Prospectus
LIGHTPATH TECHNOLOGIES, INC.
1,840,000 Units, each consisting of one Share of Class A Common Stock and one
Redeemable B Warrant, issuable upon the exercise of outstanding Redeemable Class
A Warrants and 1,840,000 Shares of Class A Common Stock issuable upon the
exercise of Redeemable Class B Warrants underlying such Class A Warrants and
1,840,000 Shares of Class A Common Stock issuable upon the exercise of
outstanding Redeemable Class B Warrants Underlying such Class A Warrants
839,000 Redeemable Class A Warrants to Purchase 839,000 Shares of Class A Common
Stock and 839,000 Redeemable Class B Warrants to Purchase 839,000 Shares of
Class A Common Stock, and 2,517,000 shares of Class A Common Stock issuable upon
the exercise of such Class A and Class B Warrants
And
1,000,000 Shares of Class A Common Stock issuable upon the conversion of Series
A Preferred Stock and exercise of Redeemable Class C Warrants and Redeemable
Class D Warrants
Lightpath Technologies, Inc., a Delaware corporation (the "Company"),
hereby offers: (i) 1,840,000 Units ("Units") issuable upon the exercise of
1,840,000 Class A Warrants (the "Class A Warrants"), each unit consisting of one
share of Class A Common Stock, $.01 par value ("Class A Common Stock"), and one
redeemable Class B Warrant (the "Class B Warrants"); (ii) 1,840,000 shares of
Class A Common Stock issuable upon the exercise of Class B Warrants which are
presently outstanding, and (iii) 1,840,000 shares of Class A Common Stock
issuable upon the exercise of Class B Warrants underlying the Units. The shares
of Class A Common Stock and the Class B Warrants included in the Units will be
immediately separately transferable upon issuance and the Units will not trade
as a separate security. 1,600,000 of the outstanding Class A Warrants and Class
B Warrants (collectively, the "IPO Warrants") were issued in connection with the
Company's initial public offering ("IPO") in February 1996 of 1,600,000 Units
("IPO Units"), each IPO Unit consisting of one share of Class A Common Stock,
one Class A Warrant and one Class B Warrant. In March 1996, D.H. Blair
Investment Banking Corp. ("Blair"), as the underwriter of the IPO, exercised its
over-allotment option to purchase an additional 240,000 IPO Units. The Company
also registered in the IPO 839,000 Class A Warrants (the "Selling
Securityholders' Warrants") on behalf of certain selling securityholders (the
"Bridge Securityholders"), none of which have been sold to date by the Bridge
Securityholders. There are 1,840,000 Class A Warrants outstanding and 1,840,000
Class B Warrants outstanding as of the date of this Prospectus (excluding the
839,000 Warrants that continue to be held by the Bridge Securityholders (the
"Remaining Bridge Securityholders") and an option to Blair to purchase 160,000
Units, each composed similar to the IPO Units for an exercise price of $6.75 ,
("Unit Purchase Option"). Assuming the exercise of all presently outstanding
Class A Warrants, there will be 1,840,000 additional Class B Warrants issuable,
for a total of 3,680,000 Class B Warrants. Each Class A Warrant entitles the
holder to purchase one Unit at an exercise price of $6.50, subject to
adjustment. Each Class B Warrant entitles the holder to purchase, at an exercise
price of $8.75, subject to adjustment, one share of Class A Common Stock. The
Class A Warrants and the Class B Warrants are exercisable until February 22,
2001. The Warrants are subject to redemption by the Company for $.05 per
Warrant, upon 30 days' written notice, if the average closing bid price of the
Class A Common Stock exceeds $9.10 per share with respect to the Class A
Warrants and $12.25 per share with respect to the Class B Warrants (subject to
adjustment in each case) for 30 consecutive business days ending within 15 days
of the date the Warrants are called for redemption. The Class A Common stock is
one of four classes of the Company's Common Stock: Class A, Class E-1, Class E-2
and Class E-3 ( which are collectively referred to herein as the "Common
Stock").
This Prospectus also relates to 839,000 redeemable Class A Warrants of
Lightpath Technologies, Inc., 625,000 of which were issued to investors upon
conversion of other warrants issued to such investors in a
1
<PAGE>
private placement by the Company in November 1995, and 214,000 of which were
issued to other investors (collectively the "Bridge Securityholders") upon
conversion of certain notes issued by the Company in a private placement during
the first seven months of 1995. See "Selling Securityholders." This Prospectus
also relates to 839,000 Redeemable Class B Warrants issuable upon exercise of
the Class A Warrants and 1,678,000 shares of Class A Common Stock issuable upon
exercise of the Class A Warrants and Class B Warrants held or issuable to the
Bridge Securityholders.
This Prospectus also relates to 1,000,000 shares of Class A Common
Stock issuable upon conversion of 180 shares of Series A Preferred Stock and
exercise of 320,000 redeemable Class C Warrants and 64,000 redeemable Class D
Warrants which were issued to investors in a private placement completed by the
Company in July 1997 (the "Private Placement Securityholders" and together with
the Bridge Securityholders , the "Selling Securityholders").
The securities offered by this Prospectus may be sold from time to time
by the holders thereof, the Selling Securityholders, or by their transferees.
All of the Class A Warrants became freely tradeable in June 1996, and the
securities underlying such Class A Warrants became freely tradeable commencing
February 22, 1997. The distribution of the securities offered hereby may be
effected in one or more transactions that may take place on the over-the-counter
market, including ordinary brokers' transactions, privately negotiated
transactions or through sales to one or more dealers for resale of such
securities as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated paces. Usual
and customary or specifically negotiated brokerage fees or commissions may be
paid by the Selling Securityholders.
The Selling Securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Act. The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL IMMEDIATE DILUTION. SEE "RISK FACTORS" AT PAGE 9.
------------------
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.
------------------
The date of this Prospectus is October 30, 1997.
2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-3, which also constitutes a
Post-Effective Amendment on Form S-3 to its Registration Statement on Form SB-2,
File No. 33-80119, ("Registration Statement") under the Securities Act of 1933,
as amended with respect to the securities offered hereby. Statements contained
in this Prospectus as to the contents of any contract or other document referred
to are not necessarily complete. In each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company is subject to the informational 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 Commission. For further information with respect to the Company, reports,
proxy statements and other information and the securities offered hereby,
reference is made to such reports, proxy statements and other information, the
Registration Statement and the exhibits filed as part thereof. The Registration
Statement and the reports and other information filed by the Company in
accordance with the Exchange Act can be inspected and copied at the principal
office of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
7 World Trade Center, New York, New York, 10048 and Citicorp Center 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Copies of such material may be
obtained from the Public Reference Section of the Commission at its principal
office 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the fees
prescribed by the Commission. In addition the Commission maintains a website
(http://www.sec.gov) that contains reports, proxy and information statements
regarding registrants, such as the Company, that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the
Company and are hereby incorporated by reference into this Prospectus:
i. The Company's Annual Report on Form 10-KSB for the fiscal year ended
June 30, 1997. The report of KPMG Peat Marwick LLP in the
aforementioned financial statements contains an explanatory paragraph
that states the Company's recurring losses from operations and
resulting continued dependence on external sources of capital raise
substantial doubt about the entity's ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of that uncertainty.
ii. The description of the Company's Class A Common Stock, Class A Warrants
and Class B Warrants contained in the Company's Registration Statement
on Form 8-A filed with the Commission pursuant to Section 15(d) of the
Exchange Act dated January 13, 1996.
iii. The Company's Proxy Statement relating to its 1997 Annual Meeting, as
filed with the Commission pursuant to Section 14 of the Exchange Act on
September 11, 1997.
All other documents and reports filed pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act from the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of the filing of
such reports and documents.
Any statement contained in a document incorporated or deemed
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document that is also deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a Prospectus is delivered upon written or oral request of each person, a
copy of any document incorporated herein by reference, (not including exhibits
to the document that have been incorporated herein by reference unless such
exhibits are specifically incorporated by reference in the document which this
Prospectus incorporated). Requests should be directed to Investor Relations,
LightPath Technologies, Inc., 6820 Academy Parkway East NE, Albuquerque, New
Mexico, 87109, telephone (505)342-1100.
