    
                                    
                                    
                                    141,670
                                    
                                    
                                    
                                    2.1369,940
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    304,700StockOptions
                                    
                                    
                                    RSU's
                                    
                                    
                                    All
      AwardsWeighted
      average fair valueof
      share awards granted for the years endedJune
      30, 2009
                                    
                                    
                                    
                                    
                                    
                                    $
                                    0.84
                                    
                                    
                                    $
                                    0.77
                                    
                                    
                                    $
                                    0.81June
      30, 2008
                                    
                                    
                                    
                                    
                                    
                                    $
                                    2.44
                                    
                                    
                                    $
                                    2.85
                                    
                                    
                                    $
                                    2.52




The total
intrinsic value of share options exercised for both years ended June 30, 2009
and 2008 was $0.




The total
intrinsic value of shares options outstanding and exercisable at both June 30,
2009 and 2008 was $62 and $901, respectively.




The total
fair value of shares options vested during the years ended June 30, 2009 and
2008 was $461,530 and $343,887, respectively.




The total
intrinsic value of RSUs exercised during the years ended June 30, 2009 and 2008
was $7,410 and $20,750, respectively.




The total
intrinsic value of RSUs outstanding and exercisable at June 30, 2009 and 2008
was $211,939 and $237,133, respectively.




The total
fair value of RSU’s vested during the years ended June 30, 2009 and 2008 was
$555,810 and $170,074, respectively.


F-16




As of
June 30, 2009 there was $257,991 of total unrecognized compensation cost related
to non-vested share-based compensation arrangements (including share options and
restricted stock units) granted under the Plan.  The cost expected to
be recognized as follows:





Restricted
                        StockStock
                      
                      
                      Share/Options
                      
                      
                      Units
                      
                      
                      TotalYear
      ended June 30, 2010
                      
                      $
                      76,055
                      
                      
                      $
                      64,116
                      
                      
                      $
                      140,171Year
      ended June 30, 2011
                      
                      
                      37,347
                      
                      
                      
                      48,252
                      
                      
                      
                      85,599Year
      ended June 30, 2012
                      
                      
                      10,512
                      
                      
                      
                      21,709
                      
                      
                      
                      32,221$
                      123,914
                      
                      
                      $
                      134,077
                      
                      
                      $
                      257,991





The table
above does not include shares under the Company’s Employee Stock Purchase Plan,
which has purchase settlement dates in the second and fourth fiscal quarters.
The Company’s ESPP is not administered with a look back option provision and, as
a result, there is not a population of outstanding option grants during the
employee contribution period.





Restricted
stock unit awards vest immediately or from two to four years from the date of
grant.




The
Company issues new shares of common stock upon the exercise of stock options.
The following table is a summary of the number and weighted average grant date
fair values regarding our unexercisable/unvested awards as of June 30, 2009
and changes during the year then ended:




Stock
                      
                      
                      
                      
                      
                      
                      
                      
                      Weighted-AverageOptions
                      
                      
                      
                      
                      
                      Total
                      
                      
                      Grant Date Fair ValuesUnexercisable/unvested
      awards
                      
                      Shares
                      
                      
                      RSU Shares
                      
                      
                      Shares
                      
                      
                      (per share)At
      June 30, 2008
                      
                      
                      280,614
                      
                      
                      
                      105,005
                      
                      
                      
                      385,619
                      
                      
                      $
                      3.03Granted
                      
                      
                      90,174
                      
                      
                      
                      75,000
                      
                      
                      
                      165,174
                      
                      
                      
                      0.81Vested
                      
                      
                      (87,114
                      )
                      
                      
                      (38,335
                      )
                      
                      
                      (125,449
                      )
                      
                      
                      6.24Cancelled/Issued/Forfeited
                      
                      
                      (82,580
                      )
                      
                      
                      -
                      
                      
                      
                      (82,580
                      )
                      
                      
                      15.19June
      30, 2009
                      
                      
                      201,094
                      
                      
                      
                      141,670
                      
                      
                      
                      342,764
                      
                      
                      $
                      2.24




Acceleration of Vesting— The
Company has not accelerated the vesting of any stock options, except for 4,067
options issued in the second quarter of fiscal 2008 to a former director that
were accelerated upon his decision not to stand for re-election. The stock
compensation expense recognized in fiscal 2008 for the acceleration of options
and restricted stock units for this former director was $47,085.




