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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(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, 2007 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



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LIGHTPATH TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 86-0708398                          
|(State or other jurisdiction of incorporation or organization) |  | ( I.R.S. Employer Identification No)

http://www.lightpath.com



|                                                             |  |                                                     
|------------------------------------------------------------ |  | ----------------------------------------------------
|2603 Challenger Tech Court, Suite 100 Orlando, Florida 32826 |  | (407) 382-4003                                      
|(Address of principal executive offices, including zip code) |  | (Registrants telephone number, including area code)



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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)



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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 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 or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company. As defined, in 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 $16,034,966 as of September 24, 2007.

As of September 24, 2007, the number of shares of the registrants Class A Common Stock outstanding was 5,323, 481.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Proxy Statement to be delivered to shareholders in connection with the 2007 Annual Meeting of Stockholders are incorporated by reference into Part III of this report.



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LightPath Technologies, Inc.

Form 10-K

Table of Contents



|                                           |  |                                                                                                                 |  |   
|------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------- |  | --
|PART I                                     |  | 3                                                                                                              
|Item 1.                                    |  | Business                                                                                                        |  | 3 
|                                           |  | General                                                                                                         |  | 4 
|                                           |  | Business Strategy                                                                                               |  | 5 
|                                           |  | Sales and Marketing                                                                                             |  | 6 
|                                           |  | Competition                                                                                                     |  | 7 
|                                           |  | Manufacturing                                                                                                   |  | 8 
|                                           |  | Patents and Other Proprietary Intellectual Property                                                             |  | 9 
|                                           |  | Environmental and Governmental Regulation                                                                       |  | 9 
|                                           |  | New Product Development                                                                                         |  | 9 
|                                           |  | Employees                                                                                                       |  | 10
|                                           |  | Executive Officers                                                                                              |  | 10
|                                           |  | Risk Factors                                                                                                    |  | 11
|Item 2.                                    |  | Properties                                                                                                      |  | 23
|Item 3.                                    |  | Legal Proceedings                                                                                               |  | 23
|Item 4.                                    |  | Submission of Matters to a Vote of Security Holders                                                             |  | 23
|                                           | 
|PART II                                    |  | 23                                                                                                             
|Item 5.                                    |  | Market for Registrants Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 23
|Item 6.                                    |  | Selected Financial Data                                                                                         |  | 25
|Item 7.                                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |  | 26
|Item 7A.                                   |  | Quantitative and Qualitative Disclosures about Market Risk                                                      |  | 33
|Item 8.                                    |  | Financial Statements and Supplementary Data                                                                     |  | 33
|Item 9.                                    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                            |  | 34
|Item 9A.                                   |  | Controls and Procedures                                                                                         |  | 34
|                                           | 
|PART III                                   |  | 37                                                                                                             
|Item 10.                                   |  | Directors and Executive Officers of the Registrant                                                              |  | 37
|Item 11.                                   |  | Executive Compensation                                                                                          |  | 37
|Item 12.                                   |  | Security Ownership of Certain Beneficial Owners and Management                                                  |  | 37
|Item 13.                                   |  | Certain Relationships and Related Transactions                                                                  |  | 37
|Item 14.                                   |  | Principal Accountant Fees and Services                                                                          |  | 37
|                                           | 
|PART IV                                    |  | 37                                                                                                             
|Item 15.                                   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                                 |  | 37
|                                           | 
|Index to Consolidated Financial Statements |  | F-1                                                                                                            
|                                           | 
|Signatures                                 |  | S-1                                                                                                            
|                                           | 
|Certifications                             |  | See Exhibits                                                                                                   



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##### Table of Contents

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, 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
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | GRADIUM extends the performance of a spherically polished glass lens technology improving optical performance, approaching aspheric performance at a fraction
of the price.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

LightPath was incorporated under Delaware law as a corporation 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. We completed an initial public offering of our common stock in 1996. From
our inception in 1985 until June 1996, we were classified as a development stage enterprise that primarily engaged in basic research and development with an initial objective to improve solar energy technology. Over time, we expanded our
attention to other optics applications 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. Simultaneously, we developed a strategy to enter the telecom optical components market using a concept of automated production of telecom components using laser fusion and fiber attachment techniques we developed. Our now
patented laser fusion and fiber attachment techniques are substantially automated and we believe these techniques provided improved quality and production flexibility. Our automation theme was expanded with our fiscal 2000 acquisition of Horizon
Photonics, Inc. (Horizon), a California corporation originally founded in July 1997, where we acquired the use of robotic systems in manufacturing isolators.

Horizon utilized automated production platforms to manufacture passive optical components for the telecommunications and data communications markets. We acquired all of the outstanding shares of Horizon for
approximately 175,000 shares of our Class A common stock and $1 million in cash (an aggregate purchase price of approximately $40.2 million, based on the then-market price of our common stock). Horizon manufactured isolator products in
California prior to May 2003 when the site was consolidated with the facilities in Orlando, Florida. The Horizon legal entity was dissolved during fiscal 2004.

In September 2000, we acquired Geltech, Inc. (Geltech), a Delaware corporation originally founded in May 1985. Geltech was a manufacturer of precision molded glass aspheric optics, which had broad
applicability to numerous application markets. Precision molded glass aspheric optics are also used in the active telecom components market to provide a highly efficient means to couple laser diodes to fibers or waveguides. We acquired all of the
outstanding shares of Geltech for approximately 103,000 shares of our Class A common stock and approximately $1 million in acquisition costs (an aggregate purchase price of approximately $28.5 million, based on the then-market price of our
common stock). We manufacture precision molded glass aspheric optics at our facility in Orlando, Florida. During fiscal 2002, we expanded the Orlando manufacturing facility, and in fiscal 2003, in order to reduce costs, we relocated our corporate
headquarters to Orlando and reorganized our manufacturing facility there 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.

From 1998 until 2002, our intense pursuit of optoelectronics and photonics applications led us to become heavily reliant on the
telecommunications capital equipment market, which went through a rapid and substantial increase and a similarly rapid and substantial decline in these five years. This drove our product development and acquisition strategies during this time and
led to an increase in reported revenues from under $1 million to over $26 million and then to a decline to under $7 million in fiscal 2003. As a result of activities during this five-year period, we found it necessary to reduce costs significantly
by consolidating all production and our corporate headquarters in Florida. 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.



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In November 2005, we announced the formation of LightPath Optical Instrumentation (Shanghai) Co., Ltd, a
wholly owned manufacturing subsidiary, located in Jiading, Peoples Republic of China (PRC). The manufacturing operations are housed in a 17,000 square foot facility located in the Jiading Industrial Zone near Shanghai. This plant
increased overall production capacity and enabled 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 Asia/Pacific.

Business Strategy

Our strategy is to diversify away from strictly telecom markets toward our optics customer
base for imaging products, which represents over 1,000 companies worldwide engaged in a wide variety of markets. We had not emphasized applications with these customers during the telecommunications boom and we are working diligently to service and
participate in the development of their next generation of applications and products. We continue to serve a number of telecom customers; most of them are in a broader market of communications, including datacom, hybrid-fiber coax and
telecommunications. We have leveraged our patents and know-how to develop new products for applications in Blue Lasers, Infrared Imaging and Fiber Laser Delivery Systems.

Because complex customer application systems can contain many optical components and our products can be utilized to reduce the number or type of lens elements in such systems, we believe that our products can
simplify the design and improve the performance of such complex optical systems. However, design and production of an optical product is a lengthy process, and it may take years for producers to redesign complex optical systems using our products,
reconfigure the product housing, re-engineer the assembly process and initiate commercial quantity orders for our products. Accordingly, we intend to focus our long-term marketing efforts on emerging industries, such as medical devices, industrial
and performance-driven industries that are seeking to optimize performance of new and existing optical products.

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, anamorphic corrections 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.

During fiscal 2007 we continued to offer more lens designs utilizing our proprietary lead free glass ECO550, 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 LWIR materials; this new product line is called the Black Diamond  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 rely 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. Precision molded infrared aspheric optics find imaging applications in firefighting, predictive maintenance, homeland security, surveillance, automotive and defense industries.

We are still developing our precision molded infrared aspheric optics products for imaging applications in firefighting, predictive maintenance, homeland
security, surveillance, automotive and defense. LightPath has a market in molding precision optics and we intend to continue to expand into infrared area. We anticipate the growth of infrared optics and the requirements in systems for our molded
technologies over traditional ground and polished lenses.

Isolators

We have developed a family of products that utilize a proprietary micro-fixture design and robotic platform processes. This automated process allows for
micro-optics to be mounted in small transferable fixtures that are processed in arrays and converted into



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a variety of optical components and component subsystems. This flexible platform is capable of producing a variety of finished products including isolators.
We are manufacturing a qualified family of free-space, laminate and custom isolators. We sell isolator assemblies for applications in all communications markets. This line is based on a manufacturing platform that can address a wide range of
customer specifications, while supporting lower cost applications. We continue to serve the communications market while working towards sales into other market applications.

Collimators

During 1998, we began the development of products for the
then-emerging optoelectronics markets, specifically in the areas of fiber telecommunications. 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 tested our collimators to over 100 watts in the forward direction. The process to manufacture these collimators uses patented laser fusion technologies and robotics. These products may incorporate aspheric molded
optics and GRADIUM lenses.

During 1999 and 2000, we expanded this product line, demonstrating to the telecommunication optical components
industry that we can provide low-cost products and solutions to meet their telecom-related collimator needs. Beginning in 2001, the telecom equipment market slowed dramatically, reducing the demand for the optical components segment of the market.
During fiscal 2004 we introduced seven new ruggedized collimators for use in high-power ND:YAG beam delivery units including fiber lasers. Due to the decline of this initial market segment, we pursued investigating other opportunities incorporating
our unique patented laser fusion technology and began selling new high power collimators during fiscal 2005. We are working on developing new military accounts but to date have generated a small amount of revenue from these sales in fiscal 2007.

We continue to develop new designs for collimating lenses designed for 405 nm blue
laser diodes. The new glass molded aspheric lens is designed for use with the new Nichia® blue diode laser, and is designed and manufactured to extremely stringent optical standards. The
effort from both engineering and manufacturing required improved beam quality, which is particularly difficult for shorter wavelength lasers. These lenses are also applicable to other blue laser manufactures applications.

GRADIUM Lenses

GRADIUM glass was
developed by us beginning in 1985 and is an optical quality glass material with axially varying refractive index, capable of reducing optical aberrations inherent in conventional lenses and performing with a single lens tasks traditionally performed
by multi-element, conventional lens systems. Typical applications include surgical lasers, high power YAG lasers for welding, cutting and marking, defense-market uses, and test and measurement. 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.

Our growth strategy continues to be to increase our emphasis on key laser market niches in the United States, Europe and Asia to establish the necessary
products and 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 U.S. GRADIUM distribution rights.
Distribution agreements are in place with specialty distributors to further assist in obtaining penetration into the high-power YAG laser and high performance lens end-markets.

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. Our efforts, particularly in the medical devices, military and
industrial markets, have resulted in revenue increases of over 14% during fiscal 2007 as compared to fiscal 2006.

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.



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From fiscal 1998 to fiscal 2002, our sales and marketing strategy was designed to capitalize on the
growing demand for optical components for telecom. Since that period, there have been substantial changes in our organization, structure and sales strategies. Because we rely on multiple markets and market segments to diversify our sales base, we
have made necessary changes in our sales force and sales strategies to strengthen our sales presence in markets where we deliver value.

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, |  | Asia   |  | 
|U.S. West Half & Western Canada, |  | Europe |  | 

In addition, we have formalized relationships with fourteen 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 2007 and SPIE East in April 2007. We also attended CLEO and shows in Europe (Laser Munich) and Asia (ILOPE- Beijing & IOE  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 broaden our capabilities to service market areas in addition to the communications markets, where our customers ask for more demanding optical performance. In addition to the products mentioned above, we are
skilled at designing and producing of 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, which solve multiple optical problems in
one package, have the future potential to produce higher gross profit 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. 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 continue to have the proprietary GRADIUM lens glass technology and the ability to
make unique, elemental-impregnated porous-silica optical media that can be used in various test and measurement and sensing applications.

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



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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 axial gradient products, 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.

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.

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. The Orlando production facility retains an emphasis on automation, particularly in the isolator and collimator lines moved
from California and New Mexico, respectively, in fiscal 2003.

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.

Manufacturing

Molded Aspheres and GRADIUM

Our manufacturing is done in a 41,000 square foot production facility in Orlando, Florida and in a 17,000 square foot production facility in Shanghai.
With unused space remaining in both facilities, we believe our space is 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 include development and metrology equipment.

The molded glass asphere manufacturing area in both facilities include lens pressing equipment, high precision mold production equipment, advanced
metrology and inspection equipment and coating facilities. The Orlando facility 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 furnaces to produce boules and glass coring equipment for our
current needs of GRADIUM for our sales in the United States and Europe. We also obtain GRADIUM boules from Hikari Glass in Japan.

We are
ISO 9000:2001 certified. 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.



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Isolators

In our Orlando clean room, our isolator manufacturing equipment includes dual beam laser welding stations, sub-micron alignment engines, robotic assembly stations, automated dispensing systems and precision dicing
equipment. The primary benefits of our approach to manufacturing are (i) reduced costs as a result of higher yields and more units produced, and (ii) product consistency as a result of eliminating manual labor. We believe we are the only
manufacturer of free-space isolators currently using automated manufacturing.

Collimators

Our collimator assembly workstations in our Orlando clean room include our proprietary laser fusion and housing equipment, automated testing processes,
and laser polishing stations. They are International Traffic in Arms Regulations (ITAR) compliant.

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 capabilities that are specialized. For example, we presently use a number of qualified subcontractors for fabricating some lenses, polishing certain lenses
where required, and coating them.

Our proprietary GRADIUM boules are produced by Hikari Glass, which also remits a royalty to us for its
sales to customers in Asia/Pacific. This arrangement allows our product to gain sales exposure in Asia/Pacific and provides us with a second source for boule production.

We have taken steps to protect our proprietary methods of repeatable high quality manufacturing by patent disclosures and internal trade secret controls.

Suppliers

We utilize a number of
glass compositions for the manufacture of our molded glass aspheres and lens array products. One such glass is a glass composition licensed from and manufactured by Corning, Inc. Corning is currently our sole source for this glass composition and
they have informed us that they will no longer be manufacturing it after 2007. We are in the process of transitioning to different glass composition made by Hikari and Ohara. We do not believe the inability to use the Corning glass compositions will
adversely affect our operations.

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. Available quantities and adequate
pricing of garnet is 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.

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 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.



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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®, GRADIUM® and Polycoat®
are also registered trademarks. Other trademarks are held out and used by us under common law, such as CirculightTM.

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 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 U.S. Food and Drug Administration approval for use in endoscopy. In these cases, we will generally be involved on a secondary level and the OEM customer will be responsible for the license and approval process.

New Product Development

For many years, we were engaged in basic research and development that resulted in the
invention of GRADIUM glass and certain proprietary processes for fabricating GRADIUM glass lenses. Thereafter, new product development efforts were broadened or acquired that led to the development of our capabilities in molded aspheric lenses,
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.

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 2007, 2006 and 2005 of $1,174,132, $1,038,390 and $985,357, respectively. We currently plan to expend approximately $1.2 million for new product development during fiscal
2008, which could vary depending upon revenues levels, customer requirements and market opportunities perceived.

Working Capital

We are required to carry modest amounts of inventory to meet the rapid delivery requirements of customers. We do require some customers to
purchase excess inventory of custom products in the event the sales order is cancelled. We do not provide extended payment terms to any customers. Customers can return products due to quality issues for replacement or credit, but the return
merchandise request must be filed in a timely manner.

Concentration of Customer Risk

In fiscal 2007 sales to two customers, Santur and T-Networks comprised more than 10% of our annual sales, with sales to Santur at 14% and sales to
T-Networks at 12%. The loss of any of these customers, or a significant reduction in sales to any such customers, would adversely affect our revenues. Sales to Intel were 10% of our total revenues in fiscal 2006. During fiscal 2007 Intel moved their
production to a subcontractor whom is a customer of ours. Adding the sales of the subcontractor and Intel together, they comprise at 10% of revenues.



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Backlog

Going forward, 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 the Company.

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



|               |  |            |  |                                |          
|-------------- |  | ---------- |  | ------------------------------ | ---------
|Fiscal Quarter |  | Ended      |  | Approximate Disclosure Backlog
|Q4-2007        |  | 6/30/2007  |  | $                              | 1,849,000
|Q3-2007        |  | 3/31/2007  |  | $                              | 2,076,000
|Q2-2007        |  | 12/31/2006 |  | $                              | 2,553,000
|Q1-2007        |  | 9/30/2006  |  | $                              | 4,080,000
|Q4-2006        |  | 6/30/2006  |  | $                              | 4,320,000
|Q3-2006        |  | 3/31/2006  |  | $                              | 3,617,000

Geographic Area Financial Information

Our revenues were primarily attributable to customers from the United States, but we did have 22% of our revenues from customers based in Europe, North
Africa and Asia.

The detail by country is:



|           |  |           |  |    |  
|---------- |  | --------- |  | -- | -
|China      |  | 245,714   |  | 2  | %
|Canada     |  | 410,118   |  | 3  | %
|England    |  | 210,221   |  | 2  | %
|Germany    |  | 405,204   |  | 3  | %
|Italy      |  | 173,464   |  | 1  | %
|Sweden     |  | 293,123   |  | 2  | %
|Thailand   |  | 827,709   |  | 6  | %
|All others |  | 418,062   |  | 3  | %
|           |  |           |  |    |  
|           |  | 2,983,616 |  | 22 | %
|           |  |           |  |    |  

Employees

At June 30, 2007, we had 197 full-time equivalent employees, with 87 in Florida and 110 in
China. Any employee additions or terminations over the next twelve months will be dependent upon the actual sales levels realized during fiscal 2008. Eighteen of our employees are engaged in management, administrative and clerical functions,
seventeen in new product development, eleven in sales and marketing and 151 are in production and quality functions. Additionally we had 17 persons on temporary or contractor status. 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 is represented by labor unions.

Executive Officers

As of June 30, 2007, the following individuals were serving as executive officers:

Kenneth Brizelhas served as a Director of LightPath, Chief Executive Officer and President since July 2002. Mr. Brizel has
spent more than 20 years in the communications and microelectronics industries. From October 2000 until July 2002 he was Senior



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Vice President Strategy and Business Development for Oplink Communications. From April 1997 to September 2000, Mr. Brizel was Director of Strategic
Marketing for Optoeletronics and Network Communications Integrated Circuits groups within Lucent Microelectronics. Mr. Brizels diverse experiences include assignments at RCA/GE, Lucent/Agere, Mostek and Star Semiconductor before joining
Oplink. His responsibilities spanned sales, engineering, marketing strategy and business development. Mr. Brizel received his Bachelor of Science and Master of Science degrees in Electrical Engineering from Rensselaer Polytechnic Institute in
Troy, New York. Mr. Brizels employment with LightPath terminated as of September 18, 2007, at which time he also resigned as a director.

Dorothy Cipolla has been Corporate Vice President, Chief Financial Officer, Secretary and Treasurer since February 2006. Ms. Cipolla has served as a CFO for both public and private companies.
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 Bachelor of Science degree in Accounting from Northeastern University and she is a certified public accountant in Massachusetts.

James Magoshas been our Corporate Vice President of Sales and Marketing since July 2006. Prior to that he was our Senior Vice
President of Sales since August 2003. From January 1999 to August 2003, Mr. Magos was Vice President and Chief Operating Officer for Cardinal Components Inc., a crystal manufacturer. Prior to joining Cardinal Components, Inc., he served as Vice
President of Sales & Marketing for IQ Systems, Inc., Star Semiconductor, Logic Device Corporation, Harris Semiconductors (Intersil), RCA and General Electric. Mr. Magos earned his Bachelor of Science degree in Business Management from
Long Island University and extensive management training during his tenure with GE, RCA and Harris.

Dr. Zhouling (Joe) Wuhas
been our Corporate Vice President and President of China Operations since July 2006. Prior to that he was Vice President from Aug 2005. Prior to joining LightPath, Dr. Wu was the General Manager for Oplink Shanghai and was the assistant to the
CEO working for Oplink Communications beginning in 2000. From 1997 till 2000, Dr. Wu was an optical scientist at Lawrence Livermore National Labs and holds a Ph.D. in optics from the Shanghai Institute of Optics and Fine Mechanics, an
undergraduate degree from Tsinghua University in Beijing and an Executive MBA degree from Olin School of Business, Washington University. Dr. Wu has published 120 technical papers, one patent, and received numerous achievement awards and
honors.

J. James Gaynor was appointed Interim Chief Executive Officer on September 18, 2007. He formerly was the Corporate
Vice President Operations since July 2006. Mr. Gaynor is a mechanical engineer with 25 years of business and manufacturing experience in volume component manufacturing in electronics and optics industries. Prior to joining LightPath 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 from March 2000 to April 2002. He has also held executive positions with Spectrum Control, Rockwell International and Corning Glass Works. His experience includes various engineering, manufacturing and management positions in specialty
glass, electronics, telecommunications components and mechanical assembly operations. His global business experience encompasses strategic planning, budgets, capital investment, employee development, cost reduction, acquisitions and business
start-up and turnaround success. Mr. Gaynor holds a Bachelors of Science degree in Mechanical Engineering from the Georgia Institute of Technology and has worked in manufacturing industries since 1976.