3
<PAGE>
The Company has agreed to pay to Blair a solicitation fee (the
"Solicitation Fee") equal to 5% of the exercise prices in connection with the
exercise of the IPO Warrants under certain conditions. See "Plan of
Distribution." The exercise prices of the IPO Warrants were determined by
negotiation between the Company and Blair, and are not necessarily related to
the Company's asset value, net worth or other criteria of value.
The Company's IPO Units, Class A Common Stock, Class A Warrants and Class B
Warrants are traded on the Nasdaq SmallCap Market under the symbols LPTHU,
LPTHA, LPTHW, LPTHZ, respectively. On September 15, 1997 closing prices of the
IPO Units, Class A Common Stock, Class A Warrants and Class B Warrants were
$13.25, $7.63, $4.33 and $1.72, respectively.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Warrant Warrant Proceeds to
Exercise Price Solicitation Fee(1) the Company
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Warrant $6.50 $.33 $6.17
Total (2) $11,960,000 $ 598,000 $11,362,000
Per Class B Warrant $8.75 $.44 $8.31
Total (2) $32,200,000 $1,610,000 $30,590,000
Per Class C Warrant $5.63 $.00 $5.63
Total (3) $ 1,801,600 - $ 1,801,600
Per Class D Warrant $5.63 $.00 $5.63
Total (3) $ 360,320 - $ 360,320
=======================================================================================================
</TABLE>
(1) Represents Solicitation Fees payable to Blair pursuant to the Warrant
Agreement between the Company and Blair in certain circumstances. See
"Plan of Distribution."
(2) Assumes the exercise of all Class A Warrants and Class B Warrants.
There can be no assurance that any of the Warrants will be exercised.
(3) Assumes the exercise of all Class C Warrants and Class D Warrants.
There can be no assurance that any of the Warrants will be exercised.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is
qualified in its entirety by the more detailed information and financial
statements (including the notes thereto) incorporated by reference. Unless
otherwise indicated, the information in this Prospectus assumes no exercise of
any other outstanding warrants or options. This Prospectus contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed in the "Risk Factors."
The Company
LightPath Technologies, Inc. ("LightPath" or the "Company") produces
GRADIUM(R) glass and performs research and development on future GRADIUM glass
applications. GRADIUM glass is an optical quality glass material with varying
refractive indices, capable of reducing optical aberrations inherent in
conventional lenses and performing with a single lens tasks traditionally
performed by multi-element conventional lens systems. The Company believes that
GRADIUM glass lenses provide advantages over conventional lenses for certain
applications. By reducing optical aberrations, the Company believes that GRADIUM
glass lenses can provide sharper images, higher resolution, less image
distortion, a wider usable field of view and a smaller focal spot size. By
reducing the number of lenses in an optical system, the Company believes that
GRADIUM glass can provide more efficient light transmission and greater
brightness, lower production costs, and a simpler, smaller product. While the
Company believes that other researchers have sought to produce optical quality
lens material with the properties of GRADIUM glass, the Company is not aware of
any other person or firm that has developed a repeatable manufacturing process
for producing such material on a prescribable basis. LightPath has been issued
thirteen patents and has pending filed patent applications related to its
materials composition, product design and fabrication processes for the
production of GRADIUM glass products. The Company continues to develop new
GRADIUM glass materials with various refractive index and dispersion profiles,
whole value added lens systems for a variety of optical applications, and
multiplexers and interconnects for the telecommunications field.
The Company believes that GRADIUM glass can potentially be marketed for
use in most optics and optoelectronics products. In an attempt to more rapidly
establish initial sales volume, to date the Company has emphasized laser
products that it believes may have the greatest immediate commercial impact with
the least initial investment. Generally, optical designers can substitute
GRADIUM glass components from the Company's standard line of products in lieu of
existing conventional laser lens elements. Lasers are presently used extensively
in a broad range of consumer and commercial products, including fiber optics,
robotics, wafer chip inspection, bar code reading, document reproduction and
audio and video compact disc machines. Because GRADIUM glass can concentrate
light transmission into a much smaller focal spot than conventional lenses, the
Company believes and customers' test results confirm that GRADIUM glass has the
ability to improve laser performance. The Company's growth strategy is to target
key laser market niches and establish the necessary products and partnership
alliances to sell into Europe and Asia as well as the U.S. market. During fiscal
year 1997, the Company established relationships with six foreign distributors
and a Silicon Valley manufacturer representative which relationships the Company
believes will enable it to rapidly establish a presence in certain foreign and
domestic markets. In addition to laser applications, the Company, through its
printed and Internet on-line catalog, provides a standard line of GRADIUM glass
lenses for broad-based sales to optical designers developing particular systems
for original equipment manufacturers ("OEMs") or in-house products.
Because complex optical systems contain many optical components, and
GRADIUM glass lenses can be utilized to reduce the number of lens elements in
such systems, the Company believes that GRADIUM glass lenses can simplify the
design and improve the performance of complex optical systems. However, design
and production of an optical product is a lengthy process, and it could take
years for producers to redesign complex optical systems using GRADIUM glass,
reconfigure the product housing, re-engineer the assembly process and commence
commercial quantity orders for GRADIUM glass components.
5
<PAGE>
The Company can not predict how long is required for manufacturers of
existing optical systems to incorporate GRADIUM glass into such systems , if
ever. Accordingly, the Company intends to focus its long-term marketing efforts
on emerging niche industries, such as multimedia and telecommunications, that
are designing for next-generation optical systems, and performance driven
industries, such as medical instruments, that are seeking to optimize
performance of existing optical products.
The Company's growth strategy is also to develop strategic
relationships with original equipment manufacturers, ("OEM"'s) that incorporate
or produce optical components. The Company believes OEM relationships may expand
and develop the Company's technology base by evolving into more sophisticated
development efforts and complex products, although there can be no assurances in
this regard. The Company's existing OEM relationships have resulted in the
development of prototype lenses for Karl Storz GMBH & Co., a leading
manufacturer of endoscopes, camera television lenses and the optimization of a
high performance riflescope for a gunsight manufacturer.
Optoelectronics technologies represent an overlap of photonics and
electronics and are key enablers of "Information Age" technologies, such as
fiberoptic communications, optical data storage, laser printers, digital
imaging, and sensors for machine vision and environmental monitoring. As part of
its growth strategy, the Company has targeted various optoelectronic industry
market niches and is currently developing additional GRADIUM glass products and
key strategic alliances with technology and marketing partners to design, build
and sell next generation integrated components and devices. The Company believes
that GRADIUM glass can provide industry wide solutions to optoelectronic
problems associated with light gathering, packaging and alignment.
Since its inception in 1985 until June 1996, the Company was a
development stage enterprise that engaged in basic research and development.
During fiscal year 1997, the Company's operational focus began to shift to
product development and commercial sales. The Company believes that most of its
product sales prior to fiscal year 1997 have been to persons evaluating the
commercial application of GRADIUM glass or using the products for research and
development. During 1997, numerous prototypes for production orders were
completed. In addition, catalog sales of standard profiles were received. The
Company currently offers standard, computer-based profiles of GRADIUM glass that
engineers can use for product design. The current focus of the Company's
technology department development efforts is the expansion of GRADIUM product's
applications to the areas of multiplexers and interconnects for the
telecommunications field, the addition of the crown glass product line to
supplement its existing flint products, development of acrylic axial gradient
material to extend the range of existing product applications, and the upgrade
of proprietary material design software and optical design tools to facilitate
product design. The Company was incorporated in Delaware in 1992. Its corporate
headquarters are located at 6820 Academy Parkway East N.E., Albuquerque, New
Mexico, 87109 and its telephone number is (505) 342-1100.
The Private Securities Litigation Reform Act of 1995 ("the Act")
provides a safe harbor for forward looking statements made by or on behalf of
the Company. All statements, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as future
capital expenditures, growth, product development, sales, business strategy and
other such matters are forward-looking statements. These forward-looking
statements are based largely on the Company's expectations and assumptions and
are subject to a number of risks and uncertainties, many of which are beyond the
Company's control. Actual results could differ materially from the
forward-looking statements as a result of a number of factors, including, but
not limited to, the Company's early state of development, the need for
additional financing, and intense competition in various aspects of its
business. In light of these risks and uncertainties, all of the forward-looking
statements made are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized.
