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.

Joint Venture

On January 7, 2008, we entered into a joint venture contract with CDGM Glass Co., Ltd. ("CDGM"). It was intended that LightPath and CDGM would each own a 50% interest in a joint venture which would be organized under the name "LightPath CDGM Chengdu Optical Co., Ltd." and located in Chengdu, China. The initial business purpose of the joint venture was to develop, mold, and manufacture aspheric lenses with a diameter of less than 20 mm for high volume visible imaging applications for cell phones, digital cameras and video equipment as well as assemble modules that will include the lenses for such applications. It was intended that the joint venture would sell and distribute its products in China and international markets and would provide technical and after-sale services. The target production volume of the joint venture was one million lenses per month, which the parties believed could have been achieved after 12 months of manufacturing operations.

The joint venture was contingent on, among other things, the contribution of $5,000,000 of initial funding from each of the two joint venturers. Because we were unable to raise the funds necessary to make the initial capital contribution, CDGM and we have terminated the joint venture contract on September 28, 2008.

In the absence of the joint venture, LightPath will continue its strategy to enter into the imaging lens market using its existing capacity at its Shanghai facility but on a significantly lesser scale.

Subsequent Event

On August 1, 2008, we executed a Securities Purchase Agreement with twenty-four institutional and private investors with respect to a private placement of 8% senior convertible debentures (the "Debentures"). The sale of the Debentures generated gross proceeds of approximately $2,929,000. We will use the funds to provide working capital for its operations. Among the investors were Steven Brueck, J. James Gaynor, Louis Leeburg, Robert Ripp, Gary Silverman and James Magos, all of whom were directors or officers of LightPath as of August 1, 2008. Mr. Magos resigned effective September 2, 2008.

The maturity date of the Debentures is August 1, 2011, on which date the outstanding principal amount of the Debentures, plus accrued but unpaid interest will be due. Interest on the Debentures is payable quarterly commencing on October 1, 2008 and may be paid in cash or our common stock. The interest due on October 1, 2008 was prepaid by the company on August 1, 2008 by issuing 27,893 shares of common stock in payment of such interest. The Debentures are secured by substantially all of our previously unencumbered assets pursuant to a Security Agreement and are guarantied by our wholly-owned subsidiaries, Geltech Inc. and LightPath Optical Instrumentation (Shanghai), Ltd. pursuant to a Subsidiary Guarantee.

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

Investors who participated in our July 2007 common stock private placement equity were offered an incentive to invest in the current offering. Four investors from the July 2007 offering participated in the current offering and as a result we reduced the exercise price of the warrants they received in the July 2007 offering from $5.50 per share to $2.61 per share. Additionally, such investors were issued an aggregate of 73,228 incentive common shares (the "Incentive Shares").

We have agreed to pay a commission to the exclusive placement agent for the offering, First Montauk Securities Corp, in an amount equal to $216,570 plus costs and expenses. We also issued to First Montauk and its designees warrants to purchase an

aggregate of 190,195 shares of our common stock at an exercise price equal to $1.68 per share, which is 120% of the closing bid price of the our common stock on the NASDAQ Capital Market on July 31, 2008. In addition, the exercise price of 50% of the warrants issued to the First Montauk and its designees at the closing of the July 2007 financing was reduced to $2.61 per share.

The private placement is exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act (in that we sold the Debentures and Warrants in a transaction not involving any public offering) and pursuant to Rule 506 of Regulation D promulgated thereunder. None of the shares into which the Debentures are convertible, the shares issuable upon exercise of the Warrants or the Incentive Shares have been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration. We have agreed to cause the shares to be issued upon conversion of the Debentures and the shares issuable upon exercise of the Warrants and the Incentive Shares to be registered for resale with the Securities and Exchange Commission.

We and the investors executed a Registration Rights Agreement dated August 1, 2008, pursuant to which we have undertaken the obligation to file with the Securities and Exchange Commission, and to cause to be declared effective, a registration statement to register the shares into which the Debentures are convertible, the shares issuable upon exercise of the Warrants and the Incentive Shares.

Liquidity and Capital Resources

History:

From February 1996 (when our IPO occurred) through fiscal 2002, inclusive, we raised a net total of approximately $87 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 2008, 2006, 2005 and 2004 we raised approximately $3.0 million, $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 through fiscal 2008, 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 2008 and 2007. We have developed our operating plan for fiscal 2009 and forecasted revenues and cash flows. We believe we currently have adequate financial resources for implementation and achievement of our fiscal 2009 operating plan and to sustain operations as currently conducted in the coming year. The cost savings generated in fiscal 2008 due to the reduced rent obligations on the facility in Orlando and the salary reductions in Orlando will continue through fiscal 2009.

