Dorothy Cipolla - Chief Financial Officer, Treasurer, Secretary Jim Gaynor - President, Chief Executive Officer

John Nobile - Taglich Brothers John Fanning - Maritime Capital

Good afternoon, and welcome to the LightPath Technologies Fiscal 2014 Third Quarter Financial Results Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference call over to Dorothy Cipolla, CFO. Please go ahead.

Thank you and good afternoon. Welcome to the LightPath Technologies fiscal 2014 third quarter financial results conference call. Our call today will be hosted by Mr. Jim Gaynor, President and Chief Executive Officer. Following management's discussion, there will be a formal Q&A session open to participants on the call. Before we get started, I'd like to remind you that during the course of this conference call, we will be making a number of forward-looking statements that are based on our current expectations and involve various risks and uncertainties that are discussed in our periodic SEC filings. Although we believe that the assumptions underlying these statements are reasonable, any of them can prove to be inaccurate and there can be no assurance that the results will be realized. With that out of the way, it's now my pleasure to introduce Mr. Jim Gaynor, President and Chief Executive Officer of LightPath.

Thank you, Dorothy, and welcome to everyone who has joined us on the call today. We appreciate your interest in LightPath. I will open with an overview of operational results, highlights and recent developments, and then we will turn the call over to Dorothy for a more in-depth review of our financials. After some closing remarks, we will open the call to your questions. We are very pleased with the continuation of our progress from the first half of the year, which has been magnified in the third quarter as we experienced increased improvements and important profitability measures with gross margin improving to 49% versus 47% last year and EBITDA of $130,000 as adjusted for the revaluation of our warrant liability. I would like to note, the revaluation of the warrant liability has had a negative effect of $354,000 on net income from Q3 of 2013 compared to Q3 of 2014, primarily due to the improvement of our stock price during this period. We booked $3.5 million of orders in the quarter improving our backlog by 13% from June 30, 2013. Our cash on hand at the end of the quarter was $1.6 million after we made investments to build 12 new press lines. The initial investment in our new factory in Zhenjiang, China, expanded our in-house coating capability and continued to invest in our infrared product line. With these types of investments, we continue to position the company for future prosperity through the establishment of a diversified global product platform, low-cost manufacturing operations and sales and distribution strategies. We believe the recent investment by Pudong Science & Technology, which was executed after the end of the quarter and remained subject to certain government approval before closing verifies our progress toward becoming a highly profitable and global optical technology leader. The proceeds of the sale of common stock are intended to provide working capital to support our continued growth through global expansion. This endeavor involves new product development and capital expenditures related to the acquisition of new equipment, both of which are critical to the company’s growth plans. For our more established line of molded aspheric lenses, we continue to see broad applications and diversification of markets, including demand from telecom, digital imaging and custom assemblies. Infrared products, now being designed and introduced, are expected to accelerate the company's growth more meaningfully through the balance of calendar 2014. We have been working at a rapid pace to keep up with interest levels for both product lines and the diversification that this requires. At the same time, we have been investing in and focusing on bringing our second manufacturing facility in China online, such that we may satisfy anticipated orders. We now have three manufacturing facilities running, with two of them in China. Manufacturing activity in China has been robust as we have been expanding our sales and marketing initiatives for the enhanced coverage of the Asia-Pacific region. The progress and achievements year-to-date for LightPath sets a course for significant long-term growth in sales and profitability. I will now turn the call over to our CFO, Dorothy Cipolla, to provide additional detail on our second quarter and half year results.