Financial Statement Effects and
Presentation—The following table shows total stock-based compensation
expense for the years ended June 30, 2009 and 2008 included in the
Consolidated Statement of Operations:


F-17




Year
      Ended
                      
                      
                      Year
      EndedJune
      30,
                      
                      
                      June
      30,2009
                      
                      
                      2008Stock
      options
                      
                      $
                      59,452
                      
                      
                      $
                      247,819RSU
                      
                      $
                      96,815
                      
                      
                      $
                      167,419Total
                      
                      $
                      156,267
                      
                      
                      $
                      415,238The
      amounts above were included in:Selling,general
      & administrative
                      
                      $
                      155,801
                      
                      
                      $
                      328,009Cost
      of sales
                      
                      $
                      (14,215
                      )
                      
                      $
                      66,623New
      product development
                      
                      $
                      14,681
                      
                      
                      $
                      20,606$
                      156,267
                      
                      
                      $
                      415,238





10.    Net Loss
Per Share




Basic net
loss per common share is computed based upon the weighted average number of
common shares outstanding during each period presented. The computation of
diluted net loss per common share does not differ from the basic computation
because potentially issuable securities would be anti-dilutive. The following
outstanding securities were not included in the computation of diluted earnings
per share at June 30, 2009: stock options and unvested restricted stock awards
to acquire 674,640 shares of Class A Common Stock, and warrants to acquire
2,258,324 shares of Class A common stock and 1,426,461 shares that would be
issued for the convertible debentures. The following outstanding securities were
not included in the computation of diluted earnings per share at June 30, 2008:
stock options and unvested restricted stock awards to acquire 675,831 shares of
Class A Common Stock, and warrants to acquire 784,156 shares of Class A common
stock.




11.    Defined
Contribution Plan




The
Company discontinued its profit sharing plan that permitted participants to make
contributions by salary reduction pursuant to Section 401(k) of the
Internal Revenue Code of 1986, as amended in January 2009.  Effective
January 1, 2009 the Company transferred all plan assets to the ADP Total Source
401(k) plan. The ADP plan is a defined 401(k) Contribution Plan which all
employees, over the age of 21, are eligible to participate in after three months
of employment. The Company matched 25% of the first 6% of employee contributions
though February 27, 2009 when the match was eliminated. Currently there are 19
employees who are enrolled in this program. The 401(k) Contribution Plan is
administered by a third party. Annual discretionary contributions, if any, are
made by the Company to match a portion of the funds employees contribute.
Company matching contributions during the fiscal year ended June 30, 2009 and
2008 were approximately $16,000 and $22,000, respectively.





12.    Lease
Commitments




The
Company has operating leases for office space. At June 30, 2009, the Company has
entered into lease agreements for manufacturing and office facilities in
Orlando, Florida. The Orlando lease, which is for a six-year original term with
renewal options, expires April 2015.





As of
June 30, 2009, the Company has entered into a lease agreement for manufacturing
and office facilities in Shanghai, China (the ”China Lease”). The China Lease,
which is for a five-year original term with renewal options, expires April
2014.





Rent
expense totaled $457,861 and $844,412 during the years ended June 30, 2009 and
2008, respectively. Fiscal 2009 includes an offset to rent expense of $251,000,
from funds received from the Chinese government relating to the re-location of
the Shanghai facility.





During
2005 and 2006, the Company entered into five-year capital lease agreements for
manufacturing equipment and are included as part of Property and Equipment.
Assets under capital lease are included in manufacturing equipment for $166,959,
with accumulated amortization as of June 30, 2009 and 2008 of $158,874 and
$142,704, respectively. Amortization related to capital leases is included in
depreciation expense.


