Good afternoon and welcome to the LightPath Technologies Fiscal 2015 Fourth 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 that this event is being recorded. I would now like to turn the conference over to Dorothy Cipolla, Chief Financial Officer. Please go ahead.

Thank you and good afternoon. Welcome to LightPath Technologies' fiscal 2015 fourth quarter financial results conference call. We like to start off by apologizing for the delay in reporting our results. The postponement was due to a delay in the completion of the audit of our financial statements by BDO, our new independent public accountant. BDO acquired the accounting practice of Cross, Fernandez & Riley, our previous independent public accountant and was combined with BDO’s USA division in August of 2015. There were no matters in contention. The delay in the completion of the audit was simply the result of an increased review cycle due to the recent combination of the two firms. Now on to our conference call. The call today will be hosted by Mr. Jim Gaynor, President and CEO. Following management’s discussion, there will be a formal Q&A session open to participants on the call. Before we get started, I would 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 CEO 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 the 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 then open the call to your questions. The excellent results reported today represent the third quarter in a row of solid and improving fundamentals, highlighted by significantly increased revenues produced from the growth initiatives implemented earlier in the year. The hard work undertaken by LightPath’s team over the last several years to put in place a low cost infrastructure and custom design capacity along with the strategic actions to drive long term revenue growth implemented in the first half of fiscal 2015 have resulted in an impressive performance for the fourth quarter and full year. Here are some of the highlights from the fourth quarter of fiscal 2015. Our 12 month backlog increased approximately 52% to $6.5 million at June 30 2015 from June 30, 2014. Revenue increased 45% to approximately $4.5 million compared to approximately $3.1 million in the 2014 period. Revenues from sales of infra-red products increased by more than 176% in the fourth quarter compared to the 2014 period. Gross margin was 47% in the fourth quarter of this year compared to 44% in the fourth quarter of last year. Operating income was approximately $448,000 compared to an operating loss of $171,000 for the prior year period. And adjusted EBITDA was $622,000 compared to an adjusted EBITDA loss of $40,000 in the fourth quarter of last year. While all of this is very encouraging, we are more focused on long term improvements in our business and creating meaningful…

Thank you Jim. First I’d like to mention that much of the information we’re discussing during this call is also included in the press release issued earlier today and on Form 10-K, which was filed today. I encourage you to visit our website at lightpath.com and specifically the section entitled Investor Relations. I’ll now review financial performance and operational details on our fiscal 2015 fourth quarter which ended June 30 2015. Revenue for the fourth quarter was over $4.5 million, an increase of 45%, as compared to the same period last year. The growth is attributable to an increase of 113% in sales of specialty products and a 176% increase in sales of infrared products. This marks the third consecutive quarter where we have experienced year-over-year increases in sales of both of these product lines. As we have previously disclosed, during the fourth quarter, not only did we benefit from enhancements to our sales programs and strategic growth initiatives implemented in the beginning of the year, our performance was bolstered by several unexpected project specific opportunities totaling approximately 400,000 in revenue. The gross margin as a percentage of revenue in the fourth quarter was 47%, this compares to 44% in the fourth quarter last year. The improvement in gross margin as a percentage of sales was driven by higher sales volumes, production efficiencies, and significantly the elimination of certain costs associated with the transition of the company’s newest manufacturing facility in China, which had been a drag on prior periods. With the lower cost base in Zhenjiang as compared with Shanghai we have approached a range for gross margins of high 40% to low 50 percentages which we view as a normalized base. This normalized level is subject to certain project orders which may impact that revenue and margin mix.…

[Operator Instructions] Our first question comes from John Nobile at Taglich Brothers.

Actually I want to congratulate you on the quarter, I just broke out the numbers when I saw the exclusion of your change in fair value of warrant liability, net income would have been $472,000 or roughly $0.03 a share excluding that, I know you can’t exclude that for GAAP but I just thought that was interesting that you had such a big jump up both in top and bottom line excluding that. And actually I just want to thank you also for the breakdown of your revenue with the five product groups, I mean as an analyst it’s great to have that kind of transparency. I just want to get into certain specifics here, you mentioned that you had increased orders for specialty and infrared products. I was hoping that you could provide some more specifics on those products and in each group on that particular applications.