Going Concern and Management's Plans

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. Because of recurring operating losses during 2008 and 2007 of $5.5 million and $2.6 million, respectively, and cash used in operations during 2008 and 2007 of $3.6 million and $1.9 million, respectively, there is substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on attaining profitable operations through achieving revenue growth targets.

We have instituted a cost reduction program and have reduced headcount in Orlando and costs for medical insurance for our employees. In addition, we have redesigned certain product lines, increased sales prices on certain items, obtained more favorable material costs, and have instituted more efficient management techniques. We believe these factors will contribute towards achieving profitability assuming we meet out sales targets. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We have developed an operating plan for fiscal 2009 and we believe we have adequate financial resources for achievement of that plan and to sustain our current operations in the coming year. Nevertheless, we 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. We had a cash balance of approximately $358,000 at June 30, 2008. In August 2008, we raised approximately $2.9 million from the sale of convertible debentures and warrants. We may still seek external debt or equity financing if it can be obtained in an amount and on terms that are acceptable; however, we may be required to seek external financing regardless of whether the terms would otherwise be acceptable if our financial resources are not sufficient to sustain its operations or to pursue its business plan. There can be no assurance that any external financing will be available when we may need it.

The fiscal 2009 operating plan and related financial projections we have developed anticipate sales growth primarily in the infrared products and the low cost high volume products for the imaging markets in Asia, which are new markets for us. We expect margin improvements based on production efficiencies and reductions in product costs as a result of the shifting of our manufacturing operations to Shanghai, offset by marginal increases in selling, administrative and new product development expenditures. However, there is no assurance we will be able to achieve the necessary sales growth and gross margin improvements to sustain operations. Factors which could adversely affect cash balances in future quarters include, but are not limited to, a decline in revenue or a lack of anticipated sales growth, increased material costs, increased labor costs, planned production efficiency improvements not being realized, increases in property, casualty, benefit and liability insurance premiums and increases in other discretionary spending, particularly sales and marketing related.

Cash Flows:

Cash used by operations during fiscal 2008 was approximately $3.4 million, an increase of approximately $1.9 million from fiscal 2007. During the course of fiscal 2008, we incurred expenses of approximately $1.3 million, caused by glass yield issues, overtime for direct labor, legal expenses for the Harborview litigation, severance and executive search fees for our CEO, travel for engineering and management to resolve issues at our Shanghai facility, and freight and duty expenses. We do not anticipate these types of expenses to continue at this level in fiscal 2009. We anticipate lower glass costs by replacing an internally fabricated material with purchased materials from suppliers in Asia and lower coating costs due to larger unit volumes which are expected to improve our cash flow in future years.

While progress has been made to reduce operating cash outflow since fiscal 2004, significant risk and uncertainty remains. Our cash used by operations was approximately $334,000 for the fourth quarter of fiscal 2008. Cost cutting measures were implemented in fiscal 2008 but revenues were not high enough to cover fixed costs. The fiscal 2009 operating plan and related financial projections which we have developed anticipate continued sales growth and continuing margin improvements based on production efficiencies and reductions in product costs, offset by marginal increases in selling, administrative and new product development expenditures.

During fiscal 2008, we expended approximately $660,000 for capital equipment in comparison to $830,000 during fiscal 2007. The majority of the capital expenditures during fiscal 2008 were related to equipment used to enhance or expand our production capacity or for tenant improvements due to the reduction in space at our Orlando facility. The majority of the capital expenditures during fiscal 2007 were related to equipment used to enhance or expand our production capacity. Our operating plan for fiscal 2009 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 $3,200,000 by way of the sale of newly issued common stock and warrants to certain institutional and private investors. 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 its investment and reimbursement of the investor for its expenses incurred in connection with transaction. The demand was based on the investor's allegations that we failed to disclose facts material to the investor in making its investment decision (for example, alleged omissions relating to the termination of the employment of Kenneth J. Brizel, our then 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 merit to the investor's claims and responded to the investor rejecting the demand.

On October 24, 2007, we were served with a complaint filed by the investor against the Company, Mr. Brizel, and Mr. Ripp, our Chairman, in the United States District Court for the Southern District of New York. In the complaint, the investor is seeking, among other things, rescission of its purchase and the return of its $500,000 investment, as well as reimbursement of expenses incurred in connection with its investment. On January 31, 2008, after we filed a motion to dismiss the original complaint, the investor filed an amended complaint making substantially the same allegations and seeking the same relief. On March 28, 2008, we filed a motion to dismiss the amended complaint in its entirety, and that motion is currently pending. We believe there is no merit to the investor's claims and intends to vigorously defend against this litigation.

