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As filed with the Securities and Exchange Commission on December 1, 2000
REGISTRATION NO. 333-49554
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-2A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OPTELECOM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1010850
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification Number)
9300 Gaither Road
Gaithersburg, Maryland 20877
(301) 840-2121
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
Irving Zaks
President
Optelecom, Inc.
9300 Gaither Road
Gaithersburg, Maryland 20877
(301) 840-2121
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
David L. Lowans, Esq.
Karp Frosh Lapidus, Wigodsky & Norwind, P.A.
1370 Piccard Drive
Suite 290
Rockville, Maryland 20850
(301) 258-1994
Approximate date of commencement of proposed sale to the public: December 10,
2000 { } If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. {X} If the registrant elects
to deliver its latest annual report to security holders, or a complete and
legible facsimile thereof, pursuant to Item 11 (a) (1) of this Form, check the
following box. {X}
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Amount Proposed Proposed Amount of
Class of To Be Maximum Aggregate Registration
Securities to Registered Offering Price Offering Fee (1)
Be Registered ---------- Per Unit (1) Price (1) ------------
---------------- ------------ ---------
<S> <C> <C> <C> <C>
Common Stock 700,000 $ 4.00 $ 2,800,000 $ 739
($.03 par value per share)
--------------
</TABLE>
(1) Estimated pursuant to Rule 457 for the purpose of calculating the
registration fee only; based upon the average of the high and low sales prices
for the Common Stock on November 2, 2000. Registration fee is calculated
pursuant to Rule 457. Fee was paid with original registration made on
November 8, 2000.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
SUBJECT TO COMPLETION DATED December 1, 2000
PROSPECTUS
OPTELECOM, INC.
700,000 Shares of Common Stock
This Prospectus relates to the registration by Optelecom, Inc. (the
"Company") of 700,000 shares of common stock, $.03 par value per share (the
"Common Stock"), of the Company that the Company is issuing in compliance with
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act").
It is anticipated that the 700,000 shares of Common Stock covered by this
Prospectus ("the Shares") will be sold from time to time by the Company in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions or otherwise at market prices prevailing at
the time of sale, at prices related to such market price, or at prices otherwise
negotiated. The brokers and dealers through which sales of the Shares may be
made, may be deemed to be "underwriters" within the meaning of the Securities
Act, and the commissions or discounts and other compensation of such brokers and
dealers may be regarded as underwriters' compensation. The Company will receive
all of the proceeds from the sale of the Shares, less agreed upon commissions to
be paid to the selling brokers and dealers. All expenses of registration (other
than commissions and discounts or fees payable to broker-dealers and
underwriters), estimated at $ 21,739 are being borne by the Company. See "Plan
of Distribution" and "Use of Proceeds."
The Common Stock is traded on the NASDAQ SmallCap Market under the symbol
OPTC. On November 2, 2000, the closing sale price per share for the Common Stock
was $3.875.
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Information regarding the risks associated with an investment in the Common
Stock is discussed under the caption "Risk Factors" beginning on page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THERE IS NO UNDERWRITING
AGREEMENT BETWEEN ANY BROKER-DEALER AND THE COMPANY
RELATING TO THE SECURITIES OFFERED IN THIS PROSPECTUS.
The date of this Prospectus is December 1, 2000
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. The prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such State.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information......................................................................... 5
Incorporation of Certain Documents by Reference............................................... 6
Forward-Looking Statements.................................................................... 7
Risk Factors.................................................................................. 7
The Company................................................................................... 12
The Offering.................................................................................. 13
Use of Proceeds............................................................................... 13
Description of Securities..................................................................... 13
Plan of Distribution.......................................................................... 14
Legal Matters................................................................................. 15
Experts....................................................................................... 15
Material Changes.............................................................................. 15
Disclosure of Commission Position on Indemnification for Securities Act Liability............. 15
</TABLE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is unlawful
to make such offer or solicitation.
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AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information filed by the Company can be
inspected and copied at the regional offices of the SEC at 7 World Trade Center,
13th Floor, New York, New York 10048, and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60612, and can also be
inspected and copied at, and copies obtained at prescribed rates from, the
Public Reference Room of the SEC at its principal office at Judiciary Square,
450 Fifth Street, NW, Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Such materials can also be accessed electronically through the Commission's web
site (http:/www.sec.gov). The Company's Common Stock is traded on the Nasdaq
SmallCap Market, and reports and other information relating to the Company may
also be inspected at the offices of the Records Department of the Nasdaq Stock
Market, 1735 K Street, NW, Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-2A with the SEC
under the Securities Act of 1933 as amended, with respect to the securities
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto, certain portions
of which have been omitted as permitted by the rules and regulations of the SEC.