6
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Offering
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Securities Offered by the Company: 1,840,000 Units consisting of one share of Class A Warrant and one
Class B Warrant of the Company. Each Class A Warrant is exercisable
at any time on or before February 22 , 2001 to purchase for $6.50 one
share of Class A Common Stock and one Class B Warrant, subject to
adjustment. Each Class B Warrant is exercisable any time on or
before February 22 , 2001 to purchase one share of Class A Common
Stock for $8.75, subject to adjustment. The Warrants are subject to
redemption in certain circumstances. The Class A Common Stock,
Class A Warrants and Class B Warrants will be separately tradable
immediately upon issuance. 160,000 Units issuable upon exercise of
the Unit Purchase Option held by Blair for $6.75 per unit during the
three year period commencing February 22, 1998. Each Unit consists
of one share of Class A Common Stock, one Class A Warrant and one
Class B Warrant of the Company. See "Description of Securities."
Securities Offered by Selling 839,000 Units consisting of one share of Class A Common Stock; and
Securityholders: 839,000 Class B Warrants issuable upon exercise of the Class A
Warrants and 1,678,000 shares of Common Stock issuable upon exercise
of the Class A and Class B Warrants
1,000,000 shares of Class A Common Stock issuable upon conversion of
Series A Preferred Stock and exercise of outstanding Class C Warrants
and Class D Warrants. Each Class C Warrant is exercisable at any time
on or before July 2000 to purchase for $5.63 one share of Class A
Common Stock subject to adjustment. Each Class D Warrant is
exercisable at any time on or before July 2002 to purchase for $5.63
one share of Class A Common Stock subject to adjustment.
180 shares of Series A Preferred Stock has a stated value and
liquidation preference of $10,000, plus an 8% per annum premium. Each
share of Series A Preferred Stock is convertible into Class A Common
Stock at the option of holder, with volume limitations during the
first 9 months, based on its stated value at the conversion date
divided by a conversion price. The conversion price is defined as the
lesser of $5.625 or 85% of the average closing bid price of the
Company's Class A Common Stock for the five days preceding the
conversion date.
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
Company's Capitalization
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Common Stock Outstanding June 30,
1997(1)(3):
Class A Common Stock 2,766,185 shares(1)(3)
Class E-1 Common Stock 1,449,942 shares(2)
Class E-2 Common Stock 1,449,942 shares(2)
Class E-3 Common Stock 966,621 shares(2)
Use of Proceeds The Company intends to use the net proceeds received upon the exercise
of the Warrants, if any, for general corporate purposes and working
capital to support anticipated growth including research and
development programs and continuing product development. See "Use of
Proceeds." All proceeds received upon resale of any of the shares of
Common Stock, Class A Warrants and Class B Warrants will be received
by the Selling Securityholders.
Risk Factors The securities offered hereby involve a high degree of risk and
immediate substantial dilution to public investors. An investment in
the Units offered hereby should be made only after a careful
consideration of the various risks which may affect the Company and
its operations. See "Risk Factors"
Nasdaq Symbols Units - LPTHU
Class A Common Stock - LPTHA
Class A Warrants - LPTHW
Class B Warrants - LPTHZ
</TABLE>
- --------
(1) Does not include outstanding options at June 30, 1997 to purchase 304,669
shares of Class A Common Stock and 149,504 shares of Class E-1, 149,504
shares of Class E-2 and 99,669 shares of Class E-3 Common Stock which are
exercisable at option exercise prices ranging from $5.00 to $51.56 per
share and 145,025 shares of Class A Common Stock reserved for issuance upon
future grants of options issuable under the Company's stock option plans.
(2) Each share of outstanding Class E-1 Common Stock, Class E-2 Common Stock
and Class E-3 Common Stock (collectively, the "Class E Shares") will, on a
class basis, automatically convert into Class A Common Stock if and as the
Company attains certain earnings levels or the market price of the
Company's Class A Common Stock achieves certain targets with respect to
each of the three separate classes. The Class E Shares will be redeemed by
the Company for a nominal amount if such earnings levels or market price
targets are not achieved.
(3) Does not include an aggregate of 8,838,000 shares of Class A Common Stock
issuable upon exercise of (i) the Unit Purchase Option and the Class A and
Class B Common Stock Purchase Warrants underlying the Unit Purchase Option;
(ii) the Class A Warrants and Class B Warrants forming part of the Units
offered hereby, (iii) the 839,000 Class A Warrants issued at the IPO; (iv)
the 839,000 additional Class B Warrants issuable upon exercise of the Class
A Warrants referred to in (iii) above, and (v) the additional 1,000,000
shares of Class A Common Stock issuable upon conversion of Series A
Preferred Stock and exercise of Class C and Class D Warrants.
8
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk and should only be made by investors who can afford the loss of their
entire investment. Prospective investors, prior to making an investment
decision, should give careful consideration, in addition to the other
information contained in the Disclosure Documents, as defined in the
Subscription Agreement, to the following risk factors.
Previously Development Stage Company; Accumulated Deficit, Working
Capital and Capital Deficiency; Limited Operating History. The Company's
predecessor commenced operations in 1985, and the Company was a development
stage company through June 30, 1996. Prior to fiscal year 1997, the Company's
primary activities have been basic research and development. The Company's
current focus is on product development and sales. At June 30, 1997, the Company
had an accumulated deficit of ($17,212,516). For the year ended June 30, 1997,
the Company recognized revenues of $673,677 and a net loss of ($2,998,290). For
the year ended June 30, 1996, the Company recognized revenues of $200,444 and
had a net loss of ($2,914,905). The Company's products are at an early stage of
development and the Company believes that most of its product sales prior to
fiscal year 1997 have been to parties evaluating the commercial application of
GRADIUM glass or using the products for research and development. During 1997
numerous prototypes for production orders were completed, but no commercial
orders have been received to date. While the Company has been engaged in some
marketing efforts over the past few years that have resulted in some
collaborative arrangements or purchases by parties considering incorporating
GRADIUM in their product designs, these efforts have not resulted in material
sales revenues. The Company has continued to operate at a deficit and expects to
continue to operate at a deficit for fiscal year 1998 and until such time, if
ever, as the Company's operations generate sufficient revenues to cover its
costs. The likelihood of the success of the Company must be considered in light
of the delays, uncertainties, difficulties and risks inherent in a new business,
many of which may be beyond the Company's control. These include, but are not
limited to, unanticipated problems relating to product development, testing,
manufacturing, marketing and competition, and additional costs and expenses that
may exceed current estimates. There can be no assurance that revenues will
increase significantly in the future or that the Company will ever achieve
profitable operations.
Independent Auditor's Report as to Company's Ability to Continue as a
Going Concern. The Company has received a report from its independent auditors
that includes an explanatory paragraph regarding uncertainty as to the ability
of the Company to continue as a going concern. Among the factors cited by the
accountants as raising substantial doubt as to the Company's ability to continue
as a going concern are that the Company was in development stage through June
1996, has incurred operating losses, is dependent on external sources of capital
and has a working capital deficiency and capital deficiency. The Company may
incur losses for the foreseeable future due to the significant costs associated
with the development, manufacturing and marketing of its GRADIUM products and
due to the continued research and development activities that will be necessary
to further refine the Company's technology and products and to develop products
with additional applications. The Company expects that the proceeds from the
Private Placement will enable it to fund its operations for fiscal year 1998.
Anticipation of Operating Losses; Need for Additional Financing. The
Company anticipates continuing to incur substantial operating losses for fiscal
year 1998 and until such time, if ever, as the Company's operations generate
sufficient revenues to offset its costs. The Company expects to incur
substantial expenses principally as the result of the various costs associated
with the Company's continuing research and development efforts to expand its
product line, capital expenditures for scale-up of manufacturing operations and
implementation of a sales and marketing program and distribution channels,
recruitment and training of personnel and other operating activities. The
Company's potential receipt of revenues from product sales are subject to
substantial contingencies, and there can be no assurances concerning the timing
and amount of future revenues from product sales, if any. The Company
anticipates that product sales and the net proceeds from the Company's Private
Placement completed July 25, 1997 will be sufficient to finance the Company's
working capital requirements for at least fiscal year 1998, although the
Company's capital requirements are subject to numerous contingencies associated
with a company in its early stages of operations. The Company's capital
9
<PAGE>
requirements after such period will depend on the extent that GRADIUM glass
becomes commercially accepted, if at all, and the Company's marketing program is
successful in generating sales sufficient to sustain its operations. There can
be no assurance that the Company will generate sufficient revenues to fund its
operations. The Company may be required to seek additional financing in the
event the proceeds from its July 1997 private placement of Series A Preferred
Stock and September 1997 Series B Preferred Stock are insufficient to offset
costs associated with unanticipated delays, cost overruns, unanticipated
expenses including those associated with a company in an early stage of
development or in the event the Company does not realize anticipated revenues.