F-18


The
approximate future minimum lease payments under capital and operating leases at
June 30, 2009 were as follows:





Fiscal year ending June 30,
                      
                      Capital
                        Lease
                      
                      
                      Operating Lease2010
                      
                      $
                      5,164
                      
                      
                      $
                      393,1722011
                      
                      
                      —
                      
                      
                      
                      432,3342012
                      
                      
                      —
                      
                      
                      
                      443,1492013
                      
                      
                      —
                      
                      
                      
                      454,2692014
                      
                      
                      —
                      
                      
                      
                      453,803Thereafter
                      
                      
                      —
                      
                      
                      
                      269,067Total
      Minimum Payments
                      
                      
                      5,164
                      
                      
                      $
                      2,445,794Less
      Imputed Interest
                      
                      
                      (114
                      )Present
      value of minimum lease payments included in capital lease
      obligation
                      
                      
                      5,050





13.   Contingencies





On
September 24, 2007, the Company received a letter from one of the investors
that purchased $500,000 of common stock issued in the offering demanding
rescission of their investment and reimbursement to the investor for its
expenses incurred in connection with the transaction.  The demand was based
on the investor's allegations that we failed to disclose facts material to
the investor in making its investment decision. The alleged material
omissions include facts relating to the prospective termination of the
employment of Kenneth J. Brizel, our then Chief Executive Officer and our
financial condition, and alleged breaches of certain representations
and warranties set forth in the Securities Purchase Agreement executed with
respect to the transaction.  We believed there was no merit to
the investor's claims and rejected the demand.





On
October 24, 2007, we were served with a complaint filed by the investor against
the Company, Mr. Brizel, and Mr. Ripp, our Chairman, in the United States
District Court for the Southern District of New York (the “Federal
Action”).  In the complaint, the investor sought, among other things,
rescission of its purchase and the return of its $500,000 investment, as well as
reimbursement of its expenses incurred in connection with its investment. On
January 31, 2008, after we filed a motion to dismiss the original complaint, the
investor filed an amended complaint making substantially the same allegations
and seeking the same relief.  On January 30, 2009 the district court
dismissed the case.





On March
9, 2009 we were served with a complaint filed by the same investor who filed the
Federal Action against the Company in the New York State Supreme Court of New
York County.  In the complaint, the investor is seeking damages for
the loss of value of its investment as well as reimbursement of its expenses
incurred in connection with its investment.  We believe there is no
merit to the investor’s claims and intend to vigorously defend against this
litigation.





14.
Foreign Operations





Assets
and liabilities denominated in non-U.S. currencies are translated at rates of
exchange prevailing on the balance sheet date, and revenues and expenses are
translated at average rates of exchange for the period. Gains or losses on the
translation of the financial statements of a non-U.S. operation, where the
functional currency is other than the U.S. dollar, are reflected as a separate
component of equity which was a $58,197 gain at June 30,
2009.   The Company as of June 30, 2009 had approximately
$1,777,000 in assets and $1,323,000 in net assets located in China.




15.  Significant
Suppliers and Customers




We
utilize a number of glass compositions for the manufacture of our molded glass
aspheres and lens array products. We purchase glass from Corning, Hikari, Ohara,
CDGM and other suppliers.




Base
optical materials, used in both GRADIUM and collimator products, are
manufactured and supplied by a number of major optical and glass manufacturers.
Optical fiber and collimator housings are manufactured and supplied by a number
of major manufacturers.





We
currently purchase a few key materials from single or limited sources. The
polarizing glass used in our isolator products is supplied by Corning and Hoya.
Garnet and other crystals used in our isolator products are provided by a number
of vendors, including Sumitomo, TDK and Triquint.


F-19





16.
Secured note payable





On May 8,
2008, the Company entered into a receivables purchase and security agreement
with LSQ pursuant to which the Company received a $600,000 line of credit
secured by the Company’s accounts receivable and certain other assets. The
agreement had an initial term of six-months, with an option to renew for
additional six-month periods. Under the agreement the Company presented to LSQ
accounts receivable invoices and received funding from LSQ of 85% of the invoice
balance immediately. Interest was set at prime plus two percent.  A
2.5% discount fee was charged upon the funding of each invoice.  The
Company terminated the LSQ line of credit and agreement on August 1, 2008 and
the remaining balance was paid off. There was no termination fee as the minimum
funding requirement under the agreement had been met.