For further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and the exhibits filed
as a part thereof. Statements contained herein concerning any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated in this Prospectus by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December 31,
1999;
(2) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000;
(3) The Company's Annual Report to Shareholders dated April 27, 2000;
(4) Form S-3 filed by the Company on April 25, 2000 registering 500,000 shares
of common stock, $.03 par value per share; and
(5) Form S-2A filed by the Company on May 25, 2000, an amendment to the Form S-
3 dated April 25, 2000 registering 500,000 shares of common stock, $.03 par
value per share; and
(6) Form S-8 filed by the Company on October 20, 2000 registering 500,000
shares of common stock, $.03 par value per share, for the Company's newly
adopted Employee Stock Purchase Plan and 2000 Non-Qualified Stock Option
Plan.
(7) Form S-2 filed by the Company on November 8, 2000 registering 700,000
shares of common stock, $.03 par value per share.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15 (d) of the Exchange Act prior to the termination of the offering
of the shares of Common Stock hereunder shall be deemed to be incorporated by
reference herein. These documents shall be deemed to be modified or replaced for
purposes of this Prospectus and the Registration Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein modifies or
replaces such statement. Any such statement so modified or replaced shall not
be deemed, except as so modified or replaced, to constitute a part of this
Prospectus or the Registration Statement.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon written or oral request of such person, a copy of any or all
of the documents incorporated by reference herein, other than exhibits to such
documents not specifically incorporated by reference. Such requests should be
directed to Optelecom, Inc., 9300 Gaither Road, Gaithersburg, Maryland 20877,
Attention: Thomas F. Driscoll (telephone (301) 840-2121).
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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FORWARD-LOOKING STATEMENTS
This Prospectus, including all documents incorporated herein by reference,
includes "forward-looking statements" within the meaning of the Private
Securities Litigation Act of 1995 (the "Reform Act"). The Reform Act provides a
"safe harbor" for forward-looking statements and to encourage companies to
provide prospective information about their companies, so long as those
statements are identified as forward-looking and are accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those discussed in the statement. The Company
desires to take advantage of the "safe harbor" provisions of the Reform Act.
Except for the historical information contained herein, the matters discussed in
the Prospectus are forward-looking statements which involve risks and
uncertainties. Although the Company believes that the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be achieved. Important factors
that could cause actual results to differ materially from the Company's
expectations are disclosed in conjunction with the forward-looking statements or
elsewhere herein.
RISK FACTORS
In evaluating an investment in the Shares, prospective purchasers should
carefully consider the following factors as well as the other matters discussed
in this Prospectus and the documents incorporated herein by reference.
Fluctuations in Financial Performance
The Company has experienced and may in the future continue to experience
fluctuations in its quarterly and annual operating results. Factors that may
cause the Company's operating results to vary include, among other things,
customer purchasing patterns, changing technology, new product transitions,
delays in new product introductions, shortages of system components, changes in
the mix of products and services sold, the timing of investments in additional
personnel, facilities and research and development. As a result of the impact
of these and other factors, past financial performance should not be considered
to be a reliable indicator of the future performance in any particular fiscal
period. The Company is limited in its ability to reduce expenses quickly in
response to any revenue shortfalls, therefore the Company's business, financial
condition and operating results would be adversely affected if increased
revenues were not achieved. For example, the unaudited revenue for the nine
months ended September 30, 2000 was $7,366,874 compared to $9,220,783 for the
same period of 1999. The Optical Products revenue for the nine months ended
September 30, 2000 was $5,763,000 compared to $6,457,000 in the same period of
1999. The Video Communications Unit had revenue of $1,664,000 and $2,804,000
for the same two periods. The Company had revenues for the year ended
December 31, 1999 of $12,636,892, down from $16,333,749 for the same period of
1998. Total revenues increased to $16,333,749 for the twelve months ended
December 31, 1998 compared to $12,271,057 for the same period in 1997. The
increase was attributable in large part to the acquisition of Paragon Audio
Visual Limited ("Paragon") in December, 1997 (now a part of the Video
Communications Unit); Paragon's revenues of $6,041,787 were included with those
of the Company for the twelve months ended December 31, 1998 but not for the
same period in 1997. The Optical Products Unit had revenues of $9,440,804 for
the twelve months ended December 31, 1999 compared to$10,291,962 for the same
period in 1998. The Video Communications Unit had revenues of $3,196,088 for
the year ended December 31, 1999, a decrease of $2,845,699 from the year ended
December 31, 1998. The unaudited loss before taxes for 2000 is $4,846,060
compared to a loss of $191,608 for the same period of 1999. The 2000 loss
reflects the $1,925,000 write off of intangibles and goodwill, the $700,000
inventory write off and the $300,000 in restructuring charges, all of which were
recorded in the third quarter of 2000. The loss in the Optical Products Unit
was $4,198,000 in the first nine months of 2000 compared to a profit of $171,000
for the same period of 1999 and reflects to affect of the third quarter 2000
write offs. The Video Communications Unit had a nine month loss in 2000 of
$648,000 compared to a loss of $363,000 in 1999 and is a result primarily of
lower revenues in 2000. Optelecom had a consolidated loss of $495,742 for the
year ended December 31, 1999 compared to a consolidated loss of $3,130,152 for
the same period of 1998. Operating profit for the Optical Products Unit was
$247,575 for the year ended December 31, 1999 but it had a loss of $129,934 in
the same period of 1998. This Unit had operating profits in 1999 because it had
lower product development costs as well as reduced selling and marketing costs
as a result of fewer personnel in these departments. The Video
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Communications Unit's operating loss for 1999 was $743,317 compared to a loss of
$3,000,718 in 1998. The loss in 1998 was a result of a write off of goodwill
associated with the purchase of Paragon Audio Visual. Also, significantly lower
travel and entertainment costs were incurred in 1999. The Company incurred a net
loss of $2,811,344 for the twelve months ended December 31,1998 compared to net
income of $948,729 for the same period in 1997. The major factors contributing
to the loss in 1998 included expenses related to the acquisition of Paragon of
$2,200,000 (write-down of employment contracts of $1.4 million, amortization
expense of goodwill and intangibles in the amount of $465,000 and interest
expense of $335,000), an increase of inventory and accounts receivables reserves
of $543,000, employee termination related charges of $620,000 and a change in
product mix. There can be no assurance that the Company will return to
profitability in any future period.