The Company has no commitments from others to provide such additional financing
and there can be no assurance that any such additional financing will be
available if needed or, if available, will be on terms acceptable to the
Company. In the event such necessary financing is not obtained, the Company's
operations will be materially adversely affected and the Company will have to
cease or substantially reduce operations. Any additional equity financing may be
dilutive to stockholders, and debt financings, if available, may involve
restrictive covenants.
Early Stage of Development of Proposed Products; Need for Market
Acceptance. Through June 1996, the Company's primary activities were basic
research and development of glass material properties. The Company's current
line of GRADIUM products has not been widely sold ( approximately 90 customers
as of June 30, 1997) or marketed. While the Company believes its existing
products are commercially viable, market feedback may require the Company to
further refine these products. Development of additional product lines will
require significant further research, development, testing and marketing prior
to commercialization. In particular, the Company's lens technology will require
substantial further refinement to develop products capable of correcting
chromatic optical applications, which is required for many optical product
applications. There can be no assurance that any proposed products will be
successfully developed, demonstrate desirable optical performance, be capable of
being produced in commercial quantities at reasonable costs or be successfully
marketed. In order for its products to achieve commercial acceptance, the
Company must educate the optical components markets to create product awareness
and demand, and, in large part, persuade potential customers to redesign
existing products and retool existing assembly processes in order to substitute
GRADIUM for existing materials. There can be no assurance that the Company can
accomplish the foregoing to the extent necessary to develop market acceptance of
its products.
Uncertainty of Commercialization of the Company's Technology; Limited
Number of Potential Customers Testing the Company's Technology. The Company's
existing products have not yet achieved commercial acceptance. To date, product
revenues received by the Company have been from purchasers engaged in prototype
development, evaluation of the commercial application of the Company's products,
or other research and development activities, and purchases have not reached
commercial quantities. Although the Company is engaged in negotiations and
discussions with other potential customers, there can be no assurance that any
such discussions will lead to development of commercially viable products or
significant revenues for the Company, if any, or that any existing or products
developed in the future will attain sufficient market acceptance to generate
significant revenues. In order to persuade potential customers to purchase
GRADIUM products, the Company will need to overcome industry resistance to, and
suspicion of, gradient lens technology that has resulted from previous failed
attempts by various researchers and manufacturers to develop a repeatable,
consistent process for producing lenses with variable refractive indices. The
Company must also satisfy prospective customers that it will be able to meet
their demand for quantities of GRADIUM products, since the Company will be the
sole supplier and licensor. The Company does not have an established track
record as a manufacturer and, even after the Company's February 1996 IPO, does
not have a substantial net worth. There can be no assurance that the Company can
accomplish the foregoing to the extent necessary to develop market acceptance of
its products. Prospective customers will need to make substantial expenditures
to redesign products to incorporate GRADIUM lenses. There can be no assurances
that potential customers will view GRADIUM's benefits as sufficient to warrant
such design expenditures.
Dependence on Key Personnel, Need for Additional Personnel. The
operations of the Company depend to a significant extent upon the efforts of
Leslie A. Danziger, the Company's Chairman of the Board and President, who
conceived the Company's technology and strategic plan and who is
10
<PAGE>
substantially responsible for planning and guiding the Company's direction. In
addition, the Company's success depends upon the contributions of Donald E.
Lawson, the Company's Executive Vice President, whose responsibilities for the
Company's operations are very substantial. Each of the foregoing officers has an
employment agreement with the Company that provides, among other things, for
severance compensation in certain events. The loss of any of these key employees
would adversely affect the Company's business. The Company has obtained key
employee life insurance policies in the amount of $3,000,000 on the life of Ms.
Danziger and $1,000,000 on the life of Mr. Lawson. The Company had twenty-eight
employees on June 30, 1997. The Company intends to hire at least eight
additional employees in the next twelve months. Additional personnel will need
to be hired if the Company is able to successfully expand its operations. There
can be no assurance that the Company will be able to identify, attract and
retain employees with skills and experience necessary and relevant to the future
operations of the Company's business.
Competition. The optical lens and components markets are intensely
competitive and numerous companies, substantially all of which have greater
financial and other resources than the Company, provide products and services
that compete with those offered by the Company. The Company competes with
manufacturers of conventional spherical lens products and aspherical lens
products, producers of optical quality glass and other developers of gradient
lens technology and products. In the markets for conventional and aspheric
lenses, the Company will be competing against, among others, established
international industry giants. Many of these companies also are primary
customers for optical components, and therefore have significant control over
certain markets for the Company's products. The Company is aware of other
companies that are attempting to develop radial gradient lens technology, and it
is possible that other companies of which the Company is not yet aware are
attempting to develop axial gradient lens technology similar to the Company's
technology. There can be no assurance that existing or new competitors will not
develop technologies that are superior to or more commercially acceptable than
the Company's technology and products.
Limited Marketing and Sales Capabilities; Fragmented Market. The
Company's operating results will depend to a large extent on its ability to
educate the various industries utilizing optical glass about the advantages of
GRADIUM and to market GRADIUM products to the participants within those
industries. The Company currently has very limited marketing capabilities and
experience and will need to hire additional sales and marketing personnel and
develop a sales and marketing program and sales distribution channels in order
to achieve and sustain commercial sales of its products. The Company has hired a
sales staff and used a portion of the proceeds of the IPO to develop its sales
and marketing program and recruit personnel. In addition, while the Company has
developed a preliminary marketing plan, there can be no assurance that the plan
will be implemented or, if implemented, will succeed in creating sufficient
levels of customer demand for the Company's products. The markets for optical
lenses and components are highly fragmented. Consequently, the Company will need
to target particular market segments in which it believes it may have the most
success. It may be very difficult for the Company to penetrate any particular
market segment, and any attempt will require a substantial, but unknown, amount
of effort and resources. The fragmented nature of the optical products market
may impede the Company's ability to achieve commercial acceptance for its
products. The Company's success will depend in great part on its ability to
develop and implement a successful marketing and sales program. There can be no
assurance that any marketing and sales efforts undertaken by the Company will be
successful or will result in any significant sales of the Company's products. If
the sales and marketing efforts implemented by the Company do not generate
expected revenues, the Company may be required to seek additional financing or
alter its business plan.
Dependence on Patents and Proprietary Technology. The Company's success
will depend, in part, on its ability to obtain protection for its products and
technologies under United States and foreign patent laws, to preserve its trade
secrets, and to operate without infringing the proprietary rights of third
parties. There can be no assurance that patent applications relating to the
Company's products or potential products will result in patents being issued,
that any issued patents will afford adequate protection to the Company or not be
challenged, invalidated, infringed or circumvented, or that any rights granted
thereunder will afford competitive advantages to the Company. Furthermore, there
can be no assurance that others have not independently developed, or will not
independently develop, similar products and/or technologies, duplicate any of
the Company's product or technologies, or, if patents are
11
<PAGE>
issued to, or licensed by, the Company, design around such patents. There can be
no assurance that patents owned or licensed by the Company and issued in one
jurisdiction will also issue in any other jurisdiction. Furthermore, there can
be no assurance that the Company can adequately preserve proprietary technology
and processes that it maintains as trade secrets. An inability by the Company to
develop and adequately protect its proprietary technology and other assets could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Dependence on Others. The Company's strategy for the research,
development and commercialization of certain of its products entails entering
into various arrangements with corporate partners, original equipment
manufacturers (OEMs), licensees and others in order to generate product sales,
license, royalties and other funds adequate for product development. The Company
may also rely on its collaborative partners to conduct research efforts, product
testing and to manufacture and market certain of the Company's products.