Well, I mean the first group is tomography where we took our precision molded optics which has been our major product line over the years and we really kind of drew a line on the sands that said, anything we sell for greater than $10 fits into what we call the low volume PMO. These tend to be the legacy products of LightPath and our higher priced type products. And then the high volume PMO is anything less than $10 and this tends to be the higher volume type orders that go into the lower type applications and these are – the average price in here is around $2 to $3 for these types of products. And then we put together what we call specialty products. These are basically value added products. These are the mounted lenses, connectorized collimators, our fiber collimators, anything that where we have – we are doing some value add to it, kind of falls into this category. So these tend to be more custom designed products for customer specific type applications and they lean on a little more than just lens by itself. And then the last one is the infrared product line which is both lenses and assemblies and as is with new developing business for us, we’ve split that out separately as well. I think the fifth group you are referring to that happens to be our non-recurring engineering charges, these are project charges for engineering work on this custom type thing.

But more specifically with the infrared products you said both lenses and assemblies, what particular applications are you seeing for that?

Well the major one so far that we have seen has been in fire fighting cameras that seems to be one of the first that commercialized type applications that these camera guys are getting into. We believe that it’s going to also, in addition to that, be a very good market in sensors and sensor type application for infrared. I think that will be – tend to be in the automotive sector. And then I think there is the low end tomography type stuff where you are doing, even for checking maintenance type things and buildings where you are looking for moisture and installation or hotspots in electrical panels, things of that nature. I think those are types of things that we are seeing so far. There is also move to put infrared lens in attachments for the smartphones to make to turn that camera system into a infrared scanner, that’s another application that – we haven’t really started participating in but we have been quoting. So I think there is some opportunity there.

And I was hoping you could break out your infrared backlog for Q4 and actually compare that to Q3, I know that you put the actual numbers in the Ks and Qs but not backlog, you just put it as a total, so I was hoping you might be able to give me that on this call, I don’t know if you have that info available or not.

John, I don’t have that in front of me right now. I am not sure we’re going to do that. But let me take a look.

I mean I just wanted to get a feel, obviously it’s been tremendous growth in this product line and it’s off a relatively small base but I just wanted to get a feel for, how we are comparing maybe quarter over quarter in regard to orders and backlog in that regard.

It’s starting to get into the 7 figures, so I mean in terms of the backlog and the revenue that we are shipping, so it’s starting to grow into something that’s becoming more significant part of our business.

And I am curious what are you budgeting for R&D and capital expenditures in 2016?

Yes, R&D we are budgeting similar to what our actual were for ’15 and –

Okay, which was – all right, that was about what, 1.1 million?

Yes.

CapEx?

CapEx, we were budgeting about 1.1 million.

1.1 million for both R&D and for CapEx then?

Yes.

And in regard to China, I know you brought the stuff [ph] on the prior calls, obviously things are slowing in China in regard to the real estate market construction spending, but I was wondering if you could break out what percentage of sales what the China in 2015 and compare that to 2014 just to get an idea of what’s happening in that market?

Well interestingly enough, John, let me give you a couple of statistics here. If we look at our 2015 revenue, LightPath has historically been a North American domestic type supplier, with a majority of our business. In 2015 our domestic business was only 46% of our total and our worldwide foreign business was 54%. No, this was for 2015.

2015, all right, because that’s similar to 2014 I believe. I think you had close to 50:50 mix of US and –

To more foreign as opposed, now of the 54% that went foreign, Asia was 28% of that, Europe was 20% and the rest of the world was 6%.

Asia was 28% --

Well 28% of the 54%.

Yes, so basically 28% of basically half of it. And I think if I read correctly from prior year Ks and Qs, that majority of the China business is in regard to the high volume PMOs, is that correct?

That’s right. Historically it has been. Now with the slowdown we have moved into some other types of applications associated with the fiber laser delivery system, some medical applications and telecom is one sector that even in China is still going very strong. Now China, back to those percentages, China was 19% of the business in 2015.

So China was 19%, and that’s for 2015, do you have what it was in 2014, although I am looking here, actually I am looking at the third quarter, I don’t have the fiscal results yet, but I am realizing in the quarter – actually it was up the high volume precision molded optics in the third quarter but for the year nine months it looked like it was down but not substantially. So does it look like that China market even though the overall economy has been slowing dramatically, it’s not slowing that much for you?

That’s true and the unit volume is down like we said 28% and that’s predominantly that high volume PMO, but it’s been offset by significantly higher pricing for the products that we are selling in China now which is now associated with medical applications, fiber laser and telecom.