Risk Factors

The following risk factors should be read by you together with the more detailed information
included at other sections of this Form 10-K. You should understand that it is not possible to predict or identify all such risk factors. Consequently, you should not consider this list to be a complete statement of all potential risks or
uncertainties. An investment in our common stock is extremely risky. You should carefully consider the following risk factors and other information in this Form 10-K before investing in our common stock. Our business and the results of operations
could be seriously harmed by any of the following risks. The trading price of our common stock could decline due to any of these risks, and you may lose part or all of your investment.

There are forward-looking statements in these risk factors and elsewhere in this report. We use words such as believe, expect,
anticipate, plan or similar words to identify forward-looking statements and any statement relating to plans, intentions, expectations or other forward-looking expression is a forward-looking statement. Forward-looking
statements are made based upon our belief as of the date that such statements are made and are based largely on our current expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. You should not
place undue reliance on these forward-looking statements, which speak as of the date of this report. While we may make other forward-looking statements either orally or in writing in the future, we do not assume the obligation to update any
forward-looking statement. The following risk factors are intended to be cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statements.



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Our fiscal year ends on June 30 and references to years in this Form 10-K refer to our fiscal
year ended as of June 30 of the referenced calendar year.

A. Risks Related To Our Business and Financial Results

We Have Substantial Cash Requirements and May Need External Financing To Fund Our Operations. While we have raised capital
recently and while we continue to take actions to reduce cash used in operations, there can be no assurance that we will generate sufficient cash to fund our future operations and growth strategies. We may need to obtain additional external
financing in the future. We do not have any commitments from others to provide additional financing in the future, and there can be no assurance that any such additional financing will be available if needed or, if available; will be on terms
favorable to us. In the event any such financing is not obtained, our operations will be materially adversely affected and we could be forced to cease or substantially reduce operations. Any additional equity financing may be dilutive to
stockholders, and debt financings, if available, may involve substantial restrictive covenants or require the pledging of substantially all of our assets.

Our cash used in operations for fiscal 2007 was approximately $1.9 million compared to $2.0 million used in fiscal 2006. Our cash flow projections for the 2008 fiscal year indicate we have sufficient cash available to
fund our operations for at least the next 12 months. However, the operating plans and financial projections may not be fully achieved. Factors which could increase cash used in future quarters include, but are not limited to, a decline in revenue,
collectibility issues with regard to accounts receivable, increased material costs, increased labor costs, increased health insurance and benefits costs and increases in discretionary spending.

Should we find it necessary to raise more capital, in addition to the capital raised in July 2007, we may find that such funds are either not available
or are available only on terms that are unattractive in terms of cost or dilution of existing stockholders interests, or both. In the event that we find it necessary to raise additional funds to sustain operations and we are unable to do so,
we may need to take such actions as additional restructuring of operations to reduce costs, or to discontinue operations altogether. Should that occur, the realizability of our assets, especially inventory, property and equipment, intellectual
property and other intangible assets may be such that significant adjustments to our consolidated financial statements would be required.

We Have A History Of Losses And If We Continue To Incur Losses Our Business May Fail. We have incurred net losses of $3.4 million, $3.5 million and $5.6 million for fiscal 2006, 2005 and 2004, respectively. During the fiscal 2007, we
incurred net losses of $2.6 million and, as of June 30, 2007, we had an accumulated deficit of $192.3 million. We expect to continue to incur significant sales and marketing, administrative and product development expenses, and, as a result, we
will need to generate increased revenues to achieve profitability. Even if we achieve profitability, given the competition in our optical markets, we may not be able to sustain or increase profitability thereafter on a quarterly or annual basis. As
a result, we will need to generate significantly higher revenues while containing costs and operating expenses if we are to achieve profitability.

Because Of Our Dependence On A Few Key Customers, The Loss of Any Key Customer Could Cause A Significant Decline In Our Revenues. In fiscal 2007, Santur accounted for approximately 14% of our net revenue and our top five customers
accounted for approximately 43% of our revenues. In fiscal 2006 and 2005, Intel accounted for 10% and 13% of our net revenue, respectively. Part of our continuing strategy in fiscal 2007 was to gain key customer relationships of more significance
and impact to generate higher revenues at lower costs. This strategy has met with some success however we believe that our operating results will continue to be notably dependent on sales to a relatively small number of significant customers. The
loss of any of these customers, or a significant reduction in sales to any such customers, would adversely affect our revenues.

Order
Cancellations And Extensions Of Product Shipment Dates By Customers Can Hinder Our Ability To Achieve Profitability. Our sales are generally made pursuant to purchase orders that are subject to cancellation, modification or rescheduling without
significant penalties to our customers. In recent years, we have experienced material order cancellations and significant extensions of product shipment dates by some of our customers. If current customers stop placing orders, or unexpectedly reduce
orders, we may not be able to replace these orders with orders from new customers and our ability to achieve profitability will be adversely affected. The majority of our current customers do not have any minimum purchase obligations, and they may
stop placing orders with us at any time, regardless of any forecast they may have previously provided.

Our New Market Penetration
Efforts Are Progressing But May Not Prove Successful. Our efforts to diversify our sales to additional optical applications in multiple industries are progressing, however, our current line of products has not generated sufficient revenues to
sustain our operations. While we believe our existing products are commercially viable, we anticipate the need to educate the optical components markets in order to generate market demand and market feedback may require us to further refine these
products. Expansion of our product lines and sales into new markets will require significant investment in equipment and facilities. There can be no assurance that any proposed products will be successfully developed, demonstrate desirable optical
performance, be capable of being produced in commercial quantities at reasonable costs or be successfully marketed.



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Some Of Our Products Have Not Been Demonstrated To Be Commercially Successful. Although our
optical lens products have been accepted commercially, the benefits of the GRADIUM glass line are not widely known and must be introduced as we can afford in markets that we believe would benefit from the performance characteristics of GRADIUM. Many
prospective customers will need to make substantial expenditures in order to redesign products to incorporate our GRADIUM lenses. There can be no assurances that potential customers will view the benefits of our products as sufficient to warrant
such design expenditures.

Our collimator products have not yet achieved broad commercial acceptance; our isolator production capability
and sales, while encouraging at this point, are only five years old; and some of our molded aspheres applications are new. There can be no assurance that any of these will be commercially viable products or produce significant revenues. Further,
there is no assurance that any products currently existing or to be developed in the future will attain sufficient market acceptance to generate significant additional revenues that are necessary for our success. We must also satisfy
industry-standard Telcordia testing on telecommunication products to meet customer requirements, as well as satisfy prospective customers that we will be able to meet their demand for quantities of products, since we may be the sole supplier and
licensor. We do not have lengthy experience as a manufacturer for all our product lines and have limited financial resources. We may be unable to accomplish any one or more of the foregoing to the extent necessary to develop commercially successful
market acceptance of our products.

Our Past Operating History May Hinder Our Ability To Accurately Forecast Revenues And Expenses.
Although over 20 years old, LightPath has only generated significant revenues (higher than $5 million per year) since fiscal 2000. Through fiscal 1996, our primary activities were basic research and development of glass material properties. Because
of this highly variable operating experience we have in the past and may in the future be unable to accurately forecast our revenues from sales of our products. Many of our expenses are fixed in the short term, and we may not be able to quickly
reduce spending if our revenue is lower than we project. New product introductions will also result in increased operating expenses in advance of generating revenues, if any. Therefore, net losses in a given quarter could be greater than expected.
Failure to accurately forecast our revenues and future operating expenses could cause quarterly fluctuations in our operating results, including cash flows, and may result in further volatility of or a decline in our stock price.

If We Are Unable To Develop And Successfully Introduce New And Enhanced Products That Meet The Needs Of Our Customers, Our Business May Fail. Our
future success depends, in part, on our ability to anticipate our customers needs and develop products that address those needs. Introduction of new products and product enhancements will require that we effectively transfer production
processes from research and development to manufacturing and coordinate our efforts with the efforts of our suppliers to rapidly achieve efficient volume production. If we fail to effectively transfer production processes, develop product
enhancements or introduce new products that meet the needs of our customers as scheduled, our net revenues may decline.

Our Sales,
Gross Margins, And Market Share May Be Reduced Because of Increased Competition. Competition in optical markets in which we compete is intense. Many of our competitors are large public and private companies that have longer operating histories
and significantly greater financial, technical, marketing and other resources than we have. As a result, these competitors are able to devote greater resources than we can to the development, promotion, sale and support of their products. In
addition, the market capitalization and cash reserves of several of our competitors are much larger than ours, and, as a result, these competitors are much better positioned than we are to acquire other companies in order to gain new technologies or
products that may displace our product lines. Such acquisitions could give our competitors further advantages. For example, if our competitors acquire any of our significant customers, these customers may reduce the amount of products they purchase
from us. Alternatively, some of our competitors may spin-out new companies in the optical component and module market. These companies may compete more aggressively than their former parent companies due to their greater dependence on our markets.
In addition, many of our potential competitors have significantly more established sales and customer support organizations, much greater name recognition, more extensive customer bases, more developed distribution channels and broader product
offerings than we have. These companies can leverage their customer bases and broader product offerings and adopt aggressive pricing policies to gain market share. Additional competitors may enter the market, and we are likely to compete with new
companies in the future. We expect to encounter potential customers that, due to existing relationships with our competitors, are committed to the products offered by these competitors. As a result of the foregoing factors, we expect that
competitive pressures may result in price reductions, reduced margins and loss of market share.

We compete with manufacturers of
conventional spherical lens products and aspherical lens products, producers of optical quality glass and other developers of gradient lens technology as well as telecom product manufacturers. In both the optical lens and communications markets, we
are competing against, among others, established international companies, especially in Asia. Many of these companies also are primary customers for optical and communication components, and therefore have significant control over certain markets
for our products. We are also aware of other companies that are attempting to develop radial gradient lens technology. There may also be others of which we are not aware that are attempting to develop axial gradient lens technology similar to our
technology. There can be no assurance that existing or new competitors will not develop technologies that are superior to or more commercially acceptable than our existing and planned technologies and products.



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To maintain or improve our gross margins, we must continue to reduce the manufacturing cost of our
products. We continue to take actions that are projected to reduce our material costs by obtaining additional sources for raw materials, reducing the labor costs of our production operations by establishing manufacturing capabilities in low cost
regions and reducing our overhead expenses through process improvements and competitive sourcing. We believe these actions will allow us to make continued improvements in our profitability and cash requirements.

We Anticipate Further Reductions in the Average Selling Prices Of Our Products and Therefore Must Increase Our Sales Volumes, Reduce Our Costs and/or
Introduce Higher Margin Products To Reach And Maintain Financial Stability. We have experienced decreases in the average selling prices of some of our products over the last seven years, including most of our passive component products. We
anticipate that as products in the optical component and module market become more commodity-like, the average selling prices of our products will decrease in response to competitive pricing pressures, new product introductions by us, our
competitors or other factors. If we are unable to offset this anticipated decrease in our average selling prices by increasing our sales volumes or product mix, our net revenues and gross margins will decline, increasing the projected cash needed to
fund operations. To address these competitive pressures, we must develop and introduce new products and product enhancements with higher margins. If we cannot maintain or improve our gross margins, our financial position may be harmed and our stock
price may decline.

Because Of Our Limited Product Offerings, Our Ability To Generate Additional Revenues May Be Adversely Affected.
We derive a substantial portion of our net revenues from a limited number of products. We expect that net revenues from a limited number of products will continue to account for a substantial portion of our total net revenues. Demand for these and
other optical market products had declined materially in recent years; however, demand has improved since late fiscal 2003. Continued and expanding market acceptance of these products is critical to our future success. We cannot assure you that,
once the communication industry and general economic conditions improve, our current or new products will achieve market acceptance at the rate at which we expect, or at all, which could adversely affect our results of operations.

Recently, the Employment of Our Chief Executive Officer was Terminated, And The Loss Of His Services Could Materially Adversely Affect Our Business.Our success was largely dependent upon the personal efforts and abilities of Kenneth Brizel, our President and Chief Executive Officer. Mr. Brizels employment with the Company has been terminated and he has resigned as a director. J.
James Gaynor has been appointed interim Chief Executive Officer while we conduct a search for a permanent Chief Executive Officer, which search will include current executive officers as well as outside candidates. There can be
no assurance that we will be able to employ a candidate with the qualities and experience we desire under terms and conditions acceptable to us. Our business, prospects and results of operations could be materially adversely
affected as we seek a replacement for Mr. Brizel and such adverse affects could continue if we are unable employ a qualified candidate for the position in a timely manner.

If We Do Not Expand Our Sales and Marketing Organization, Our Revenues May Not Increase. The sale of our products requires long and involved
efforts targeted at several key departments within our prospective customers organizations. Sales of our products require the prolonged efforts of sales, and sometimes executive, personnel, as well as specialized systems and applications
engineers working together. Currently, our sales and marketing organization is somewhat limited. We believe we will need to increase our sales force in order to increase market awareness and sales of our products. Competition for qualified
individuals remains, and we might not be able to hire the kind and number of sales and marketing personnel and applications engineers we need. If we are unable to expand our sales operations, we may not be able to increase market awareness or sales
of our products, which would prevent us from increasing our revenues.

If We Are Unable To Make Sales In A Fragmented Market Our
Revenues May Not Increase.The markets for optical lenses and laser components are highly fragmented. Consequently, we will need to identify and successfully target particular market segments in which we believe we will have the most success.
These efforts will require a substantial, but unknown, amount of effort and resources. The fragmented nature of the optical products market may impede our ability to achieve commercial acceptance for our products. In addition, our success will
depend in great part on our ability to develop and implement a successful marketing and sales program. There can be no assurance that any marketing and sales efforts undertaken by us will be successful or will result in any significant product
sales.

Our Products Have Long And Variable Sales Cycles Which Reduce Our Ability To Accurately Forecast Revenues. The timing of our
revenue is difficult to predict because of the length and variability of the sales and implementation cycles for our products. We do not recognize revenue until a product has been shipped to a customer, all significant vendor obligations have been
performed and collection is considered probable. Customers may view the purchase of our products as a significant and strategic decision. As a result, customers typically expend significant effort in evaluating, testing and qualifying our products
and our manufacturing process. This is particularly the case with our defense application market. This customer evaluation and qualification process frequently results in a lengthy initial sales cycle (often up to one year). While our customers are
evaluating our products and before they place an order with us, we may incur substantial sales, marketing and product development expenses to customize our products to the customers needs. We may also expend significant management efforts,
increase manufacturing capacity and order long lead-time components or materials prior to receiving an order. Even after this evaluation process, a potential customer may not purchase our products. Because of the evolving nature of the optical
markets, we cannot predict the length of these sales and development cycles. These long sales cycles may cause our revenues and operating results to vary significantly and unexpectedly from quarter to quarter, which could continue to cause
volatility in our stock price.



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Current And Pending Litigation May Adversely Impact Operating Results. On May 2, 2000, we
commenced a class action lawsuit in the Chancery Court of Delaware, New Castle County (the Delaware Action). In that action, we sought a declaratory judgment with respect to (i) our right to redeem our Class E common stock on
March 31, 2001 for $.0001 per share, (ii) the right of the holders of Class E common stock to vote at the Annual Meeting to be held on October 6, 2000, and (iii) for certification of the holders of Class E common stock as a class
and the named defendants as its representatives. The Delaware Action was settled in fiscal 2002 with the final settlement agreement requiring us to pay $0.40 per share to each Class E holder. The settlement agreement permitted Class E stockholders
to elect not to participate in the settlement and thus was not binding on any Class E stockholders who so elected. Approximately 12% of the former Class E stockholders elected not to participate in the settlement and their case has consequently been
dismissed. Since the beginning of fiscal 2003, we have distributed approximately $1.4 million of the $1.5 million estimated total cost arising under the settlement agreement.

We may from time to time become involved in other lawsuits and legal proceedings. Litigation is expensive and is subject to inherent uncertainties, and
an adverse result in any such matters could adversely impact our operating results or financial condition. Additionally, any litigation to which we are subject could also require significant involvement of our senior management and may divert
managements attention from our business and operations.

Sales, Political, Currency And Other Risks Associated With Our
International Sales And Supply Could Negatively Impact Our Business. For fiscal 2007, approximately 22% of our net revenues were from sales to international customers; and, in fiscal 2006, approximately 16% of our net revenues were from sales to
international customers. Our international sales will be limited if we cannot establish and/or maintain relationships with international distributors, establish foreign operations, expand international sales, and develop relationships with
international service providers. Additionally, our international sales may be adversely affected if international economies weaken. We are subject to risks including the following



| |  |  | greater difficulty in accounts receivable collection and longer collection periods;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | the impact of recessions in economies outside the United States;
| | - |  | ----------------------------------------------------------------



| |  |  | unexpected changes in regulatory requirements;
| | - |  | ----------------------------------------------



| |  |  | unexpected changes in foreign demand in response to exchange rate fluctuations;
| | - |  | -------------------------------------------------------------------------------



| |  |  | certification requirements;
| | - |  | ---------------------------



| |  |  | reduced protection for intellectual property rights in some countries;
| | - |  | ----------------------------------------------------------------------



| |  |  | potentially adverse tax consequences; and
| | - |  | -----------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------

In order to expand our international production capacity and sales, we formed in November 2005 LightPath Optical Instrumentation (Shanghai) Co., Ltd, a wholly owned manufacturing subsidiary, located in Jiading, Peoples Republic of
China. This manufacturing facility increased overall production capacity and has enabled 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 Asia/Pacific.

While we expect our international revenues to be denominated
predominantly in U.S. dollars, in the future a portion of our international revenues and expenses may be denominated in foreign currencies. Accordingly, we could experience the risks of fluctuating currencies and corresponding exchange rates.

We also source certain raw materials from outside the United States. Some of those materials, priced in non-dollar currencies, have risen
in price due to the recent decline of the U.S. dollar against non-dollar-pegged currencies, especially the Euro. This lowers our margins and reduces our ability to reach positive cash flow and profitability.

Our Business Has Been Subject To Fluctuations In Quarterly Results And Continued Fluctuations Could Negatively Impact Our Stock Price. The market
price of our common stock could be subject to wide fluctuations in response to quarterly variations in operating results. Revenues and results of operations are difficult as yet to predict and may fluctuate substantially from quarter to quarter. For
example, as a result of revenues associated with any of our key customers, any cancellation of orders from a key customer could result in significant fluctuations in quarterly results. Quarterly results have also been and may continue to be affected
by asset write-downs associated with communications market weakness, our headquarters and plant consolidations and other matters, including negative cash flow.



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We May Issue Additional Securities With Rights Superior To Those Of The Common Stock, Which Could
Materially Limit The Ownership Rights Of Stockholders. We may offer additional debt or equity securities in private and/or public offerings in order to raise working capital or to refinance our debt. Our board of directors has the right to
determine the terms and rights of any debt securities and preferred stock without obtaining the approval of the stockholders. It is possible that any debt securities or preferred stock that we sell would have terms and rights superior to those of
the common stock and may be convertible into common stock. Any sale of securities could adversely affect the interests or voting rights of the holders of common stock, result in substantial dilution to existing stockholders, or adversely affect the
market price of our common stock. We have no present plans to issue any convertible preferred stock or any other preferred stock.

Our
Stock Price Has Been, And May Continue To Be, Subject To Large Price Swings, Which We Are Not Able To Control. Broad market fluctuations or fluctuations in our operations may adversely affect the market price of our common stock. The market for
our common stock is volatile, the bid-ask spread is often large and the trading volume and activity can be low and sporadic. The trading price of our common stock has been and will continue to be subject to:



| |  |  | volatility in the trading markets generally and in our particular market segment;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | limited trading of our common stock;
| | - |  | ------------------------------------



| |  |  | significant fluctuations in response to quarterly variations in operating results;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | announcements regarding our business or the business of our customers or competitors;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | changes in prices of our or our competitors products and services;
| | - |  | -------------------------------------------------------------------



| |  |  | changes in product mix;
| | - |  | -----------------------



| |  |  | changes in revenue and revenue growth rates; and
| | - |  | ------------------------------------------------



| |  |  | other events or factors.
| | - |  | ------------------------

Statements
of or changes in opinions, ratings or earnings estimates made by brokerage firms or industry analysts relating to the markets in which we operate or expect to operate could have an adverse effect on the market price of our common stock. In addition,
the stock market as a whole, as well as our particular market segment, have from time to time experienced extreme price and volume fluctuations which have particularly affected the market price for the securities of many companies and which often
have appeared unrelated to the operating performance of these companies. Although our shares are publicly traded on NASDAQ, the trading market for our shares can be limited. During fiscal 2007, NASDAQ-reported trading volume for our shares averaged
46,469 shares per trading day. We cannot forecast or control any material increase in the trading volume for our shares. A lack of an active trading market for our shares could negatively impact stockholders ability to sell their shares when
they desire and the price, which they could obtain.

The Fact That We Do Not Expect To Pay Dividends May Lead To A Decreased Price For
Our Stock. Our board of directors has never declared a dividend on our common stock. We do not anticipate paying dividends on our common stock in the foreseeable future. Due to U.S. tax law changes in 2003, dividends may be more valuable on an
after-tax basis as a component of investment return, potentially diminishing the appeal of holding our common stock. It is anticipated that our earnings, if any, will be reinvested in sales growth activities for our business.