Impairment of Assets and Operational Changes
In response to developments in the marketplace, a comprehensive analysis of
Optelecom's core competencies, and establishing the Company's strategic
direction demands of penetrating the delivery of video information marketplace,
the Company has restructured in order to maximize efficiencies as follows:
First, we have established the Optical Products Unit. This segment of the
business will be responsible for the delivery and growth of the legacy set of
products that transports video over dedicated and shared fiber optic systems
from remote sensors to customers' control and monitoring centers. Presently
this Unit serves the Intelligent Traffic, Security, Audio-Visual, and
instrumentation marketplace. This unit includes the new Digital Video, PixelVue
and PixelStream products in addition to the Company's legacy products. Also,
included in this Unit are the optical coil products that are used in gyro
systems and our dispersion coils that are used in complex optical communications
systems. Optelecom believes by focusing the sales and delivery of these
optically wound coils in this business unit, it can anticipate a significant
increase in sales as a result of the increasing delivery in the number of
complex optical systems in the marketplace. This Unit will be responsible for
the development of new products, strategic alliances, worldwide distribution
channels, and growth of these businesses.
Second, the Company has organized a Video Communications Unit to exploit
its core competencies in optical components, video compression techniques, and
distribution technologies to focus on the video distribution and delivery
marketplace. Optelecom strongly believes that its core competencies in video
compression techniques positions it for the delivery of a set of products to
cost effectively provide video teleconferencing capabilities, long distance
learning, collaboration, and other forms of video streaming capability to the
marketplace. This Unit will also provide the leadership for the Paragon
PC/Video products unit, headquartered in London, which has had a long history of
providing systems with the capability to distribute video information over the
CAT5 cable systems already in place in an enormous number of facilities, both
residential and industrial, worldwide. By combining these capabilities this
Unit can synergistically manage the development of video information delivery
technology for both new and legacy markets. In addition, this Unit will manage
the development, and business growth strategy of our Fiber-To-The-Home "FTTH"
business. By teaming with the Optical Products technical capabilities, and
understanding the competitive and other business issues of providing this
capability to the marketplace, the Company believes that the development of a
cost efficient approach to solving the FTTH issues are within its reach. This
Unit will be responsible for the management of this internal development effort.
It has been determined that it will cost approximately $300,000 to achieve this
action and it will be completed in the fourth quarter of 2000.
In connection with the reduction in product offerings, the Company
determined that there was inventory on hand associated with products that would
not be actively sold and therefore considered to be of no value to the Company.
Optelecom reduced the value of its inventory by approximately $700,000 in the
third quarter of 2000.
As a result of its comprehensive evaluation, the Company determined that
certain assets were impaired and were recorded at a value greater than that
expected to be realizable in the marketplace. The intangible assets associated
with the purchase of Paragon Audio Visual, Ltd., technology, its customer list
and company name had a book value of approximately $1,735,000 in September 2000.
It was decided in the third quarter of 2000 that Paragon was marketing and
selling products developed, engineered and manufactured by Optelecom. Therefore
the value of the technology originally purchased had no future value to the
Company. In addition, Paragon is now marketing the new products to a different
client base. Therefore the old customer
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list had no future value to Paragon. The remaining intangible asset acquired,
the Paragon Audio Visual, Ltd. company name, has value in the marketplace only
by being associated with Optelecom, Inc. and the new products and client base it
is serving, and plans to serve in the future. Optelecom concluded that any value
of the name was associated with the former customer list that was determined to
have no future value to Optelecom. The Company therefore concluded that the
intangible assets associated with Paragon had no value to the Company and were
completely written off in the third quarter of 2000.