Forgive me, I am looking at the third quarter, Q1 I am seeing that there was a significant drop in that high volume market, however I noticed that your revenue was actually up, so I can see what you are seeing there, that kind of offset to some degree. Interesting, all right. Yes, anyway, I am actually speaking of that, I won’t keep you much longer, just wanted to comment about the gross margins, they were up from last year’s fourth quarter but looking at it sequentially it was down from the third quarter, you had about a 50% gross margin, let’s see, 47.3, so significantly higher volume or actually revenue but your gross margin went down from Q3, and not only that I noticed that, SG&A, we were looking at about 1 – was it $1.5 million SG&A and typically were about 1.1 million, 1.2 million SG&A run rate. So I was hoping to get a little color on that to see if there was any one time items maybe in SG&A or something that might have affected the gross margins in the fourth quarter, so I was hoping you could talk a little bit about those two items.

The biggest component of the SG&A increase is because of the good results we were able to actually earn the management bonus, so there is about a $300,000 charge that paid in Q4 in SG&A for management bonus based on attainment of goals.

And that’s compared to last year, was there a management bonus in that quarter?

No.

Okay, so that’s – that could explain a big chunk of this jump right there. Management bonus of 300K. And anything else in SG&A that needs to be spoken about or that was really the main cause of that jump.

That’s really the only significant difference between prior years.

And backing up to gross margins, still, don’t get me wrong, it was a good gross margin but to see it trickle down from the third quarter on much higher revenue if you could talk about that, if it was product mix related or whatever, if there was something in there that needs to be spoken about, I’d appreciate that.

There is a couple of things going on but it’s mostly – I mean first of all let me say that we believe our margins will fluctuate from the high to – mid to high 40s into the low 50s depending on the mix and the biggest driver is whatever the product mix happens to be. Now in recent quarters particularly as we have gotten into more production orders related to infrared products versus doing prototypes and samples, there is a little bit of difference in pricing when we go into production as opposed to when we are just making samples and those kinds of things. So that’s a little bit of a factor particularly until we get the run rate really covering all the overhead expense et cetera associated with that product line, we start getting the production efficiencies that we anticipate to have long term. So that’s one drive. And then the rest of it, I think is just the overall difference in mix between the different products that you see on an ongoing basis.

So basically prior quarters you had a lot more prototypes but this quarter was predominantly lower production pricing –

We’re still doing a lot of prototypes but now we are doing more production along with it, so you are starting –

So going forward at least, well not necessarily the level that you had this quarter because you had a $400,000 extraordinary – not gain but higher revenue, but going forward on revenue that’s at least levels that are 3.2 or so or better we can anticipate gross margins being at least into the upper 40s or even touching the 50% range?

Yes, we believe that to be the case.

The next question is from Ronald Sprague at Roy & Enterprises [ph].

I realize it’s for GAAP purposes and I realize it’s a non-cash item. With that as background, can we talk just a little bit about the warrant revaluations like what future and primarily going forward, what future exposure do you have and for how long?

The warrants have a five year life and we will be having to re-measure the value of them every quarter until December of 2017.

So you’ve got roughly 2.5 lower over two more years.

Yes.

And do you anticipate these on the same orders of magnitude?

Well the problem is – there is a number of factors that come into valuing the warrants and the predominant one is what happens with our stock price. So what happened in Q4 is our stock price went up 81% from the Q3 ending point, so that had a big driver in what warrant is equal to.

So I guess the answer to the question is we hope so because we like to see the stock price go up 81% a quarter.

Our next question is from Barth Merci [ph], private investor.

I have pretty little areas I’d like to touch on, if I heard you correctly, Jim, you said things have picked in Thailand. I am assuming some of that is the EMCORE business has come back following the storms and the trouble there. But the real question is Fabrinet in Thailand is involved with a number of OEMs, are you seeing some new customers through those connections?

Yes, we do see a few, I mean they are coming as nothing that’s on the scale of what we are doing with the EMCORE business which is now I guess NeoPhotonics but yes, we are getting more business in there through Fabrinet and there are a number of different projects that we are working on.

Second thing is congratulations on bringing on DRS Technologies as another of your thermal device customers. They are an impressive organization. I did notice after all of the publicity about the suspects being arrested in Virginia and Kansas city and Phoenix, using the automated license plate readers, that one of DRS’ sister companies ELSAG makes those readers, the ALPR and I was curious as to whether that is a possible market, I know so many of those are now having an infrared night vision capability and then San Jose, California is considering adding these readers to all of their garbage trucks, which is an interesting development.