Thank you, Jim. First, I would like to mention much of the information we are discussing during this call is also included in the press release and on Form 10-Q, which we filed earlier today. I encourage you to visit our website at lightpath.com and specifically the section titled Investor Information, where we have included the presentations that we have made at recent investor conferences. I will now review financial performance and operational details from our 2014 third quarter, which ended on March 31, 2014. Revenue for the third quarter totaled $3.01 million, which was a 6% increase as compared to the third quarter of last year. This increase in revenue reflects growing unit demand for our precision molded lenses for the laser tool market. Growth in sales for the next several quarters is expected to be derived primarily from the precision molded lens product line, driven by the telecom sectors' need for expanded infrastructure to support mobile internet usage, the industrial tool sector and increasing utilization of fiber laser delivery systems and our entry into the consumer electronics market. Our gross margin percentage for the third quarter was 49% as compared to 47% in the third quarter last year. Total manufacturing costs of $1.54 million, increased by approximately $16,000 in the third quarter as compared to the same period last year. This increase in manufacturing costs, compared to last year is a result of higher manufacturing volumes resulting in an increase of wages of $75,000 offset by a lower coating cost of $64,000. Selling, general and administrative expenses were $1.1 million for the third quarter, an increase of approximately 5% from last year. The higher SG&A in the current quarter is attributable to an increase of $59,000 in legal fees. Total operating income for the third quarter was approximately $43,000 as compared to $56,000 for last year. Net loss for the third quarter was $133,000, or $0.01 per basic and diluted common share. Remember, this included a $131,000 non-cash expense for the change in the fair value of the warrant liability and a $33,000 expense for the impact of foreign currency exchange. Adding back these items, our net income would have been $31,000. Last year, we had net income of $217,000, which included a $223,000 non-cash income for the change in the fair value of the warrant liability or $0.02 per basic and diluted common share. I will now review financial performance and operational details from the first nine months of this year. Revenue for the first nine months of fiscal 2014 totaled approximately $8.72 million, compared to approximately $8.65 million for last year. Revenue in the first nine months of last year included $451,000 for a large purchase order from a customer in connection with the DARPA Low Cost Thermal Imaging Manufacturing Program. This one-time development revenue was offset by an increase in sales of our ongoing underlying lens product. Therefore, excluding the one-time in nature DARPA revenues, our first nine months of 2014 revenues increased by nearly 6% from the same period last year. Our gross margin percentage in the first nine months was 46%, up from 44% last year. Total manufacturing costs were $4.7 million, decreased by approximately $189,000 in the first nine months as compared to last year. These low costs were the result of our ongoing cost reduction efforts, including the effect of our expanded in-house coating capability giving us lower coating cost for molded optics. SG&A expenses were $3.33 million for the first nine months, an increase of approximately 9% from last year. This increase was due to an increase of $100,000 in non-recurring stock compensation expense, due to accelerated vesting of restricted stock units, an increase of $152,000 in wages, and an increase of $74,000 in higher taxes and fees, and an increase of $26,000 in commissions, and an increase of $55,000 for outside services for lens designs. Total operating loss for the first nine months was approximately $205,000 as compared to income of $4,000 for last year. Moving onto the balance sheet, during the first nine months of fiscal 2014, the company received $1.5 million in net proceeds from the exercise of warrants. $1.1 million previously issued warrants were exercised and converted into common shares in connection with these exercises. The exercise price range from $0.87 to $1.89 per common share. Cash and cash equivalents totaled approximately $1.62 million as of March 31, 2014. This is an increase of $1.57 million at June 30. The company’s current ratio as of March 31 was 3.77:1 as compared to 3.75:1 as of June 30. Total stockholders' equity as of March 31 was approximately $7.14 million compared to $5.43 million as of June 30. As of March 31, the company's 12-month backlog was $4.69 million, compared to $4.14 million as of June 30. This was an improvement of approximately 13%. With this review of our financial highlights concluded, I will turn the call back to Jim.

Thank you, Dorothy. I wanted to take a moment to highlight the improvements made since last year at this time, so if we just look at a number of metrics from May of 2013 compared to May of 2014, what we see is the share price increased to 100% from $0.75 to $1.5. Market capitalization increased from $8.9 million to $22 million or 147%. Revenue increased 8% from $10.7 million to $11.6 million, our backlog increased 13% from $4.6 million to $5.2 million. Debt went from $1.1 million to zero and was eliminated. Stockholders' equity went from $3.7 to $7.2 million or 95% increase. Our global locations went from two to three and the square footage available for operations went from 39,000 to 65,000 and lens production capacity went from 3.2 million to over 6.2 million or 94% increase. Our focus is to accelerate our top line growth while effectively managing our cost structure. We are rigorously pursuing opportunities to further expand our current accounts and develop new ones. We believe the themes outlined earlier will provide continued growth. In addition, we continue to see future opportunity for our infrared products. These opportunities are broad-based across several of our large market segments and not limited to any specific industry, market or geographic location. We believe the company is well positioned to capitalize on many opportunities we see ahead and that our investment story has really taken shape. I will now open the call to any questions.

Thank you. (Operator Instructions) Our first question comes from John Nobile with Taglich Brothers. Please go ahead. John Nobile - Taglich Brothers: Hi, Jim. Hi, Dorothy. I just wanted to find out about Renishaw. I know the recent contract with them. Now, are they a new customer or have you supplied to them in the past?

John, they are a customer that we have had over the years. This particular contract we have been working with them over the last year-and-a-half to two years to develop the product with them and it’s used in one of their very high end optical encoders. This contract extends over two years. It's a nice piece of business that will be ongoing and long-term. John Nobile - Taglich Brothers: Okay. The current contract, is this something that is larger than what you have done in the past 12 months? I mean, are we looking at additional revenue from this contract?

Yes. I think, the answer to that is yes. I mean, this is a fairly significant piece of business that we have landed with them that’s moving out of the development prototype stage into production, so we expect to see a good business starting in the very near future with this contract. John Nobile - Taglich Brothers: You had made mention of a backlog of about $4.7 million. That current backlog, how long do you think it would actually take to fill those orders. I mean, what are we looking at going forward in the quarter as far as backlog is concerned.

Backlog that we disclosed, and by that we mean that it's all shippable within 12 months, and it's heavily loaded towards the front end of that period, so typically that's what we would say. John Nobile - Taglich Brothers: Okay. If you could just repeat that $4.69 million is up compared to last year at this time; about how much in percentage terms?

I think, it was 13%. John Nobile - Taglich Brothers: It was up 13%. Okay.

