SecProbe.io

CORRESP
1
filename1.htm

SEC Letter

 2603 Challenger
Tech Court, Suite 100, Orlando, FL 32826

 Phone: 407-382-4003 Fax: 407-382-4007

 February 7, 2005

 Mr. Martin F. James

 Senior Assistant Chief
Accountant

 United States Securities and Exchange Commission

 Division of Corporate Finance – Mail Stop 0306

 Washington, DC 20549

 Via Edgar Filing as correspondence

 Dear Mr. James:

 This letter is our response to the letter from the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) of January 25, 2005, regarding the Staff’s review of
the LightPath Technologies, Inc. (the “Company”) Form 10-K for the fiscal year ended June 30, 2004, and our Form 10-Q for the quarterly period ended September 30, 2004 (File No. 000-27548) (which together constitute the
“Filings”).

 In response to your specific request (page 5 of your
letter), in connection with this response, I hereby acknowledge, on behalf of the Company, the following:

•

The Company is responsible for the adequacy and accuracy of the disclosure in the Filings;

•

Staff comments or changes to disclosure in response to Staff comments in the Filings reviewed by the Staff do not foreclose the Commission from taking any action with respect to the
Filings; and

•

The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

 Should there be any questions that might be facilitated by
contemporaneous dialogue, please feel free to call me at 407-382-4003 x319.

 Sincerely,

 /s/ Kenneth Brizel

 Kenneth Brizel

 President and CEO; Acting CFO

 Response of LightPath Technologies, Inc.

 to Staff comment letter of January 25, 2005

 Note that in the body of this letter, from page 2 forward, the Staff’s points, called “Questions” herein, are included for convenience in review of our responses.

 Form 10-K for the fiscal year ended June 30, 2004

 Item 6. Selected Financial Data – Page 27

 Question 1. Revise future filings to describe, or cross reference to a discussion of
factors such as accounting changes, restructurings and business combinations or dispositions that materially affect the comparability of the information reflected in selected financial data. This comment also applies to the supplementary quarterly
financial data disclosure on page 37. Refer to Items 301 and 302 of Regulation S-K.

 Response 1. In future periodic filings with the Commission, we will make the addition of various factors in footnote form to the two tables noted, in accordance with the above referenced Items of Regulation S-K.

 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Page 28

 Year ended June 30, 2004 compared to
the year ended June 30, 20003 – Page 32

 Consolidated
Operations

 Question 2. You disclose on page 32 that your revenues
increased as a result of increased demand related to your aspheric lens and isolator products. In future filings please expand the discussion to address the following:

a)
Identify and quantify the factors responsible for financial statement items and explain why those changes occurred.

b)
Disclose the extent to which the increases in revenues are attributable to:

 i. increases in prices;

 ii. to increases in the volume or amount of goods or services being sold; or

 iii. to the introduction of new products or services

c)
Tell investors how the new products discussed on pages 6 and 7 affected current revenues or will affect your future revenues.

 Refer to Item 303(a)(3)(iii) of Regulation S-K.

 Response 2. In our future periodic filings with the Commission, we will endeavor to
present the significant components of our financial statement line items in a quantified measure of either dollars or percentages of the total line item, along with the textual explanation of why these elements of our business revenues and expenses
may have changed. With regard to revenues, we have an analysis of our revenue changes parsed into price changes, volume changes and changes that are the inseparable arithmetical intersect of both factors. We will present elements of that analysis in
our

 Page 2 of 9

Response of LightPath Technologies, Inc.

 to Staff comment
letter of January 25, 2005

 future periodic filings with the Commission. In
that analysis, we view revenues that may have been derived from our new products in a period as a volume increase. As a result of the potential for confusion on the part of the reader with regard to arithmetical set theory, we will also address new
product revenues in any given presented period as an additional disclosure. Of course with regard to future revenues, any statements we make will be forward-looking and subject to such normal major uncertainties as market acceptance and competitive
response.

 Question 3. Additionally, revise future filings to disclose the
effects of offsetting developments or events. We note from page 16 that the average selling prices of your products has decreased and is expected to further decrease in the future, yet we so(see) no discussion in your MD&A.

