PROSPECTUS
48,418 Shares
THE PANDA PROJECT, INC.
Common Stock
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All of the shares of common stock, par value $.01 per share
("Common Stock"), of The Panda Project, Inc. (the "Company") offered
hereby (the "Shares") are being sold by certain securityholders of the
Company (the "Selling Securityholders"). See "Selling Securityholders."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Securityholders.
The Selling Securityholders have advised the Company that they
propose to sell the Shares from time to time in the over-the-counter
market, in ordinary brokerage transactions or otherwise at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution." The Common Stock is traded on the Nasdaq National Market
under the symbol "PNDA." On July 7, 1997, the last reported sale price
of the Common Stock on the Nasdaq National Market was $2.75 per share.
The shares of Common Stock offered hereby represent approximately
.4% of the total number of shares outstanding at July 7, 1997. Sales of
all or part of the Shares offered hereby could have a negative impact on
the market price of the Common Stock and adversely affect the ability of
the Company to raise capital through the sale of its equity securities.
See "Risk Factors -- Negative Effect of Future Sales of Stock on Market
Prices and Ability to Raise Capital" and "Plan of Distribution."
The Company will pay all the expenses, estimated to be $25,000, in
connection with this offering, other than selling expenses and
underwriting discounts, if applicable.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 2.
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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 July 16, 1997.
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TABLE OF CONTENTS
Page
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Available Information ......................................... 1
Incorporation of Certain Documents by Reference ............... 2
Risk Factors .................................................. 2
Recent Developments ........................................... 13
Use of Proceeds ............................................... 14
Selling Securityholders ....................................... 14
Plan of Distribution .......................................... 15
Experts ....................................................... 15
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Page 1
AVAILABLE INFORMATION
The Panda Project, Inc. (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
and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy statements and other information filed by
the Company with the Commission pursuant to the informational
requirements of the Exchange Act may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials also may be
obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Common Stock of the Company is traded on the Nasdaq National Market.
Reports and other information concerning the Company may be inspected at
the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement
on Form S-3 with respect to the Shares (herein, together with all
amendments and exhibits, referred to as the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, as
certain items are omitted in accordance with the rules and regulations
of the Commission. For further information pertaining to the Company
and the Shares, reference is made to such Registration Statement and the
exhibits and schedules thereto, which may be inspected without charge at
the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of which may be obtained from the Commission at
prescribed rates. The Commission also makes electronic filings publicly
available in the Internet within 24 hours of acceptance. The
Commission's Internet address is http://www.sec.gov. The Commission's
Web site also contains reports, proxy and information statements and
other information regarding registrants that file electronically with
the Commission.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR
AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE
UNLAWFUL. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
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SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
INFORMATION CONTAINED IN THE COMPANY'S WEB SITE SHALL NOT BE DEEMED
TO BE PART OF THIS PROSPECTUS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997;
(2) The Company's Registration Statement on Form 8-A filed May 5,
1994, registering the Common Stock under Section 12(g) of the Exchange
Act.
All documents filed by the Company with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof and prior to the termination of the offering of the Common
Stock registered hereby shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained in a document incorporated or
deemed to be 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 other subsequently filed
document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents incorporated by reference into this
Prospectus (without exhibits to such documents other than exhibits
specifically incorporated by reference into such documents). Requests
for such copies should be directed to The Panda Project, Inc.,
901 Yamato Road, Boca Raton, Florida 33431, Attention: Chief Financial
Officer, (561) 994-2300.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS ARE MADE ONLY AS OF THE
DATE OF THIS PROSPECTUS. WITHOUT LIMITING THE FOREGOING, THE WORDS
"BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
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INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW AND ELSEWHERE IN
THIS PROSPECTUS.
1. LIMITED PRODUCT DEVELOPMENT AND OPERATING HISTORY. Although the
Company has recently begun commercialization of certain products, other
products and technologies are undergoing additional testing and
certification which may ultimately lead to their commercialization. The
Company's viability, profitability and growth will depend in part upon
successful commercialization of these other products and technologies.
There can be no assurance that these efforts will be successful or that
any of the proposed additional products will be developed successfully.
Further, the Company has a limited operating history upon which an
evaluation of its prospects can be made. Such prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business in the evolving
electronics industry, which is characterized by an increasing number of
market entrants and intense competition, as well as those encountered in
the shift from development to commercialization of new products based on
innovative technologies.