Further, Optelecom believed that as a result of the impairment of the
intangible assets and the value of the other assets originally acquired, the
excess value assigned over the purchase price associated with goodwill was also
impaired and was written off in its entirety in the third quarter of 2000, an
expense of approximately $190,000.
Nature of Operations and Business Conditions
The Company has the ability, provided there are sufficient accounts
receivable and inventory, to borrow up to $1,700,000 under its existing bank
line-of-credit. During 1999, the Company experienced negative cash flows from
operations and, as of December 31, 1999, the Company had borrowed the maximum
amount available under its revolving line-of-credit agreement. In September
1999, the Company negotiated and received a six-month deferral on principal
payments due under a long term promissory note agreement in consideration for
continued interest payments and increased principal payments over the remaining
term of the note. The Company was not in compliance as of December 31, 1999
with certain ratio requirements of its line-of credit agreement, which
requirements were subsequently waived by the bank. These conditions resulted
primarily from a high operating cost structure, particularly at the Paragon
subsidiary, expenses incurred in resolving ongoing litigation associated with
the Paragon acquisition, a decline in revenue at the Paragon subsidiary related
to a reluctance by European customers to make new equipment purchases due to
Year 2000 issues, and extended payment terms provided to certain customers
making major purchases.
During 1999, the Company implemented significant cost cutting measures and
it settled its Paragon litigation. Subsequent to December 31, 1999, cash has
been collected from the customers who made major purchases, the Company has
received $1,047,395 from the exercise of stock options, the Company has received
$500,000 from the private sale of newly issued, unregistered common stock, the
Company has received $4,319,316 from the sale of newly issued and registered
common stock, the Company has paid approximately $1,700,000 under the line-of-
credit agreement, and the Company has commenced making principal payments under
the promissory note agreement, reducing the outstanding balance to $1,375,000 at
October 31, 2000. On May 25, 2000 the Company's line-of-credit agreement was
renewed for one year and will expire on May 31, 2001, subject to renewal at that
time. Terms and conditions of the agreement are: interest at 150 basis points
above the bank's prime rate, availability up to $1,700,000 limited to the sum of
80% of eligible accounts receivable and 40% of eligible inventories to a maximum
of $600,000 and subject to financial ratio covenants on a quarterly and fiscal
year-end basis. On November 3, 2000, the Company had $1,700,000 available under
its existing line-of-credit. Management currently believes that the Company
will have sufficient liquidity from its operations, prior stock sales and line-
of credit agreement to meet its current obligations. Should the bank not extend
the line of credit agreement in May 2001 or if the Company continues to
experience negative cash flows from operations, the Company may be required to
seek new sources of financing, including using a larger than anticipated portion
of the proceeds of the sale of the Shares, to meet its current obligations.
Continued negative cash flows or the inability to obtain alternative financing
could have a material adverse affect on the Company's operations.
Dependence On Major Customers
Historically, a relatively small number of customers have accounted for a
significant portion of the Company's revenues in any particular period. For the
twelve months ended December 31, 1999 approximately 22% of the Company's
revenues were accounted for by sales to the U.S. Government and two commercial
customers. The Company anticipates that sales of its products to relatively few
customers will diminish in magnitude over the next few years. In the event of a
reduction, delay or cancellation of orders from one or more significant
customers or if one or more significant customers select products from one of
the Company's competitors for inclusion in future product generations, the
Company's business, financial condition and operating results could be
materially and adversely affected. There can be no assurance that the Company's
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current customers will continue to place orders with the Company, that orders by
existing customers will continue at current or historical levels or that the
Company will be able to obtain orders from new customers. The loss of one or
more of the Company's current significant customers could materially and
adversely affect the Company's business, financial condition and operating
results.
Risk of Government Audit
Government contracts are subject to audits, and contract payments in excess
of allowable costs are subject to adjustment and repayment. Based on its
interpretation of contracting regulations and past experience, the Company
believes that cost disallowances, if any, on government contracts will not be
material, but there can be no assurance in that regard. Audits have been
completed for all contract years through 1996.
Technological Change
The Company's communication products are sold in markets that are subject
to rapid technological change. The Company's future success will depend in part
upon its ability to enhance its current products and to develop and introduce
new products that keep pace with technological developments and emerging
industry standards and that address the increasingly sophisticated needs of its
customers. There can be no assurance that the Company will be successful in
developing and marketing such products or producing enhancements that meet these
changing demands, that the newly introduced products will be commercially
viable, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of these products
or that its new products and product enhancements will adequately meet the
demands of the marketplace and achieve market acceptance. The Company's
inability to develop and introduce new products or product enhancements in a
timely manner, or its failure to achieve market acceptance of a new product
could have a material adverse effect on the Company.
