Prospectus
LIGHTPATH TECHNOLOGIES, INC.
1,758,490 Shares of Class A Common Stock
This Prospectus relates to an aggregate of up to 1,750,000 shares of
Class A Common Stock, $.01 par value (the "Common Stock") of LightPath
Technologies, Inc., a Delaware corporation (the "Company") issuable upon
conversion of 375 shares of Series C Preferred Stock and exercise of 337,078
redeemable Class G Warrants and 58,427 redeemable Class H Warrants
(collectively, the "Warrants") which were issued to investors in a private
placement completed by the Company in February 1998. In addition, this
Prospectus relates to 8,490 shares of Class A Common Stock outstanding as of the
date of this Prospectus, all of which, were issued to the placement agent for
services rendered in connection with the Series C Preferred Stock private
placement (collectively the "Selling Securityholders" ). All of the shares
covered by this Prospectus are being offered by the Selling Securityholders.
The securities offered by this Prospectus may be resold from time to
time by the Selling Securityholders. 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.
None of the proceeds from the sale of the shares of Common Stock
offered hereby will be received by the Company, however, the Company will
receive proceeds from the exercise, if any, of the Warrants. Substantially all
of the expenses in connection with the registration of the Common Stock will be
borne by the Company, except for any underwriters', brokers', and dealers'
commissions and/or discounts. See "Plan of Distribution".
The Common Stock of the Company is quoted on the Nasdaq SmallCap Market
under the symbol "LPTHA". On March 9, 1998, the last reported bid price for the
Common Stock, as reported by Nasdaq Stock Market was $7.25.
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 "Securities 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 resale of
securities by the Selling Securityholders.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING AT 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.
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The date of this Prospectus is March 31, 1998.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-3, of which this Prospectus
forms a part, ("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 or incorporated by reference, 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, its
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
public reference facilities 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 on the
aforementioned 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;
ii. The Company's Quarterly Report on Form 10-QSB for the quarterly period
ended September 30, 1997;
iii. The Company's Quarterly Report on Form 10-QSB for the quarterly period
ended December 31, 1997;
iv. 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; and
v. 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 such
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 this Prospectus).
Requests should be directed to Investor Relations, LightPath Technologies, Inc.,
6820 Academy Parkway East NE, Albuquerque, New Mexico, 87109, telephone
(505)342-1100.
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PROSPECTUS SUMMARY
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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 certain 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
fourteen 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 seven foreign distributors
and a Silicon Valley manufacturer representative. The Company believes these
relationships 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, offers a standard line of GRADIUM
glass lenses for commercial 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.
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The Company can not predict how much time will be 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 currently designing 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 OEMs 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 joint development efforts
and, as a result, 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 a leading manufacturer of endoscopes, Karl Storz
GMBH & Co., camera television lenses, wafer chip inspection 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 Company's 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 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 constitute
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 stage
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.
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The Offering
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Securities Offered by Selling 1,758,490 shares of Class A Common
Securityholders: Stock
1,750,000 shares of the Class A
Common Stock offered hereby are
issuable upon conversion of Series
C Preferred Stock and exercise of
outstanding Class G Warrants and
Class H Warrants. Each Class G
Warrant is exercisable at any time
on or before February 2001 to
purchase for $6.68 one share of
Class A Common Stock, subject to
adjustment. Each Class H Warrant is
exercisable at any time on or
before February 2003 to purchase
for $6.68 one share of Class A
Common Stock subject to adjustment.
8,490 shares of the Class A Common
Stock offered hereby are currently
outstanding.
Each share of Series C Preferred
Stock has a stated value and
liquidation preference of $10,000,
plus an 8% per annum premium. Each
share of Series C Preferred Stock
is convertible into a number of
shares of 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
(i) $6.675 or (ii) 85% of the
average closing bid price of the
Company's Class A Common Stock for
the five days preceding the
conversion date.