On May 8, 2008, we entered into a receivables purchase and security agreement with LSQ Funding Group, LC. ("LSQ"). The agreement provided a $600,000 revolving line of credit, with all accounts receivable invoices serving as collateral. Certain domestic customers were identified to participate in this program. The agreement was for a six-month term, with an option to renew for additional six-month periods which we will not exercise. As of June 30, 2008 the loan balance to LSQ was $260,828. We presented accounts receivable invoices and received 85% of the invoice balance immediately. Interest was set at prime plus two percent. A 2.5% discount fee was charged upon the funding of each invoice. Invoices sold to LSQ which remain outstanding over ninety days past the due date are required to be re-purchased. Once amounts due under a sold invoice are paid to LSQ the balance after retention by LSQ of amounts funds by LSQ for such invoice is transferred to us. We have delivered notice to LSQ that the agreement will not be renewed and, therefore, it will expire on November 1, 2008. No termination fee is payable to LSQ as the minimum funding required in the agreement has been met.

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 their entire source of supply of a critical component to foreign merchant production sources. We also continue to have the proprietary GRADIUM lens glass technology to offer to certain laser markets.

Our key indicators

Usually on a weekly basis, management reviews a number of performance indicators. Some of these indicators are qualitative and others are quantitative. These indicators change from time to time as the opportunities and challenges in the business change. They are mostly non-financial indicators such as units of shippable output by major product line, production yield rates by major product line and the output and yield data from significant intermediary manufacturing processes that support the production of the finished shippable product. These indicators can be used to calculate such other related indicators as fully yielded unit production per-shift, which varies by the particular product and our state of automation in production of that product at any given time. Higher unit production per shift means lower unit cost and therefore improved margins or improved ability to compete where desirable for price sensitive customer applications. The data from these reports is used to determine tactical operating actions and changes. We believe that our non-financial production indicators, such as those noted, are proprietary information.

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:

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:

                                                   Approximate
                                                    Disclosure
                     Fiscal Quarter     Ended        Backlog
                     Q4-2008          6/30/2008    $  2,995,000
                     Q3-2008          3/31/2008    $  3,054,000
                     Q2-2008          12/31/2007   $  2,693,000
                     Q1-2008          9/30/2007    $  2,653,000
                     Q4-2007          6/30/2007    $  1,849,000
                     Q3-2007          3/31/2007    $  2,076,000

Our disclosure backlog at June 30, 2008 was $3.0 million. Due to market conditions, throughout fiscal 2008 new communications orders were lower from the previous year. We believe the upward trend in the disclosure backlog was principally caused by our new focus on the imaging market.

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)
                     Q4-2008          6/30/2008        66
                     Q3-2008          3/31/2008        81
                     Q2-2008          12/31/2007       70
                     Q1-2008          9/30/2007        78
                         Fiscal 2008 average           74
                     Q4-2007          6/30/2007        76
                     Q3-2007          3/31/2007        72
                     Q2-2007          12/31/2006       57
                     Q1-2007          9/30/2006        46

In comparison, our days cost of sales in inventory at June 30, 2007 was 76, comparing to 66 at June 30, 2008. We believe this downward trend in inventory was principally caused by the standard cost reevaluation in December 2007 reflecting our lower costs due to manufacturing in China. We expect inventory levels to decline through fiscal 2009 as we continue to reduce costs.

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 30-45 days. The most important aggregate measure of accounts receivable is the quarter's ending balance of net accounts receivable expressed as a number of days worth of the quarter's net revenues, also known as "days sales outstanding," or "DSO." It is calculated by dividing the quarter's ending net accounts receivable by the quarter's net revenues, multiplied by 365 and divided by 4. Generally, a lower DSO measure equates to a lesser investment in accounts receivable and therefore more efficient use of capital. The table below shows our DSO for the immediately preceding eight fiscal quarters:

                      Fiscal Quarter     Ended      DSO (days)
                      Q4-2008          6/30/2008        51
                      Q3-2008          3/31/2008        59
                      Q2-2008          12/31/2007       53
                      Q1-2008          9/30/2007        53
                          Fiscal 2008 average           55
                      Q4-2007          6/30/2007        56
                      Q3-2007          3/31/2007        61
                      Q2-2007          12/31/2006       48
                      Q1-2007          9/30/2006        42

Our days sales outstanding at June 30, 2007 was 56, compared to 51 at June 30, 2008. We plan to monitor our collections efforts to keep this key indicator as low as reasonably possible and strive to have it no higher than 55. We have noticed an increase in DSO as more of our revenues are from international customers who tend to take longer to pay.

Year ended June 30, 2008 compared to the year ended June 30, 2007

Consolidated Operations

Our consolidated revenues totaled $8.8 million for fiscal 2008, a decrease of . . .