Although the Company believes that parties to any such arrangements would have
an economic motivation to succeed in performing their contractual
responsibilities, the amount and timing of resources to be devoted to these
activities may not be within the control of the Company. There can also be no
assurance that the Company will be successful in establishing any such
collaborative arrangements or that, if established, the parties to such
arrangements will assist the Company in commercializing products. Presently the
Company has entered into a development agreement with an endoscope manufacturer
pursuant to which it has developed prototype lenses. There can be no assurance
that the endoscope manufacturer will progress to a production phase or, if
production commences, that the Company will receive significant revenues from
this relationship. In 1996, the Company terminated its agreement with a catalog
company to distribute certain of its products on an exclusive basis. While the
Company has no agreement with the catalog company with respect thereto, it
anticipates continuing such relationship on a non-exclusive basis. In 1997, the
Company formalized relationships with six foreign distributors to create markets
for GRADIUM in their respective countries. There can be no assurance that these
parties, or any future partners, will perform their obligations as expected or
that any revenue will be derived from such arrangements.
Limited Manufacturing Capability. Prior to the IPO, the Company had
minimal experience in manufacturing optical components. In addition, the Company
had limited resources to manufacture its products. Proceeds from the Company's
February 1996 IPO were used to expand its manufacturing facilities and hire
personnel to scale-up production activities. In March 1996, the Company entered
into a 5 year lease for a new corporate headquarters and larger manufacturing
facility in Albuquerque, New Mexico. Within the 13,300 square foot facility, the
Company established its present manufacturing processes. The Company believes
that the present manufacturing facilities are sufficient for its planned
operations over the next several years. However, the Company does not have any
experience manufacturing products in quantities sufficient to meet commercial
demand. If the Company is unable to manufacture its products in sufficient
quantities and a timely manner to meet customer demand, the Company's business,
financial condition and results of operations will be materially adversely
affected.
Product Liability Exposure. The sale of the Company's optical products
will involve the inherent risk of product liability claims against the Company.
The Company currently does not maintain product liability insurance coverage,
but intends to procure such insurance in the future. Product liability insurance
is expensive, subject to various coverage exclusions and may not be obtainable
by the Company in the future on terms acceptable to the Company. Moreover, the
amount and scope of any coverage may be inadequate to protect the Company in the
event that a product liability claim is successfully asserted against the
Company.
Immediate and Substantial Dilution. Purchasers of certain of the
securities offered hereby will incur immediate substantial dilution in the per
share net tangible book value of their Class A Common Stock. Therefore,
purchasers of the securities offered hereby will bear a proportionately greater
risk of loss than the Company's current stockholders.
Charge to Income in the Event of Conversion of Class E Common Stock. In
the event any shares of the Company's Class E Common Stock held by stockholders
who are officers, directors, employees or consultants of the Company are
converted into shares of Class A Common Stock, the Company will record
compensation expense for financial reporting purposes during the period in which
such conversion occurs. Therefore, if the Company attains any of the earnings
thresholds or the
12
<PAGE>
Company's Class A Common Stock meets certain minimum bid prices required for the
conversion of the shares of Class E Common Stock, such conversion will be deemed
additional compensation expense of the Company. Accordingly, the Company will,
in the event of the conversion of the Class E Common Stock, recognize during the
period in which the reportable earnings thresholds are met or such minimum bid
prices obtained, what could be a substantial charge that would have the effect
of significantly increasing the Company's reportable loss or reducing or
eliminating reportable earnings, if any, at such time. Such charge will equal
the fair market value of such shares on the date of release, which may be
substantial. Although the amount of compensation expense recognized by the
Company will not affect the Company's total stockholders' equity, it may have a
negative effect on the market price of the Company's securities. Since Class E
shares are not treated as outstanding for purposes of earnings per share
calculations, the increase in the number of shares of Class A Common Stock upon
conversion of any series of Class E Common Stock will negatively affect the
Company's earnings per share.
Control by Present Holders of Common Stock; Voting Trust. The Company's
principal stockholders beneficially owned 250,210 shares of Class A Common
Stock, 1,106,809 shares of the combined Class E Common Stock, representing 9% of
the outstanding Class A Common Stock, 28% of the combined outstanding Class E
Common Stock, and 20% of the total combined voting power of all of the Common
Stock outstanding at September 12, 1997. In addition, certain stockholders of
the Company holding approximately 18% of the total voting power have entered
into a voting trust agreement. Additional stockholders may subsequently join the
voting trust. Pursuant to the voting trust, Leslie A. Danziger, the Company's
Chairman and President, is granted the authority to vote all of the shares
subject to the voting trust on all matters that the Company's stockholders are
entitled to vote. Accordingly, Ms. Danziger will likely be able to influence the
election of the Company's directors and thereby direct the policies of the
Company. The Series A Preferred Stock has no voting rights. Consequently, the
holders thereof will have no such rights until and unless such shares are
converted into Class A Common Stock.
Future Sales of Common Stock. As of the September 15, 1997
approximately 69,000 shares of outstanding Common Stock are "restricted
securities" as that term is defined under Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and under certain
circumstances may be sold without registration pursuant to such rule. Although
no significant sales have occurred, the Company is unable to predict the effect
that sales made under Rule 144, or otherwise, may have on the then prevailing
market price of the Company's securities although any future sales of
substantial amounts of securities pursuant to Rule 144 could adversely affect
prevailing market prices.
Dividends Unlikely. The Company has not paid any cash dividends on its
Common Stock and does not intend to declare or pay cash dividends in the
foreseeable future. The Company expects that it will retain all available
earnings, if any, to finance and expand its business.
Arbitrary Determination of Warrant Exercise Price. The exercise price
of the warrants and other terms of such securities have been arbitrarily
established by negotiation between the Company and one Underwriter with respect
to the Class A and Class B Warrants and with the placement agent with respect to
the Series A Preferred Stock and Class C and Class D Warrants, and do not
necessarily bear any relationship to the Company's asset value, net worth or
financial condition of the Company or any generally recognized criteria of value
and should not be regarded as an indication of any future market price of the
Company's securities.
Effect of Outstanding Options and Warrants. As of the date of this
Prospectus, the Company has outstanding (i) 1,840,000 Class A Warrants to
purchase an aggregate of 1,840,000 shares of Class A Common Stock and 1,840,000
Class B Warrants; (ii) 1,840,000 Class B Warrants to purchase 1,840,000 shares
of Class A Common Stock; (iii) the Selling Securityholders Warrants to purchase
an aggregate of 839,000 shares of Class A Common Stock and 839,000 Class B
Warrants; (iv) the Unit Purchase Option to purchase an aggregate of 240,000
Units; (v) 1,000,000 shares of Class A Common Stock reserved for the conversion
of Series A Preferred Stock and exercise of Class C and Class D Warrants; (vi)
outstanding options at June 30, 1997 to purchase an aggregate of 304,669 shares
of Class A Common Stock, 149,504 shares of Class E-1, 149,504 shares of Class
E-2 and 99,669 shares of Class E-3 Common Stock and (vii) 1,500,000 shares of
Class A Common Stock reserved for the conversion of Series B Preferred Stock and
exercise of Class E and Class F Warrants. As of June 30, 1997, the Company also
had an additional 145,025 shares of Class A Common Stock reserved for issuance
under its Omnibus Incentive Plan and Directors Stock Incentive Plan. For the
respective terms of such
13
<PAGE>
Warrants, options and the Unit Purchase Option, the holders thereof are given an
opportunity to profit from a rise in the market price of the Company's Class A
Common Stock with a resulting dilution in the interests of the other
stockholders. Further, the terms on which the Company may obtain additional
financing during that period may be adversely affected by the existence of such
options and Warrants. The holders of the Company's outstanding Warrants may
exercise them at a time when the Company might be able to obtain additional
capital through a new offering of securities on terms more favorable than those
provided therein.
Potential Adverse Effect of Redemption of Warrants. Commencing February
22, 1997, the Class A and Class B Warrants may be redeemed by the Company at a
redemption price of $.05 per Warrant upon 30 days' notice provided the average
closing bid price (as defined herein) of the Class A Common Stock for any 30
consecutive trading days ending within 15 days of the notice of redemption
exceeds $9.10, in the case of the Class A Warrants, or $12.25, in the case of
the Class B Warrants (subject to adjustment in each case). Redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price at a time when it may be disadvantageous for the holders to do so, to sell
the Warrants at the then current market price when they might otherwise wish to
hold the Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption.