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Company's Capitalization
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Common Stock Outstanding December 31,
1997(1)(3):
Class A Common Stock 2,988,746 shares(1)(3)
Class E-1 Common Stock 1,481,584 shares(2)
Class E-2 Common Stock 1,481,584 shares(2)
Class E-3 Common Stock 987,715 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 Class A Common Stock
offered hereby 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 Class A Common Stock 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
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(1) Does not include outstanding options at December 31, 1997 to purchase
809,175 shares of Class A Common Stock and 117,862 shares of Class E-1,
117,862 shares of Class E-2 and 78,575 shares of Class E-3 Common Stock
which are exercisable at option exercise prices ranging from $5.00 to
$51.56 per share and 1,138,226 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 12,088,000 shares of Class A Common Stock
issuable upon exercise of (i) the Unit Purchase Option granted to the IPO
underwriter 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 IPO Units, (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 4,250,000 shares of Class A Common Stock issuable upon
conversion of Series A, Series B, and Series C Preferred Stock and exercise
of Class C, Class D, Class E, Class F, Class G and Class H Warrants.
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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 documents incorporated herein by reference and the
documents filed by the Company from time to time with the Securities and
Exchange Commission, to the following risk factors.
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 had been basic research and
development. 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 had a net loss of ($2,998,290). For the six months ended
December 31, 1997, the Company recognized revenues of $372,203 and a net loss of
($1,764,290). The Company's products currently are at an early stage of
development and the Company believes that most of its product sales prior to
fiscal year 1997 were to parties evaluating the commercial application of
GRADIUM or using the products for research and development. During fiscal year
1997, numerous prototypes for production orders were completed but no commercial
orders have been received to date. During fiscal year 1998, the Company's
increase in lens sales has been primarily due to laser customers, distributors
and wafer chip inspection markets. 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 the incorporation
of 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 Auditors' 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
auditors as raising substantial doubt as to the Company's ability to continue as
a going concern are 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 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.
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 implementation of a sales and marketing program, distribution
channels, recruitment and training of personnel and other operating activities
and its continuing research and development efforts to expand its product line,
and capital expenditures for the scale-up of its manufacturing operations. 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
placements of preferred stock completed in July and October 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
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operations. The net proceeds from the Company's private placement completed in
February 1998 provides working capital into fiscal 1999 and more rapid entrance
into optoelectronics development and sales. The Company's capital requirements
after such period will depend on the extent that GRADIUM glass becomes
commercially accepted, if at all, and if 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 private placements of Series A Preferred Stock in
July 1997, Series B Preferred Stock in October 1997 and Series C Preferred Stock
in February 1998 are insufficient to offset costs associated with unanticipated
delays, cost overruns, unanticipated expenses 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 have 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. Through fiscal
1996, 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. Most of the Company's fiscal 1997 and
1998 product sales have been to laser customers, distributors and the wafer chip
inspection market. 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 products currently
existing or to be 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
unrelated to the Company 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 demonstrated experience as a manufacturer and 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.
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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 CEO, who conceived
the Company's technology and strategic plan and who is 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
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 thirty-one employees on January 1,
1998. 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,
develop additional sales and marketing programs and establish sales distribution
channels in order to achieve and sustain commercial sales of its products. In
October 1997, the Company hired a Vice President of Sales to develop its sales
and marketing program and recruit personnel. While the Company has developed a
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. In
addition, 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
9
<PAGE>
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 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, OEMs, licensees and others in
order to generate product sales, license fees, 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 such 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 such catalog company
with respect to the future distribution of the Company's products, it
anticipates continuing such relationship on a non-exclusive basis. In 1997, the
Company formalized relationships with seven 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 Company's February 1996
IPO, the Company had minimal experience in manufacturing optical components. In
addition, the Company had limited resources to manufacture its products.
Proceeds from the IPO were primarily 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 such 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 in 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
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 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
10
<PAGE>
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 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, for such period. 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 material 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 have a material adverse effect on 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 CEO, 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. Holders
of the Company's issued and outstanding Preferred Stock have 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 February 22, 1998, less than 5% of
the Company's 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 Class C, Class D, Class E, Class F, Class G and Class H 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 December 31, 1997,
the Company had outstanding (i) 2,679,000 Class A Warrants to purchase an
aggregate of 2,679,000 shares of Class A Common Stock and 2,679,000 Class B
Warrants; (ii) 1,840,000 Class B Warrants to purchase 1,840,000
11
<PAGE>
shares of Class A Common Stock; (iii) the Unit Purchase Option to purchase an
aggregate of 240,000 Units; (iv) 832,000 shares of Class A Common Stock reserved
for the conversion of Series A Preferred Stock and exercise of Class C and Class
D Warrants, (v) 1,500,000 shares of Class A Common Stock reserved for the
conversion Series B Preferred Stock and exercise of Class E and Class F
Warrants; (vi) 1,750,000 shares of Class A Common Stock reserved for the Selling
Securityholders Securities; and (vii) outstanding options to purchase an
aggregate of 809,175 shares of Class A Common Stock, 117,862 shares of Class
E-1, 117,862 shares of Class E-2 and 78,575 shares of Class E-3 Common Stock. As
of December 31, 1997, the Company also has an additional 1,138,226 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 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 the period such options and Warrants remain exercisable 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 IPO 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. As of the date of this Prospectus, the Company has
authorized 250 shares of Series A Preferred Stock, 300 shares of Series B
Preferred Stock, and 500 shares of Series C Preferred Stock, of which 180, 230
and 375 shares, respectively, have been issued and 55, 225 and 375 shares
respectively, were 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.