Competition
The Company faces intense and increasing competition from a large number of
competitors, some of which are larger than the Company and have larger product
development, research and sales staffs. To enhance the technological innovation
of its products, the Company has recently increased the size of its engineering
and development staff. There can be no assurance, however, that the Company's
competitors will not develop products that are more effective than the Company's
or that would render the Company's products obsolete or non-competitive.
Furthermore, the Company's ability to expand commercial sales of its products is
dependent in part upon its becoming more competitive with respect to
manufacturing efficiency and marketing capabilities. The Company has recently
increased its investment in manufacturing capabilities and the size of its sales
and production staffs for communication products. There can be no assurance,
however, that these additions will provide the efficiencies and experience
necessary for an expansion of sales.
Paragon Operations
Paragon Audio Visual, Ltd., now a part of the Video Communications Unit,
was acquired in December 1997. A great amount of time and resources have been
expended since then to fully integrate Paragon's operations with Optelecom's. In
the third quarter of 2000, after a comprehensive analysis of all its operations,
Optelecom redefined its operational structure and put Paragon's operations
within the Video Communications Unit. (See "Impairment of Assets and Operational
Changes" on page 8 for further discussion). This part of the Video
Communications Unit suffered losses of $743,317 in 1999 and $3,000,718 in 1998,
part of which was a write off of goodwill associated with employee contracts.
This part of the Video Communications Unit is not expected to be profitable in
2000. In fact, after the comprehensive review of its operations made in the
third quarter of 2000, Optelecom determined that the value of the remaining
intangible assets and goodwill associated with the acquisition of Paragon were
impaired and the entire balance of $1,925,000 was written off in the third
quarter of 2000. As a result, all of the goodwill and intangible assets acquired
in the purchase of Paragon have been written off. It is expected that this part
of the Video Communications Unit will provide positive operating results in 2001
as a result of the new operational and organizational structure implemented in
the third quarter of 2000. However, there can be no assurance that profitable
operating results will, in fact, be achieved.
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International Markets
The Company has expanded its presence in international markets and may in
the future derive an even more significant portion of its revenues from these
markets. The Company's current and future international business activities are
subject to a variety of potential risks, including political, regulatory and
trade and economic policy risks. The Company will also be subject to the risk
attendant to translations in foreign currencies. These factors could also have
a material adverse effect on the Company.
Future Capital Needs; Uncertainty of Additional Funding
The Company believes that its existing capital resources, the proceeds from
the sale of the Shares and future operating cash flows will generate the funds
needed for its long-term cash requirements. If the Company's growth rate should
exceed expectations, if the Company should be unable to sell the Shares at
prices sufficient to meet the needs of the Company, or if the Company should
fail to generate the anticipated operating cash flows, the Company may be
required to seek additional funding. In those circumstances, the Company would
consider public or private debt or equity financing. There can be no assurance
that the Company will be able to sell the Shares or that additional financing
will be available in a timely manner or on acceptable terms. If issuing equity
securities raises additional funds other than the proceeds of this Offering,
further dilution to existing stockholders may result. If adequate funds are not
available when needed, the Company may be required to delay, scale back or
eliminate its product research and development and overhead costs. The
Company's access to funds could be negatively impacted by the volatility of the
price of our common stock.
Need To Attract And Retain Key Employees
The Company is substantially dependent on the business and technical
expertise of its senior management and on its ability to attract and retain key
management and technical employees. The loss of members of senior management or
of other key employees or the Company's inability to attract and retain other
employees with necessary business or technical skills in the future could have a
material adverse effect on the Company's business.
Shareholders Rights Plan
On June 15, 1998 the Company adopted a shareholders rights plan that
provides for a dividend distribution of one right for each outstanding share of
common stock. In the event that, following the Distribution Date (as defined) a
person is or becomes the beneficial owner of 10% or more of the then outstanding
shares of Common Stock, each Right Holder may purchase three (3) shares of
Common Stock at a price per share equal to 50% of the then current market price
of the Common Stock. As of December 31, 1998, the Company has reserved 5,400,000
shares of authorized but unissued common stock for issuance under the
shareholders rights plan.
Price Volatility In Public Market
The Company's Common Stock currently trades on the NASDAQ SmallCap Market.
The securities markets have from time-to-time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of the
Company. In addition, the market prices of the common stock of many publicly
traded technology companies have in the past been, and can in the future be
expected to be, especially volatile. Announcements of technological innovations
or new products of the Company or its competitors, developments or disputes
concerning proprietary rights, publicity regarding products under development by
the Company or its competitors, regulatory developments in both the United
States and foreign countries, changes in financial estimates and recommendations
by security analysts, economic and other external factors, as well as period-to-
period fluctuations in the Company's operating and product development results,
may have a significant impact on the market price of the Company's Common Stock.