2. LIMITED REVENUES; HISTORY OF SIGNIFICANT LOSSES; ACCUMULATED
DEFICIT; ANTICIPATED FUTURE LOSSES. To date, the Company has generated
limited revenues from the sale of its Archistrat Computers; the Company
does not anticipate deriving larger revenues from operations until such
time, if ever, that greater numbers of its Archistrat Computers and
other computers are sold and its semiconductor packaging and connector
products can be manufactured and licensed or successfully
commercialized, as to which there can be no assurance. Further, of the
$2.4 million of revenues recognized in the year ended March 31, 1997,
$923,000 related to a barter transaction with a software developer
wherein the Company accepted software licenses, consulting and training
services, and services associated with the certification of one model of
the Archistrat Computers to use the software developer's CAD program and
porting the software onto the product, in exchange for 53 of its
Archistrat Computers. Management believes the amount of revenue
recognized reflects the fair value of the licenses and other services
received and approximated the normal selling price of the servers. Since
inception (April 8, 1992), the Company has incurred significant net
losses, including losses of $1,800,340, $6,931,346, $23,894,426 and
$20,874,101 during the fiscal years ended March 31, 1994, 1995, 1996 and
1997, respectively, resulting in an accumulated deficit of $53,915,901
as of March 31, 1997. In addition, the Company anticipates substantial
losses to continue in the foreseeable future. Inasmuch as the Company
will continue to have a high level of operating expenses and will be
required to make significant expenditures in connection with its
research and development and manufacturing and marketing activities
(including salaries of executive, technical and research and development
personnel), the Company anticipates that such losses will continue until
such time, if ever, as the Company is able to generate sufficient
revenues to support its operations. There can be no assurance that the
Company will ever be able to generate sufficient revenues to achieve
profitable operations.
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3. SIGNIFICANT CAPITAL REQUIREMENTS; POSSIBLE NEED FOR ADDITIONAL
FINANCING. The Company's capital requirements in connection with its
operations and development activities have been and may continue to be
significant. The Company has been dependent primarily upon the proceeds
of sales of its securities to fund its activities since inception.
During the period from inception through July 7, 1997, the Company
raised capital of approximately $63,000,000 (after deduction of
underwriting discounts, commissions and other selling costs) through the
sale of Common Stock and warrants, convertible debentures, and from the
exercise of stock options and warrants. Since June 1996, the Company has
entered into five agreements to license its VSPA and Compass Connector
technologies and began to receive revenues under one of these agreements
during the year end March 31, 1997. The Company anticipates receiving
revenues under one or more of the other agreements by the end of the
second quarter of the Company's fiscal year which began on April 1,
1997. In addition, the Company has taken actions to significantly reduce
its expenses in all areas including compensation and benefits, research
and development and selling and administrative expenses.
In the event the Company's working capital, as augmented by
proceeds from any sales revenue prove to be insufficient to fund
operations (due to unanticipated expenses, delays, problems, or
otherwise), the Company would be required to seek additional financing.
Furthermore, depending upon the Company's progress in the development of
its products and technology and manufacturing capabilities, acceptance
of its products and technology by third parties, and the state of the
capital markets, the Company may also determine that it is advisable to
raise additional equity capital. In addition, in the event that the
Company receives a larger than anticipated number of purchase orders for
its Archistrat Computers or VSPA semiconductor package, it may require
resources substantially greater than it currently has or than are
otherwise available to the Company, and the Company may be required to
raise additional capital or engage third parties (as to which engagement
there can be no assurance) to assist the Company in meeting such orders.
The Company has no current arrangements with respect to, or sources of,
additional financing, and there can be no assurance that additional
financing will be available to the Company when needed on commercially
reasonable terms or at all. The inability of the Company to obtain
additional financing when needed would have a material adverse effect on
the Company, including possibly requiring the Company to significantly
curtail or cease its operations. To the extent that any future financing
involves the sale of the Company's equity securities, the Company's then
existing stockholders may be substantially diluted.
4. UNCERTAINTY OF MARKET ACCEPTANCE. The products and technologies
currently being sold or developed by the Company utilize newly developed
designs. Although the Company believes that its existing and proposed
technology and products represent significant advancements in
semiconductor packaging and computer technology, demand for the
Company's existing and proposed products is subject to a high degree of
uncertainty, as is typical in the case of newly-developed products.