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<PAGE>
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
(the "IPO Underwriter") 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 IPO Underwriter that the investigation has been
ongoing since at least 1989 and that it is cooperating with the investigation.
The IPO Underwriter cannot predict whether this investigation will ever result
in any type of formal enforcement action against the IPO 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 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 IPO Underwriter, its chief executive officer or any of its other
officers or directors.
Blair & Co. currently makes a market in the Company's securities see
"Possible Restrictions and Potential Effect of Blair & Co. Acquisition on
Market-Making Activities in 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 and Potential Effect of Blair & Co. Acquisition
on Market-Making Activities in Company's Securities. On January 9, 1998,
Barington Capital Group L.P. , a New York investment bank, agreed to acquire
most of the assets of Blair & Co. The Company is not able to determine the
impact, if any, this acquisition will have on the Company's securities. Blair &
Co. currently makes a market in the Company's securities. In addition,
Regulation M, which was adopted to replace Rule 10b-6 under 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 IPO 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 IPO 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 in
the Company's IPO 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 IPO Underwriter or Blair & Co. engages in a
distribution of any of the Bridge
13
<PAGE>
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 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 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
shares of Common Stock 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 in the aftermarket in, or may move
to, jurisdictions in which such shares of Common 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
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 underlying the Warrants and 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 ("Nasdaq"). 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
capitalization 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
14
<PAGE>
$4,000,000 in market value of the public float and a bid 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 between 10 to 90 days (depending on the criteria which is not
satisfied) 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. 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.
Risk of Insufficient Funds Available to Effect Redemptions. In the
events of conversion of the Series A, Series B or Series C Preferred Stock or
exercise of their accompanying Class C, Class E and Class G Warrants,
respectively, 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 applicable
Certificates of Designation) may require redemption of the Series A, Series B or
Series C 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
All proceeds from the resale of any securities offered hereby will be
received by the respective Selling Securityholders. In the event that all of the
337,078 outstanding Class G Warrants, and all of the 58,427 outstanding Class H
Warrants are exercised, the Company would receive net proceeds of approximately
$2,642,000. Holders of Warrants are not obligated to exercise their Warrants.
There can be no assurance that the Warrantholders will choose to exercise all or
any of their Warrants. The Company intends to use the net proceeds received upon
the exercise of the Warrants, if any, for general corporate purposes and working
capital, including but not limited to marketing efforts, research and
development programs and continuing product development.
DETERMINATION OF OFFERING PRICE
An aggregate of up to 1,750,000 of the 1,758,490 shares of Common Stock
offered are issuable upon the exercise of the Class G and Class H Warrants and
the conversion of the Series C Preferred Stock. The subsequent sale of the
shares of Common Stock received upon exercise of the Warrants and conversion of
the Series C Preferred Stock and the sale of the remaining 8,490 shares of
Common Stock currently outstanding will be determined by the respective Selling
Securityholder at prices and on terms then prevailing or at prices related to
the then current market price, or in negotiated transactions.