Our Management And Principal Stockholders Control A Substantial Amount Of Our Stock And May, Therefore, Influence Our Affairs. If our management
and a few principal stockholders act in concert, disposition of matters submitted to stockholders or the election of our entire board of directors may be hindered. We estimate that management, including directors, and our principal stockholders
(stockholders owning more than 5% of our common stock) beneficially owned approximately 14% of the aggregate common stock outstanding as of September 17, 2007.

Our Charter Documents And Delaware Law May Inhibit A Takeover. In certain circumstances, the fact that corporate devices are in place that will inhibit or discourage takeover attempts could reduce the market
value of our common stock. Our Certificate of Incorporation, Bylaws and certain other agreements contain certain provisions that may discourage other persons from attempting to acquire control of us. These provisions include, but are not limited to:



| |  |  | staggered-terms of service for our board of directors;
| | - |  | ------------------------------------------------------



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| |  |  | the authorization of the board of directors to issue shares of undesignated preferred stock in one or more series without the specific approval of the stockholders;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the fact that in 1998 we adopted a stockholder rights plan and declared a dividend distribution of a right to purchase one share of Series D Participating Preferred
Stock for each outstanding share of Class A common stock. The description and terms of such rights are set forth in a Rights Agreement dated as of May 1, 1998 between LightPath and Continental Stock Transfer & Trust Company, as
Rights Agent (copy of the Rights Agreement and related documents was filed as an exhibit to our Current Report filed on a Form 8K on March 22, 2006);
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the establishment of advance notice requirements for director nominations and actions to be taken at annual meetings; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | the fact that special meetings of the stockholders may be called only by our Chairman, President or upon the request of a majority of our board of directors.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

All of these provisions, as well as the provisions of Section 203 of the Delaware General Corporation Law (to which
we are subject), could impede a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

Outstanding Warrants, Stock Options And Restricted Stock Agreements May Inhibit Our Ability To Accomplish Future Financings And Adversely Affect Our
Stock Price. The existence of our outstanding warrants, options and restricted stock and the potential for sales of significant amounts of previously unregistered shares of our common stock in the public market, or the perception that such sales
could occur, may adversely affect the terms on which we can obtain additional financing or the prevailing market price of our common stock. As of June 30, 2007, there were issued and outstanding:



| |  |  | 4,512,543 shares of our common stock;
| | - |  | -------------------------------------



| |  |  | warrants issued in private placement and other transactions pursuant to which 280,796 shares of out common stock are issuable, at a weighted average exercise price
of approximately $9.38 per share;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants issued to the selling shareholders pursuant to which 219,000 shares of our common stock are issuable at an exercise price of $7.41 per share;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | outstanding options under our amended and restated omnibus plan to purchase an aggregate of 299,530 shares of our common stock, with an average exercise price of
approximately $11.35 per share; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | restricted stock award grants for 223,100 shares of our common stock that have been granted of which 113,098 have vested.
| | - |  | -------------------------------------------------------------------------------------------------------------------------

In addition, 42,110 shares of our common stock were reserved as of June 30, 2007, for issuance pursuant to future grants to be made under our Amended and Restated
Omnibus Incentive Plan.

For the life of such options and warrants, the holders will have the opportunity to profit from a rise in the
price of the underlying common stock, with a resulting dilution in the interest of other holders of common stock upon exercise or conversion. Further, the option and warrant holders can be expected to exercise their options and warrants at a time
when we would, in all likelihood, be able to obtain additional capital by an offering of our unissued common stock on terms more favorable than those originally provided by such options or warrants. Of the total number of shares of common stock
currently issued and outstanding, there are likely a small number of unregistered shares outstanding, other than those held by the selling stockholders, and some of those shares may be freely traded or may be traded under certain volume and other
restrictions set forth in Rule 144 promulgated under the Securities Act of 1933 (the Securities Act).

The eligibility of the
foregoing shares to be sold to the public, whether pursuant to an effective registration statement, Rule 144 or an exemption from the registration requirements may have a material adverse effect on the market value and trading price of our common
stock, the scope or extent of which effect we cannot predict.

We Have Agreed To Certain Limitations Upon Potential Liability Of Our
Directors, Which Could Prevent Recovery Of Monetary Damages. Our Certificate of Incorporation provides that directors will not be personally liable for monetary damages to the



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Company or its stockholders for a breach of fiduciary duty as a director, subject to limited exceptions. Although such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or rescission, the presence of these provisions in our Certificate of Incorporation could prevent the recovery of monetary damages by the Company or its stockholders.

We May Have Difficulty Obtaining Director And Officer Liability Insurance In Acceptable Amounts For Acceptable Rates. We carry
insurance protecting our officers and directors and us against claims relating to the conduct of our business (D&O insurance). D&O insurance covers the costs incurred by companies and their management to defend against and
resolve claims relating to management conduct and results of operations, such as securities class action claims. These claims are extremely expensive to defend against and resolve. Therefore we purchase and maintain D&O insurance to cover some
of these costs. We pay significant premiums to acquire and maintain D&O insurance, which is provided by third-party insurers, and we agree to underwrite a portion of such exposures under the terms of these insurance coverages. In recent years
the premiums we have paid for D&O insurance had increased substantially. During fiscal 2007 and 2006 we were able to renew our D&O insurance for a reduction in premium over the previous year. We cannot assure that, in the future, we will be
able to obtain what we adjudge to be sufficient director and officer liability insurance coverage at acceptable rates and with acceptable deductibles and other limitations. Further, due to our available financial resources at the time the current
coverage expires (February 2008), we may be unable to pay for or we may choose not to seek as much coverage as we adjudge to be sufficient. Failure or inability to obtain such insurance, or the election to accept less than we adjudge sufficient or
none at all, could materially harm our financial condition in the event that we are required to defend against and resolve any future securities class actions or other claims made against us or our management arising from the conduct of our
operations. Further, obtaining such insurance in an inadequate amount or obtaining none at all may impair our future ability to retain and recruit qualified officers and directors.

Business Interruptions Could Adversely Affect Our Business. We manufacture our products at manufacturing facilities located in Orlando, Florida
and Shanghai, China. Our revenues are dependent upon the continued operation of these facilities. The Orlando facility is subject to a lease that expires in November 2008, and the Shanghai facility is subject to a lease that expires in November
2011. Our operations are vulnerable to interruption by fire, hurricane winds and rain, electric power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan for either facility, and we
do not have a backup facility, other than the other facility, or contractual arrangements with any other manufacturers in the event of a casualty to or destruction of any facility or if any facility ceases to be available to us for any other reason.
If we are required to rebuild or relocate either of our manufacturing facilities, a substantial investment in improvements and equipment would be necessary. We carry only a limited amount of business interruption insurance, which may not
sufficiently compensate us for losses that may occur. Our facilities may be subject to electrical blackouts as a consequence of a shortage of available electrical power. We currently do not have backup generators or alternate sources of power in the
event of a blackout. If blackouts interrupt our power supply, we would be temporarily unable to continue operations at such facility. Any losses or damages incurred by us as a result of blackouts, rebuilding, relocation or other business
interruptions, including the aforementioned, could result in a significant delay or reduction in manufacturing and production capabilities, impair our reputation, harm our ability to retain existing customers and to obtain new customers, and could
result in reduced sales, lost revenue, and/or loss of market share, any of which could substantially harm our business and the results of operations.

As an example of this type of risk, we experienced an electric power outage at our Orlando facility caused by the storm named Hurricane Charley from the evening of August 13, 2004 to the morning of
August 17, 2004. During this period, we were without the use of our production capacity and lost approximately six shifts of production.

Our Business Depends, In Part, Upon The Efforts Of Third Parties, Which We Can Not Control. Part of our strategy for the research, development and commercialization of certain products entails entering into various arrangements with
corporate partners, OEMs, licensees and others in order to generate product sales, license fees, royalties and other funds adequate for product development or to enhance commercial prospects. We may also rely on our collaborative partners to conduct
research efforts, product testing and to manufacture and market certain of our products. Although we believe that parties to any such arrangements would have an economic motivation to succeed in performing their contractual responsibilities, the
amount and timing of resources to be devoted to these activities may not be within our control. There can also be no assurance that we will be successful in establishing any such collaborative arrangements or that, if established, the parties to
such arrangements will assist us in commercializing products. We have a non-exclusive agreement with a catalog company to distribute certain of our products. We have agreements with nine foreign distributors to create markets for GRADIUM and our
other products in their respective countries. There can be no assurance, however, that these parties, or any future partners, will perform their obligations as expected or that any revenue will be derived from such arrangements.

Future Acquisitions To Add To Our Product, Process Or Management Capabilities May Fail To Produce The Desired Benefits And Will Likely Be Dilutive To
Existing Stockholders. We anticipate that in the future, as part of our business strategy, we may find strategic acquisitions of complementary companies, products or technologies to be desirable. In the event of any such future acquisitions, we
could:



| |  |  | issue stock that would dilute our current stockholders percentage ownership;
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| |  |  | incur debt;
| | - |  | -----------



| |  |  | assume liabilities; or
| | - |  | ----------------------



| |  |  | incur expenses related to in-process research and development and intangible assets.
| | - |  | ------------------------------------------------------------------------------------

Any future acquisitions also could involve numerous risks, including:



| |  |  | problems associated with combining the acquired operations, technologies or products;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | unanticipated costs or liabilities;
| | - |  | -----------------------------------



| |  |  | diversion of managements attention from our existing business;
| | - |  | ---------------------------------------------------------------



| |  |  | adverse effects on existing business relationships with suppliers and customers;
| | - |  | --------------------------------------------------------------------------------



| |  |  | risks associated with entering markets in which we have no or limited prior experience; and
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | potential loss of key employees, particularly those of the acquired entities.
| | - |  | -----------------------------------------------------------------------------

We cannot assure that we will be able to successfully integrate any businesses, products, technologies or personnel that we might acquire in the future,
which may harm our business.

The Loss Of, Or Our Inability To Hire, Key Personnel Would Reduce Our Ability To Manage Our Business
Effectively. Our future success depends upon the continued services of our executive and non-executive officers and other key engineering, sales, marketing, manufacturing and support personnel. Our inability to retain or attract key employees
could have a material adverse effect on our business and results of operations. Our operations depend, to a great extent, upon the efforts of our management. We also depend upon our ability to attract additional members to our operations teams to
support our strategy. The loss of any of these key employees would adversely affect our business. As of September 2007, we had 197 full-time equivalent employees, with 87 located in Florida and 110 in located in China. We also had 17 workers engaged
as independent contractors. We expect to continue to hire selectively in the manufacturing, engineering, sales and marketing and administrative functions to the extent consistent with our business levels. Our ability to continue to attract and
retain highly skilled personnel will be a critical factor in determining whether we will be successful. Competition for highly skilled personnel is intense. We may not be successful in attracting, assimilating or retaining qualified personnel to
fulfill our current or future needs, which could adversely impact our ability to develop and sell our products.

B. Risks Related To The
Optical Networking Industry

Sales Of Some Of Our Products Depend Upon Use Of Optical Networks To Satisfy Increased Bandwidth
Requirements. The future success of this market depends on the continuing increase in the amount of data transmitted over communications networks, or bandwidth, and the growth of optical networks to meet the increased demand for bandwidth. If
the internet does not continue to expand as a widespread communications medium and commercial marketplace, the need for significantly increased bandwidth across networks and the market for optical networking products may not continue to develop.
Future demand for our products is uncertain and will depend to some degree on the continued growth and upgrading of optical networks. If the growth and upgrading of optical networks does not continue, sales of some of our products may decline, which
would adversely affect our revenues.



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The Optical Networking Market Is Unpredictable And Characterized By Rapid Technological Changes And
Evolving Standards. The optical networking market is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. It is difficult to predict this markets
potential size or future growth rate. It has already gone through a virulent decline. Widespread adoption of optical networks would be helpful to our future success. Potential end-user customers who have invested substantial resources in their
existing copper lines or other systems may be reluctant or slow to adopt a new approach, like optical networks. Our success in generating revenues in this emerging market will depend on, among other things:



| |  |  | maintaining and enhancing our relationships with our customers;
| | - |  | ---------------------------------------------------------------



| |  |  | the education of potential end-user customers and network service providers about the benefits of optical networks;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the ability of our customer base to grow their businesses that depend on optical networks; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | our ability to accurately predict and develop our products to meet industry standards.
| | - |  | --------------------------------------------------------------------------------------

If we are unable to do any of the foregoing, or if we fail to address changing market conditions, the sales of our products may decline, which would adversely impact our
revenues.

We Anticipate Further Reductions In The Average Selling Prices Of Our Products And Therefore Must Increase Our Sales Volumes,
Reduce Our Costs And/Or Introduce Higher Margin Products To Reach And Maintain Financial Stability. We have experienced decreases in the average selling prices of some of our products, including most of our passive component products, which has
offset inflationary effects. Over 98% of our revenue increases have been attributed to volume increases. We anticipate that as products in the optical component and module market become more commodity-like, the average selling prices of our products
will decrease further in response to competitive pricing pressures, new product introductions by us, our competitors or other factors. The optical component and module market is experiencing extreme volatility as a result of lower product demand
than existed in 2000, which will make it more difficult for us to increase our sales volume. If we are unable to offset this anticipated decrease in our average selling prices by increasing our sales volumes or improving our product mix, our net
revenues and gross margins will decline. In addition, to maintain or improve our gross margins, we must continue to reduce the manufacturing cost of our products, and we must develop and introduce new products and product enhancements with higher
margins. If we cannot maintain or improve our gross margins, our financial position may be harmed and our stock price may decline.

C.
Risks Related To Manufacturing Our Products

If We Do Not Accurately Project Demand For Our Products, We Will Have Excess
Manufacturing Capacity Or Insufficient Manufacturing Capacity Which Can Adversely Affect Our Financial Results. We currently manufacture our products in our facility located in Orlando, Florida, and in our manufacturing facility located in
Jiading, which is near Shanghai in the Peoples Republic of China, which is owned by LightPath Optical Instrumentation (Shanghai) Co., Ltd, our wholly owned subsidiary. Based on uncertainty in global economic conditions and particularly in our
telecommunication market based products, we believe lower demand for various products will continue through fiscal 2008. We intend to continue to operate at a right-sized production level during fiscal 2008 while retaining flexibility to
meet demand if it should increase in the near future. We will accomplish this, in part, by maintaining some of our production workforce as temporary employees or contractors.

Our Failure To Accurately Forecast Material Requirements Could Cause Us To Incur Additional Costs, Have Excess Inventories Or Have Insufficient
Materials To Build Our Products. We primarily use forecasts based on actual or anticipated product orders to determine our materials requirements. It is very important that we accurately predict both the demand for our products and the lead
times required to obtain the necessary materials. Lead times for materials that we order vary significantly and depend on factors such as specific supplier requirements, the size of the order, contract terms and current market demand for the
materials at a given time. If we overestimate our material requirements, we may have excess inventory, which would increase our costs. If we underestimate our material requirements, we may have inadequate inventory, which could interrupt our
manufacturing and delay delivery of our products to our customers. Any of these occurrences would negatively impact our results of operations. Additionally, in order to avoid excess material inventories we may incur cancellation charges associated
with modifying existing purchase orders with our vendors.

If We Do Not Achieve Acceptable Manufacturing Yields Or Sufficient Product
Reliability, Our Ability To Ship Products To Our Customers Could Be Delayed. The manufacture of our products involves complex and precise processes. Our manufacturing costs for several products are relatively fixed, and, thus, manufacturing
yields are critical to our results of operations. Changes in our manufacturing processes or those of our suppliers, or the use of defective materials, could significantly reduce our manufacturing



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yields and product reliability. In addition, we may experience manufacturing delays and reduced manufacturing yields upon introducing new products to our
manufacturing lines. We may experience lower than targeted product yields in the future which could adversely affect our operating results.

If Our Customers Do Not Qualify Our Manufacturing Lines For Volume Shipments, Our Operating Results Could Suffer. Generally, customers do not purchase our products, other than limited numbers of evaluation units, prior to
qualification of the manufacturing line for volume production. Our existing manufacturing lines, as well as each new manufacturing line, must pass through varying levels of qualification with our customers. Customers may require that we be
registered under international quality standards, such as ISO 9001. This customer qualification process determines whether our manufacturing lines meet the customers quality, performance and reliability standards. If there are delays in
qualification of our products, our customers may drop the product from a long-term supply program, which would result in significant lost revenue opportunity over the term of that program.

We Depend On Single Or Limited Source Suppliers For Some Of The Key Materials Or Process Steps In Our Products, Which Makes Us Susceptible To Supply
Shortages, Poor Performance Or Price Fluctuations. We currently purchase several key materials or have outside vendors perform process steps, such as lens coatings, used in or during the manufacture of our products from single or limited source
suppliers. We may fail to obtain required materials or services in a timely manner in the future, or could experience further delays from evaluating and testing the products or services of these potential alternative suppliers. The decline in demand
in the telecommunications equipment industry may have adversely impacted the financial condition of certain of our suppliers, some of whom have limited financial resources. We have in the past, and may in the future, be required to provide advance
payments in order to secure key materials from financially limited suppliers. Financial or other difficulties faced by these suppliers could limit the availability of key components or materials. Additionally, financial difficulties could impair our
ability to recover advances made to these suppliers. Any interruption or delay in the supply of any of these materials or services, or the inability to obtain these materials or services from alternate sources at acceptable prices and within a
reasonable amount of time, would impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders, negatively affecting our business.

Our Products May Contain Unknown Defects Which Would Adversely Affect Our Business. Some of our products are designed to be deployed in large and
complex optical networks. Because of the nature of these products, they can only be fully tested for reliability when deployed in networks for long periods of time. Our fiber optic products may contain undetected defects when first introduced or as
new versions are released, and our customers may discover defects in our products only after they have been fully deployed and operated under peak stress conditions. In addition, our products often are combined with products from other vendors. As a
result, should problems occur, it may be difficult to identify the source of the problem. If we are unable to fix defects or other problems, we could experience, among other things:



| |  |  | loss of customers;
| | - |  | ------------------



| |  |  | damage to our brand reputation;
| | - |  | -------------------------------



| |  |  | failure to attract new customers or achieve market acceptance;
| | - |  | --------------------------------------------------------------



| |  |  | diversion of development and engineering resources; and
| | - |  | -------------------------------------------------------



| |  |  | legal actions by our customers or third parties.
| | - |  | ------------------------------------------------

The occurrence of any one or more of the foregoing factors could cause our net revenues to decline or otherwise have an adverse effect on our business.

We Face Product Liability Risks Which Could Adversely Affect Our Business. The sale of our optical products involves the inherent risk of product
liability claims by others. We do not currently maintain product liability insurance coverage. Product liability insurance is expensive, subject to various coverage exclusions and may not be obtainable on terms acceptable to us if we decide to
procure such insurance in the future. Moreover, the amount and scope of any coverage may be inadequate to protect us in the event that a product liability claim is successfully asserted. Should any such claim be asserted and successfully litigated
by an adverse party, there could be a material adverse effect to our financial position and results of operations.



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D. Risks Related To Our Intellectual Property

If We Are Unable To Protect And Enforce Our Intellectual Property Rights, We May Be Unable To Compete Effectively. We believe that our patents and
other intellectual property rights are important to our success and our competitive position, and we rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property
rights. Although we have devoted substantial resources to the establishment and protection of our intellectual property rights, the actions taken by us may be inadequate to prevent imitation or improper use of our products by others or to prevent
others from claiming violations of their intellectual property rights by us.

In addition, we cannot assure that our patent applications
will be approved, that any patents that we may be issued will protect our intellectual property or that third parties will not challenge any issued patents. Other parties may independently develop similar or competing technology or design around any
patents that may be issued to us. We also rely on confidentiality procedures and contractual provisions with our employees, consultants and corporate partners to protect our proprietary rights, but we cannot assure the compliance by such parties
with their confidentiality obligations, which could be very time consuming and expensive to enforce.

It may be necessary to litigate to
enforce our patents, copyrights, and other intellectual property rights, to protect our trade secrets, to determine the validity of and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such
litigation can be time consuming, distracting to management, expensive and difficult to predict. Our failure to protect or enforce our intellectual property could have an adverse effect on our business, financial condition, prospects and results of
operation.

We Do Not Have Patent Protection For Our Formulas And Processes, And A Loss Of Ownership Of Any Of Our Formulas And
Processes Would Negatively Impact Our Business. We believe that we own our formulas and processes. However, we have not sought, and do not intend to seek, patent protection for all of our formulas and processes. Instead, we rely on the
complexity of our formulas and processes, trade secrecy laws, and employee confidentiality agreements. However, we cannot assure you that other companies will not acquire our confidential information or trade secrets or will not independently
develop equivalent or superior products or technology and obtain patent or similar rights. Although we believe that our formulas and processes have been independently developed and do not infringe the patents or rights of others, a variety of
components of our processes could infringe existing or future patents, in which event we may be required to modify our processes or obtain a license. We cannot assure you that we will be able to do so in a timely manner or upon acceptable terms and
conditions and the failure to do either of the foregoing would negatively affect our business, results of operations, financial condition and cash flows.