John, that's from the year end date to June 30. John Nobile - Taglich Brothers: Okay. Up 13% from year end. Okay. Thank you. Dorothy I saw at the Taglich Conference on Tuesday, and I believe you said that the new China facility was up and running since April. I think the press release just made mention of that also. What percentage of orders are currently being built by that facility and do you anticipated that that percentage would be increasing in the near-term. I assume that that would be, but I just want to get a feel for how much…

Yes. I think, right now our plan is to run four or five of our very highest volume lenses in that plant. We're currently running I think two of them. Off the top of my head, right now I don't know what the percentage of our business is for those lenses, because it goes across multiple customers and multiple product lines, but you are correct. We will be loading that factory higher and higher. We will be transferring a lot more volume as we build that operation up. We started April 9 and we have already started the second shift in that facility, so we are working very hard to get the crew up to speed and we are very pleased with the progress they are making. We initially opened that facility with six [mob] [ph] lines and there are now currently six additional lines there being assembled and put into service. John Nobile - Taglich Brothers: Okay, so you went to two shifts and this is only after one month, so obviously you are ramping up production rather rapidly in that facility.

Yes. John Nobile - Taglich Brothers: Okay.

There is a significant cost advantage of that facility compared to even our Shanghai facility. John Nobile - Taglich Brothers: Okay. I anticipate possibly gross margins improving even because of the Shanghai facility doesn't have the same margins that this facility has. Is that correct? You have better margins here than there?

Well, we anticipate a favorable impact on gross margin as we get the volume shifted to the new facility. Yes. That may take six to eight, maybe even nine months. John Nobile - Taglich Brothers: Okay. Just one more question in regards of the HDOEI order for 500,000 lenses. How many of those 500,000 lenses were shipped in this current third quarter and how many more quarters do you see for the remaining amount to be shipped?

That is probably ongoing business, John. I mean, HDOEI is one of our larger customers and we are working in partnership with them, so I think that type of business they make predominantly surveying equipment, laser level and high end surveying equipment that uses our product and that business is doing well, particularly in Asia right now, so I would anticipate that business to be ongoing and probably remain at those elevated levels. John Nobile - Taglich Brothers: Okay. I just wanted to get a feel for what you did in this quarter and it looks like it's going to be remaining at the current level with the HDOEI or is there still like increases to be seen in regard to the orders. In other words, you just received that order in that quarter, so going forward is there still a ramp up maybe in this order?

I think, there may be a small ramp up from where we are currently going forward, but I think you know that came up pretty quick. John Nobile - Taglich Brothers: Okay. I just wanted to see - we didn't see the full impact of that in the third quarter or we did. Okay. Thank you very much.

Thank you, John.

The next question comes from John Fanning with Maritime Capital. Please go ahead. John Fanning - Maritime Capital: Yes. Hi, Jim and Dorothy. Congratulations again on a good steady progress.

Thank you.

Thank you. John Fanning - Maritime Capital: Jim, in your scripted remarks you touched on getting into the various market segments. I just wanted to probe a little bit if I could to help my understanding. Where you see your products fitting into the consumer electronics market, and kind of a follow-up on that is, how big is that addressable market for LightPath in terms of revenues and lens volumes?

I think, the major for us that we see there is in these digital-type projectors and that kind of equipment. That's a relatively new application for us, so I think we have cracked into that market. We are currently selling to, I think, three of the equipment builders for that business and we expect that to be in a substantial business for us going forward. It's a little hard to predict what percentage business that will be at this early stage, but you know that market is growing. It's really being driven by the adoption of digital technology by video distribution industry and the use of laser light boxes or laser diodes for illumination and there's a lot components of those types of components in these types of devices. That market will have some fallout in it I think in terms of who is going to be the provider of that equipment or the predominant provider of that equipment and our strategy is to try and sell to as many of those guys as we can so it doesn't really matter which of them wins their battles, so I am excited about that type of business. I think, you know, some of the other things are smaller devices, whether they would be these saw guides and things of that nature that go on, consumer tools and things of that nature, will also drive some of business, so that's one of the larger business segments for us. It's probably what we the industrial. It falls in our industrial thing, which we call industrial tools. It's about 29% of our business. John Fanning - Maritime Capital: Okay. Good, good. Many of my questions were addressed by the last participant. I did have and this is to help me understand again. Can you just help me understand, how do your infrared products different from your traditionally aspheric lenses?

In the in terms of processing, not tremendous amount except in a various process parameters, but the process behind it is very similar to the way we make our visible lenses. It's a different material system, so therefore it has different temperatures, different processing times et cetera, those kinds of things, but overall the way we process and the tooling that's involved, it fits into our standard equipment and works that way, so it's very similar. John Fanning - Maritime Capital: Very good. Thank you to both of you and continued success.

Thank you.

(Operator Instructions) As we are showing no further questions, I would like to turn the conference back over to Mr. Gaynor for any closing remarks.

Thank you. I would like to thank everybody today for joining us and I particularly want to congratulate our employees for the hard work that's resulted in our continued success which has positioned us for future growth. Thanks again and we look forward to speaking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.