Possible Adverse Effects of Authorization of Preferred Stock,
Anti-Takeover Provisions. The Company's Certificate of Incorporation authorizes
the issuance of 5,000,000 shares of "blank check" Preferred Stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue additional Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, Preferred Stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. The Company has authorized 200 shares of Series A
Preferred Stock and 300 shares of Series B Preferred Stock, of which 180 and 230
shares, respectively, are currently issued and outstanding. Although the Company
has no present intention to issue any additional shares of Preferred Stock,
there can be no assurance that the Company will not do so in the future. In
addition, the Company's Certificate of Incorporation requires a super majority
vote of stockholders to approve certain transactions, a classified Board of
Directors and certain other provisions that may have the effect of discouraging
a change of control of the Company. Further, the Company is subject to the
provisions of Section 203 of the Delaware General Corporation Law which may have
the effect of discouraging persons from pursuing a non-negotiated takeover of
the Company and delaying or preventing certain changes of control.
Limitation of Liability of Directors. The Company's Certificate of
Incorporation provides that directors of the Company shall not be personally
liable for monetary damages to the Company or its stockholders for a breach of
fiduciary duty as a director, subject to limited exceptions. Although such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission, the presence of these provisions in the
Certificate of Incorporation could prevent the recovery of monetary damages
against directors of the Company.
Possible Adverse Effect on the Liquidity of the Company's Securities
Due to Securities and Exchange Commission Investigation of the IPO Underwriter
and Blair & Co. and Recent Settlement by Blair & Co. with NASD. The Securities
and Exchange Commission (the "Commission") is conducting an investigation
concerning various business activities of the Underwriter in the Company's IPO
and D.H. Blair & Co., Inc., ("Blair & Co.") a selling group member which
distributed a substantial portion of the IPO Units. The Company has been advised
by the Underwriter that the investigation has been ongoing since at least 1989
and that it is cooperating with the investigation. The Underwriter cannot
predict whether this investigation will ever result in any type of formal
enforcement action against the Underwriter or Blair & Co.
In July 1997, Blair & Co., its Chief Executive Officer and its head
trader consented, without admitting or denying any violations, to a settlement
with the NASD Regulation, Inc. ("NASDR"), the regulatory oversight subsidiary of
the National Association of Securities Dealers, Inc. ("NASD") District
14
<PAGE>
Business Conduct Committee for District No. 10 to resolve allegation of NASD
rule and securities law violations in connection with mark-up and pricing
practices and adequacy of disclosures to customers regarding market-making
activities of Blair & Co. in connection with certain securities issues during
the period from June 1993 through May 1995 where Blair & Co. was the primary
selling group member. NASDR alleged the firm failed to accurately calculate the
contemporaneous cost of securities in instances where the firm dominated and
controlled after-market trading, thereby causing the firm to charge its
customers excessive mark-ups. NASDR also alleged the firm did not make adequate
disclosure to customers about its market-making activities in two issues. As
part of the settlement, Blair & Co. has consented to censure and has agreed to
pay a $2 million fine, make $2.4 million in restitution to retail customers,
employ an independent consultant for two years to review and make
recommendations to strengthen the firm's compliance procedures, and has
undertaken for twelve months not to sell to its retail customers (excluding
banks and other institutional investors) more than 60% of the total securities
sold in any securities offering in which it participates as an underwriter or
selling group member. The Chief Executive Officer of Blair & Co. has agreed to
settle failure to supervise charges by consenting to a censure, the imposition
of a $300,000 fine and a 90-day suspension from associating with any member firm
and has undertaken to take certain requalification examinations. The settlement
with NASDR does not involve or relate to the Underwriter, its chief executive
officer or any of its other officers or directors.
Blair & Co. currently makes a market in the Company's securities. The
Company is unable to predict whether Blair & Co.'s settlement with the NASDR or
any unfavorable resolution of the Commission's investigation will have any
effect on such firm's ability to make a market in the Company's securities and,
if so, whether the liquidity or price of the Company's securities would be
adversely affected.
Possible Restrictions on Market-Making Activities in Company's
Securities. Blair & Co. makes a market in the Company's securities. Regulation
M, which was recently adopted to replace Rule 10b-6 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") may prohibit Blair & Co.
from engaging in any market-making activities with regard to the Company's
securities for the period of up to five business days (or such other applicable
period as Regulation M may provide) prior to any solicitation by the Underwriter
of the exercise of Class A and Class B Warrants until the later of the
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right that such Underwriter may have to receive a fee for the
exercise of Warrants following such solicitation. As a result, Blair & Co. may
be unable to provide a market for the Company's securities during certain
periods while the Warrants are exercisable. In addition, under applicable rules
and regulations under the Exchange Act, any person engaged in the distribution
of the Class A Warrants issued to the Bridge Securityholders and offered for
sale may not simultaneously engage in market-making activities with respect to
any securities of the Company for the applicable restricted period prior to the
commencement of such distribution. Accordingly, in the event the Underwriter or
Blair & Co. engages in a distribution of any of the Selling Securityholders'
Warrants, neither of such firms will be able to make a market in the Company's
securities during the applicable restrictive period. Any temporary cessation of
such market-making activities could have an adverse effect on the market price
of the Company's securities.
Risk of Low-Priced Stock. If the Company's securities were delisted
from Nasdaq (See "Risk Factors--Nasdaq Listing and Maintenance Requirements"),
they could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in the IPO to sell any of the
securities acquired hereby in the secondary market.
The Commission has adopted regulations which generally define a "penny
stock" to be any non-Nasdaq equity security that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions. For any transaction
15
<PAGE>
involving a penny stock, unless exempt, the rules require delivery, prior to any
transaction in a penny stock, of a disclosure schedule prepared by the
Commission relating to the penny stock market. Disclosure is also required to be
made about commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest.
If the Company's securities were subject to the existing or proposed
rules on penny stocks, the market liquidity for the Company's securities could
be severely adversely affected.
Non-Registration in Certain Jurisdictions of Shares Underlying the
Warrants and Preferred Stock; Need for Current Prospectus. Although none of the
securities offered hereby will knowingly be sold to purchasers in jurisdictions
in which such securities are not registered or otherwise qualified for sale,
purchasers may buy such securities or the components thereof in the aftermarket
in, or may move to, jurisdictions in which the securities underlying the
Warrants and Preferred Stock are not so registered or qualified during the
period that the Warrants are exercisable or the Preferred Stock is convertible.
In this event, the Company would be unable to issue shares and/or Warrants to
those persons desiring to exercise their Warrants or convert their Preferred
Stock unless and until the underlying securities could be qualified for sale in
jurisdictions in which such purchasers reside, or an exemption to such
qualification exists in such jurisdiction. In addition, investors will not be
able to exercise their Warrants or convert their Preferred Stock, unless at the
time of exercise the Company has a current prospectus covering the shares of
Class A Common Stock and Class B Warrants underlying the Warrants or Preferred
Stock, as the case may be. No assurances can be given that the Company will be
able to effect any required registration or qualification or maintain a current
prospectus.
Nasdaq Listing and Maintenance Requirements, Risk of Delisting. The
Units, Class A Common Stock and Class A and Class B Warrants are currently
traded on Nasdaq SmallCap Market. Under the rules for continued listing on
Nasdaq SmallCap Market, a company is required to maintain at least $2,000,000 in
"net tangible assets" ("net tangible assets" equals total assets less total
liabilities and goodwill) or at least $35,000,000 in total market value or at
least $500,000 in net income in two out of its last three fiscal years, as well
as at least 500,000 shares in public float, at least $1,000,000 in market value
of the public float and a price of not less than $1.00 per share, and meet
certain corporate governance standards. Upon notice of a deficiency in one or
more of the maintenance requirements, the Company would be given 90 days (30
days in the case of the number of market-makers) to comply with the maintenance
standards. Failure of the Company to meet the maintenance requirements of Nasdaq
could result in the Company's securities being delisted from Nasdaq, with the
result that the Company's securities would trade on the OTC Bulletin Board or in
the "pink sheets" maintained by the National Quotation Bureau Incorporated. As a
consequence of such delisting, an investor could find it more difficult to
dispose of or to obtain accurate quotations as to the market value of the
Company's securities. Among other consequences, delisting from Nasdaq may cause
a decline in the stock price and difficulty in obtaining future financing.
Stock Market Volatility. There have been periods of extreme volatility
in the stock market, which in many cases were unrelated to the operating
performance of, or announcements concerning, the issuers of the affected stock.