Yes, I mean we are doing a number of things with DRS. I think we have – right now I think we have six or seven different lens designs that they are using and they have a whole series of things that we are working on with them, so I wouldn’t be surprised if we get into some other applications with those different designs.

Then my third thing is kind of a technical question that you can maybe answer in layman’s terms. I understand that the infrared sensors have resolutions of 1920 to – by 1280 at the moment, they are moving towards resolutions of 2000 by 2000 and this is supposedly going to open up, I heard, markets of hundreds of millions of dollars over the next two or three years. The real question for me was, does this increase in the resolution result in new applications but also the need for the current sensors to be retrofitted with new lenses and the current infrared sensors handle better pixels?

I think there is a generally – I think the two things that are really driving it, obviously they are working on resolution with the increased density of the pixels, but the two things – I mean the sensor cost is coming down dramatically and has continued and it’s also becoming smaller. And I mean the standard when we started was about 17 micron, now it’s down to 12 in a lot of designs and there are some that are even going to 10 micron. So I think that’s good news for us because the smaller these things are, they fit our smaller lenses and it works very well. Now I think – and you get them in, the obvious benefit from the sensor point of view is since these are wafer based technology, the smaller they are, the more sensors per wafer which is a huge cost reduction. So that continues to drive the applications and where these things can be used, so it’s really all about cost of these thermal imagers and how those things come down, and the optics are becoming one of the more expensive elements of the building materials of these cameras and sensors. So we offer a different kind of process that has a lower cost associated with it on a relative basis as well as molding is a mass producing process versus machining and using single point diamond turning as the manufacturing process. So as these commercial applications come on to the market and they get into more consumer related type things, the volumes become very large and that just plays into our – the way we produce our product.

And our next question comes from Vesselin Mihaylov at Newport Coast Securities.

So I wanted to ask you first follow up on the warrants. Can you tell us how many of these warrants are still outstanding in terms of number, what’s the strike price, we already heard about the term?

Yes, it’s 1.1 million shares at $1.26.

Now what percentage of business was annually and for the fourth quarter this low price high volume, the below $10?

The low volume, let’s see – I think the PMO –

High volume low price.

Let me give it to you. The high – for 2015 the total PMO was 67% of our business, of the revenue, in that split 48% of the revenue was the low volume PMO and 19% was high volume.

Okay, 19% was high volume.

Yes. That’s not on the unit basis, but on a dollar basis.

Is that division generally profitable at this time because the [indiscernible] was broader that price actually went up sequentially and you said that some of your competitors have experienced a demise. So the high volume division or the high volume portion of the revenues, is that profitable at the operating line?

Yes, it is.

So can you tell me what was the cash flow from operations during the fourth quarter of this year please?

I think that’s in the press release. I got to look it up.

Not the EBITDA, the cash flow generated, I think that you alluded to about $600,000 increase in the cash balance – what was the cash flow from operations?

Cash provided from operating activities for the year was $179,000.

We had – to a negative quarters before that – about 450, what did – do you mean about --

I think the free cash flow in Q4 was something like $540,000 or something.

So my question is going forward, with the increased backlog and elevated level of revenues, do you see that this company will have a more predictable positive cash flow from operations versus the last year it was three negative quarters and then a very big fourth quarter of collections I guess –

I think we will see a continued – I think we’ve got the fundamentals where they need to be so that we see those kinds of good cash flows going forward and we are at now a revenue level that if we can say in this range, I am not saying we are going to be at 4.5 million every quarter, but I think we should be in the upper 3s, low 4s for sure and I think at that level we don’t have any problem with cash flow.

I just wanted to mention that the operating cash flow for the fourth quarter was $747,000.

So, okay, you just gave us just a little bit of a guidance, which I really appreciate. Clearly you did say that the last quarter was a little bit of an aberration and normalized revenues were a little bit lower. There was an one-time item but are you now generally speaking more comfortable giving guidance going forward, for example, you taught us that the customer upticks in the infrared combined, I mean they are approximately 400 million in annualized revenues and they are growing well in excess of 100% year over year at least historically so far. We don’t know what the future is but at what time will you have some comfort in giving us annualized guidance for revenues?