15
<PAGE>
SELLING SECURITYHOLDERS
An aggregate of 1,758,490 shares of Class A Common Stock may be offered
for resale by the Selling Securityholders from time to time. The shares of Class
A Common Stock offered hereby include 1,750,000 shares which are issuable upon
exercise of 337,078 Class G Warrants, and 58,427 Class H Warrants and upon
conversion of 375 shares of Series C Preferred Stock, all of which are currently
outstanding. Each Class G and Class H Warrant is exercisable for one share of
Class A Common Stock. Each share of Series C Preferred Stock is convertible into
a number of shares of Class A Common Stock determined by dividing its stated
value on the date of conversion by a conversion price. The conversion price is
defined as the lesser of (i) $6.675 or (ii) 85% of the average closing bid price
of the Company's Class A Common Stock for the five days preceding the conversion
date. All of the Class G Warrants, Class H Warrants, Series C Preferred Stock
and Class A Common Stock were acquired by the Selling Securityholders in
connection with a private placement completed by the Company in February 1998.
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of February 1, 1998, and as adjusted to
reflect the sale of the Class A Common Stock being offered hereby, by the
Selling Securityholders. Except as described below, there are no material
relationships between any of the Selling Securityholders and the Company, nor
have any such material relationships existed within the past three years.
<TABLE>
<CAPTION>
---------------------------------------------
Shares Beneficially owned
After Offering (1)
---------------------------------------------
--------------------- -----------------
Shares Beneficially Number of Number Percent of Percent of
owned Prior to the Shares Being Class A All
Offering (1)(2)(3) Offered (3) Common Stock Classes of
Common Stock
--------------------- ----------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Cranshire Capital LLP 200,513(4) 93,035(5) 107,478(4) 3% 1.5%
EP Opportunity Fund, LLC 548,295(6) 232,588(7) 310,307(6) 8% 4%
JRA Enterprises 11,629(8) 11,629 -0- * *
Kopin Rice Corporation 69,776(9) 69,776 -0- * *
Keyway Investments, LTD 908,206(10) 465,175(11) 443,031(10) 12% 6%
Swartz Family Partnership, LP 42,948(12)(21) 15,309 27,639(12) * *
KendrickFamily Partnership LLP 33,549(13)(21) 15,309 18,240(13) * *
Brad Hathorn 4,928(14)(21) 2,000 2,925(14) * *
Jerry Harris 8,698(15)(21) 2,500 6,198(15) * *
Carl Johnson 5,500(17)(21) 1,500 4,000(17) * *
Davis Holden 6,500(18)(21) 1,500 5,000(18) * *
Frank Mauro 32,810(16)(21) 15,309 27,640(16) * *
Chuck Whiteman 4,265(19)(21) 1,500 2,765(19) * *
Dwight Bronnum 1,000(20)(21) 250 750(20) * *
Robert Hopkins 1,000(20)(21) 250 750(20) * *
H. Nelson Logan 1,000(21) 1,000 0 * *
James Mills 1,000(21) 1,000 0 * *
Kelley Smith 1,000(21) 1,000 0 * *
Swartz Investments LLC 8,490 8,490 0 * *
</TABLE>
* Represents beneficial ownership of less than 1%.
(1) Except as otherwise noted, and subject to community property laws, where
applicable, each person named in the table has sole voting power and
investment power with respect to all shares shown as beneficially owned.
(2) As noted below, the information set forth below includes shares of Class A
Common Stock issuable upon conversion of shares of the Company's Series A
and Series B Preferred Stock which are presently outstanding. Each share of
Series A and Series B Preferred Stock is convertible into a number of
shares of Class A Common Stock determined by dividing its stated value on
the date of conversion by a
16
<PAGE>
conversion price. The Series A and Series B conversion price is defined as
the lesser of (i) $5.625 and $7.2375 respectively, or (ii) 85% of the
average closing bid price of the Company's Class A Common Stock for the
five days preceding the conversion date. For purposes of the information
set forth in this table, it is assumed that each outstanding share of
Series A and Series B Preferred Stock was converted as of March 1, 1998
into approximately 1,872 and 1,427 shares, respectively, of Class A Common
Stock.
(3) As noted below, the information set forth below includes shares of Class A
Common Stock issuable upon conversion of shares of the Company's Series C
Preferred Stock which are presently outstanding. Each share of Series C
Preferred Stock is convertible into a number of shares of Class A Common
Stock determined by dividing its stated value on the date of conversion by
a conversion price. The conversion price is defined as the lesser of (i)
$6.675 or (ii) 85% of the average closing bid price of the Company's Class
A Common Stock for the five days preceding the conversion date. For
purposes of the information set forth in this table, it is assumed that
each share of Series C Preferred Stock was converted as of March 1, 1998
into approximately 1,505 shares of Class A Common Stock.