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Recent Developments
In the Third Quarter of 2000, the Company sold the remaining 450,000 shares
of its common stock registered under the Form S-2A filed on May 25, 2000 for net
proceeds of approximately $4 million. Also in the third quarter of 2000, the
Company completed the private placement of 140,000 shares of common stock for a
total of $500,000 (See discussion under "Description of Securities" on page 13).
Also in the third quarter of 2000, the management of Optelecom, Inc. concluded
the Company was not optimally organized to allow the Company to take advantage
of current trends and associated opportunities in the marketplace. To this end,
the Company determined that certain assets were impaired and recorded a total of
$2, 925,000 to expense in the third quarter of 2000 to properly account for
these impairments (See discussion on page 8, "Impairment of Assets and
Operations Changes" for further details).
THE COMPANY
General
The Company was incorporated under the laws of Delaware in 1972. Its
business consists primarily of the development, manufacture, and sale of fiber
optic communications products and laser systems for commercial and military
customers and, through its subsidiary, the Company provides multi-media
integrated products for sending data to the desktop over copper wire. The
Company's principal executive offices are located at 9300 Gaither Road,
Gaithersburg, Maryland 20877. Its telephone number is (301) 840-2121.
The fiber optic communication business can be divided generally into two
operating divisions: the optical fiber/cable portion which supplies the media
for transporting optical signals, and the transmission equipment portion which
generates and receives the signals. The Company provides the equipment that
interfaces electrical signals to optical signals at the transmitter end of a
fiber optic communication link and provides complementary equipment that
converts optical signals to electrical form at the receiving end of the
communications link. The Company sells its products to users of these
communication systems or to system integrators that install the Company's
equipment in large communication networks. The Company and its Paragon
subsidiary provide equipment specifically designed for transmission over both
copper wire and optical fiber media of various combinations of voice, data and
video for a range of applications. The Company also addresses U.S. Government
defense-related markets for specialized and proprietary applications of fiber
optic technology.
Operating Units
The Company has restructured in order to maximize efficiencies as follows:
First, we have established the Optical Products Unit. This segment of the
business will be responsible for the delivery and growth of the legacy set of
products that transports video over dedicated and shared fiber optic systems
from remote sensors to customers' control and monitoring centers. Presently
this Unit serves the Intelligent Traffic, Security, Audio-Visual, and
instrumentation marketplace. This unit includes the new Digital Video, PixelVue
and PixelStream products in addition to the Company's legacy products. Also,
included in this Unit are the optical coil products that are used in gyro
systems and our dispersion coils that are used in complex optical communications
systems. Optelecom believes by focusing the sales and delivery of these
optically wound coils in this business unit, it can anticipate a significant
increase in sales as a result of the increasing delivery in the number of
complex optical systems in the marketplace. This Unit will be responsible for
the development of new products, strategic alliances, worldwide distribution
channels, and growth of these businesses.
Second, the Company has organized a Video Communications Unit to exploit
its core competencies in optical components, video compression techniques, and
distribution technologies to focus on the video distribution and delivery
marketplace. Optelecom strongly believes that its core competencies in video
compression techniques positions it for the delivery of a set of products to
cost effectively provide video teleconferencing capabilities, long distance
learning, collaboration, and other forms of video streaming capability to the
marketplace. This Unit will also provide the leadership for the Paragon PC/Video
products unit, headquartered in London, which has had a long history of
providing systems with the capability to distribute video information over the
CAT5 cable systems already in place in an enormous number of facilities
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both residential and industrial worldwide. By combining these capabilities this
Unit can synergistically manage the development of video information delivery
technology for both new and legacy markets. In addition, this Unit will manage
the development, and business growth strategy of our Fiber-To-The-Home business.
By teaming with the Optical Products technical capabilities, and understanding
the competitive and other business issues of providing this capability to the
marketplace, the Company believes that the development of a cost efficient
approach to solving the FTTH issues are within its reach. This Unit will be
responsible for the management of this internal development effort.
THE OFFERING
By this Prospectus, the Company is offering the Shares. The Company will
receive all proceeds from the sale of securities offered hereby, less brokers'
and dealers' commissions. See "Plan of Distribution."
USE OF PROCEEDS
The Company intends to use the proceeds from this Offering to retire long-
term debt of the Company, to provide working capital for the operations of the
Company (to the extent funds provided from the Company's operations are
inadequate for this purpose), to provide additional sales and marketing
resources in support of new and existing products and to fund continuing
research and development needs of the Company. It is anticipated that between
approximately twenty percent (20%) and thirty percent (30%) of the proceeds will
be used to retire long-term debt of the Company but there can be no assurance
that this will actually occur. The long-term debt of the Company that will be
retired currently bears an annual interest rate of the bank's prime rate plus
100 basis points (currently 10.5 percent) and matures in August 2002.
DESCRIPTION OF SECURITIES
The following statements with respect to the Company's securities are
subject to, and qualified in their entirety by reference to, the detailed
provisions of the Company's Certificate of Incorporation and Bylaws.