General market price declines or market volatility in the future could adversely
affect the price of the Common Stock and the Warrants. In certain cases,
volatility in the price of a given security can result from the short-term
trading strategies of certain market segments. Such volatility can distort
market value and can be particularly severe in the case of smaller
capitalization stocks and immediately before or after an important corporate
event such as a public offering.
16
<PAGE>
Risk of Insufficient Funds Available to Effect Redemptions. In the
events of conversion of the Series A or Series B Preferred Stock or exercise of
their accompanying Warrants in a manner that would cause an undue dilution of
its Common Stock, the Company has the right to redeem such preferred stock and
warrants for cash. In addition, a Liquidation Event (as defined in the Company's
Certificate of Designation) may require redemption of the Series A or Series B
Preferred Stock for cash. There can be no assurance that in either of the
foregoing events that the Company will have adequate cash to effect such cash
redemptions.
USE OF PROCEEDS
Holders of Warrants are not obligated to exercise their Warrants and
there can be no assurance that the Warrantholders will choose to exercise all or
any of their Warrants. In the event that all of the 1,840,000 outstanding Class
A Warrants and all of the 3,680,000 Class B Warrants outstanding and issuable
upon the exercise of the outstanding Class A Warrants (excluding the Bridge
Securityholders and Unit Purchase Option) are exercised, the net proceeds to the
Company would be approximately $41,952,000, after deducting applicable
solicitation fees. In the event that all of the 320,000 outstanding Class C
Warrants and all of the 64,000 Class D Warrants outstanding are exercised, the
Company would receive additional net proceeds of approximately $2,161,920.
The Company intends to use the net proceeds received upon the exercise
of the Warrants, if any, for general corporate purposes, expansion of the
manufacturing facility and working capital to support anticipated growth
including research and development programs and continuing product development.
All proceeds from the resale of any securities offered hereby will be received
by the respective Selling Securityholders.
DETERMINATION OF OFFERING PRICE
This prospectus may be used from time to time by the Selling
Securityholders to sell the offered securities. The offering price of such Class
A Common Stock will be determined by the Selling Securityholders and such sales
may be made in the Nasdaq SmallCap Market or otherwise, at prices and at terms
then prevailing or at prices related to the then current market price, or in
negotiated transactions.
SELLING SECURITYHOLDERS
An aggregate of 839,000 Class A Warrants, each exercisable into one
share of Class A Common Stock and one Class B Warrant, may be offered by the
Bridge Securityholders who received their Class A Warrants in connection with a
private placement completed by the Company in November 1995. An aggregate of
320,000 Class C Warrants, and 64,000 Class D Warrants converting to one share
each Class A Common Stock may be offered by the Private Placement
Securityholders who purchased their Class C and Class D Warrants in connection
with a private placement completed by the Company in July 1997.
The following table sets forth certain information with respect to each
Bridge Securityholder and each Private Placement Securityholder for whom the
Company is registering securities for resale to the public. The Company will not
receive any of the proceeds from the sale of these securities. Except as
described below, there are no material relationships between any of the Bridge
Securityholders or Private Placement Securityholder and the Company, nor have
any such material relationships existed within the past three years.
<TABLE>
<CAPTION>
Number of Warrants Beneficially Owned and
Maximum Number to be sold
Class A Class C Class D
Selling Securityholders - Warrants (1) Warrants (2) Warrants (2)
- ------------------------- ------------ ------------ ------------
<S> <C>
Magid Abraham 50,000
William Aden 35,000
Bruce Barrus 8,500
Thomas J. & Dorothy M. Biuso 12,500
Burns Family Trust 1,200
Kenneth & Sherry Cohen 12,500
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C> <C>
David B. Cornstein 25,000
Benjamin Danziger 21,000
Charles Garcia 7,500
Irving L. Goldman 25,000
Stuart Gruber 12,500
Kenneth Hoffer 15,000
Herman S. Howard 50,000
Michael Jesselson 12/18/80 Trust 25,000
Jesselson Grandchildren 12/18/80 Trust 50,000
Robert & Eileen Jordan 12,500
Milton Klein 16,000
Guy Knolle 17,500
Louis Leeburg 7,500
William Leeburg 15,000
William Leeburg Profit Sharing Plan 15,000
Lenny Corp 12,500
William J. Lipkin 12,500
Gloria Mavra 25,000
Charles Bechert 7,500
James S. Mulholland, Sr. 37,500
Ray & Vita Pliskow 17,000
Robin Prever 25,000
Marc Roberts 25,000
Robert Roberts 7,500
F.B. Rooke & Sons 18,000
Alan J. Rubin 25,000
Robert & Daniel Ruscutti 12,500
Anand J. Sathe 12,500
Louise Schrier 50,000
E. Donald Shapiro 12,500
Gary J. Strauss 12,500
Morris Talansky 12,500
Leonard R. and Jane G. Wohletz, Jr. 12,500
Wolfson Equities 50,000
Martin Zelman 12,500
Cranshire Capital LLP 26,667
EP Opportunity Fund, LLC 62,222
Lakeshore International, LTD 44,444
The Matthew Fund 35,556
Keyway Investments, LTD 80,000
Namax Corp. 17,778
G.P.S. Fund, LTD 8,889
Legong Investments N.V. 44,444
Swartz Family Partnership, LP 15,750
Kendrick Family Partnership, LLP 15,750
Brad Hathorn 2,300
Jerry Harris 5,450
Carl Johnson 2,000
Davis Holden 3,000
Frank Mauro 15,750
Chuck Whiteman 3,000
Dwight Bronnum 500
Robert Hopkins 500
---------------- ----------------- -----------------
Total 839,000 320,000 64,000
---------------- ----------------- -----------------
</TABLE>
18
<PAGE>
(1) Does not include shares of Class A Common Stock and Class B Warrants
issuable upon exercise of the Class A Warrants and the shares of Class
A Common Stock issuable upon exercise of the Class B Warrants.
(2) Number indicated denotes shares of Class A Common Stock issuable upon
exercise of the Class C and Class D Warrants. Does not include shares
of Class A Common Stock issuable upon conversion of Series A Preferred
Stock, and held by holder of the Class C Warrants.
With the exception of Milton Klein, a director of the Company; Benjamin
Danziger, the father of Leslie A. Danziger, Louis Leeburg, a principal of the
John E. Fetzer Institute and a principal stockholder of the Company, and, the
Burns Family Trust, another principal stockholder of the Company, there are no
material relationships between any of the Bridge Securityholders and the
Company, nor have any such material relationships existed within the past three
years. The Company has been informed by the Underwriter that there are no
agreements between the Underwriter and any Bridge Securityholder regarding the
distribution of the Bridge Securityholders Warrants or their underlying
securities.
Class D Warrants were issued to the placement agent along with a 10%
placement fee for their compensation in connection with the July 1997 private
placement of Series A Preferred Stock.
PLAN OF DISTRIBUTION
Bridge Securityholders
The shares of Class A Common Stock issuable upon exercise of the
Warrants are being offered directly by the Company pursuant to the terms of such
Warrants. No underwriter is being utilized in connection with this offering. Any
securities offered hereby for resale shall be offered directly by such selling
securityholder.
The Company has agreed to pay D.H. Blair Investment Banking Corp.
("Blair") a Solicitation Fee of 5% of the aggregate exercise price of each Class
A and Class B Warrant which is exercised, if (I) the market price of the Class A
Common Stock on the date of the Warrant is exercised is greater than the then
exercise price of the Warrant; (ii) the exercise of the Warrant was solicited by
a member of the NASD; (iii) the Warrant is not held in a discretionary account;
(iv) disclosure of compensation arrangements was made both at the time of the
offering and at the time of exercise of the Warrant; and (v) the solicitation of
exercise of the Warrants was not in violation of Regulation M as promulgated
under the Exchange Act or applicable state securities laws. Any costs incurred
by the Company in connection with the exercising of the Warrants shall be borne
by the Company.
Blair acted as the underwriter of the Company's IPO in February and
March 1996. Other than the securities underlying the Unit Purchase Option
granted to Blair in connection with the IPO, the Company is not aware of any
other securities of the Company owned by Blair. In connection with the IPO, the
Company and Blair agreed to indemnify each other against certain liabilities in
connection with the IPO and this offering including liabilities under the Act.