Achieving marketing acceptance for the Company's technology and existing
and proposed products will require substantial marketing efforts and
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expenditure of significant funds to educate key original equipment
manufacturers ("OEMs") and value-added resellers ("VARs") and end users
as to the distinctive characteristics and anticipated benefits of the
Company's proposed products and technologies. Many OEMs and VARs
manufacture and/or sell components and computers competitive with those
being developed by the Company and have achieved significant market
acceptance for their products. Accordingly, due to their commitment to
their own products, such entities may be inhibited from doing business
with the Company. In addition, many OEMs and VARs may be reluctant to
use or sell the Company's products and technologies until a sufficient
number of other OEMs and VARs have already committed to do so. The
Company currently has limited marketing experience and limited
financial, personnel and other resources to undertake the extensive
marketing activities that will be necessary to market its products and
technologies as their development is completed. The Company's ability to
generate revenue from the sale of Archistrat Computers or the licensing
or sale of Technology Products will be dependent upon, among other
things, its ability to build an effective sales organization. There can
be no assurance that the Company will be able to formalize any marketing
arrangements or that its marketing efforts will be successful.
5. UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT; TECHNOLOGICAL
FACTORS; DEPENDENCE ON THIRD-PARTY PRODUCT DESIGN CHANGES. Although
Archistrat Computers have been sold in limited quantities, the Company's
Technology Products have not been fully commercialized and some remain
in various stages of development. The Company's development efforts are
subject to all of the risks inherent in the development of new products
and technology (including unanticipated delays, expenses or technical or
other problems, as well as the possible insufficiency of funding to
complete development). The Company's success will depend in part upon
its products and technology meeting acceptable cost and performance
criteria, and upon their timely introduction into the marketplace. There
can be no assurance that the Company's products and technology which
have not yet been commercialized will ever be successfully developed,
and even if developed, that they will satisfactorily perform the
functions for which they are designed, that they will meet applicable
price or performance objectives or that unanticipated technical or other
problems will not occur which would result in increased costs or
material delays in their development or commercialization. In addition,
technology as complex as that which will be incorporated into the
Company's proposed products may contain errors which become apparent
subsequent to widespread commercial use. Remedying such errors could
delay the Company's plans and cause it to incur additional costs which
would have a material adverse effect on the Company. The Company's
success will also be dependent upon the Company's ability to adapt its
products to be compatible with the products of third-party manufacturers
of computer products. In addition, the Company will be dependent on
certain potential customers redesigning or otherwise modifying their
products to fully utilize the Company's proposed products and
technology. Although the Company believes that potential customers will
undertake such modifications to take advantage of the anticipated
performance advantages of the Company's proposed products, the costs of
making such adaptations could prevent them from doing so on a timely
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basis, or at all. The failure of the Company to adapt its products and
technology to be compatible with products of third-party manufacturers
or the failure of potential customers to make necessary modifications or
to redesign their products to accommodate the Company's products could
have a material adverse effect on the Company's ability to sell or
license its proposed products or technology.
6. COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The markets that the
Company intends to enter are characterized by intense competition. The
Company's Archistrat Computers compete with computers offered by such
companies as Silicon Graphics, Inc., Digital Equipment Corp., Hewlett-
Packard Co., and Compaq Computer Corporation. The Company's Technology
Products compete with semiconductor packages and connectors offered by
numerous manufacturers. Many of these companies have substantially
greater financial, technical, personnel and other resources than the
Company and have established reputations for success in the development,
licensing, sale and servicing of their products and technology. Certain
of these competitors dominate their industries and have the financial
resources necessary to enable them to withstand substantial price
competition or downturns in the market for semiconductor packages,
related technologies and/or computers. In addition, certain companies
may be developing technologies or products of which the Company is
unaware, which may be functionally similar, or superior, to some or all
of those being developed by the Company. The markets for the technology
and products being developed by the Company are characterized by rapid
changes and evolving industry standards often resulting in product
obsolescence or short product life cycles. Accordingly, the ability of
the Company to compete will depend on its ability to complete
development and introduce to the marketplace in a timely and cost-
competitive manner additional products and technology, to continually
enhance and improve its existing and proposed products and technology,
to adapt its proposed products to be compatible with specific products
manufactured by others, and to successfully develop and market new
products and technology. There can be no assurance that the Company will
be able to compete successfully, that its competitors or future
competitors will not develop technologies or products that render the
Company's proposed products and technology obsolete or less marketable
or that the Company will be able to successfully enhance its proposed
products or technology or adapt them satisfactorily.