The Company is authorized to issue up to 15,000,000 shares of Common Stock,
$.03 par value, of which 2,806,931 shares were outstanding at November 2, 2000.
The Company has recently completed two (2) offerings of its common stock.
The first offering was a public offering of registered shares of common stock
pursuant to a Form S-2A Registration Statement filed May 25, 2000 offering
500,000 shares of stock. The Company has sold all of the shares offered to the
public at prices ranging from $3.49 to $10.90 per share raising an aggregate of
$4,319,316 in additional capital for the Company. These funds were used to
reduce the Company's revolving Line-of-Credit by $1,700,000 to zero and to pay
operating expenses. The balance is being retained by the Company to be used as
working capital.
In July of 2000, the Company completed private placement of 140,000 new,
unregistered shares of its common stock for total proceeds of $500,000. As part
of this transaction, the Company also issued warrants to the purchasers granting
them options to purchase up to an additional 40,000 unregistered shares of its
common stock at an exercise price of $7.00 per share. The purchasers were also
given certain registration rights regarding the shares purchased. The proceeds
from this offering were used for the payment of operating expenses.
All holders of Common Stock are entitled to one vote per share on any
matter coming before the stockholders for a vote, unless the matter is one upon
which by express provision of law, a different vote is required. The Common
Stock does not have cumulative voting rights, which means, in effect, that
holders of more than 50% of the shares can generally elect all the directors.
Each holder of Common Stock is entitled to receive ratably such dividends
on the Common Stock, if any, as may be declared by the Board of Directors out of
funds legally available therefor and, in the event of
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the liquidation, dissolution or winding-up of the Company, is entitled to share
ratably in all assets of the Company remaining after payment of liabilities.
Holders of Common Stock have no conversion, preemptive or other rights to
subscribe for additional shares, and there are no redemption rights or sinking
fund provisions with respect to the Common Stock. The outstanding shares of
Common Stock are validly issued, fully paid and nonassessable.
The Company has never paid any cash dividends on the Common Stock and does
not anticipate paying any such dividends in the foreseeable future.
Pursuant to the Company's Certificate of Incorporation and under Delaware
law, directors of the Company are not liable for monetary damages for breach of
their fiduciary duty as directors except (i) for a breach of the director's duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions by the
director not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for a willful or negligent declaration of an unlawful
dividend, stock purchase or redemption or (iv) for transactions from which the
director derived an improper personal benefit.
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company, Inc., 40 Wall Street, New York, New York 10005.
PLAN OF DISTRIBUTION
The Shares registered hereby may be sold from time to time by the Company
as the Company deems necessary to meet its capital needs, or by pledgees,
donees, transferees or other successors in interest, in one or more transactions
in the over-the-counter market, in negotiated transactions or otherwise at
market prices prevailing at the time of sale, at prices related to such market
prices or at prices otherwise negotiated.
The Company may sell some or all of the Shares in transactions involving
broker-dealers, who may act as agent or acquire the Shares as principal. At
present it is anticipated that the Company will use Branch Cabell and Company,
Inc., 919 E. Main Street, 17th Floor, PO Box 2278, Richmond, Virginia 23218 to
sell the Shares. Any broker-dealer participating in such transactions as agent
may receive commissions from the Company (and, if the broker-dealer acts as
agent for the purchaser of such Shares, from such purchaser). Broker-dealers
may agree with the Company to sell a specified number of Shares at a stipulated
price per Share and, to the extent such broker-dealers are unable to do so
acting as agents for the Company, to purchase as principals any unsold Shares at
the price required to fulfill the respective broker-dealer's commitment to the
Company. Broker-dealers who acquire Shares as principals may thereafter resell
such Shares from time to time in transactions (which may involve cross and block
transactions and which may involve sales to and through other broker-dealers,
including transactions of the nature described above) in the over-the-counter
market, in negotiated transactions and otherwise, at market prices prevailing at
the time of sale, at prices related to such market prices or at negotiated
prices, and in connection with such resales may pay to or receive from the
purchasers of such Shares commissions. The Company also may sell some or all of
the Shares directly to purchasers without the assistance of any broker-dealer.
At the time a particular offer of the Shares is made, if required, a supplement
to the Prospectus will be distributed, or a post-effective amendment to the
registration statement will be filed, which will set forth the number of shares
of Common Stock being offered and the terms of the offering, including the
purchase price, public offering price, name or names of any agents, dealers or
underwriters, any discounts, commissions and other items constituting
compensation from the Company and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Shares may be limited in its ability to engage
in market activities with respect to shares of Common Stock.
The Company will bear all fees and expenses incurred in connection with the
registration of the Shares, estimated at $21,739. The Company will maintain
the effectiveness of the Registration Statement with respect to the Shares for
so long as, in its sole opinion, it deems necessary to accomplish the purposes
of the Company.