17.
Convertible Debentures





In fiscal
2009 we had a convertible debenture offering with twenty-four institutional and
private investors.  On August 1, 2008, we executed a Securities
Purchase Agreement with respect to the private placement of 8% senior
convertible debentures (the “Debentures”). The Debentures are secured by
substantially all of our previously unencumbered assets pursuant to a Security
Agreement and are guaranteed by our wholly-owned subsidiaries, Geltech Inc. and
LightPath Optical Instrumentation (Shanghai) Co., Ltd pursuant to a Subsidiary
Guarantee.  The sale of the Debentures generated gross proceeds of
approximately $2,929,000 and net proceeds of $2,578,749.  We used the
funds to provide working capital for our operations.  Among the
investors were Steven Brueck, J. James Gaynor, Louis Leeburg, Robert Ripp, Gary
Silverman and James Magos, all of whom were directors or officers of LightPath
as of August 1, 2008. Mr. Magos resigned effective September 2,
2008.





The
maturity date of the Debentures is August 1, 2011, on which date the outstanding
principal amount of the Debentures will be due.  Interest of $39,053
was due on October 1, 2008 and was prepaid by the Company on August 1, 2008 by
issuing 27,893 shares of common stock in payment of such interest based upon the
closing price of $1.40 per share.  The remaining interest on the
Debentures was prepaid by issuing common stock in December 2008.





Upon
issuance the Debentures were immediately convertible into 1,901,948 shares of
common stock, based on a conversion price of $1.54 per share, which was 110% of
the closing bid price of our common stock on the NASDAQ Capital Market on July
31, 2008. Investors also received warrants to purchase up to 950,974 shares of
our common stock (the “Warrants”).  The Warrants are exercisable for a
period of five years beginning on August 1, 2008 with 65% of the Warrants,
exercisable for 618,133 shares, priced at $1.68 per share and the remaining 35%
of the Warrants, exercisable for 332,841 shares, priced at $1.89 per
share.  If all of the Warrants were exercised at that time, we would
have received additional proceeds in the amount of $1,645,184.





Investors
who participated in our July 2007 common stock private placement equity were
offered an incentive to invest in the convertible debenture
offering.  Four investors from the July 2007 offering participated in
the convertible debenture offering and as a result we reduced the exercise price
of the warrants they received in the July 2007 offering from $5.50 per share to
$2.61 per share.  The reduced exercise price lowered potential
proceeds on the exercise of the warrants from the July 2007 offering by $119,212
to $107,663.  Additionally, such investors were issued an aggregate of
73,228 incentive common shares (the “Incentive Shares”), valued at
$75,131.





We paid a
commission to the exclusive placement agent for the offering, First Montauk
Securities Corp. (“First Montauk”), in an amount equal to $216,570 plus costs
and expenses.  We also issued to First Montauk and its designees
warrants to purchase an aggregate of 190,195 shares of our common stock at an
exercise price equal to $1.68 per share, which was 120% of the closing bid price
of the our common stock on the NASDAQ Capital Market on July 31, 2008. The
warrants were valued at $194,057 using the Black-Scholes pricing model
and were recorded as debt costs. The Warrants are exercisable for a period
of five years beginning on August 1, 2008.  In addition, the exercise
price of 50% of the warrants previously issued to the First Montauk and its
designees at the closing of the July 2007 financing was reduced from $5.50 to
$2.61 per share. This reduced warrant exercise price lowered potential proceeds
on the exercise of the warrants issued to First Montauk from the July 2007
offering by $115,600 to $104,400.





The
private placement is exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act (in
that we sold the Debentures and Warrants in a transaction not involving any
public offering) and pursuant to Rule 506 of Regulation D promulgated
thereunder.  The shares into which the Debentures are convertible, the
shares issuable upon exercise of the Warrants and the Incentive Shares have been
registered for resale under the Securities Act of 1933, as
amended.  The registration was declared effective on October 16,
2008.