Well I think we are approaching something like that but I think any guidance we give that will be on a longer term basis. At a minimum it would be annualized stuff. I mean I am not going to get into quarterly guidance, I just think that’s the too shorter term view for the business, and not just my business but any business. But you end up making decision you shouldn’t be making for short term thing. In business, it just doesn’t work that way, as you well know. I mean we have to have the ability to make longer term decision to run the business properly, and I think the proof is in the pudding here. We have been marching along at a fairly steady pace and things are getting better and better and it’s paying off. It’s been a long struggle but we are making very good progress and I think we are very well positioned to continue along that trend.

Very well, so in conclusion I just like to ask you to continue to update us regularly, including if possible give us a quarterly pre-announcements especially for the fourth quarter as like we said, we are talking late September about things that happened in June and you have been very nice lately starting with those press releases in May and you see for yourself and the stock price actually reacted to that, we have a lot of good news to say and starting in May when you spoke about custom and when you spoke about infrared, the stock properly reacted and it’s now at a much higher level and hopefully we will see a positive response from the market going forward. So thank you very much and keep up the good work.

Next question is from Bob Ainbinder at Newport Coast Securities.

Most of my questions have been answered already but I don’t want to continue on and on about these warrants and how they affect the numbers. But hopefully in the not too distant future with the stock doing what it has over this last quarter, we might see those warrants go away and they won’t be an issue going forward. But with that, can you kind of give us a little more color as to what’s happening in China and you commented about some of the competitors over there, kind of falling into the wayside and what that really means to LightPath and some of the business that might see going forward?

I guess couple of things, Bob, about China. I think there are some fundamental changes going on with China. I think people are aware of that. Their exports are slowing, they are starting to get more mature in their marketplace, and that comes with all sort of challenges, they are working diligently to expand their domestic market. And there is more competition. I mean there is a rise of domestic and foreign competition for China. They also have a number of issues. The issues – their labor, material and service costs are rising. There is some push for unionization, the labor demands and the activism in labor is increasing and the governments become more tolerant of that, and it is also mandating some labor increases. So I mean those are all things that are going from an economic political thing. There is also a demographic change going on. The Chinese workforce is getting older, the workforce population which is in their [organization] age is 15 to 64 is going to continue to grow through 2015, which is this year. The age group, the younger part of that,the age group 15 to 24 is actually shrinking. It’s about 225 million people today and by 2022 it will only be 150 million. So what that means is there’s fewer younger workers and a lot more factories in China. So there’s going to be some increased competition for labor as we go forward. Also, you got a second generation of people there, the children of this reform era basically that are entering the workforce. Now they are better educated and they are exposed more to the mass media through the internet and things of that nature. They are more aware of their rights, they are sensitive to inequalities, they have different expectations and…

Sure. Obviously companies like to do business with companies that they know are going to be there for their next order. So as you talked about revenues and kind of this new level that the company appears to be at in terms of quarterly revenue, I can really appreciate the fact that you take this long term view and this long term approach with the company, so you are not a slave to the next quarter. I get that and it’s appreciated and the value creation of the long term is obviously where we all look forward to as investors. With that, I see companies like FLIR announce and I know they are listed as one of our customers announcing products they did back on – just as recently as September 8, they announced an uncooled thermal camera, a new thermal camera that they have released on to the commercial markets and seeing these defense contractors that LightPath has worked with over time, over a long period of time, some of these type of products and some of these new potential areas of business, I’ve got they are not factored into those quarterly numbers at this point, correct?

I mean there’s opportunities there, I think, as those things occur. They are factored into our planning process as we think we are going to be able to grow the business and that’s one of the reasons why. So but on a specific basis, no, we don’t have – we are not forecasting stuff that we don’t have.

Understood. So it’s really what’s in the backlog, what they are now, so any new business that – you might bring on would be in addition to those numbers, correct?

It’d be, absolutely.

Well, with that, listen, I look forward to next quarter’s conference call which shouldn’t be too far off considering we are almost at the end of the quarter. And looking forward to continued success. Thank you so much.

[Operator Instructions] This concludes our question and answer session. I would like to turn the conference back over to Mr. Gaynor for closing remarks.

Thank you. In conclusion, we appreciate the support of our shareholders and the dedication of our global team of LightPath. We remain focused on our efforts to drive diversified revenue growth and continue to derive benefits from the leverage in our business as we improve our profitability and generation of cash flow. With the progress that has been made and our plans for continued execution we look forward to delivering long-term profitable growth, which may deliver meaningful returns for the benefit of our shareholders. 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.