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LEGAL MATTERS
The legality of issuance of the shares of Common Stock offered hereby has
been passed upon for the Company by Karp Frosh Lapidus, Wigodsky & Norwind,
P.A., Rockville, Maryland.
EXPERTS
The financial statements and the related financial statement schedule
incorporated in this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by reference, and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
MATERIAL CHANGES
Information on any material changes in the financial statements and
operating results of the Company are contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, the Company's Quarterly Form
10-Q for the three months ended March 31, 2000, the Company's Quarterly Form
10-Q for the three months ended June 30, 2000, the Company's Quarterly Form 10-Q
for the three months ended September 30, 2000 and any subsequent quarterly
filings with the SEC. Also, refer to page 7 of this filing, Impairment of Assets
and Operational Changes, that discusses actions taken by the Company in the
third quarter of 2000 that resulted in material changes to the Company's
financial statements.
DISCLOSURE OF COMMISSION POSITION ON INDEMNFICATION
FOR SECURITIES ACT LIABILITY
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to By-Laws of the Company or under Delaware law, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company of
expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or expected to be incurred in connection with the
issuance and distribution of the Common Stock that is the subject of this
Registration Statement, other than underwriting discounts and commissions
payable to the brokers and dealers
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who will sell the Shares on behalf of the Company. All such expenses are to be
borne by the Company. All the amounts shown are estimates except for the SEC
registration fee.
SEC Registration Fee.............................. $ 739
Blue Sky Filing Fees and Expenses................ 3,000
Printing Costs.................................... 2,000
Legal Fees and Expenses........................... 10,000
Accounting Fees and Expenses...................... 5,000
Miscellaneous..................................... 1,000
-------
TOTAL............................................ $21,739
Item 14. Indemnification of Directors and Officers.
Delaware General Corporation Law, Section 102(b) (7), enables a Corporation
in its certificate of incorporation to eliminate or limit personal liability of
members of its Board of Directors for monetary damages for breach of a
director's fiduciary duty of care. The elimination or limitation does not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was deemed illegal or obtaining
an improper personal benefit. The Company's Certificate of Incorporation
provides in effect for the elimination of the liability of directors to the
extent permitted by Delaware Law.
Delaware General Corporation Law, Section 145, permits a corporation
organized under Delaware law to indemnify directors and officers with respect to
any matter in which the director or officer acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. The Bylaws of the Company
entitle directors and officers of the Company to indemnification to the extent
permitted by Delaware law.
Directors and officers are also insured against certain liabilities under a
directors and officers' liability insurance policy maintained by the Company.
Item 16. Exhibits.
The following exhibits are filed herewith or incorporated herein by reference:
Exhibit
Number Exhibit
5 Opinion of Karp Frosh Lapidus, Wigodsky & Norwind, P.A. as to the
legality of the registered securities.
23 Consent of Karp Frosh Lapidus, Wigodsky & Norwind, P.A. (contained in
opinion filed as Exhibit 5).
23.1 Consent of Deloitte & Touche LLP, as independent auditors for the
Company.
Item 17. Undertaking.
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
this Registration Statement or any material change to such information in the
Registration Statement.
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For the purpose of determining any liability under the Securities Act of
1933, that each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
To remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the end of the offering.
That, for purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15 (d) of the Securities Exchange Act of 1934 that is incorporated by
reference in this Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2A and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Gaithersburg, State of Maryland, on December 1, 2000.
OPTELECOM, INC.
By:
-------------------------
Irving Zaks
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
/s/ Irving Zaks Director, President and December 1, 2000
--------------------------- Chief Executive Officer
Irving Zaks
/s/ Thomas M. Brandt, Jr. Director December 1, 2000
---------------------------
Thomas M. Brandt, Jr.
/s/ Clyde A. Heintzelman Director December 1, 2000
---------------------------
Clyde A. Heintzelman
/s/ Richard C. Kreter Director December 1, 2000
---------------------------
Richard C. Kreter
/s/ David R. Lipinski Director December 1, 2000
---------------------------
David R. Lipinski
/s/ Edmund D. Ludwig Director December 1, 2000
---------------------------
Edmund D. Ludwig
/s/ Carl C. Rubbo, Jr. Director December 1, 2000
---------------------------
Carl C. Rubbo, Jr.
/s/ Pradeep K. Wahi Director December 1, 2000
---------------------------
Pradeep K. Wahi
</TABLE>
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/s/ Thomas F. Driscoll Chief Financial Officer December 1, 2000
--------------------------- and Treasurer (Principal
Thomas F. Driscoll Financial Officer and Principal
Accounting Officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF EXHIBIT
5 Opinion of Karp Frosh Lapidus, Wigodsky & Norwind, P.A.
as to the legality of the registered securities.
23.1 Consent of Deloitte & Touche LLP, as independent auditors for
the Company.
18