The
Warrants and the Incentive Shares issued to the Debenture holders were valued at
issuance at $790,830 and recorded as a discount on the debt. The Incentive
Shares were valued using the fair market value of the Company’s stock on the
date of issuance. The Warrants were valued using the Black-Scholes valuation
model using assumptions similar to those used to value the Company’s stock
options and RSU’s. In addition a beneficial conversion feature associated with
the Debentures was valued at the date of issuance at $600,635 and was recorded
as a discount on the debt. The total debt discount of $1,391,465 will be
amortized using the effective interest method over the 36-month term of the
Debentures.


F-20


On
December 31, 2008 the Debentures were amended to allow debenture holders to
convert 25% of their debentures into common stock.  As a result,
$732,250 of the debentures were converted into 475,496 common
shares.  As an inducement to convert the debentures, we issued
additional warrants (valued at $215,975 using the Black-Scholes method and
recorded as interest expense) and prepaid the interest of $453,995 on the
unconverted portion of the Debentures through the maturity date of August 1,
2011, which resulted in the issuance of 589,614 shares of common
stock.  Interest payment of $58,580 for the quarter ended December 31,
2008 resulted in the issuance of 76,078 shares of common stock.  As a
result of the Debenture conversion, $304,382 of debt discount was written off to
interest expense.  During the year ended June 30, 2009, $640,695 of
the total debt discount was amortized through interest expense on the condensed
consolidated statement of operations and the remaining unamortized debt discount
was $750,770 at June 30, 2009. For the quarter ended June 30, 2009, $81,997 of
the amortized debt discount was amortized through interest expense. On May 29,
2009 we filed a registration statement to register those additional interest
shares and warrants which were issued in December 2008. The registration
statement was declared effective on June 16, 2009.





We also
incurred debt issuance costs associated with the issuance of the Debentures of
$554,308 which will be amortized over the 36-month term using the effective
interest method.  The costs were for broker commissions, legal and
accounting fees, filing fees and $194,057 representing the fair value of the
190,195 warrants shares issued to First Montauk.  We used the
Black-Scholes model to determine fair value of the Warrants. The Warrants carry
a five year term, expiring on August 1, 2013, and are immediately exercisable at
a per share price of $1.68 for one-third of the warrants and $1.89 for
two-thirds of the warrants. As of June 30, 2009, $255,228 of the debt issuance
costs were amortized through interest expense on the condensed consolidated
statement of operations and the remaining unamortized balance was
$299,080.





Total
principal outstanding on the Debenture and the amount outstanding for directors’
and officers’ purchases under the Debentures was $2,196,750 and $266,250,
respectively at June 30, 2009, less unamortized debt discount of $750,770 and
$90,995, respectively.





18.
Move of Shanghai Facility





The
Chinese government notified us in October 2008 that they would be relocating our
Shanghai facility, and in connection with the relocation, the Chinese government
would reimburse us for our expenses. We signed a new five year lease, dated as
of May 1, 2009 by and between the Company as the tenant and the Chinese
government as the landlord.





We hired
a construction firm to build out our facility at the new location and paid them
$338,454 for services. A review of the transaction is as follows:





Funds
      received:Leasehold
      improvements
                      
                      $
                      339,856Equipment
      and furniture
                      
                      
                      193,010Business
      interruption
                      
                      
                      103,609Total
      funds received
                      
                      $
                      636,475Our
      spending was:Leasehold
      improvements
                      
                      $
                      412,962Furniture
      & equipment
                      
                      
                      9,728Move
      expenses
                      
                      
                      28,204$
                      450,894Gain
      on facility move
                      
                      $
                      185,581





The move
expenses were applied against the funds received for business interuption and
the net amount was recorded as a reduction to selling, general &
administrative expenses. The funds received for the leasehold improvements,
furniture and equipment were recorded as deferred rent and will be amortized
over the five year term of the lease.




F-21





19.
Subsequent event - August 2009 Private Placement





On August
19, 2009, we executed a Securities Purchase Agreement with thirty-three
institutional and private investors with respect to a private placement of an
aggregate of 1,298,827 shares of our common stock at $1.26 per share and
warrants to purchase 649,423 shares of our common stock at an exercise price of
$1.73 per share (the “August 2009 Warrants”). The August 2009 Warrants are
exercisable for a period of five years beginning on February 19, 2010. We
received aggregate gross cash proceeds from the issuance of the Common Stock
(exclusive of proceeds from any future exercise of the August 2009 Warrants) in
the amount $1,636,500.  We will use the funds to provide working
capital for our operations.