We May Become Involved In Intellectual Property Disputes And Litigation Which Could Adversely Affect Our Business. We anticipate based on the size and sophistication of our competitors and the history of rapid
technological advances in our industry, that several competitors may have patent applications in progress in the United States or in foreign countries that, if issued, could relate to products similar to ours. If such patents were to be issued, the
patent holders or licensees may assert infringement claims against us or claim that we have violated other intellectual property rights. These claims and any resulting lawsuits, if successful, could subject us to significant liability for damages
and invalidate our proprietary rights. The lawsuits, regardless of their merits, could be time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation could also force us to
do one or more of the following, any of which could harm our business:



| |  |  | stop selling, incorporating or using our products that use the disputed intellectual property;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | obtain from third parties a license to sell or use the disputed technology, which license may not be available on reasonable terms, or at all; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | redesign our products that use the disputed intellectual property.
| | - |  | ------------------------------------------------------------------

Necessary Licenses Of Third-Party Technology May Not Be Available To Us Or May Be Very Expensive. From time to time we may be required to license technology from third parties to develop new products or product
enhancements. We can provide no assurance that third-party licenses will be available to us on commercially reasonable terms, or at all. The inability to obtain any third-party license required to develop new products and product enhancements could
require us to obtain substitute technology of lower quality or performance standards or at greater cost, either of which could seriously harm our ability to manufacture and sell our products.

On February 11, 2004, the University of Florida Research Foundation, Inc. (UF) notified us that we were in default under the terms of
the Amended and Restated License Agreement (UF Agreement) for failure to pay certain back royalties and in April 2004 notified us that they had terminated the UF Agreement. UF claims that we owe $83,000 in unpaid royalties, of which
$70,000 is accrued at June 30, 2007. While we dispute the amount owed and have previously engaged in discussions with UF about the matter, we do not believe that the termination of the UF Agreement has materially adversely affected our business
since the licensed



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technology had never generated annual sales in excess of 3% of our total revenues from a single customer who had previously notified us that they were
ceasing purchase of the product. UF has not made any efforts since mid 2004 to collect the amounts UF alleges that we owe them.

Item 2. Properties

We occupies a 41,000 square foot facility in Orlando, Florida. Our Orlando
facility includes a 9,000 square foot clean room and 8,000 square feet used for storage. Lease terms on our Orlando facility call for monthly rental payments of approximately $72,000 until November 2008, which includes all charges, including common
area maintenance, escalation, and certain pass-throughs of taxes and other operating costs. The Orlando facility houses corporate headquarters, engineering, manufacturing management and some manufacturing operations. The territorial sales personnel
maintain an office from their homes to serve their geographical territories. The Company believes that this facility is fifty percent larger than required for its immediate business needs. Over the next few months, we will be evaluating other
locations, as our lease expires in November 2008. We are also working with our current landlord and others to secure appropriate and affordable lease terms.

We also leased a 17,000 square foot facility located in Jiading, Peoples Republic of China in November 2005. The lease expires November 2010. The facility is used primarily for manufacturing operations located in the Jiading Industrial Zone
near Shanghai. The China facility houses 110 employees. The rent is approximately $5,300 per month. This manufacturing facility increased overall production capacity and has enabled 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 Asia/Pacific. We believe our China facility is adequate to meet our future needs. Current production
levels are at 4% of capacity. We have the ability to add additional work shifts, to meet demand.

Item 3. Legal Proceedings

We may from time to time become involved in lawsuits and legal
proceedings. Litigation is expensive and is subject to inherent uncertainties, and an adverse result in any such matters could adversely impact our operating results or financial condition. Additionally, any litigation to which we are subject could
also require significant involvement of our senior management and may divert managements attention from our business and operations.

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

No matter was submitted during the
fourth quarter of fiscal 2007 to a vote of security holders, through the solicitation of proxies or otherwise.

PART II

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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.



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##### Table of Contents

|                                 |  |                     |      |     |   |     
|-------------------------------- |  | ------------------- | ---- | --- | - | ----
|                                 |  | Class A CommonStock
|                                 |  | High                |      | Low
|Fiscal Year Ended June 30, 2007  |  |                     |      |     |   |     
|Quarter ended June 30, 2007      |  | $                   | 6.24 |     | $ | 4.63
|Quarter ended March 31, 2007     |  | $                   | 6.91 |     | $ | 4.72
|Quarter ended December 31, 2006  |  | $                   | 6.09 |     | $ | 3.41
|Quarter ended September 30, 2006 |  | $                   | 4.50 |     | $ | 3.20
|                                 |  |                    
|Fiscal Year Ended June 30, 2006  |  |                     |      |     |   |     
|Quarter ended June 30, 2006      |  | $                   | 6.57 |     | $ | 3.61
|Quarter ended March 31, 2006     |  | $                   | 6.72 |     | $ | 1.81
|Quarter ended December 31, 2005  |  | $                   | 2.80 |     | $ | 1.78
|Quarter ended September 30, 2005 |  | $                   | 3.15 |     | $ | 2.35

As of September 5, 2007, we estimate there were approximately 360 holders of record and
approximately 7,200 street name holders of the Class A common stock.

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. The payment of dividends, if any, in the future, is
within the discretion of our board of directors and will depend on our earnings, capital requirements, financial conditions and other relevant factors.

Equity Compensation Plans



|                                                              |  |                                                                                          |  |                                                                                    |      |                                                          |       
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------- | ---- | -------------------------------------------------------- | ------
|Plan category                                                 |  | Number of securities tobe issued upon exerciseof outstanding options,warrants and
rights |  | Weighted averageexercise and grant price ofoutstanding options,warrants and
rights |      | Number ofsecuritiesremainingavailable forfuture issuance
|Equity compensation plans approved by security holders        |  | 517,630                                                                                  |  | $                                                                                  | 8.21 |                                                          | 42,110
|                                                              |  |                                                                                          | 
|Equity compensation plans not approved by security holders(1) |  | 5,000                                                                                    |  |                                                                                    | 3.20 |                                                          | N/A   
|                                                              |  |                                                                                          |  |                                                                                    |      |                                                          |       
|Total                                                         |  | 522,630                                                                                  |  | $                                                                                  | 8.14 |                                                          | 42,110
|                                                              |  |                                                                                          |  |                                                                                    |      |                                                          |       

---

|(1) | We issued stock options not in a qualified plan. In 2003, a substantial number of those options were cancelled and replaced with restricted stock award grants under the Amended and
Restated Omnibus Incentive Plan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

STOCK PERFORMANCE GRAPH

The following graph provides a comparison of LightPaths cumulative total stockholder return with the performance of the NASDAQ Stock Market (U.S.) Index and the NASDAQ Electronic Components Stock Index as a
published industry or line-of-business index. The following graph assumes the investment of $100 on June 30, 2002 in LightPath Common Stock. The NASDAQ Stock Market (U.S.) Indexs and the NASDAQ Electronic Components Stock Indexs
returns assume reinvestment of stock and cash dividends.

Comparison of 5 Year Cumulative Total Returns*

Among LightPath Technologies, Inc., the NASDAQ Stock Market (U.S.) Index

And the NASDAQ Electronic Components Stock Index

LOGO



|                                         |  |        |  |        |  |        |  |        |  |        |  |       
|---------------------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|                                         |  | Jun-02 |  | Jun-03 |  | Jun-04 |  | Jun-05 |  | Jun-06 |  | Jun-07
|LightPath Technologies, Inc.             |  | 100    |  | 316    |  | 683    |  | 333    |  | 451    |  | 542   
|Nasdaq Stock Market (U.S.) Index         |  | 100    |  | 68     |  | 76     |  | 95     |  | 96     |  | 102   
|Nasdaq Electronic Components Stock Index |  | 100    |  | 61     |  | 68     |  | 91     |  | 78     |  | 75    

Item 6. Selected Financial Data

The table below presents portions of our consolidated financial
statements and is not complete. The selected financial data set forth below for the fiscal years ended June 30, 2003 through 2007 are derived from, and are qualified by reference to, our audited consolidated financial statements.



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##### Table of Contents

Fiscal Year ended June 30,



|                                                |  |      |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |         |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------- | -
|In 000s except per share data                  |  | 2007 |        |   | 2006 |   |        | 2005 |  |   | 2004   |   |  | 2003 |       
|Total Revenues                                  |  | $    | 13,352 |   |      | $ | 12,173 |      |  | $ | 11,754 |   |  | $    | 8,332  |   |  | $ | 6,785   |  
|Cost of Sales                                   |  | $    | 10,306 |   |      | $ | 10,119 |      |  | $ | 9,396  |   |  | $    | 6,283  |   |  | $ | 8,149   |  
|Operating Loss                                  |  | $    | (2,677 | ) |      | $ | (3,470 | )    |  | $ | (3,425 | ) |  | $    | (5,973 | ) |  | $ | (19,312 | )
|Net loss                                        |  | $    | (2,615 | ) |      | $ | (3,369 | )    |  | $ | (3,480 | ) |  | $    | (5,598 | ) |  | $ | (21,192 | )
|Basic & Diluted Net Loss per share              |  | $    | (0.58  | ) |      | $ | (0.86  | )    |  | $ | (1.05  | ) |  | $    | (1.98  | ) |  | $ | (8.20   | )
|Number of shares used in per share calculations |  |      | 4,501  |   |      |   | 3,929  |      |  |   | 3,317  |   |  |      | 2,831  |   |  |   | 2,585   |  
|                                                |  |      |        |   |     
|In 000s                                        |  |      |        |   |      |   |        |      |  |   |        |   |  |      |       
|Total Assets                                    |  | $    | 6,628  |   |      | $ | 9,174  |      |  | $ | 7,609  |   |  | $    | 9,681  |   |  | $ | 12,498  |  
|Working Capital                                 |  | $    | 2,573  |   |      | $ | 4,972  |      |  | $ | 4,258  |   |  | $    | 4,593  |   |  | $ | 4,935   |  
|Stockholders Equity                            |  | $    | 4,125  |   |      | $ | 6,430  |      |  | $ | 5,930  |   |  | $    | 7,989  |   |  | $ | 11,181  |  

This information is only a summary and you should read it in conjunction with our historical
consolidated financial statements and related notes to such financial statements and with Managements Discussion and Analysis of Financial Condition and Results of Operations, included elsewhere in this report. Historical results
presented below are not necessarily indicative of the results to be expected for any future fiscal year.

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.

Subsequent Events

In July 2007 we raised gross proceeds of approximately $3.2 million by way of the sale of newly issued common stock and warrants to certain institutional
and private investors. Professional fees of $192,000 were paid netting the proceeds to us of $2,993,000 800,000 shares of common stock were sold at $4.00 per share. The net proceeds from the offering will be utilized for new product
development, equipment expenditures and working capital to support the continued growth of the business. The investors also received warrants with an exercise period of five years beginning on January 26, 2008 for the future purchase of
240,000 shares of our common stock at $5.25 per share. If all of the warrants are ultimately exercised an additional $1.3 million will be raised. Montauk Securities acted as exclusive placement agent and financial advisor. We have 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 of indemnification of the investor for its expenses incurred in connection with
transaction. The demand is based on the investors allegations that we failed to disclose facts material to the investor in making its investment decision, for example alleged omissions related to the termination of the
employment of our Chief Executive Officer and our financial condition, and breached certain representations and warranties set forth in the Securities Purchase Agreement executed with respect to the transaction. We believe there is no
factual basis for the investors claims and have responded to the investor rejecting the demand. We are unable to determine what further action, if any, the investor will take with regard to its claims, including whether the
investor will pursue its claims through litigation, which we would vigorously defend.

A Registration Statement on Form
S-3 will be filed with the Securities and Exchange Commission to register under the Securities Act of 1933 the shares sold in this private placement including the shares issuable upon exercise of the warrants.



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##### Table of Contents

On September 18, 2007 we announced the resignation of our President and Chief Executive Office,
Kenneth Brizel. He also resigned as a director on that date. We also announced the appointment of J. James Gaynor as Interim Chief Executive Officer effective September 18, 2007.

Liquidity and Capital Resources

History: From February 1996 (when our IPO occurred) to fiscal 2001, inclusive, we raised a net total of approximately $86 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. We did not have any equity or debt financing transactions in fiscal 2003; however in fiscal 2006, 2005 and 2004 we raised approximately $3.6 million, $1.0 million and $1.9 million, respectively, from the issuance of
common stock in private placements.

Our optical product markets experienced a severe downturn beginning fiscal 2001, which continued
through fiscal 2003 and resulted in a significant decline in the demand for our products over that period. Beginning in 2004 and continuing in fiscal 2007, we believe that some improvement occurred in demand for our products in several of our
markets. Nevertheless, we did not reach a status of positive cash flow or profitability during fiscal 2007. We have developed our operating plan for fiscal 2008 and forecasted revenues and cash flows. We believe we currently
have adequate financial resources for implementation and achievement of our fiscal 2008 operating plan and to sustain operations as currently conducted in the coming year.

Cash flows: Cash used by operations during fiscal 2007 was approximately $1.9 million, a decrease of approximately $0.1 million from fiscal 2006. During
the course of fiscal 2007, we had one-time expenses of approximately $0.8 million, caused by glass yield issues, overtime for direct labor, travel for engineering and management to resolve issues at our Shanghai facility, and freight and duty
expenses. We anticipate lower glass costs, as we move to suppliers in Asia, by replacing an internally fabricated material with purchased materials, improving our cash flow in future years. Poor glass yield resulted in higher than expected ending
inventory but will be used in future periods.

While progress has been made to reduce operating cash outflow since fiscal 2004, significant
risk and uncertainty remains. Our cash used by operations was approximately $418,000 for the fourth quarter of fiscal 2007. The fiscal 2008 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.

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.

In the event that we find it necessary to raise additional funds to sustain operations and we
are unable to do so, we may need to take such actions as additional restructuring of operations to reduce costs. Should that occur, the realizability of certain assets, especially inventory, property and equipment, intellectual property and other
intangible assets may be such that significant adjustments to our consolidated financial statements would be required.

During fiscal 2007,
we expended approximately $830,000 for capital equipment in comparison to $569,000 during fiscal 2006. The majority of the capital expenditures during fiscal 2007 were related to equipment used to enhance or expand our production capacity. These
capital expenditures did not include the previously contemplated purchase of an anti-reflective coating machine. Management decided to postpone the purchase of the coating machine pending further review. Our operating plan for fiscal
2008 estimates expenditures at lower levels to enhance or expand our capacity, however, we may spend more or less depending on opportunities and circumstances.

In July 2007 we raised gross proceeds of approximately $3.2 million by way of the sale of newly issued common stock and warrants to certain institutional and private investors. Professional fees of $192,000 were
paid netting the proceeds to us of $2,993,000 800,000 shares of common stock were sold at $4.00 per share. The net proceeds from the offering will be utilized for new product development, equipment expenditures and working capital to support
the continued growth of the business. The investors also received warrants with an exercise period of five years beginning on January 26, 2008 for the future purchase of 240,000 shares of our common stock at $5.25 per share. If all of the
warrants are ultimately exercised an additional $1.3 million will be raised. Montauk Securities acted as exclusive placement agent and financial advisor. We have 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 of indemnification of the investor for its expenses incurred in connection with transaction. The demand is based on the investors allegations
that we failed to disclose facts material to the investor in making its investment decision, for example alleged omissions related to the termination of the employment of our Chief Executive Officer and our financial condition, and
breached certain representations and warranties set forth in the Securities Purchase Agreement executed with respect to the transaction. We believe there is no factual basis for the investors claims and have responded to the
investor rejecting the demand. We are unable to determine what further action, if any, the investor will take with regard to its claims, including whether the investor will pursue its claims through litigation, which we
would vigorously defend.



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Key Performance Indicators

How we operate

We have continuing sales of two basic types: occasional sales via ad-hoc purchase
orders of mostly standard product configurations (our turns business) and the more challenging and potentially more rewarding business of customer product development. In this latter type of business we work with a customer to help them
determine optical specifications and even create certain optical designs for them, including complex multi-component designs that we call engineered assemblies. That is followed by sampling them small numbers of the product
for their 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 all of their 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.

Financial indicators that are usually reviewed at the same time include the major elements of the micro-level business cycle:



| |  |  | sales backlog;
| | - |  | --------------



| |  |  | 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:

Going forward, 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 Backlog
|Q4-2007        |  | 6/30/2007  |  | $                              | 1,849,000
|Q3-2007        |  | 3/31/2007  |  | $                              | 2,076,000
|Q2-2007        |  | 12/31/2006 |  | $                              | 2,553,000
|Q1-2007        |  | 9/30/2006  |  | $                              | 4,080,000
|Q4-2006        |  | 6/30/2006  |  | $                              | 4,320,000
|Q3-2006        |  | 3/31/2006  |  | $                              | 3,617,000



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##### Table of Contents

Our Disclosure Backlog at June 30, 2006 was $4.3 million. Comparing fiscal 2007 to fiscal 2006 our
backlog at the end of fiscal 2006 was higher in communications products, due to an increase in orders and higher than normal delinquent delivery rate. Due to market conditions, throughout fiscal 2007 new communications orders were lower. We believe
the downward trend in the Disclosure Backlog was principally caused by a slow down in telecommunications orders in the third and fourth quarter of fiscal year 2007 and we expect it to continue through fiscal 2008.

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. 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) |  | 
| |  | Q4-2007             |  | 6/30/2007  |  | 76          |  | 
| |  | Q3-2007             |  | 3/31/2007  |  | 72          |  | 
| |  | Q2-2007             |  | 12/31/2006 |  | 57          |  | 
| |  | Q1-2007             |  | 9/30/2006  |  | 46          |  | 
| |  | Fiscal 2007 average |  | 63         |  |            
| |  | Q4-2006             |  | 6/30/2006  |  | 58          |  | 
| |  | Q3-2006             |  | 3/31/2006  |  | 51          |  | 
| |  | Q2-2006             |  | 12/31/2005 |  | 80          |  | 
| |  | Q1-2006             |  | 9/30/2005  |  | 87          |  | 
| |  | Fiscal 2006 average |  | 62         |  |            

In comparison, our days cost of sales in inventory at June 30, 2006 was 58, comparing to 76
at June 30, 2007. We believe this upward trend in inventory was principally caused by a build up of inventory in our China facility based in Shanghai. We expect inventory levels to decline through fiscal 2008 as we ship the current inventory on
these orders.

Accounts receivable levels and quality:

Similarly, we manage accounts receivable levels to minimize investment in working capital. We measure the quality of receivables by the proportions of the total that are at various increments past due from our normally extended terms, which
are generally 30 days. The most important aggregate measure of accounts receivable is the quarters ending balance of net accounts receivable expressed as a number of 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) |  | 
| |  | Q4-2007             |  | 6/30/2007  |  | 56         |  | 
| |  | Q3-2007             |  | 3/31/2007  |  | 61         |  | 
| |  | Q2-2007             |  | 12/31/2006 |  | 48         |  | 
| |  | Q1-2007             |  | 9/30/2006  |  | 42         |  | 
| |  | Fiscal 2007 average |  | 52         |  |           
| |  | Q4-2006             |  | 6/30/2006  |  | 53         |  | 
| |  | Q3-2006             |  | 3/31/2006  |  | 66         |  | 
| |  | Q2-2006             |  | 12/31/2005 |  | 52         |  | 
| |  | Q1-2006             |  | 9/30/2005  |  | 62         |  | 
| |  | Fiscal 2006 average |  | 58         |  |           



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##### Table of Contents

---

In comparison, our days sales outstanding
at June 30, 2006 was 53, compared to 56 at June 30, 2007. We plan to monitor our collections efforts to keep this key indicator as low as possible but no higher than 55. We have noticed an increase in DSO as more of our revenues are from
international customers who tend to take longer to pay.

The table below presents certain of our significant contractual obligations as of
June 30, 2007. The operating leases relate to real estate and are commitments that are expensed as paid per the terms of the related contracts.

Contractual Obligations  Payments Due By Period



|                          |  |                        |       |                 |   |           |  |           |     |              |   |     |  |   |     |  |                                               
|------------------------- |  | ---------------------- | ----- | --------------- | - | --------- |  | --------- | --- | ------------ | - | --- |  | - | --- |  | ----------------------------------------------
|(dollars in 000s)        |  | Payments due by period |       | Comments       
|Contractual obligations   |  | Total                  |       | Less than 1year |   | 1-3 years |  | 4-5 years |     | After 5years |  
|Operating lease           |  | $                      | 1,531 |                 | $ | 739       |  | $         | 413 |              | $ | 135 |  | $ | 243 |  | Real estate lease with monthly payments       
|Capital lease             |  |                        | 40    |                 |   | 16        |  |           | 24  |              |   |    |  |   |    |  | Equipment lease with monthly payments         
|Note payable              |  |                        | 445   |                 |   | 167       |  |           | 278 |              |   |    |  |   |    |  | Equipment financing line of credit & term note
|Open purchase obligations |  |                        | 450   |                 |   | 450       |  |           |    |              |   |    |  |   |    |  | Current purchase orders outstanding           
|                          |  |                        |       |                 |   |           |  |           |     |              |   |     |  |   |     |  |                                               
|                          |  | $                      | 2,466 |                 | $ | 1,372     |  | $         | 715 |              | $ | 135 |  | $ | 243 |  |                                               
|                          |  |                        |       |                 |   |           |  |           |     |              |   |     |  |   |     |  |                                               

Year ended June 30, 2007 compared to the year ended June 30, 2006

Consolidated Operations

Our
consolidated revenues totaled $13.4 million for fiscal 2007, an increase of approximately $1.2 million or 10% compared to revenues for fiscal 2006 of $12.2 million. The increase was attributable to increases in sales of aspheric lenses partially
offset by decreases in sales of isolator and collimator product sales. The increase in sales of aspheric lens increases were from across several of the industries that we serve with that product line. In our operating plan for fiscal 2008 we
expected to see continued revenue gains in aspheric lenses while collimators and isolator sales are expected to remain at current levels.