In connection with the IPO, the Company sold to Blair, for nominal
consideration, the Unit Purchase Option to purchase up to 160,000 IPO Units at
an exercise price of $6.75 per IPO Unit. The Unit Purchase Option and the
underlying securities cannot be transferred, sold, or assigned until February
22, 1998, except to officers of Blair or to any NASD member participating in the
IPO and is exercisable during the period commencing February 22, 1998 and ending
February 22, 2001.
The Company entered into an agreement with Blair providing for the
payment of a fee to Blair, in the event that Blair originates a merger or other
acquisition transaction to which the Company is a party. The fee is based on a
percentage of the consideration paid in the transaction ranging from 7% of the
first $1,000,000 to 2 1/2% of any consideration in excess of $9,000,000.
Unless granted an exemption by the Commission from Regulation M, Blair
will be prohibited from engaging in any market making activities with regard to
the Company's securities for the period from nine business days (or such other
applicable period as Regulation M may provide) prior to any solicitation of the
exercise of Warrants until the later of the termination of such solicitation
activity or the
19
<PAGE>
termination (by waiver or otherwise) of any right that Blair may have to receive
a fee for the exercise of Warrants following such solicitation. As a result,
Blair may be unable to continue to make a market in the Company's securities
during certain periods while the Warrants are exercisable. See "Risk Factors -
Possible Restrictions on Market-Making Activities in Company's Securities".
The exercise prices of the Warrants were determined by negotiation
between the Company and Blair and are not necessarily related to the Company's
asset value, net worth or other established criteria of value.
Blair acted as a placement agent in connection with the private
placement of Bridge Notes and warrants completed in November 1995. Blair has
informed the Company that The Securities and Exchange Commission (the
"Commission") is conducting an investigation concerning various business
activities of the Underwriter in the Company's IPO and D.H. Blair & Co., Inc.,
("Blair & Co.") a selling group member which distributed a substantial portion
of the IPO Units. The Company has been advised by the Underwriter that the
investigation has been ongoing since at least 1989 and that it is cooperating
with the investigation. The Underwriter cannot predict whether this
investigation will ever result in any type of formal enforcement action against
the Underwriter or Blair & Co. See "Risk Factors - Possible Adverse Effect on
the Liquidity of the Company's Securities Due to Securities and Exchange
Commission Investigation of the IPO Underwriter and Blair & Co. and Recent
Settlement by Blair & Co. with NASD".
Private Placement Securityholders
The Private Placement Securities may be sold from time to time by the
Private Placement Securityholders, or by pledgees, donees, transferees or other
successors in interest. Such sales may be made in the over-the-counter market or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Private Placement
Securities may be sold in one or more of the following types of transactions:
(a) a block trade in which the broker-dealer so engaged will attempt to sell the
Private Placement Securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this Prospectus; (c) an exchange distribution in accordance with the
rules of such exchange; and (d) ordinary brokerage transactions and transactions
in which the broker solicits purchasers. In effecting sales, broker-dealers
engaged by the Private Placement Securityholders may arrange for other
broker-dealers to participate in the resales.
In connection with distributions of the Private Placement Securities or
otherwise, the Private Placement Securityholders may enter into hedging
transactions with broker-dealers. In connection with such transactions,
broker-dealers may engage in short sales of the Private Placement Securities in
the course of hedging the positions they assume with Private Placement
Securityholders. The Private Placement Securityholders may also sell Private
Placement Securities short and redeliver the Private Placement Securities to
close out such short positions. The Private Placement Securityholders may also
enter into option or other transactions with broker-dealers which require the
delivery to the broker-dealer of the Private Placement Securities, which the
broker-dealer may resell or otherwise transfer pursuant to this Prospectus. The
Private Placement Securityholders may also loan or pledge Private Placement
Securities to a broker-dealer and the broker-dealer may sell the Private
Placement Securities so loaned or, upon a default, the broker-dealer may effect
sales of the pledged Private Placement Securities pursuant to this Prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the Private Placement Securityholders
in amounts to be negotiated in connection with the sale. Such broker-dealers and
any other participating broker-dealers may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act. In addition, any securities covered by
this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
20
<PAGE>
All costs, expenses and fees in connection with the registration of the
securities offered hereby will be borne by the Company. Commission and
discounts, if any, attributable to the sales of the Private Placement Securities
will be borne by the Private Placement Securityholders. The Private Placement
Securityholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the Private Placement Securities
against certain liabilities, including liabilities arising under the Securities
Act. The Company and the Private Placement Securityholders have agreed to
indemnify certain persons including broker-dealers or agents against certain
liabilities in connection with the offering of the Private Placement Securities,
including liabilities arising under the Securities Act. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
DESCRIPTION OF SECURITIES
For a description of the Company's Class A Common Stock, the Class A
Warrants and Class B Warrants, see the Company's Registration Statement on Form
SB-2 dated December 7, 1995, filed with the Commission and incorporated by
reference into this Prospectus.
Each Class C Warrant entitles the holder to purchase one Class A Common
Stock at $5.63 per share at any time through July 2000. Each Class D Warrant
entitles the holder to purchase one Class A Common Stock at $5.63 per share at
any time through July 2002. For a description of the Class C Warrant and Class D
Warrants see Exhibit 4.7 and Exhibit 4.8 filed herein.
LEGAL MATTERS
Certain legal matters with respect to the Company and the validity of
the securities offered hereby will be passed upon for the Company by Squire,
Sanders & Dempsey L.L.P., Phoenix, Arizona.
INTEREST OF NAMED EXPERTS AND COUNSEL
On October 13, 1997, James L. Adler, Jr. was appointed to serve as a
Director of the Company for a three year term. Mr. Adler is a partner of the law
firm of Squire, Sanders & Dempsey, L.L.P.
EXPERTS
The financial statements of the Company as of June 30, 1997, and for
the year then ended, have been incorporated by reference in this Prospectus in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the June 30, 1997,
financial statements contains an explanatory paragraph that states that the
Company's recurring losses from operations and resulting continued dependence on
external sources of capital raise substantial doubt about the entity's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
The statements of operations, stockholders' equity (deficiency in net
assets), and cash flows of the Company, for the year ended June 30, 1996,
incorporated by reference in this Prospectus, have been audited by Ernst & Young
LLP, independent auditors, to the extent indicated in their report thereon also
incorporated by reference (which contains an explanatory paragraph with respect
to going concern mentioned in the Notes to the financial statements). Such
financial statements have been incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
21
<PAGE>
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 in connection with the offer made by this Prospectus and, if given or
made, such information and representations must not be relied upon as having
been authorized by the Company or the Selling Securityholders. This Prospectus
does not constitute an offer to sell or the solicitation of any offer to buy any
security other than the shares of Common Stock offered by this Prospectus, nor
does it constitute an offer to sell or a solicitation of any offer to buy the
shares of Common Stock 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. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create any implication
that information contained herein is correct as of any time subsequent to the
date hereof.
----------------------
TABLE OF CONTENTS
Page
----
Available Information 3
Prospectus Summary 5
Risk Factors 9
Use of Proceeds 17
Determination of Offering Price 17
Selling Securityholders 17
Plan of Distribution 19
Description of Securities 21
Legal Matters 21
Experts 21
----------------------
LIGHTPATH TECHNOLOGIES, INC.
1,840,000 Units, each consisting of one Share of Class A Common Stock and one
Redeemable B Warrant, issuable upon the exercise of outstanding Redeemable Class
A Warrants and 1,840,000 Shares of Class A Common Stock issuable upon the
exercise of Redeemable Class B Warrants underlying such Class A Warrants and
1,840,000 Shares of Class A Common Stock issuable upon the exercise of
outstanding Redeemable Class B Warrants Underlying such Class A Warrants
839,000 Redeemable Class A Warrants to Purchase 839,000 Shares of Class A Common
Stock and 839,000 Redeemable Class B Warrants to Purchase 839,000 Shares of
Class A Common Stock, and 2,517,000 shares of Class A Common Stock issuable upon
the exercise of such Class A and Class B Warrants
And
1,000,000 Shares of Class A Common Stock issuable upon the conversion of Series
A Preferred Stock and exercise of Redeemable Class C Warrants and Redeemable
Class D Warrants
----------------------
PROSPECTUS
----------------------
October 30, 1997
22