The Company paid a commission to the
exclusive placement agent for the offering, Garden State Securities, Inc.
(“Garden State”), in an amount equal to $148,100 plus costs and
expenses.  The Company also issued to Garden State and its designees
warrants to purchase an aggregate of 155,860 shares of our common stock at
exercise price equal to $1.73 per share, for a five-year term beginning February
19, 2010.





The private placement is exempt from
the registration requirements of the Act, pursuant to Section 4(2) of the
Act (in that the shares of common stock were sold by the Company in a
transaction not involving any public offering) and pursuant to Rule 506 of
Regulation D promulgated thereunder. The shares of common stock and the shares
of common stock underlying the August 2009 Warrants are restricted securities
that have not been registered under the Act and may not be offered or sold
absent registration or applicable exemption from registration
requirements.





The Company and the investors also
executed a Registration Rights Agreement dated August 19, 2009, pursuant to
which the Company has undertaken the obligation to file with the Securities and
Exchange Commission, and cause to be declared effective, a registration
statement to register the shares of common stock issued in the private placement
and the shares of common stock underlying the August 2009 Warrants.





20.
Subsequent Event - D&O Proceeds





In 2000,
a group of holders of Class E Common Stock commenced an action in a state court
in Texas (the “Texas Action”). Plaintiffs in the Texas Action made various
allegations regarding the circumstances surrounding the issuance of the Class E
Common Stock and sought damages based upon those allegations. On May 26, 2006,
the Texas Supreme Court denied the plaintiffs' motion for rehearing of the
denial of the petition for review.  No further review was sought by
the plaintiffs.  The summary judgment in favor of the Company as to
all claims asserted by the plaintiffs is now final and the case is
closed.





In
May 2008, we submitted a claim against our D&O carrier, Reliance
Insurance Company, for reimbursement of legal fees. Reliance had previously
filed for bankruptcy. In April 2009 we received notice of a proposed
determination as to our claim arising from the Reliance D&O Policy. 
The full $1 million limit claimed will be allowed for LightPath as a Class B
claimant.  This resulted in an initial payment to LightPath in the
amount of $276,376, which we received on September 9, 2009. The balance would be
reflected in a Notice of Determination issued to LightPath which would proceed
under the court approval process for the Liquidation. The distribution of the
remaining claim balance up to the total of $1 million will occur following court
approval which will be submitted by the end of 2009.  The remaining
distribution could occur in the third quarter of fiscal 2010. The actual amount
of the subsequent distribution to LightPath will be determined according to the
court-approved percentage participation for Class B claimants.




End of
Consolidated Financial Statements


F-22





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.


LIGHTPATH
TECHNOLOGIES, INC.




Date:  September
25, 2009




By:
                  
                  /s/    J.
      James GaynorJ.
      James GaynorPresident
      & Chief Executive
Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




/s/   j.  james
      gaynor
                              
                              September 25, 2009
                              
                              /s/   dorothy
      m. cipolla
                              
                              September 25, 2009James
      Gaynor,
                                President
      & Chief Executive Officer (Principal Executive
Officer)
                              
                              
                              
                              Dorothy
      M. Cipolla,
                                Chief
      Financial Officer
                                (Principal
      Financial Officer)/s/    Robert
      Ripp
                              
                              September 25, 2009
                              
                              /s/    sohail
      khan
                              
                              September 25, 2009Robert
      Ripp
                                Director
      (Chairman of the Board)
                              
                              
                              
                              Sohail
      Khan
                                Director/s/    Dr. Steven R. J. Brueck
                              
                              September 25, 2009
                              
                              /s/    Louis
      Leeburg
                              
                              September 25, 2009Dr.
      Steven R. J. Brueck
                                Director
                              
                              
                              
                              Louis
      Leeburg
                                Director/s/    Gary
      Silverman
                              
                              September 25, 2009Gary
      Silverman
                                Director
 S-1