(4) Includes 200,513 shares of which 44,396 were received from the conversion
of 15 shares of Series A Preferred Stock and related Class C Warrants and
156,117 shares issuable upon (A) conversion of (i) 20 shares of Series B
Preferred Stock and (ii) 40 shares of Series C Preferred Stock and upon (B)
the exercise of (i) 34,542 Class E Warrants and (ii) 35,955 Class G
Warrants to purchase shares of Class A Common Stock.
(5) Includes 93,035 shares issuable upon conversion of 40 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
35,955 shares of Class A Common Stock.
(6) Includes 548,295 shares issuable upon (A) conversion of (i) 35 shares of
Series A Preferred Stock (ii) 65 shares of Series B Preferred Stock and
(iii) 100 shares of Series C Preferred Stock and upon (B) the exercise of
(i) Class C Warrants to purchase 62,222 shares, (ii) 89,810 Class E
Warrants and (iii) 89,888 Class G Warrants to purchase shares of Class A
Common Stock.
(7) Includes 232,588 shares issuable upon conversion of 100 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
89,888 shares of Class A Common Stock.
(8) Includes 11,629 shares issuable upon conversion of 5 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
4,494 shares of Class A Common Stock.
(9) Includes 69,776 shares issuable upon conversion of 30 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
26,966 shares of Class A Common Stock.
(10) Includes 908,206 shares which 82,162 were received from the conversion of
45 shares of Series A Preferred Stock and 826,044 shares issuable upon (A)
conversion of (i) 100 shares of Series B Preferred Stock and (ii) 200
shares of Series C Preferred Stock and upon (B) the exercise of (i) 80,000
Class C Warrants (ii) 138,169 Class E Warrants and (ii) 179,775 Class G
Warrants to purchase shares of Class A Common Stock.
(11) Includes 465,175 shares issuable upon conversion of 200 shares of Series C
Preferred Stock and assumes the exercise of Class G Warrants to purchase
179,775 shares of Class A Common Stock.
(12) Includes 42,948 shares issuable upon the exercise of 15,750 Class D
Warrants, 11,889 Class F Warrants and 15,309 Class H Warrants.
(13) Includes 33,549 shares of which 6,351 were received from the exercise of
Class D Warrants and 27,198 shares issuable upon the exercise of 11,889
Class F Warrants and 15,309 Class H Warrants.
(14) Includes 4,928 shares of which 928 were received from the exercise of Class
D Warrants and 4000 shares issuable upon the exercise of 2,000 Class F
Warrants and 2,000 Class H Warrants.
(15) Includes 8,698 shares of which 2,198 were received from the exercise of
Class D Warrants and 6,500 shares issuable upon the exercise of 4,000 Class
F Warrants and 2,000 Class H Warrants.
(16) Includes 32,810 shares of which 5,611 were received from the exercise of
Class D Warrants and 27,199 shares issuable upon the exercise of 11,890
Class F Warrants and 15,309 Class H Warrants.
(17) Includes 5,500 shares issuable upon the exercise of (i) 2,000 Class D
Warrants, (ii) 2,000 Class F Warrants and (iii) 1,500 Class H Warrants.
(18) Includes 6,500 shares issuable upon the exercise of (i) 3,000 Class D
Warrants, (ii) 2,000 Class F Warrants and (iii) 1,500 Class H Warrants..
(19) Includes 4,265 shares of which 1,265 were received from the exercise of
Class D Warrants and 3,000 shares issuable upon the exercise of 1,500 Class
F Warrants and 1,500 Class H Warrants.
(20) Includes 1,000 shares of which 500 were received from the exercise of Class
D Warrants and 500 shares issuable upon the exercise of 250 Class F
Warrants and 250 Class H Warrants.
(21) Each of these persons were designated by Swartz Investments, LLC to receive
certain securities issuable to Swartz. See "Certain Relationships".
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CERTAIN RELATIONSHIPS
All of the Class D and Class F Warrants were issued to Swartz
Investments, LLC or its designees (collectively "Swartz") along with cash
placement fees as consideration for its services as placement agent in
connection with the Company's sales of Series A Preferred Stock in July 1997 and
Series B Preferred Stock in October 1997, respectively.