Fiscal 2007 consolidated cost of sales of $10.3 million was approximately 77% of net revenues of $13.4 million, which is a decrease over fiscal 2006 when our cost of sales was approximately 83% of net revenues. This decrease was caused by
several factors. Among them, shifting production volumes of molded optics to our China facility, moving more production to lower cost glass and manufacturing of holders in house. Going forward into fiscal 2008, the emphasis will be continued unit
cost reductions driven by efficient purchasing and more sourcing in China and higher yields due to a more experienced workforce in Shanghai. Over the course of fiscal 2007, as our manufacturing has shifted to Asia, we have reduced our headcount in
Orlando from 149 down to 103. Going further now into first quarter of fiscal 2008 we have reduced Orlando to 88 employees. By moving a majority of our manufacturing to Asia we should be able to eliminate wasted office space within the Orlando
location. We anticipate reducing the space requirements during fiscal 2008 and 2009 by more than 50%, delivering considerable saving in our overhead. Based on this expected decrease in costs our operating plan projects higher gross margin levels in
fiscal 2008 than we achieved in fiscal 2007.

Selling, general and administrative expenses increased by approximately $81,000 to $4.5
million in fiscal 2007 from $4.43 million in fiscal 2006. The increase was primarily due to increased stock compensation expense for stock options and restricted stock issued in October 2006. During fiscal 2007 we have reduced expenses by a
voluntary reduction in executive and board compensation. This is planned to continue into the first half of fiscal 2008. Our operating plan for fiscal 2008 projects business levels that will require selling, general and administrative expenses to
decrease, primarily caused by a reduction in our workforce in Orlando. Our intent is to manage the Orlando workforce size to meet profit and cash flow goals.

New product development costs in fiscal 2007 increased by approximately $134,000 to approximately $1.2 million. This increase was primarily due to increased materials cost and labor for our China engineering staff.
Our operating plan for fiscal 2008 projects some increases in new product development spending in order to support increased quote and customer design activity as well as continued investment in new product projects.



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In fiscal 2007 our amortization of intangibles decreased by approximately $27,000 to approximately
$33,000 from approximately $60,000 in fiscal 2006. This decrease was due to certain of our patents becoming fully amortized in early fiscal 2007.

Interest expense increased by approximately $36,000 to $58,000 of income from approximately $22,000 of expense in fiscal 2006. This is primarily due to a $500,000 equipment line of credit being converted to a three-year note in February
2007.

Other income decreased by approximately $4,000 to $120,000 of income from approximately $124,000 of income in fiscal 2006, due to
interest earned on lower cash balances.

Net loss for fiscal 2007 was approximately $2.6 million compared with $3.4 million in fiscal 2006,
an improvement of approximately $754,000. This $754,000 improvement in the current year was comprised principally of:



| |  |  | Gross margin improvement of $994,000;
| | - |  | -------------------------------------



| |  |  | G&A stock compensation expense increases of $17,000;
| | - |  | ----------------------------------------------------



| |  |  | Higher material costs for new product development of $134,000;
| | - |  | --------------------------------------------------------------



| |  |  | Reduced amortization expense of $27,000.
| | - |  | ----------------------------------------

Year ended June 30, 2006 compared to the year ended June 30, 2005

Consolidated Operations

Our consolidated revenues totaled $12.2 million for fiscal 2006, an increase of approximately $400,000 or 4% compared to revenues for fiscal 2005 of $11.8
million. The increase was attributable to increases in aspheric lenses offset by decreases in isolator and collimator products. The aspheric lens increases were from across several of the industries that we serve with that product line.

Fiscal 2006 consolidated cost of sales of $10.1 million was approximately 83% of net revenues of $12.2 million, which is an increase over fiscal 2005
when our cost of sales was approximately 80% of net revenues. This increase was caused by several factors. Among them, overtime costs to increase production volumes for molded optics, startup costs associated with the Shanghai facility and lower
plant utilization due to product mix changes. Going forward into fiscal 2007, the emphasis will be continued unit cost reductions driven by efficient purchasing and higher yields from statistical process control applications.

Selling, general and administrative expenses increased by approximately $206,000 to $4.4 million in fiscal 2006 from $4.2 million in fiscal 2005. The
increase was primarily due to additional wages and compensation related expenses offset by reductions in depreciation expense, insurance expense and legal fees.

New product development costs in fiscal 2006 were consistent with fiscal 2005 at approximately $1.0 million in fiscal 2006. This modest increase of $53,000 was primarily due to increased outside services and small
tooling costs.

In fiscal 2006 our amortization of intangibles decreased by approximately $520,000 to approximately $60,000 from
approximately $580,000 in fiscal 2005. The most significant component of our identified intangibles subject to amortization relates to the developed technology (molded aspheric lenses) from our acquisition of Geltech in fiscal 2001. That asset was
determined to have a four-year life at the time of the acquisition, which was accounted for by the purchase method. That amortization ended after the first quarter of fiscal 2005.

Other income and expenses increased by approximately $157,000 to $102,000 of income from approximately $55,000 of expense in fiscal 2005. The increase
during fiscal 2006 was partially due to the fact that we entered into a line of credit to fund capital equipment purchases in fiscal 2006.

Net loss for fiscal 2006 was approximately $3.4 million compared with $3.5 million in fiscal 2005, an improvement of approximately $100,000. This $100,000 improvement in the current year was comprised principally of:



| |  |  | Gross margin decrease of $340,000;
| | - |  | ----------------------------------



| |  |  | G&A wage increases of $400,000; and
| | - |  | -----------------------------------



| |  |  | Depreciation and amortization reduction of $900,000.
| | - |  | ----------------------------------------------------

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, valuation of deferred
taxes, revenue recognition and valuation of compensation expense on stock-based awards. 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
Receivable, is calculated by taking 100% of the total of invoices that are over 90 past due from due date and 10% of the total of invoices that are over 60 past due from due date.



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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. We have applied Statement of Financial Accounting Standards No. 151
 Inventory Costs (FAS 151) to our value of inventory. Fixed costs related to excess manufacturing capacity have been expensed in the period not capitalized into inventory. Also unusual or abnormal costs, primarily relating to the start up of
the China facility have been expensed. The inventory obsolesce reserve is calculated by reserving for items that have not been sold in two years or that have not been purchased in two years or of which we have more than a two year supply. We also
reserve 50% for slow moving items within the last 12 months and 25% for low material usage in the last six months.

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.

Revenue is generally recognized from product sales when products are shipped to the customer, provided that LightPath 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 to the customer.

Stock-based compensationis
recognized following the guidelines of SFAS 123 (revised 2004), Share-Based Payment (SFAS 123R). Prior to July 1, 2005, the Company applied the disclosure-only provisions of SFAS 123, Accounting for Stock-Based
Compensation (SFAS 123). In accordance with the provisions of SFAS 123, the Company applied APB 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its plans and,
accordingly, did not recognize compensation expense for these plans because the Company issued options at exercise prices equal to the market value at date of grant.

Effective July 1, 2005, the Company adopted SFAS 123R, which revises SFAS 123 and supersedes APB 25. SFAS 123R requires all share-based payments to employees to be recognized in the financial statements based on
their fair values using an option-pricing model, such as the Black-Scholes model, at the date of grant. SFAS 123R allows the use of either the modified prospective method or the retrospective recognition method. 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. SFAS 123R requires that the Company estimate forfeitures when recognizing compensation expense and that this estimate of forfeitures be adjusted over the requisite service period based on the extent to which actual
forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change, and also impact the amount of unamortized
compensation expense to be recognized in future periods.

Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments  An Amendment of FASB Statements No. 133
and 140, (SFAS 155). SFAS 155 provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in accordance with
SFAS 133. It also allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. SFAS 155 is effective for all financial
instruments acquired, issued, or subject to a remeasurement (new basis) event occurring for fiscal years beginning after September 15, 2006. We believe that the adoption of this standard will not have a significant impact on our financial
statements, results of operations or cash flows.

In September 2006, the FASB issued SFAS No, 157, Fair Value Measurement
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company does not expect the impact of SFAS 157 on its consolidated financial position and results of operations to be material.

In June 2006, the FASB issued FASB Interpretation (FIN No 48 Accounting for Uncertainty in Income Taxes  and interpretation of
FASB Statement 109 (FIN 48). FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a
decision whether to file or not to file in a particular jurisdiction. FIN 48 is effective for the first interim period beginning in fiscal years beginning after December 15, 2006. If there are changes in net assets as a result of application of
FIN 48 those will be accounted for as an adjustment to retained earnings. The Company does not expect the impact of FIN 48 on its consolidated financial position and results of operations to be material.



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##### Table of Contents

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with early
adoption permitted. Management is currently evaluating the effect, if any, the adoption of SFAS 159 will have on the Companys financial statements, results of operations and cash flows.

In December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP EITF 00-19-2).
FSP EITF 00-19-2 specifies that registration payment arrangements should play no part in determining the initial classification and subsequent accounting for the securities to which they relate. FSP EITF 00-19-2 requires the contingent obligation in
a registration payment arrangement to be separately analyzed under SFAS No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimations of the Amount of a Loss. If payment
in a registration payment arrangement is probable and can be reasonably estimated, a liability should be recorded. FSP EITF 00-19-2 is effective for fiscal years beginning after December 15, 2006. Management is currently evaluating the effect
that adoption of this FSP will have on the on the Companys consolidated financial position and results of operations however, we do not believe that the adoption of FSP EITF 00-19-2 will have a material impact on our consolidated financial
statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We invest a portion of our cash
reserves in a money market fund, which invests at least 80% of its net assets in securities issued by the U.S. Treasury and in related repurchase agreements. The money market fund is not protected under the FDIC; however, we have not experienced any
losses in these funds. We do not believe that changes in market interest rates of up to 10% either up or down will have any material effect on our results of operations.

Item 8. Financial Statements and Supplementary Data

See index at page F-1 for the Financial
Statements for each of the years in the three-year period ended June 30, 2007.

Supplementary Quarterly Financial Data (unaudited)

The following table summarizes unaudited, quarterly financial data for fiscal 2007 and fiscal 2006:

(In 000s except per share data)

Fiscal 2007
 Quarters Ended



|                                               |  |              |       |   |             |   |       |          |  |   |         |   |  |           |        |   |  |   |        |  
|---------------------------------------------- |  | ------------ | ----- | - | ----------- | - | ----- | -------- |  | - | ------- | - |  | --------- | ------ | - |  | - | ------ | -
|                                               |  | September 30 |       |   | December 31 |   |       | March 31 |  |   | June 30 |   |  | Full Year |       
|Sales                                          |  | $            | 4,386 |   |             | $ | 3,789 |          |  | $ | 2,900   |   |  | $         | 2,277  |   |  | $ | 13,352 |  
|Gross profit                                   |  | $            | 1,073 |   |             | $ | 1,200 |          |  | $ | 722     |   |  | $         | 51     |   |  | $ | 3,046  |  
|Net loss                                       |  | $            | (455  | ) |             | $ | (344  | )        |  | $ | (520    | ) |  | $         | (1,296 | ) |  | $ | (2,615 | )
|Basic and diluted net loss per share           |  | $            | (0.10 | ) |             | $ | (0.08 | )        |  | $ | (0.12   | ) |  | $         | (0.29  | ) |  | $ | (0.58  | )
|Number of shares used in per share calculation |  |              | 4,479 |   |             |   | 4,493 |          |  |   | 4,506   |   |  |           | 4,506  |   |  |   | 4,501  |  
|                                              
|(In 000s except per share data)               | 
|                                              
|Fiscal 2006  Quarters Ended                   | 
|                                               |  |              |       |   |            
|                                               |  | September 30 |       |   | December 31 |   |       | March 31 |  |   | June 30 |   |  | Full Year |       
|Sales                                          |  | $            | 2,702 |   |             | $ | 2,954 |          |  | $ | 3,107   |   |  | $         | 3,410  |   |  | $ | 12,173 |  
|Gross profit                                   |  | $            | 552   |   |             | $ | 744   |          |  | $ | 309     |   |  | $         | 448    |   |  | $ | 2,053  |  
|Net loss                                       |  | $            | (808  | ) |             | $ | (618  | )        |  | $ | (1,118  | ) |  | $         | (825   | ) |  | $ | (3,369 | )
|Basic and diluted net loss per share           |  | $            | (0.22 | ) |             | $ | (0.17 | )        |  | $ | (0.29   | ) |  | $         | (0.18  | ) |  | $ | (0.86  | )
|Number of shares used in per share calculation |  |              | 3,696 |   |             |   | 3,696 |          |  |   | 3,827   |   |  |           | 4,464  |   |  | $ | 3,929  |  



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The following table summarizes unaudited, product line revenue data for fiscal 2007 and 2006, (in
thousands):



|         |  |                            |        |           |   |            |  |   |    
|-------- |  | -------------------------- | ------ | --------- | - | ---------- |  | - | ---
|         |  | Fiscal 2007  Revenue Data
|         |  | Aspheric                   |        | Isolators |   | Collimator
|Revenues |  | $                          | 10,274 |           | $ | 2,356      |  | $ | 722
|         | 
|         |  | Fiscal 2006  Revenue Data
|         |  | Aspheric                   |        | Isolators |   | Collimator
|Revenues |  | $                          | 8,876  |           | $ | 2,695      |  | $ | 602

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

On
December 12, 2006, our Board of Directors approved the dismissal of its independent registered public accounting firm KPMG LLP (KPMG). KPMG was the principal accountant of our financial statements for the fiscal years ended
June 30, 2006 and 2005. KPMGs report on the financial statements for the fiscal years ended June 30, 2006 and 2005 did not contain an adverse opinion or disclaimer of opinion, nor were they modified or qualified as to uncertainty,
audit scope or accounting principles.

In connection with the audits for the fiscal years ended June 30, 2006 and 2005 and through
December 12, 2006, we had no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, that if not resolved to the satisfaction of KPMG would have caused them to
make reference in connection with their opinion to the subject matter of the disagreement.

As previously reported and as discussed under
Item 9A of our Annual Report on Form 10-K for the year ended June 30, 2006, management identified the following material weaknesses in our internal control over financial reporting: financial reporting issues concerning supervision of the
accounting staff and footnote disclosures for stock based compensation, revenue recognition, inventory and accrued liabilities. Significant deficiencies also were reported in internal controls surrounding our policies and procedures related to
payroll processing and fixed assets. During the year ended June 30, 2007, management made some progress in remediating certain aspects of the deficiencies reported, specifically in the payroll processing and fixed assets. However, other aspects
of the deficiencies reported in inventory and accrued liabilities are still in the remediation process and to continue to constitute material weaknesses and significant deficiencies.

Except for the matters described above, there are no reportable events under Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities
Exchange Act of 1934, as amended (Regulation S-K) that occurred during the fiscal years ended June 30, 2006 and 2005 and through December 12, 2006. Our authorized officer has discussed the material weaknesses described above
with KPMG, and we authorized KPMG to respond fully to the inquiries of Cross, Fernandez & Riley, LLP (CFR) which we engaged as our independent registered public accounting firm, concerning the subject matter of the material
weaknesses and significant deficiencies described above.

On December 12, 2006, the Board of Directors appointed CFR, an independent
member of the BDO Seidman Alliance network of firms, as the new independent public accounting firm to audit our financial statements. There was no discussion between us and CFR regarding the application of accounting principles to specific completed
or contemplated transactions, or the type of audit opinion that might be rendered on our financial statements. Furthermore, no written or oral advice was provided by CFR that was an important factor considered by us in reaching a decision as to any
accounting, auditing or financial reporting issue. We have not consulted with CFR regarding any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions
to this item) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management conducted an evaluation, with the participation of its Chief Executive Officer (CEO) and its Chief Financial Officer (CFO), of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a15(e) and 15d15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of the end of the period covered by this Annual Report on
Form 10K. Based upon that evaluation the CEO and CFO concluded that our disclosure controls and procedures were not effective in reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under
the Exchange Act, because of material weaknesses and significant deficiencies in its internal control over financial reporting as of June 30, 2007, as described below.



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Managements Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of
our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives. Because of its
inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness in internal control
over financial reporting is defined by Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2 as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will not be prevented or detected.

A significant deficiency is
a control deficiency, or combination of control deficiencies, that adversely affects our ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles such that
there is more than a remote likelihood that a misstatement of our annual or interim financial statements that is more than inconsequential will not be prevented or detected.

Inventory

We identified the following material weakness relating to internal controls over
inventory:



| |  |  | Our procedures over identification of obsolete inventory items were not operating effectively during the year. Additional management analysis at year-end
resulted in a material adjustment to write-off obsolete inventory.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We identified the following significant deficiencies
relating to internal controls over inventory:



| |  |  | Our policies and procedures regarding unit of measurement standards in the inventory system were not designed effectively during the year. Audit procedures
discovered that the unit of measure for a significant raw material component was placed into the inventory system incorrectly, resulting in an adjustment to the financial statements. Managements review of inventory and the tag count system in
place are considered compensating controls, but they do not reduce the likelihood of an error to less than remote.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our policies and procedures regarding inventory standard costs were not designed or operating effectively in that updates were not completed throughout the
year to reflect changes in actual prices and freight-in costs were not included in inventory. These differences when aggregated were not significant enough to receive an adjustment to the financial statements. Management review of inventory and
gross margins are considered compensating controls, but they do not reduce the likelihood of an error to less than remote.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Accrued
Liabilities

We identified the following material weakness relating to internal controls over accrued liabilities:



| |  |  | Our procedures used to identify and record certain liabilities were not operating effectively during the year. Audit procedures identified certain accruals
that were overstated including accrued inventory receipt and accrued franchise taxes and an understatement of accrued payroll at year-end. The aggregate of these items resulted in a material adjustment to the financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Information Technology

We identified the following significant deficiency relating to internal controls over information technology:



| |  |  | Our policies and procedures regarding information technology were not designed effectively during the year in that we did not currently maintain back up data
files offsite and do not have a formal disaster recovery plan, which could have a significant effect on our accurate reporting of financial information or have a significant effect on the timely requirements of financial reporting to our
shareholders.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Financial Reporting

We identified the following significant deficiency relating to internal controls over the financial reporting closing process:



| |  |  | Our policies and procedures relating to the financial reporting process did not ensure that financial statements were prepared and reviewed in a timely
manner. Specifically, we had insufficient review of accrued bonuses and monthly cash reconciliations during the year. Management review of financial reports is considered a compensating control, but does not reduce the likelihood of an error to less
than remote.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in Internal Control Over Financial Reporting

There were no changes in internal control over financial reporting during the quarter ended June 30, 2007 that have materially affected, or are
reasonably likely to materially affect the Companys internal control over financial reporting.

Remediation Plan for Material Weaknesses and
Significant Deficiencies in Internal Control over Financial Reporting

Management has concluded that we lacked sufficient controls over
ensuring proper inventory valuation. We are still in the process of reviewing the entire inventory process to determine the cause of the areas of continuing control breakdowns and develop viable long-term solutions. We are also reviewing various
operational and financial responsibilities in an effort to make this process more efficient and create more preventive controls through out the process, including the need to hire additional staff. Additionally, we need to perform a review of all
significant part numbers to ensure accurate bill of materials used in the manufacturing process and appropriate costing of inventory items. We will revamp the process we use to determine obsolete items and will conduct testing for obsolete inventory
on a quarterly basis. We will review cost variances on a regular basis to identify purchase price or unit measure issues in a more timely manner.

Management has also concluded that we lacked sufficient controls over accrued liabilities. We will continue to review the entire purchasing process to determine the cause of the areas of continuing control breakdowns and will develop new
controls to ensure proper cutoff and recording of accrued liabilities particularly those surrounding vendor invoices, accrued payroll and franchise taxes.

Management has also concluded that we lacked sufficient controls over information technology. We are in the process of implementing an off site backup plan and developing a disaster recovery plan.

Management has also concluded that we lacked sufficient controls over financial reporting. We will review the entire monthly close process to ensure that
financial statements are prepared and reviewed in a timely manner. Training on financial reporting and changes in SEC disclosures will be provided to the accounting staff. Since April 2007 the cash reconciliation has been reviewed monthly. We will
develop new controls to ensure proper cutoff and recording of accrued liabilities at month end.

The aforementioned material weaknesses and
significant deficiencies will not be considered remediated until new processes are fully implemented, operate for a sufficient period of time, and we are confident they are operating effectively. Management anticipates that we will report in our
Quarterly Report on Form 10Q for the first quarter of 2008 that material weaknesses in our internal control over inventory continue to exist and that the disclosure controls and procedures will not be effective as of September 30, 2007.
We are committed to finalizing our remediation action plan and implementing the necessary enhancements to our policies and procedures to fully remediate the material weaknesses and significant deficiencies discussed above.



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##### Table of Contents

PART III

Item 10. Directors and Executive Officers of the Registrant.

Except as disclosed under the item
titled Business, Executive Officers in Part I of this report, the information required under this item is incorporated herein by reference to our proxy statement for our 2007 Annual Meeting of Shareholders which is expected to be filed
with the Securities and Exchange Commission not later than 120 days after our end of the fiscal year 2007.

Item 11. Executive Compensation.

The information required under this item is incorporated herein by
reference to will be set forth in our proxy statement for our 2007 Annual Meeting of shareholders which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year 2007.