 Response 3. In the MD&A section of our future periodic filings with the
Commission, we will discuss more fully the effects of past and ongoing pricing pressures that are inherent in our markets. This factor, particularly “severe” during the period of rapid demand reduction in the telecommunications markets we
serve (approximately 2001 to 2003), has had a material affect on our business, particularly over the period of fiscal 2002 and 2003.

 Question 4. Refer to your discussion of other income and expense on page 33. Tell us and revise future filings to clearly discuss the nature of the litigation
settlement gain recorded in 2004. Discuss supplementally your reasons for recording this amount as non-operating.

 Response 4. With regard to the litigation settlement gain recorded in the third quarter of fiscal 2004, we noted the following on pages 10 and 11 of our Quarterly
Report on Form 10-Q for the period ended March 31, 2004 (see footnote 8 therein entitled, “Contingencies”):

 In 2000, a small group of holders of Class E Common Stock commenced an action in a state court in Texas (the “Texas Action”). Plaintiffs in the
Texas Action made various allegations regarding the circumstances surrounding the issuance of the Class E Common Stock and sought damages based upon those allegations. Management believes the allegations underlying the Texas Action are without
merit. During the first quarter of fiscal 2003, the Texas court granted the Company’s motion for Summary Judgment. The plaintiffs sought reconsideration of the ruling, however, on October 24, 2002, the Texas court denied their motion. On
February 14, 2003, the Plaintiffs requested that the Texas Supreme Court review the appellate court’s decision. On June 26, 2003, the Texas Supreme Court dismissed the Plaintiffs’ petition for review for want of jurisdiction. We are unable
to determine at present whether the Plaintiffs intend to further challenge or appeal the Texas Supreme Court’s denial of their petition for review. On July 22, 2002, the Company and a director filed a motion for summary judgment as to all of
the Plaintiff’s claims which was granted on October 10, 2002, and has been made final by the trial court on March 1, 2004. On March 15, 2004, the Plaintiffs filed an amended notice of appeal of final judgment as to the Company and a
co-defendant.

 The Company filed an insurance claim for the
aggregate amount of costs incurred in connection with the Texas Action in excess of applicable deductibles. During fiscal 2002, one of the insurance companies responsible for the claim, which had previously filed for

 Page 3 of 9

Response of LightPath Technologies, Inc.

 to Staff comment
letter of January 25, 2005

 reorganization, was declared
insolvent. In March 2002, the Company commenced an action in a state court in New Mexico for various claims surrounding the now insolvent insurance carrier and the Company’s former insurance broker. We settled this claim in February 2004. The
settlement resulted in a cash payment to the Company of approximately $600,000, net of related attorney’s fees, which were paid.

 The first paragraph discusses ongoing litigation wherein the Company is the defendant relating to its pre-IPO recapitalization in late 1995. Related to that action is a
suit the Company had brought as plaintiff against its directors’ and officers’ liability insurance brokerage company regarding the underwriter’s insolvency and our resultant lack of coverage for the Texas Action. It is that second
action, where we were the plaintiff, which was settled with the insurance brokerage firm in the third quarter of fiscal 2004.

 In future periodic filings with Commission, where this item is disclosed by virtue of the periods presented, we will include an expanded description of this gain on the
settlement of the litigation with the Company’s former insurance broker.

 With regard to classification of this gain, the Company chose to classify it as non-operating. We believe that the measure of Operating Income (Loss) is a key measure of overall management success in conducting the turnaround of the
business, which turnaround began in fiscal 2003. The inclusion of a gain upon the settlement of litigation is a singular event that we are not likely to recur, given the unusual nature of the litigation and related settlement. Therefore, we exclude
it from Operating Income (Loss) so as not to mislead the casual reader of our financials to a conclusion that we are making more progress with regard to that metric than we really are.

 Item 14. Principal Accountant Fees and Services – Page 38

 Question 5. In future filings revise to disclose audit and non-audit fees billed during each of the last two fiscal years. Refer to Item
14 of Form 10-K.

 Response 5. In our Annual Report on Form 10-K for
the year ending June 30, 2005, we will include, via incorporation by reference from our Proxy filing, the tabular presentation for each of the last two fiscal years, in accordance with Item 14 of the instructions to Form 10-K.