All of the Class G Warrants were issued to Swartz with a cash placement
fee of $187,500 and 8,490 shares of unregistered Class A Common Stock equal to 1
1/2% of the gross proceeds from the sale of Series C Preferred Stock as
compensation for their services as placement agent in connection with the
February 1998 private placement of 375 shares of its Series C Preferred Stock.
The purchasers of the Company's Series A, Series B and Series C
Preferred Stock have a right of first offer to participate in any issuances of
equity or debt securities by the Company during the respective one year period
commencing on the date which such shares of Series A, Series B or Series C
Preferred Stock, as the case may be, were sold. Swartz Investments LLC has the
right of first refusal to act as placement agent with respect to any future
private financings by the Company during the one year period ended July 1998.
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby the ("Selling
Securityholders' Securities") may be sold from time to time by the Selling
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 Selling Securityholders'
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
Selling Securityholders' 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 Selling Securityholders may arrange for other broker-dealers to
participate in the resales.
In connection with distributions of the Selling Securityholders'
Securities or otherwise, the Selling Securityholders may enter into hedging
transactions with broker-dealers. In connection with such transactions,
broker-dealers may engage in short sales of the Selling Securityholders'
Securities in the course of hedging the positions they assume with Selling
Securityholders. The Selling Securityholders may also sell Selling
Securityholders' Securities short and redeliver the Selling Securityholders'
Securities to close out such short positions. The Selling Securityholders may
also enter into option or other transactions with broker-dealers which require
the delivery to the broker-dealer of the Selling Securityholders' Securities,
which the broker-dealer may resell or otherwise transfer pursuant to this
Prospectus. The Selling Securityholders may also loan or pledge Selling
Securityholders' Securities to a broker-dealer and the broker-dealer may sell
the Selling Securityholders' Securities so loaned or, upon a default, the
broker-dealer may effect sales of the pledged Selling Securityholders'
Securities pursuant to this Prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the Selling 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 under the Securities
Act may be sold under Rule 144 rather than pursuant to this Prospectus.
All costs, expenses and fees in connection with the registration of the
Selling Securityholders' Securities offered hereby will be borne by the Company.
Commission and discounts, if any, attributable to the sales of the Selling
Securityholders' Securities will be borne by the respective Selling
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Securityholders. The Selling Securityholders may agree to indemnify any
broker-dealer or agent that participates in transactions involving sales of the
Selling Securityholders' Securities against certain liabilities, including
liabilities arising under the Securities Act. The Company and the Selling
Securityholders have agreed to indemnify certain persons including
broker-dealers or agents against certain liabilities in connection with the
offering of the Selling Securityholders' 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 see the
Company's Registration Statement on Form SB-2 filed with the Commission on
December 7, 1995 and incorporated by reference into this Prospectus.
Each Class G Warrant entitles the holder to purchase one share of Class
A Common Stock at $6.68 per share at any time through February 2001. Each Class
H Warrant entitles the holder to purchase one share of Class A Common Stock at
$6.68 per share at any time through February 2003. For a description of the
Class G Warrants and Class H Warrants see Exhibit 4.7 and Exhibit 4.8 to the
Registration Statement.
Each share of Series C Preferred Stock is convertible into a number of
shares of Class A Common Stock at the option of the holder at any time
commencing in June, 1998, subject to certain volume limitations applicable until
November, 1998. The number of shares of Class A Common Stock issuable upon
conversion of the Series C Preferred Stock is determined by dividing the stated
value of the Series C Preferred Stock on the date of conversion by a conversion
price. The conversion price is defined as the lesser of (i) $6.675 or (ii) 85%
of the average closing bid price of the Company's Class A Common Stock for the
five days preceding the conversion date. Each share of Series C Preferred Stock
has a stated value of $10,000 plus an 8% per annum premium.
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.
INTERESTS 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 two 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.
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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 Class A 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 Class A 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.
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TABLE OF CONTENTS
Page
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Available Information 2
Prospectus Summary 3
Risk Factors 7
Use of Proceeds 15
Determination of Offering Price 15
Selling Securityholders 16
Certain Relationships 18
Plan of Distribution 18
Description of Securities 19
Legal Matters 19
Experts 19
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LIGHTPATH TECHNOLOGIES, INC.
1,758,490 Shares of Class A Common Stock
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PROSPECTUS
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March 31 , 1998
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