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

The information required
under this item is incorporated herein by reference to our proxy statement for our 2007 Annual Meeting of shareholders which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year
2007.

Item 13. Certain Relationships and Related Transactions.

The information required under this item is
incorporated herein by reference to our proxy statement for our 2007 Annual Meeting of shareholders which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year 2007.

Item 14. Principal Accountant Fees and Services.

The information required under this item is
incorporated herein by reference to our proxy statement for our 2007 Annual Meeting of shareholders which is expected to be filed with the Securities and Exchange Commission not later than 120 days after the end of our fiscal year 2007.

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, 2007 and 2006

Consolidated Statements of OperationsFor the years ended June 30, 2007, 2006 and 2005

Consolidated Statements of Stockholders EquityFor the years ended June 30, 2007, 2006 and 2005

Consolidated
Statements of Cash FlowsFor the years ended June 30, 2007, 2006 and 2005

Notes to Consolidated Financial Statements



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



|              |  |                                                                                                                                                                                                                  |  |      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|ExhibitNumber |  | Description                                                                                                                                                                                                      |  | Notes
|3.1.1         |  | Certificate of Incorporation of Registrant, filed June 15, 1992 with the Secretary of State of Delaware                                                                                                          |  | 1    
|              |  |                                                                                                                                                                                                                 
|3.1.2         |  | Certificate of Amendment to Certificate of Incorporation of Registrant, filed October 2, 1995 with the Secretary of State of Delaware                                                                            |  | 1    
|              |  |                                                                                                                                                                                                                 
|3.1.3         |  | Certificate of Designations of Class A common stock and Class E-1 common stock, Class E-2 common stock, and Class E-3 common stock of Registrant, filed November 9, 1995 with the Secretary of
State of Delaware |  | 1    
|              |  |                                                                                                                                                                                                                 
|3.1.4         |  | Certificate of Designation of Series A Preferred Stock of Registrant, filed July 9, 1997 with the Secretary of State of Delaware                                                                                 |  | 2    
|              |  |                                                                                                                                                                                                                 
|3.1.5         |  | Certificate of Designation of Series B Stock of Registrant, filed October 2, 1997 with the Secretary of State of Delaware                                                                                        |  | 3    
|              |  |                                                                                                                                                                                                                 
|3.1.6         |  | Certificate of Amendment of Certificate of Incorporation of Registrant, filed November 12, 1997 with the Secretary of State of Delaware                                                                          |  | 3    
|              |  |                                                                                                                                                                                                                 
|3.1.7         |  | Certificate of Designation of Series C Preferred Stock of Registrant, filed February 6, 1998 with the Secretary of State of Delaware                                                                             |  | 4    
|              |  |                                                                                                                                                                                                                 
|3.1.8         |  | Certificate of Designation, Preferences and Rights of Series D Participating Preferred Stock of Registrant filed April 29, 1998 with the Secretary of State of Delaware                                          |  | 5    



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##### Table of Contents

|              |  |                                                                                                                                           |  |      
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | -----
|ExhibitNumber |  | Description                                                                                                                               |  | Notes
|3.1.9         |  | Certificate of Designation of Series F Preferred Stock of Registrant, filed November 2, 1999 with the Secretary of State of Delaware      |  | 6    
|              |  |                                                                                                                                          
|3.1.10        |  | Certificate of Amendment of Certificate of Incorporation of Registrant, filed February 28, 2003 with the Secretary of State of Delaware   |  | 7    
|              |  |                                                                                                                                          
|3.2           |  | Bylaws of Registrant                                                                                                                      |  | 1    
|              |  |                                                                                                                                          
|4.0           |  | Rights Agreement dated May 1, 1998                                                                                                        |  | 5    
|              |  |                                                                                                                                          
|10.1          |  | Directors Compensation Agreement with Amendment dated November 11, 1999 with Robert Ripp                                                  |  | 8    
|              |  |                                                                                                                                          
|10.2          |  | Amended and Restated Omnibus Incentive Plan                                                                                               |  | 9    
|              |  |                                                                                                                                          
|10.3          |  | Merger Agreement dated April 14, 2000 between Registrant and Horizon Photonics, Inc.                                                      |  | 10   
|              |  |                                                                                                                                          
|10.4          |  | Merger Agreement dated August 9, 2000 between Registrant and Geltech, Inc.                                                                |  | 11   
|              |  |                                                                                                                                          
|10.5          |  | Loan Agreement dated January 11, 2006 between Registrant and Regenmacher Holdings, Ltd.                                                   |  | 12   
|              |  |                                                                                                                                          
|10.6          |  | Assured Supply Agreement dated October 24, 2005 between Registrant and Ball Aerospace & Technologies Corp.                                |  | 12   
|              |  |                                                                                                                                          
|10.7          |  | Rights Agreement dated as of May 1, 1998, between Registrant and Continental Stock Transfer & Trust Company                               |  | 13   
|              |  |                                                                                                                                          
|10.8          |  | Securities Purchase Agreement dated as of March 19, 2006, among Registrant, and the selling stockholders signatory thereto                |  | 13   
|              |  |                                                                                                                                          
|10.9          |  | Registration Rights Agreement dated as of March 19, 2006, among Registrant, and the selling stockholders signatory thereto                |  | 13   
|              |  |                                                                                                                                          
|10.10         |  | Form of Common Stock Purchase Warrant dated as of March 19, 2006, issued by LightPath Technologies, Inc., to certain selling stockholders |  | 13   
|              |  |                                                                                                                                          
|10.11         |  | Employee Agreement dated February 14, 2007, among LightPath Technologies, Inc., and its CEO & President                                   |  | 14   
|              |  |                                                                                                                                          
|10.12         |  | Change of Control Agreement dated February 14, 2007, among LightPath Technologies, Inc., and its CEO & President                          |  | 14   
|              |  |                                                                                                                                          
|10.13         |  | Securities Purchase Agreement dated as of July 26, 2007, among Registrant, and the selling stockholders signatory thereto                 |  | 15   
|              |  |                                                                                                                                          
|10.14         |  | Registration Rights Agreement dated as of July 26, 2007, among Registrant, and the selling stockholders signatory thereto                 |  | 15   
|              |  |                                                                                                                                          
|10.15         |  | Form of Common Stock Purchase Warrant dated as of July 26, 2007, issued by LightPath Technologies, Inc., to certain selling stockholders  |  | 15   
|              |  |                                                                                                                                          
|10.16         |  | Amended to Executive Employment Agreement dated as of September 18, 2007, between LightPath Technologies, Inc., and Kenneth Brizel        |  | 16   
|              |  |                                                                                                                                          
|23.1          |  | Consent of Independent Registered Public Accounting Firm                                                                                  |  | *    
|              |  |                                                                                                                                          
|23.2          |  | 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           |  | *    



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##### Table of Contents

---

Notes:



|1. | This exhibit was filed as an exhibit to our Registration Statement on Form SB-2 (File No: 33-80119) filed with the Securities and Exchange Commission on December 7, 1995 and is
incorporated herein by reference thereto.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. | This exhibit was filed as an exhibit to our annual report on Form 10-KSB40 filed with the Securities and Exchange Commission on September 11, 1997 and is incorporated herein by
reference thereto.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | This exhibit was filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 1997 and is incorporated herein by
reference thereto.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | This exhibit was filed as an exhibit to our Registration Statement on Form S-3 (File No. 333-47905) filed with the Securities and Exchange Commission on March 13, 1998 and
is incorporated herein by reference thereto.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | This exhibit was filed as an exhibit to our Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 28, 1998 and is incorporated herein by
reference thereto.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. | This exhibit was filed as an exhibit to our Registration Statement on Form S-3 (File No: 333-94303) filed with the Securities and Exchange Commission on January 10, 2000 and is
incorporated herein by reference thereto.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | This exhibit was filed as an exhibit to our Proxy Statement filed with the Securities and Exchange Commission on January 24, 2003 and is incorporated herein by reference
thereto.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | This exhibit was filed as an exhibit to our annual report on Form 10-KSB filed with the Securities and Exchange Commission on August 31, 2000 and is incorporated herein by
reference thereto.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | 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 Registration Statement on Form S-3 (File No: 333-37622) filed with the Securities and Exchange Commission on May 23, 2000 and is
incorporated herein by reference thereto.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|11. | This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on October 3, 2000 and is incorporated herein by
reference thereto.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|12. | This exhibit was filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on February 14, 2006 and is incorporated herein by
reference thereto.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|13. | This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on March 22, 2006, and is incorporated herein by
reference thereto.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14. | This exhibit was filed as an exhibit to our quarterly report on Form 10-Q filed with the Securities and Exchange Commission on February 14, 2007, and is incorporated herein by
reference thereto.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|15. | This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 26, 2007, and is incorporated herein by
reference thereto.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16. | This exhibit was filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 20, 2007, and is incorporated herein by
reference thereto.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|* | Filed herewith.
|- | ---------------



- 39 -



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##### Table of Contents

Li
ghtPath Technologies, Inc.

Index to Consolidated Financial Statements



|                                                                                                 |  |    
|------------------------------------------------------------------------------------------------ |  | ---
|Report of Independent Registered Public Accounting Firm                                          |  | F-2
|                                                                                                 | 
|Consolidated Financial Statements                                                                |  |    
|Consolidated Balance Sheets as of June 30, 2007 and 2006                                         |  | F-4
|Consolidated Statements of Operations for the years ended June 30, 2007, 2006 and 2005           |  | F-5
|Consolidated Statements of Stockholders Equity for the years ended June 30, 2007, 2006 and 2005 |  | F-6
|Consolidated Statements of Cash Flows for the years ended June 30, 2007, 2006 and 2005           |  | F-7
|Notes to Consolidated Financial Statements                                                       |  | F-8



F-1



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##### Table of Contents

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 as of June 30, 2006, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the years in the two year period ended
June 30, 2006. 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. 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, 2006, and the results of their operations and their cash flows for each of the years in the two year period ended June 30, 2006 in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Certified Public Accountants

Orlando, Florida

September 15, 2006



F-2



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors

LightPath Technologies, Inc.

We have audited the accompanying consolidated balance sheet of LightPath Technologies, Inc., and subsidiaries as of June 30, 2007, and the related consolidated
statements of operations, stockholders equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing our audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of LightPath Technologies, Inc., and subsidiaries as of June 30, 2007, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

/s/ Cross, Fernandez and Riley, LLP

Certified Public
Accountants

Orlando, Florida

September 27, 2007



F-3



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##### Table of Contents

LIGHTPATH TECHNOLOGIES, INC.

Consolidated Balance Sheets



|                                                                                                                                   |  |               |              |   |               |   |              |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------------ | - | ------------- | - | ------------ | -
|                                                                                                                                   |  | June 30, 2007 |              |   | June 30, 2006 |  
|Assets                                                                                                                             |  |               |              |   |               |   |              |  
|Current assets:                                                                                                                    |  |               |              |   |               |   |              |  
|Cash and cash equivalents                                                                                                          |  | $             | 1,291,364    |   |               | $ | 3,763,013    |  
|Trade accounts receivable, net of allowance of $28,968 and $85,800                                                                 |  |               | 1,408,815    |   |               |   | 1,891,024    |  
|Inventories, net                                                                                                                   |  |               | 1,853,324    |   |               |   | 1,876,793    |  
|Prepaid expenses and other assets                                                                                                  |  |               | 220,860      |   |               |   | 145,349      |  
|                                                                                                                                   |  |               |              |   |               |   |              |  
|Total current assets                                                                                                               |  |               | 4,774,363    |   |               |   | 7,676,179    |  
|Property and equipment - net                                                                                                       |  |               | 1,563,250    |   |               |   | 1,172,651    |  
|Intangible assets - net                                                                                                            |  |               | 232,605      |   |               |   | 265,473      |  
|Other assets                                                                                                                       |  |               | 57,306       |   |               |   | 59,731       |  
|                                                                                                                                   |  |               |              |   |               |   |              |  
|Total assets                                                                                                                       |  | $             | 6,627,524    |   |               | $ | 9,174,034    |  
|                                                                                                                                   |  |               |              |   |               |   |              |  
|                                                                                                                                   |  |              
|Liabilities and Stockholders Equity                                                                                               |  |               |              |   |               |   |              |  
|Current liabilities:                                                                                                               |  |               |              |   |               |   |              |  
|Accounts payable                                                                                                                   |  | $             | 1,278,328    |   |               | $ | 1,668,683    |  
|Accrued liabilities                                                                                                                |  |               | 326,525      |   |               |   | 236,501      |  
|Accrued payroll and benefits                                                                                                       |  |               | 413,576      |   |               |   | 514,424      |  
|Note Payable, current portion                                                                                                      |  |               | 166,645      |   |               |   | 270,710      |  
|Capital lease obligation, current portion                                                                                          |  |               | 16,285       |   |               |   | 14,255       |  
|                                                                                                                                   |  |               |              |   |               |   |              |  
|Total current liabilities                                                                                                          |  |               | 2,201,359    |   |               |   | 2,704,573    |  
|                                                                                                                                   |  |               |              |   |               |   |              |  
|Capital lease obligation, excluding current portion                                                                                |  |               | 23,653       |   |               |   | 39,937       |  
|Note payable, excluding current portion                                                                                            |  |               | 277,741      |   |               |   |             |  
|                                                                                                                                   |  |               |              |   |               |   |              |  
|Total liabilities                                                                                                                  |  |               | 2,502,753    |   |               |   | 2,744,510    |  
|                                                                                                                                   |  |              
|Stockholders equity:                                                                                                              |  |               |              |   |               |   |              |  
|Preferred stock: Series D, $.01 par value, voting; 5,000,000 shares authorized; none issued and outstanding                        |  |               |             |   |               |   |             |  
|Common stock: Class A, $.01 par value, voting; 34,500,000 shares authorized; 4,512,543 and 4,468,588 shares issued and
outstanding |  |               | 45,125       |   |               |   | 44,686       |  
|Additional paid-in capital                                                                                                         |  |               | 196,417,217  |   |               |   | 196,064,721  |  
|Foreign currency translation adjustment                                                                                            |  |               | (43,059      | ) |               |   |             |  
|Accumulated deficit                                                                                                                |  |               | (192,294,512 | ) |               |   | (189,679,883 | )
|                                                                                                                                   |  |               |              |   |               |   |              |  
|Total stockholders equity                                                                                                         |  |               | 4,124,771    |   |               |   | 6,429,524    |  
|                                                                                                                                   |  |               |              |   |               |   |              |  
|Total liabilities and stockholders equity                                                                                         |  | $             | 6,627,524    |   |               | $ | 9,174,034    |  
|                                                                                                                                   |  |               |              |   |               |   |              |  

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



F-4



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##### Table of Contents

LIGHTPATH TECHNOLOGIES, INC.

Consolidated Statements of Operations



|                                               |  |                               |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------- |  | ----------------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                               |  | For the Years Ending June 30, |           
|                                               |  | 2007                          |            |   | 2006 |   |            | 2005 | 
|Product sales, net                             |  | $                             | 13,352,048 |   |      | $ | 12,172,587 |      |  | $ | 11,753,968 |  
|Cost of sales                                  |  |                               | 10,306,046 |   |      |   | 10,119,458 |      |  |   | 9,395,935  |  
|                                               |  |                               |            |   |      |   |            |      |  |   |            |  
|Gross margin                                   |  |                               | 3,046,002  |   |      |   | 2,053,129  |      |  |   | 2,358,033  |  
|                                               |  |                               |           
|Operating expenses:                            |  |                               |            |   |      |   |            |      |  |   |            |  
|Selling, general and administrative            |  |                               | 4,515,579  |   |      |   | 4,434,704  |      |  |   | 4,228,342  |  
|New product development                        |  |                               | 1,174,132  |   |      |   | 1,038,390  |      |  |   | 985,357    |  
|Amortization of intangibles                    |  |                               | 32,868     |   |      |   | 59,535     |      |  |   | 580,889    |  
|Gain on sale of equipment                      |  |                               |           |   |      |   | (9,134     | )    |  |   | (11,334    | )
|                                               |  |                               |            |   |      |   |            |      |  |   |            |  
|Total costs and expenses                       |  |                               | 5,722,579  |   |      |   | 5,523,495  |      |  |   | 5,783,254  |  
|                                               |  |                               |            |   |      |   |            |      |  |   |            |  
|Operating loss                                 |  |                               | (2,676,577 | ) |      |   | (3,470,366 | )    |  |   | (3,425,221 | )
|                                               |  |                               |           
|Other income (expense)                         |  |                               |            |   |      |   |            |      |  |   |            |  
|Interest expense                               |  |                               | (58,442    | ) |      |   | (22,292    | )    |  |   | (99,489    | )
|Investment and other income                    |  |                               | 120,390    |   |      |   | 123,777    |      |  |   | 44,905     |  
|                                               |  |                               |            |   |      |   |            |      |  |   |            |  
|Net loss                                       |  | $                             | (2,614,629 | ) |      | $ | (3,368,881 | )    |  | $ | (3,479,805 | )
|                                               |  |                               |            |   |      |   |            |      |  |   |            |  
|Loss per share (basic and diluted)             |  | $                             | (0.58      | ) |      | $ | (0.86      | )    |  | $ | (1.05      | )
|                                               |  |                               |            |   |      |   |            |      |  |   |            |  
|Number of shares used in per share calculation |  |                               | 4,500,853  |   |      |   | 3,929,132  |      |  |   | 3,316,560  |  
|                                               |  |                               |            |   |      |   |            |      |  |   |            |  

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



F-5



---

##### Table of Contents

LIGHTPATH TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years ended June 30, 2007, 2006 and 2005



|                                                                    |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   |            |  
|------------------------------------------------------------------- |  | -------------------- |  | ------------------------- | ------ |  | ------------------ | ----------- | - | ------------------------------------ | - | ------------ | -------------------- |  | - | ------------------------ | - |  | - | -------- | - |  | - | ---------- | -
|                                                                    |  | Class A Common Stock |  | AdditionalPaid-in Capital |        |  | AccumulatedDeficit |             |   | ForeignCurrencyTranslationAdjustment |   |              | UnearnedCompensation |  |   | TotalStockholdersEquity |  
|                                                                    |  | Shares               |  | Amount                    |        |  |                    |             |  
|Balances at June 30, 2004                                           |  | 3,222,549            |  | $                         | 32,226 |  | $                  | 190,986,547 |   |                                      | $ | (182,831,197 | )                    |  | $ |                         |   |  | $ | (198,857 | ) |  | $ | 7,988,719  |  
|Issuance of common stock                                            |  | 350,000              |  |                           | 3,500  |  |                    | 981,937     |   |                                      |   |             |                      |  |   |                          |   |  |   |         |   |  |   | 985,437    |  
|Exercise of stock options                                           |  | 781                  |  |                           | 8      |  |                    | 1,016       |   |                                      |   |             |                      |  |   |                          |   |  |   |         |   |  |   | 1,024      |  
|Issuance of restricted stock awards, net of vesting and forfeitures |  | 122,314              |  |                           | 1,222  |  |                    | 456,830     |   |                                      |   |              |                      |  |   |                          |   |  |   | (458,052 | ) |  |   |           |  
|Stock based compensation                                            |  |                     |  |                           |       |  |                    |            |   |                                      |   |              |                      |  |   |                          |   |  |   | 434,679  |   |  |   | 434,679    |  
|Net Loss                                                            |  |                     |  |                           |       |  |                    |            |   |                                      |   | (3,479,805   | )                    |  |   |                          |   |  |   |         |   |  |   | (3,479,805 | )
|                                                                    |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   |            |  
|                                                                    |  |                      |  |                           |        |  |                   
|Balances at June 30, 2005                                           |  | 3,695,644            |  | $                         | 36,956 |  | $                  | 192,426,330 |   |                                      | $ | (186,311,002 | )                    |  | $ |                         |   |  | $ | (222,230 | ) |  | $ | 5,930,054  |  
|Adoption of FAS 123R                                                |  |                     |  |                           |       |  |                    | (222,230    | ) |                                      |   |              |                      |  |   |                          |   |  |   | 222,230  |   |  |   |           |  
|Private placement of common stock                                   |  | 730,000              |  |                           | 7,300  |  |                    | 3,573,756   |   |                                      |   |             |                      |  |   |                          |   |  |   |         |   |  |   | 3,581,056  |  
|Exercise of stock options                                           |  | 8,749                |  |                           | 88     |  |                    | 7,399       |   |                                      |   |             |                      |  |   |                          |   |  |   |         |   |  |   | 7,487      |  
|Cashless exercise of warrants                                       |  | 34,195               |  |                           | 342    |  |                    | (342        | ) |                                      |   |             |                      |  |   |                         |   |  |   |         |   |  |   |           |  
|Stock based compensation                                            |  |                     |  |                           |       |  |                    | 279,808     |   |                                      |   |             |                      |  |   |                          |   |  |   |         |   |  |   | 279,808    |  
|Net Loss                                                            |  |                     |  |                           |       |  |                    |            |   |                                      |   | (3,368,881   | )                    |  |   |                          |   |  |   |         |   |  |   | (3,368,881 | )
|                                                                    |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   |            |  
|                                                                    |  |                      |  |                           |        |  |                   
|Balances at June 30, 2006                                           |  | 4,468,588            |  | $                         | 44,686 |  | $                  | 196,064,721 |   |                                      | $ | (189,679,883 | )                    |  | $ |                         |   |  | $ |         |   |  | $ | 6,429,524  |  
|Issuance of common stock                                            |  | 17,720               |  |                           | 177    |  |                    | 43,200      |   |                                      |   |             |                      |  |   |                         |   |  |   |         |   |  |   | 43,377     |  
|Exercise of stock options                                           |  | 3,735                |  |                           | 37     |  |                    | 12,772      |   |                                      |   |             |                      |  |   |                         |   |  |   |         |   |  |   | 12,809     |  
|Issuance of restricted stock awards, net of vesting and forfeitures |  | 22,500               |  |                           | 225    |  |                    | (225        | ) |                                      |   |             |                      |  |   |                         |   |  |   |         |   |  |   |           |  
|Stock based compensation                                            |  |                      |  |                           |        |  |                    | 296,749     |   |                                      |   |             |                      |  |   |                         |   |  |   |         |   |  |   | 296,749    |  
|Comprehensive loss:                                                 |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   |            |  
|Foreign currency translation adjustment                             |  |                      |  |                           |        |  |                    |             |   |                                      |   |             |                      |  |   | (43,059                  | ) |  |   |         |   |  |   | (43,059    | )
|Net Loss                                                            |  |                      |  |                           |        |  |                    |             |   |                                      |   | (2,614,629   | )                    |  |   |                         |   |  |   |         |   |  |   | (2,614,629 | )
|                                                                    |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   |            |  
|Comprehensive loss                                                  |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   | (2,657,688 | )
|                                                                    |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   |            |  
|                                                                    |  | 4,512,543            |  | $                         | 45,125 |  | $                  | 196,417,217 |   |                                      | $ | (192,294,512 | )                    |  | $ | (43,059                  | ) |  | $ |         |   |  | $ | 4,124,771  |  
|                                                                    |  |                      |  |                           |        |  |                    |             |   |                                      |   |              |                      |  |   |                          |   |  |   |          |   |  |   |            |  

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





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##### Table of Contents

LIGHTPATH TECHNOLOGIES, INC.