 Consolidated Financial Statements

 Statement of Cash Flows – Page F-6

 Question 6. In light of the statement in footnote (b) to Schedule II on page F-22 that you
recorded a net reduction to the allowance for doubtful accounts of $101,583, tell us why you show a provision for uncollectible receivables of $101,583 as a positive adjustment to reconcile net loss to cash used in operating activities on your
statement of cash flows for fiscal 2004. In accordance with SFAS 95, a negative provision would normally be reflected as a negative adjustment to reconcile net loss to net cash used in operating activities. We may have further comment.

 Page 4 of 9

 Response of LightPath Technologies, Inc.

 to Staff comment letter of January 25, 2005

 Response 6. Upon review, based on your comment, we agree with your position that this is an error. The wrong arithmetical sign on the allowance for doubtful accounts change was presented consolidated statement of cash flows; as a
result, the remaining net change in the working capital component (accounts receivable) was similarly misstated (the wrong arithmetical sign was presented). On page F-6, the $101,583 should be in parentheses, and the trade receivables line item in
the changes in operating assets and liabilities should be $(428,065). The figure for “Net cash used in operating activities of $(2,488,070), does not change as a result of this error.

 In our next future periodic filing with the Commission, the errors associated with the use of
the incorrect arithmetical signs will be revised, as appropriate.

 Note 2.
Summary of Significant Accounting Policies – Page F-8

 Revenues
– Page F-9

 Question 7. We note that revenue from product sales is
generally recognized when products are shipped to the customer. Describe to us those situations when revenue from product sales is not recognized at shipment and tell us how you account for product sales in these situations.

 Response 7. The only situation where we recognize revenue without an attendant product
shipment is in the case of “non-recurring engineering” engagements, or “NRE’s.” From time to time our customers will approach us to employ our optical engineering group to design the passive optic elements of their system
for them. Typically, these are smaller companies that do not maintain optical engineering staffs in-house. Once we accept that kind of work, we typically charge a two-part NRE fee. The first half, paid before the work commences, is non-refundable
and represents payment for the design work and drawings. This first half is recognized when the design work is concluded; there is no product shipped to the customer at this point for these revenues; hence our use of the word, “generally,”
in our disclosure. The second part of the NRE involves producing a sampling (usually 5 to 25 units) of the designed part and shipping it to the customer for test and evaluation. The second part of the NRE fee is billed and recognized at that time
and does include product shipment for the revenues.

 When combined with product
development agreements the Company had in the past, the total was material in periods prior to fiscal 2003. In fiscal 2000, for example, and as can be seen in our prior public reporting, non-product revenues were 8% of total revenues, then fell to
4% in fiscal 2001 and 2002, and to 0% in fiscal 2003. Since we have not had any product development agreements since fiscal 2002, we have not broken out the NRE fees as non-product sales, since we did not consider them material.

 Question 8. We also note that you recognize revenues from product development agreements
as milestones are completed. Revise future filings to identify the types

 Page 5 of 9

Response of LightPath Technologies, Inc.

 to Staff comment
letter of January 25, 2005

 of contract milestones, and explain how they
relate to substantive performance and revenue recognition events.

 Response 8. As noted in the response to Question 7 above, the Company was once active in the area of obtaining revenues from material product development agreements (in the last five years, including in fiscal 2000-2002, inclusive).
For the last two fiscal years and currently through December 31, 2004, we have not had any product development agreements with such milestones. The disclosure was left in the Summary of Significant Accounting Policies footnote in the Notes to the
Consolidated Financial Statements in the June 30, 2004 Form 10-K due to the fact that we did once report 4% (or approximately $500,000) of our fiscal 2002 sales as subject to these revenue arrangements. The fiscal 2002 financial statements were
presented in the three-year presentation for the fiscal 2004 reporting. For the reporting in fiscal 2005, should we not have any such product development agreements for any of the three years presented (it is not anticipated), we will likely exclude
the matter from our policy footnote.

 Question 9. We note from page 6 that
you use distributors in certain markets. Supplementally and in future filings describe the significant terms of your agreement with distributors, including payment, return, exchange, credits, price protection, allowances and other significant
matters. Also explain and support why it is appropriate to recognize revenue upon shipment of product to distributors. Address the factors outlined in SFAS 48 and SAB 104 in your response.

 Response 9. We utilize approximately twelve distributors to represent our sales
presence (eight in Europe, two in Asia and two in the United States). These distributors all work under an agreement that offers them no particular return, credit or exchange privileges. Further, there is no agreement to ”price-protect”
them or to offer them any other allowances for any pu