Consolidated Statements of Cash Flows



|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------------------- |  | ------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                            |  | Year Ended June 30, |           
|                                                                            |  | 2007                |            |   | 2006 |   |            | 2005 | 
|Cash flows due to operating activities                                      |  |                     |            |   |      |   |            |      |  |   |            |  
|Net loss                                                                    |  | $                   | (2,614,629 | ) |      | $ | (3,368,881 | )    |  | $ | (3,479,805 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                     |            |   |      |   |            |      |  |   |            |  
|Depreciation and amortization                                               |  |                     | 472,222    |   |      |   | 791,147    |      |  |   | 1,669,724  |  
|Foreign exchange translation adjustment                                     |  |                     | (43,059    | ) |      |   |           |      |  |   |           |  
|Gain on sale of equipment                                                   |  |                     |           |   |      |   | (9,134     | )    |  |   | (11,334    | )
|Stock based compensation                                                    |  |                     | 296,749    |   |      |   | 279,808    |      |  |   | 434,679    |  
|Provision for (recovery from) doubtful accounts receivable                  |  |                     | 56,832     |   |      |   | 90,200     |      |  |   | (138,887   | )
|Changes in operating assets and liabilities:                                |  |                     |            |   |      |   |            |      |  |   |            |  
|Trade receivables                                                           |  |                     | 539,041    |   |      |   | (524,612   | )    |  |   | 479,388    |  
|Inventories                                                                 |  |                     | 23,469     |   |      |   | (135,299   | )    |  |   | (361,693   | )
|Prepaid expenses and other assets                                           |  |                     | (73,086    | ) |      |   | 82,564     |      |  |   | 279,658    |  
|Accounts payable and accrued expenses including payroll                     |  |                     | (401,179   | ) |      |   | 807,424    |      |  |   | 68,921     |  
|Accrued severence and exit costs                                            |  |                     |           |   |      |   |           |      |  |   | (41,276    | )
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|Net cash used in operating activities                                       |  |                     | (1,857,304 | ) |      |   | (1,986,783 | )    |  |   | (1,100,625 | )
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|                                                                            |  |                     |           
|Cash flows due to investing activities                                      |  |                     |            |   |      |   |            |      |  |   |            |  
|Property and equipment purchases                                            |  |                     | (829,953   | ) |      |   | (569,432   | )    |  |   | (133,625   | )
|Proceeds from sale of assets                                                |  |                     |           |   |      |   | 9,915      |      |  |   | 112,627    |  
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|Net cash used in investing activities                                       |  |                     | (829,953   | ) |      |   | (559,517   | )    |  |   | (20,998    | )
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|                                                                            |  |                     |           
|Cash flows due to financing activities                                      |  |                     |            |   |      |   |            |      |  |   |            |  
|Proceeds from sale of common stock/exercise of stock options                |  |                     | 56,186     |   |      |   | 7,487      |      |  |   | 986,462    |  
|Proceeds from private placement of common stock, net of expenses            |  |                     |           |   |      |   | 3,581,056  |      |  |   |           |  
|Payments on note payable                                                    |  |                     | (55,548    | ) |      |   |           |      |  |   |           |  
|Borrowings on note payable                                                  |  |                     | 229,224    |   |      |   | 270,710    |      |  |   |           |  
|Proceeds (Payments) on capital lease obligations                            |  |                     | (14,254    | ) |      |   | (12,480    | )    |  |   | 66,672     |  
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|Net cash provided by financing activities                                   |  |                     | 215,608    |   |      |   | 3,846,773  |      |  |   | 1,053,134  |  
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|                                                                            |  |                     |           
|Increase (Decrease) in cash and cash equivalents                            |  |                     | (2,471,649 | ) |      |   | 1,300,473  |      |  |   | (68,489    | )
|                                                                            |  |                     |           
|Cash and cash equivalents, beginning of period                              |  |                     | 3,763,013  |   |      |   | 2,462,540  |      |  |   | 2,531,029  |  
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|Cash and cash equivalents, end of period                                    |  | $                   | 1,291,364  |   |      | $ | 3,763,013  |      |  | $ | 2,462,540  |  
|                                                                            |  |                     |            |   |      |   |            |      |  |   |            |  
|Supplemental disclosure of cash flow information:                           |  |                     |            |   |      |   |            |      |  |   |            |  
|Cash paid for Interest                                                      |  | $                   | 21,157     |   |      | $ | 22,292     |      |  | $ | 7,163      |  

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



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LightPath Technologies, Inc.

Notes to Consolidated Financial Statements

June 30, 2007 and 2006

1. Organization and History; Liquidity Matters

Organization and History

LightPath Technologies, Inc. (LightPath or the Company) was incorporated in Delaware in 1992 as 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 and 2006 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.

Liquidity Matters

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 2007,
management believes that some improvement occurred in demand for the Companys products in several of its markets. Nevertheless, the Company did not reach a status of positive cash flow or profitability during this fiscal year. Management has
developed our operating plan for fiscal 2008 and believes the Company has adequate financial resources for achievement of that plan and to sustain operation 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 has a cash balance of approximately $1.3 million at June 30, 2007, as described in more detail in Note 16, in July 2007 the Company
raised approximately $3.2 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.

Cash flows: Cash used by operations during fiscal 2007 was approximately $1.9 million, a decrease of approximately $0.1 million from fiscal 2006.
Throughout fiscal 2007, on a comparative basis to 2006, the Company reduced its cash expenditures through the reductions in insurance, professional services, and telecommunication costs. Cash use was also favorably affected in fiscal 2007 by an
increase in gross margin.

While progress had been made to reduce operating cash outflow over the last four years, significant risk and
uncertainty remains. The Companys cash used is operations was approximately $418,000 for the fourth quarter of fiscal 2007. The fiscal 2008 operating plan and related financial projections we have developed anticipate continued sales growth
and continuing 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.

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.

During fiscal 2007, capital expenditures were $830,000 in
comparison to $569,000 during fiscal 2006. The majority of the capital expenditures during fiscal 2007 were related to equipment used to enhance or expand production capacity at our Shanghai location. The Companys operating plan for fiscal
2008 estimates expenditures at lower levels to enhance or expand capacity, however, spending may be more or less depending on opportunities and circumstances.

2. Summary of Significant Accounting Policies

Condensed consolidated financial statements include the
accounts of the Company, and its wholly owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.



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##### Table of Contents

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 but taking 100% of the total of invoices that are over 90 past due from due date
and 10% of the total of invoices that are over 60 past due from due date.

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. We have applied Statement of Financial
Accounting Standards No. 151  Inventory Costs (FAS 151) to our value of inventory. Fixed costs related to excess manufacturing capacity have been expensed in the period not capitalized into inventory. Also unusual or abnormal costs, primarily
relating to the start up of the China facility have been expensed. The inventory obsolesce reserve is calculated by reserving for items that have not been sold in two years or that have not been purchased in two years or of which we have more than a
two year supply. We also reserve 50% for slow moving items within the last 12 months and 25% for low material usage in 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 seven 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 (SFAS) No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. 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, trademarks, and others, are recorded at cost. Upon issuance of the license, patent or trademark, these assets are being
amortized on the straight-line basis over the estimated useful life of the related assets ranging from two to seventeen years.

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.

Revenue is generally recognized from product sales when products are shipped to the customer, provided that LightPath 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 to the customer.

Sales to Santur
were approximately $1.8 million and $1.2 million, which represents 14% and 10% of net revenues for the years ended June 30, 2007 and 2006, respectively. Sales to T-Networks were approximately $1.6 million and $1.4 million, which represents 12%
and 11% of net revenues for the years ended June 30, 2007 and 2006, respectively. During fiscal 2007 Intel moved their production to a subcontractor whom is a customer of ours. Adding the sales of the subcontractor and Intel together, they
would be at 10% of revenues.

New product development costs are expensed as incurred.

Stock-based compensationis recognized following the guidelines of SFAS 123 (revised 2004), Share-Based Payment (SFAS 123R). Prior to July 1, 2005, the Company applied the
disclosure-only provisions of SFAS 123, Accounting for Stock-Based Compensation (SFAS 123). In accordance with the provisions of SFAS 123, the Company applied APB 25, Accounting for Stock Issued to Employees (APB
25) and related interpretations in accounting for its plans and, accordingly, did not recognize compensation expense for these plans because the Company issued options at exercise prices equal to the market value at date of grant.

Effective July 1, 2005, the Company adopted SFAS 123R, which revises SFAS 123 and supersedes APB 25. SFAS 123R requires all share-based payments to employees to
be recognized in the financial statements based on their fair values using an option-pricing model, such as the Black-Scholes model, at the date of grant. SFAS 123R allows the use of either the modified prospective method or the retrospective
recognition method. 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. SFAS 123R requires that the Company estimate forfeitures when recognizing compensation expense and that this estimate of forfeitures be adjusted over the requisite service
period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up adjustment, which is recognized in the period of change, and
also impact the amount of unamortized compensation expense to be recognized in future periods. See Note 9share based payments arrangements.



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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.

Fair values of financial instruments of the Company are disclosed as required by Statement of Financial Accounting Standards
No. 107,Disclosures about Fair Values of Financial Instruments.The carrying amounts of cash and cash equivalents, trade accounts receivable, accounts payable, accrued liabilities, notes payable and capital leases approximate fair
value.

Comprehensive 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, and is included on the statement of stockholders equity. Our comprehensive loss consists of the foreign currency translation adjustment. For more information see Note 15foreign operations.

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

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments  An Amendment of FASB
Statements No. 133 and 140, (SFAS 155). SFAS 155 provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in
accordance with SFAS 133. It also allows an entity to make an irrevocable election to measure such a hybrid financial instrument at fair value in its entirety, with changes in fair value recognized in earnings. SFAS 155 is effective for all
financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring for fiscal years beginning after September 15, 2006. We believe that the adoption of this standard will not have a significant impact on our financial
statements, results of operations or cash flows.

In September 2006, the FASB issued SFAS No, 157, Fair Value Measurement
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company does not expect the impact of SFAS 157 on its consolidated financial position and results of operations to be material.

In June 2006, the FASB issued FASB Interpretation (FIN No 48 Accounting for Uncertainty in Income Taxes  and interpretation of
FASB Statement 109 (FIN 48). FIN 48 prescribes a comprehensive model for recognizing, measuring, presenting and disclosing in the financial statements tax positions taken or expected to be taken on a tax return, including a
decision whether to file or not to file in a particular jurisdiction. FIN 48 is effective for the first interim reporting period beginning in fiscal years beginning after December 15, 2006. If there are changes in net assets as a result of
application of FIN 48 those will be accounted for as an adjustment to retained earnings. The Company does not expect the impact of FIN 48 on its consolidated financial position and results of operations to be material.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (SFAS 159).
SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. Management is currently
evaluating the effect, if any, the adoption of SFAS 159 will have on the Companys financial statements, results of operations and cash flows.

In
December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that registration payment arrangements should play no
part in determining the initial classification and subsequent accounting for the securities to which they relate. FSP EITF 00-19-2 requires the contingent obligation in a registration payment arrangement to be separately analyzed under SFAS
No. 5, Accounting for Contingencies, and FASB Interpretation No. 14, Reasonable Estimations of the Amount of a Loss. If payment in a registration payment arrangement is probable and can be reasonably
estimated, a liability should be recorded. FSP EITF 00-19-2 is effective for fiscal years beginning after December 15, 2006. Management is currently evaluating the effect that adoption of this FSP will have on the on the Companys
consolidated financial position and results of operations however, we do not believe that the adoption of FSP EITF 00-19-2 will have a material impact on our consolidated financial statements.



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3. Inventories

The components of inventories include the following:



|                      |  |               |           |   |               |   |           |  
|--------------------- |  | ------------- | --------- | - | ------------- | - | --------- | -
|                      |  | June 30, 2007 |           |   | June 30, 2006 |  
|Raw material          |  | $             | 744,667   |   |               | $ | 905,093   |  
|Work in Process       |  |               | 926,447   |   |               |   | 908,700   |  
|Finished Goods        |  |               | 301,345   |   |               |   | 162,674   |  
|Reserve for obsolesce |  |               | (119,135  | ) |               |   | (99,674   | )
|                      |  |               |           |   |               |   |           |  
|                      |  | $             | 1,853,324 |   |               | $ | 1,876,793 |  
|                      |  |               |           |   |               |   |           |  

4. Property and Equipment  net

Property and equipment consist of the following at June 30:



|                                               |  |                       |  |               |           |               |   |          
|---------------------------------------------- |  | --------------------- |  | ------------- | --------- | ------------- | - | ---------
|                                               |  | EstimatedLife (Years) |  | June 30, 2007 |           | June 30, 2006
|Manufacturing equipment                        |  | 5                     |  | $             | 6,529,841 |               | $ | 5,728,094
|Computer equipment and software                |  | 3-5                   |  |               | 603,061   |               |   | 591,159  
|Furniture and fixtures                         |  | 5                     |  |               | 190,331   |               |   | 180,035  
|Platinum molds                                 |  | 5                     |  |               | 44,100    |               |   | 44,100   
|Leasehold improvements                         |  | 7                     |  |               | 718,156   |               |   | 714,833  
|                                               |  |                       |  |               |           |               |   |          
|Total Property and Equipment                   |  |                       |  |               | 8,085,489 |               |   | 7,258,221
|                                               |  |                       | 
|Less accumulated depreciation and amortization |  |                       |  |               | 6,522,239 |               |   | 6,085,570
|                                               |  |                       |  |               |           |               |   |          
|Total property and equipment, net              |  |                       |  | $             | 1,563,250 |               | $ | 1,172,651
|                                               |  |                       |  |               |           |               |   |          

Assets under capital lease totaled $166,959 as of June 30, 2007 and had related accumulated
depreciation of $126,534.



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5. Intangible Assets  net

Intangible assets consist of the following at June 30:

Amortization expense related to intangible assets totaled approximately $33,000 and $60,000 during the fiscal years ended June 30, 2007 and 2006, respectively.



|                               |  |               |  |      |            |   |      |   |            |  
|------------------------------ |  | ------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                               |  | Life In years |  | 2007 |            |   | 2006 |  
|Patents and trademarks granted |  | 2-5           |  | $    | 2,860,000  |   |      | $ | 2,860,000  |  
|Other intangibles              |  | 10  17       |  |      | 621,301    |   |      |   | 621,301    |  
|                               |  |               |  |      |            |   |      |   |            |  
|                               |  |               |  |      | 3,481,301  |   |      |   | 3,481,301  |  
|Accumulated amortization:      |  |               |  |      |            |   |      |   |            |  
|Patents and trademarks granted |  |               |  |      | (2,860,000 | ) |      |   | (2,860,000 | )
|Other intangibles              |  |               |  |      | (388,696   | ) |      |   | (355,828   | )
|                               |  |               |  |      |            |   |      |   |            |  
|Total accumulated amortization |  |               |  |      | (3,248,696 | ) |      |   | (3,215,828 | )
|                               |  |               |  |      |            |   |      |   |            |  
|Total intangible assets  net  |  |               |  | $    | 232,605    |   |      | $ | 265,473    |  
|                               |  |               |  |      |            |   |      |   |            |  

The amount of the June 30, 2007, net intangible asset value to be amortized over each of the
next five years and beyond follows:



|     |        |      |   |        |  |      |        |      |   |        |  |   |        |  |   |       
|---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------ |  | - | ------ |  | - | ------
|2008 |        | 2009 |   | 2010   |  | 2011 |        | 2012 |   | Beyond
|$    | 32,868 |      | $ | 32,868 |  | $    | 32,868 |      | $ | 32,868 |  | $ | 32,868 |  | $ | 68,265

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 $39,938 as of June 30, 2007. 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 a
line of credit and converted to a note payable the earlier of January 2007 or when 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 thirty-six
monthly payments 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 $444,386 as of June 30, 2007 of which $166,645 matures in 2008, $166,645
in 2009 and $111,096 in 2010. Lease payments are secured by the equipment purchased under the lease agreement.

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 34,500,000 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.

On June 1, 2005, the Company completed a private placement of an aggregate of 350,000 shares of the Companys
Class A common stock, $0.01 par value (the common stock), and warrants to purchase 140,000 shares of common stock (the Warrants), to two investors for aggregate gross cash proceeds to the Company of $1,050,200.
Professional fees of $64,763 were paid netting the proceeds to the Company of $985,437. No underwriting discounts or commissions were paid. The sales of securities were made pursuant to the terms of a Unit Subscription Agreement dated June 1,
2005, among the Company and the investors. The price per



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##### Table of Contents

share of common stock in the private placement was $3.00, and the closing sale price of the common stock on the Nasdaq NCM on June 1, 2005, was $2.56.
The Warrants were sold in the private placement for an aggregate price of $200.00, and they have a five-year term and are exercisable by the investors, after March 1, 2006, at a warrant exercise price of $4.30 per share. The Company could
receive an additional $602,000 if all of the Warrants are ultimately exercised. The Company utilized the proceeds of the private placement for working capital and general corporate purposes.

In March 2006 the Company raised gross proceeds of approximately $3.8 million by way of the sale of newly issued common stock to certain institutional
and private investors. Professional fees of $251,445 were paid netting the proceeds to the Company of $3,581,056. This round of financing was lead by Iroquois Master Fund Ltd. who purchased 30,000 shares of the 730,000 shares of common stock sold at
$5.25 per share. The net proceeds from the offering will be utilized for new product development, equipment expenditures and working capital to support the continued growth of the business. The investors also received warrants with an exercise
period of five years beginning on September 20, 2006 for the future purchase of 219,000 shares of the Companys common stock at $7.41 per share. If all of the warrants are ultimately exercised an additional $1.5 million will be raised.
Dawson James Securities acted as exclusive placement agent and financial advisor. A Registration Statement on Form S-3 was filed with the Securities and Exchange Commission on May 3, 2006 to register under the Securities Act of 1933 the shares
sold in this private placement including the shares issuable upon exercise of the warrants.

Preferred StockThe Companys
preferred stock consists of the following: Authorized 5,000,000 shares of Series D preferred stock, $.01 par value. Certain stockholders have the right to purchase Series D preferred stock, if an unrelated party acquires more than 20% of the
Companys stock. These rights expire in 2008. There were no shares issued as of June 30, 2007.

Warrants

Class C and Class E warrants were issued in connection with the private placements of Series A and Series B Convertible Preferred Stock. Of the total
Class C and Class E warrants which were granted to the preferred stockholders, the 1,412 which remained outstanding at June 30, 2004, which entitled the holder to purchase one share of Class A common stock each at a weighted average
exercise price of $39.83 expired November 29, 2004.

Other warrants 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
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | warrants to purchase up to 110,000 shares of Class A common stock at $4.30 per share at any time through February 23, 2009 in connection with a private
placement financing in fiscal 2004, these 104,360 warrants were exercised in January 2006 using a cash less exercise option. This leaves a remaining balance of 5,640 warrants
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table provides information on warrants during fiscal 2007, 2006, and
2005.



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##### Table of Contents

|                                                                    |  |                        |   |  |                |  
|------------------------------------------------------------------- |  | ---------------------- | - |  | -------------- | -
|                                                                    |  | Warrants               |  
|                                                                    |  | PreferredClass C and E |   |  | Class A Common |  
|Outstanding                                                         |  |                        |   |  |                |  
|June 30, 2004                                                       |  | 1,412                  |   |  | 245,156        |  
|Expiration of unexercised warrants                                  |  | (1,412                 | ) |  |               |  
|Issuance of warrants in connection with private placement financing |  |                       |   |  | 140,000        |  
|                                                                    |  |                        |   |  |                |  
|June 30, 2005                                                       |  |                       |   |  | 385,156        |  
|                                                                    |  |                       
|Cashless exercise of warrants                                       |  |                       |   |  | (104,360       | )
|Issuance of warrants in connection with private placement financing |  |                       |   |  | 219,000        |  
|                                                                    |  |                        |   |  |                |  
|June 30, 2006 and 2007                                              |  |                       |   |  | 499,796        |  
|                                                                    |  |                        |   |  |                |  

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,
2007, 2006, and 2005. 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:



|                                            |  |      |             |   |      |   |             |      |  |   |             |  
|------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                            |  | 2007 |             |   | 2006 |   |             | 2005 | 
|Deferred tax assets:                        |  |      |             |   |      |   |             |      |  |   |             |  
|Net operating loss and credit carryforwards |  | $    | 36,464,000  |   |      | $ | 35,991,000  |      |  | $ | 34,660,000  |  
|Stock-based compensation                    |  |      | 6,823,000   |   |      |   | 6,712,000   |      |  |   | 6,606,000   |  
|Capital Loss and R&D credits                |  |      | 1,255,000   |   |      |   | 1,139,000   |      |  |   | 941,000     |  
|Research and development expenses           |  |      | 2,150,000   |   |      |   | 2,364,000   |      |  |   | 2,341,000   |  
|Inventory                                   |  |      | 89,000      |   |      |   | 69,000      |      |  |   | 394,000     |  
|Accrued expenses and other                  |  |      | 2,840,000   |   |      |   | 2,257,000   |      |  |   | 2,224,000   |  
|                                            |  |      |             |   |      |   |             |      |  |   |             |  
|Gross deferred tax assets                   |  |      | 49,621,000  |   |      |   | 48,532,000  |      |  |   | 47,166,000  |  
|Valuation allowance for deferred tax assets |  |      | (49,511,000 | ) |      |   | (48,249,000 | )    |  |   | (46,857,000 | )
|                                            |  |      |             |   |      |   |             |      |  |   |             |  
|Total deferred tax assets                   |  |      | 110,000     |   |      |   | 283,000     |      |  |   | 309,000     |  
|Deferred tax liabilities:                   |  |      |             |   |      |   |             |      |  |   |             |  
|Intangible assets                           |  |      |            |   |      |   | (188,000    | )    |  |   | (223,000    | )
|Depreciation and other                      |  |      | (110,000    | ) |      |   | (95,000     | )    |  |   | (86,000     | )
|                                            |  |      |             |   |      |   |             |      |  |   |             |  
|Total deferred tax liabilities              |  |      | (110,000    | ) |      |   | (283,000    | )    |  |   | (309,000    | )
|                                            |  |      |             |   |      |   |             |      |  |   |             |  
|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.



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##### Table of Contents

In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $97 million prior to the
expiration of net operating loss carry-forwards in 2008 through 2026. Based on the level of historical taxable income, management has provided for a valuation adjustment against the deferred tax assets.

At June 30, 2007, the Company has net operating loss carry forwards for Federal income tax purposes of approximately $97 million, which will expire
from 2008 through 2025, if not utilized. The Company also has research and development credit carry forwards of approximately $1,162,000, which will expire beginning in 2023, 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

OverviewEffective July 1, 2005 (fiscal 2006), the Company adopted the provisions of SFAS No. 123R, Share-Based Payment (SFAS 123R). SFAS 123R establishes generally accepted
accounting principles for stock-based awards exchanged for employee services. Under 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 previously applied APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations and provided the required pro forma disclosures of SFAS
No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under SFAS 123R, the Company elected to adopt the modified prospective application method as its transition method. 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, 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. In accordance with this
method of adoption, the Companys results of operations and financial position for prior periods have not been restated.

Share-based Payment
ArrangementsAt July 1, 2005, the Companys Amended and Restated Omnibus Incentive Plan (the Plan) includes several available forms of stock compensation of which only non-qualified stock options and restricted stock
unit (RSU) awards have been granted to date. The Company has also issued stock options under a separate non-qualified plan. In 2003, a substantial number of those options were cancelled and replaced with restricted stock award grants
under the Plan. At June 30, 2007, there were options remaining for 5,000 shares still outstanding that were not issued in a qualified plan.

These
three plans are summarized below:



|                                            |  |                   |  |                                      |  |                                     
|------------------------------------------- |  | ----------------- |  | ------------------------------------ |  | ------------------------------------
|Equity Compensation Arrangement             |  | OptionsAuthorized |  | Options Outstanding at June 30, 2007 |  | Available forIssuance atJune 30,2007
|Amended and Restated Omnibus Incentive Plan |  | 915,625           |  | 517,630                              |  | 42,110                              
|Non Qualified Plan                          |  | 5,000             |  | 5,000                                |  |                                    
|Employee Stock Purchase Plan                |  | 200,000           |  |                                     |  | 178,280                             
|                                            |  |                   |  |                                      |  |                                     
|                                            |  | 1,120,625         |  | 522,630                              |  | 220,390                             
|                                            |  |                   |  |                                      |  |                                     



|                                                              |  |         |      |       |   |            |  |   |     
|------------------------------------------------------------- |  | ------- | ---- | ----- | - | ---------- |  | - | ----
|                                                              |  | Options |      | RSUs |   | All Awards
|Weighted average fair value of share awards granted in period |  | $       | 4.65 |       | $ | 4.61       |  | $ | 4.64

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 is included in selling, general and administrative expense in the accompanying financial statements.



F-15



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##### Table of Contents

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 granted in the years ended June 30, 2007, 2006 and 2005, the Company estimated the fair value of each stock option as of the date
of grant using the following assumptions:



|                                     |  |               |   |  |               |   |  |               |  
|------------------------------------ |  | ------------- | - |  | ------------- | - |  | ------------- | -
|                                     |  | Year Ended    |  
|                                     |  | June 30, 2007 |   |  | June 30, 2006 |   |  | June 30, 2005 |  
|Range of expected volatilities       |  | 300% - 305    | % |  | 267% - 298    | % |  | 102% - 112    | %
|Weighted average expected volatility |  | 305           | % |  | 273           | % |  | 112           | %
|Dividend yields                      |  | 0             | % |  | 0             | % |  | 0             | %
|Range of risk-free interest rate     |  | 4.63% - 5.05  | % |  | 4.37% - 5.01  | % |  | 4.16% - 4.25  | %
|Expected term, in years              |  | 2 - 7         |   |  | 6 - 6.5       |   |  | 3             |  

Most options granted under the Companys Plan vest ratably over two to four years and
generally have 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. The
forfeiture rate for RSUs was 7% for fiscal 2007. The volatility rate is based on a four-year historical trend in common stock closing prices and the expected term was calculated using the simplified method. 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, 2007 and 2006 is presented below:



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##### Table of Contents

|                                                  |  |               |   |                                |                                         |  |                                             |  |         |   |  |                                            
|------------------------------------------------- |  | ------------- | - | ------------------------------ | --------------------------------------- |  | ------------------------------------------- |  | ------- | - |  | -------------------------------------------
|                                                  |  | Stock Options |   | Restricted Stock Units (RSU)
|                                                  |  | Shares        |   |                                | WeightedAverageExercisePrice(per share) |  | WeightedAverageRemainingContractLifes (YRS) |  | Shares  |   |  | WeightedAverageRemainingContractLifes (YRS)
|Options Outstanding June 30, 2005                 |  | 97,734        |   |                                | 21.87                                   |  | 4.6                                         |  | 136,850 |   |  | 2.0                                        
|                                                  |  |               |   |                                |                                        
|Granted                                           |  | 110,170       |   |                                | 3.05                                    |  | 8.3                                         |  | 60,000  |   |  | 2.4                                        
|Exercised                                         |  | (999          | ) |                                | 1.28                                    |  | 7.0                                         |  | (3,750  | ) |  |                                           
|Cancelled                                         |  | (19,111       | ) |                                | 36.93                                   |  | 7.4                                         |  | (15,000 | ) |  | 0.7                                        
|                                                  |  |               |   |                                |                                         |  |                                             |  |         |   |  |                                            
|Options Outstanding June 30, 2006                 |  | 187,794       |   |                                | 17.34                                   |  | 6.5                                         |  | 178,100 |   |  | 1.7                                        
|                                                  |  |               |   |                                |                                        
|Granted                                           |  | 160,000       |   |                                | 4.65                                    |  | 9.2                                         |  | 70,000  |   |  | 2.0                                        
|Exercised                                         |  | (3,735        | ) |                                | 3.43                                    |  | 6.5                                         |  | (22,500 | ) |  |                                           
|Cancelled                                         |  | (44,529       | ) |                                | 11.48                                   |  | 7.2                                         |  | (2,500  | ) |  |                                           
|                                                  |  |               |   |                                |                                         |  |                                             |  |         |   |  |                                            
|Options Outstanding June 30, 2007                 |  | 299,530       |   |                                | 11.35                                   |  | 8.0                                         |  | 223,100 |   |  | 1.0                                        
|                                                  |  |               |   |                                |                                         |  |                                             |  |         |   |  |                                            
|                                                  |  |               |   |                                |                                        
|Awards exercisable/vested as of June 30, 2007     |  | 62,820        |   |                                | 38.49                                   |  | 5.6                                         |  | 113,098 |   |  |                                           
|                                                  |  |               |   |                                |                                        
|Awards unexercisable/unvested as of June 30, 2007 |  | 236,710       |   |                                | 4.15                                    |  | 8.7                                         |  | 110,002 |   |  | 1.9                                        
|                                                  |  |               |   |                                |                                         |  |                                             |  |         |   |  |                                            
|                                                  |  | 299,530       |   |                                |                                         |  |                                             |  | 223,100 |   |  |                                            
|                                                  |  |               |   |                                |                                         |  |                                             |  |         |   |  |                                            

The weighted-average grant date fair value of share options granted during the fiscal years ended
2007, 2006 and 2005 was $4.61, $2.11 and $1.63, respectively. The total intrinsic value of share options exercised during the years ended June 30, 2007, 2006 and 2005 was $5,525, $232,884 and $179,758, respectively.

The total intrinsic value of share options outstanding and exercisable at June 30, 2007 was $231,994 and $55,317, respectively.

The total fair value of share options vested during the years ended June 30, 2007, 2006 and 2005 was $108,584, $66,045 and $102,496, respectively.

The total intrinsic value of RSUs exercise during the years ended June 30, 2007, 2006 and 2005 was $109,800, $15,225 and $309,654,
respectively. The total intrinsic value of RSUs outstanding and exercisable at June 30, 2007 was $216,810 and $102,305, respectively.

The weighted-average grant date fair value of RSUs granted during the fiscal years ended 2007, 2006 and 2005 was $4.17, $2.41 and $4.06, respectively.

The total fair value of RSUs vested during the years ended June 30, 2007, 2006 and 2005 was $214,144, $7,150 and $286,208, respectively.

As of June 30, 2007 there was $790,253 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:



|                         |  |              |  |                      |  |        
|------------------------ |  | ------------ |  | -------------------- |  | -------
|                         |  | StockOptions |  | RestrictedStockUnits |  | Total  
|Year ended June 30, 2008 |  | 213,387      |  | 150,479              |  | 363,866
|Year ended June 30, 2009 |  | 135,319      |  | 104,956              |  | 240,275
|Year ended June 30, 2010 |  | 117,585      |  | 29,531               |  | 147,116
|Year ended June 30, 2011 |  | 38,996       |  |                     |  | 38,996 
|                         |  |              |  |                      |  |        
|                         |  | 505,287      |  | 284,966              |  | 790,253
|                         |  |              |  |                      |  |        



F-17



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##### Table of Contents

The table above does not include shares under the Companys ESPP, 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, 2007 and changes during the year then ended:



|                              |  |                    |   |  |           |   |  |             |   |  |                                                   |      
|----------------------------- |  | ------------------ | - |  | --------- | - |  | ----------- | - |  | ------------------------------------------------- | -----
|Unexercisable/unvested awards |  | StockOptionsShares |   |  | RSUShares |   |  | TotalShares |   |  | Weighted-AverageGrant Date Fair Values(per share)
|At June 30, 2006              |  | 131,332            |   |  | 102,300   |   |  | 233,632     |   |  | $                                                 | 17.34
|Granted                       |  | 160,000            |   |  | 70,000    |   |  | 230,000     |   |  | $                                                 | 4.63 
|Vested                        |  | (20,012            | ) |  | (59,798   | ) |  | (79,810     | ) |  | $                                                 | 3.38 
|Cancelled/Issued              |  | (34,610            | ) |  | (2,500    | ) |  | (37,110     | ) |  | $                                                 | 3.42 
|                              |  |                    |   |  |           |   |  |             |   |  |                                                   |      
|At June 30, 2007              |  | 236,710            |   |  | 110,002   |   |  | 346,712     |   |  | $                                                 | 3.97 
|                              |  |                    |   |  |           |   |  |             |   |  |                                                   |      

Acceleration of VestingThe Company has not accelerated the vesting of any stock options.

Financial Statement Effects and PresentationThe following table shows total stock-based compensation expense for the year ended June 30, 2007
included in the Consolidated Statement of Operations:



|                                    |  |              |         |     |   |         |  |   |        
|----------------------------------- |  | ------------ | ------- | --- | - | ------- |  | - | -------
|                                    |  | StockOptions |         | RSU |   | Total  
|General and administrative expenses |  | $            | 120,320 |     | $ | 176,429 |  | $ | 296,749
|                                    |  |              |         |     |   |         |  |   |        
|                                    |  | $            | 120,320 |     | $ | 176,429 |  | $ | 296,749
|                                    |  |              |         |     |   |         |  |   |        



F-18



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##### Table of Contents

The following table shows the effect on reported net income and income per share for the year ended
June 30, 2005 to reflect the impact had the Company been required to include fair value stock compensation as an expense (pro-forma):



|                                                                                                                |  |                         |            |  
|--------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | -
|                                                                                                                |  | Year EndedJune 30, 2005 |           
|Net loss, as reported                                                                                           |  | $                       | (3,479,805 | )
|                                                                                                                | 
|Add: Total stock-based employee compensation expenses included in reported net loss                             |  |                         | 434,679    |  
|                                                                                                                | 
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards |  |                         | 877,679    |  
|                                                                                                                |  |                         |            |  
|Pro forma net loss                                                                                              |  | $                       | (3,922,805 | )
|                                                                                                                |  |                         |            |  
|                                                                                                                | 
|Loss per share:                                                                                                 |  |                         |            |  
|Basic and diluted, as reported                                                                                  |  | $                       | (1.05      | )
|                                                                                                                |  |                         |            |  
|Basic and diluted, pro forma                                                                                    |  | $                       | (1.18      | )
|                                                                                                                |  |                         |            |  

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, 2007: stock options and unvested restricted stock awards to acquire 522,630 shares, and warrants to acquire 464,156 shares of Class A common stock.

11. Defined Contribution Plan

The Company implemented a defined contribution plan on January 1, 1997 covering substantially all employees. The original plan was terminated on January 31, 2003 with the closure of LightPaths New Mexico facility and certain
employee accounts transferred to the LightPath defined contribution plan. 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, 2007, 2006, and 2005 were approximately $ 41,000, $34,000 and $41,000, respectively.

12. Lease Commitments

The Company has operating leases for office space. At June 30, 2007, the Company has entered into lease agreements for
manufacturing and office facilities in Orlando, Florida. The Orlando lease, which is for a seven-year original term with renewal options, expires November 2008.

As of June 30, 2007, the Company has entered into lease agreements for manufacturing and office facilities in Shanghai, China. The China lease, which is for a five-year original term with renewal options, expires
November 2010.

Rent expense totaled $931,852, $853,337 and $852,829 during the years ended June 30, 2007, 2006 and 2005,
respectively.

During 2005 and 2006, the company entered into five-year capital lease agreements for manufacturing equipment and is
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, 2007 and 2006 of $126,534 and $26,655, respectively. Amortization related
to capital leases is included in depreciation expense.



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##### Table of Contents

The approximate future minimum lease payments under capital and operating leases at June 30, 2007
were as follows:



|                                                                   |  |              |        |   |                |   |          
|------------------------------------------------------------------ |  | ------------ | ------ | - | -------------- | - | ---------
|                                                                   |  | CapitalLease |        |   | OperatingLease
|Fiscal year ending June 30,                                        |  |              |        |   |                |   |          
|2008                                                               |  |              | 20,654 |   |                |   | 739,500  
|2009                                                               |  |              | 20,654 |   |                |   | 349,000  
|2010                                                               |  |              | 5,164  |   |                |   | 63,900   
|2011                                                               |  |              |       |   |                |   | 67,700   
|Thereafter                                                         |  |              |       |   |                |   | 310,600  
|                                                                   |  |              |        |   |                |   |          
|Total Minimum Payments                                             |  | $            | 46,472 |   |                | $ | 1,530,700
|                                                                   |  |              |        |   |                |   |          
|Less Imputed Interest                                              |  |              | (6,534 | ) |                |   |          
|                                                                   |  |              |        |   |                |   |          
|Present value of minimum lease payments included in long term debt |  |              | 39,938 |   |                |   |          
|Less short term portion                                            |  |              | 16,285 |   |                |   |          
|                                                                   |  |              |        |   |                |   |          
|Long term portion                                                  |  | $            | 23,653 |   |                |   |          
|                                                                   |  |              |        |   |                |   |          

13. Contingencies

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

14. Related Party Transactions

During the fiscal years ended June 30, 2005, and 2004 directors (or their firms) of the Company, provided legal and consulting services to the Company for which they billed the Company an aggregate of approximately $35,000 and $38,000,
respectively.

15. 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 $43,059 loss at June 30, 2007. The
Company as of June 30, 2007 had approximately $601,000 in assets and $342,000 in net assets located in China.

16. Subsequent
Events

In July 2007 the Company raised gross proceeds of approximately $3.2 million by way of the sale of newly issued common stock and
warrants to certain institutional and private investors. Professional fees of $192,000 were paid netting the proceeds to the Company of $2,993,000 800,000 shares of common stock were sold at $4.00 per share. The net proceeds from the
offering will be utilized for new product development, equipment expenditures and working capital to support the continued growth of the business. The investors also received warrants with an exercise period of five years beginning on
January 26, 2008 for the future purchase of 240,000 shares of the Companys common stock at $5.25 per share. If all of the warrants are ultimately exercised an additional $1.3 million will be raised. Montauk Securities acted as exclusive
placement agent and financial advisor. On September 24, 2007 we 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 of
indemnification of the investor for its expenses incurred in connection with transaction. The demand is based on the investors allegations that we failed to disclose facts material to the investor in making its investment
decision, for example alleged omissions relating to the termination of the employment of our Chief Executive Officer and our financial condition, and breached certain representations and warranties set forth in the Securities Purchase Agreement
executed with respect to the transaction. We believe there is no factual basis for the investors claims and have responded to the investor rejecting the demand. We are unable to determine what further action, if
any, the investor will take with regard to its claims, including whether the investor will pursue its claims through litigation which we would vigorously defend.



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A Registration Statement on Form S-3 will be filed with the Securities and Exchange Commission
to register under the Securities Act of 1933 the shares sold in this private placement including the shares issuable upon exercise of the warrants.

On September 18, 2007 we announced the resignation of our President and Chief Executive Office, Kenneth Brizel. He also resigned as a director on that date. We also announced the appointment of J. James Gaynor as Interim Chief
Executive Officer effective September 18, 2007.



|17. | Fourth Quarter Adjustment
|--- | -------------------------

During the fourth
quarter of fiscal 2007, the Company recorded an adjustment to write-off inventory by $120,516 relating to inventory considered obsolete. This inventory was written off during fiscal 2006 but was incorrectly recorded back into inventory during the
quarter ended September 30, 2006. The effects of this adjustment on the first quarter of fiscal 2007 would have increased the net loss from $454,869 to $575,385, and would have increased the loss per share (basic and diluted) from $0.10 to
$0.13.

End of Consolidated Financial Statements



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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: October 1, 2007



By:

/s/ J. James GaynorJ. James GaynorInterim 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                                                         |  | October 1, 2007 |  |  |  | /s/ Dorothy M. Cipolla                                                    |  | October 1, 2007
|James Gaynor, Interim Chief Executive Officer (Principal Executive Officer) |  |                 |  |  |  | Dorothy M. Cipolla, Chief Financial Officer (Principal Financial Officer) |  |                
|                                                                            |  |                 |  | 
|/s/ ROBERT RIPP                                                             |  | October 1, 2007 |  |  |  | /s/ Sohail Khan                                                           |  | October 1, 2007
|Robert Ripp Director (Chairman of the Board)                                |  |                 |  |  |  | Sohail Khan Director                                                      |  |                
|                                                                            |  |                 |  | 
|/s/ ROBERT BRUGGEWORTH                                                      |  | October 1, 2007 |  |  |  | /s/ LOUIS LEEBURG                                                         |  | October 1, 2007
|Robert Bruggeworth Director                                                 |  |                 |  |  |  | Louis Leeburg Director                                                    |  |                
|                                                                            |  |                 |  | 
|/s/ DR. STEVEN R. J. BRUECK                                                 |  | October 1, 2007 |  |  |  | /s/ GARY SILVERMAN                                                        |  | October 1, 2007
|Dr. Steven R. J. Brueck Director                                            |  |                 |  |  |  | Gary Silverman Director                                                   |  |                



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