7. DEPENDENCE ON MANUFACTURERS AND SUPPLIERS; LACK OF MANUFACTURING
EXPERIENCE AND CAPABILITY. The Company has developed the ability to
manufacture the VSPA semiconductor package in limited quantities in its
own facility in Boca Raton, Florida. The machinery used in the
manufacturing process has been designed and built by the Company,
primarily for the purpose of demonstrating the principles of
manufacturing VSPA in high volumes. The Company has designed and is
currently building its first automated machine to produce VSPA parts in
volumes based on anticipated customer demand. The machine has been
designed to have a wide range of flexibility in terms of the pin count
of the VSPA packages it will produce, and its expected production
capacity ranges from 200,000 parts per month to 235,000 parts per month,
depending upon the pin count of the package. However, there can be no
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assurance that the Company will be able to complete the build of the
machine within the a reasonable period of time, or that, if completed,
it will function as designed and be capable of producing the quantities
of VSPA that are anticipated. In the event the Company is unable to
build a machine that can produce VSPA in high volumes within a
reasonable period of time, or at all, delays in securing alternative
manufacturing sources would result and would have a material adverse
effect on the Company s operations.
The Company has developed the capability to manufacture the Compass
Connector products required for its Archistrat Computers in its own
facility in Boca Raton, Florida. The Company has also entered into an
agreement with Sun Precision Works, Pvt. Ltd. for the production of the
male connector component of the Compass Connector. Although the
Company's supply of this component is currently adequate to meet its
needs, no assurance can be given that such supplier can produce such
component in sufficient quantities in the future, or that the Company
will be able to develop an alternative source of supply within its
projected development schedules, or at all.
The Company expects that significant commercialization of the
Technology Products will require it to enter into direct licensing
arrangements, joint ventures or strategic alliances with respect to the
manufacture of certain of its Technology Products. If the Company is
unsuccessful in developing such manufacturing capabilities or in
licensing certain products and technology being developed or in
developing relationships with manufacturers and suppliers, its lack of
manufacturing capabilities could limit its ability to otherwise
commercialize such products.
The Company anticipates that it will be dependent on third parties
for the manufacture and/or assembly of printed circuit boards, chassis
and other subassemblies, as well as for the supply of various of the
components, incorporated into the Archistrat Computers, and for
performing the final assembly configuration, certain quality control
testing and delivery of such computers. Although the Company's agreement
with Group Technologies Corporation has expired, the Company has
identified certain other potential manufacturers and suppliers for its
subassembly and component needs, however, the Company has not yet
entered into any additional manufacturing or supply arrangements. The
Company believes it will be able to negotiate satisfactory manufacturing
and supply contracts; however, the failure to do so could have a
material adverse effect on the Company. Even if the Company were able to
enter into suitable manufacturing arrangements for necessary
subassemblies, there can be no assurance that such manufacturers will
dedicate sufficient production capacity to satisfy the Company's
requirements within scheduled delivery times or at all. In addition, the
failure or delay by the Company's suppliers in fulfilling its
anticipated component needs would adversely affect the Company's ability
to develop and market its products and technology. While the Company
believes that these components are available from multiple sources, the
Company anticipates that it will obtain certain of them from a single or
limited number of sources of supply. In the event that certain of such
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suppliers are unable or unwilling to provide the Company with components
to be used in the Archistrat Computers on commercially reasonable terms,
or at all, delays in securing alternative sources of supply could result
in a material adverse effect on the Company's operations.
At a future date, the Company may determine that the development of
manufacturing capabilities with respect to the Archistrat Computers
(and/or their subassemblies or components) is necessary or appropriate.
To date, the Company has manufactured limited commercial quantities of
such computers. The Company does not currently have the staff or the
facilities necessary to manufacture, assemble and/or configure its
proposed computers internally in large commercial quantities. The
establishment of manufacturing and/or assembly capabilities may result
in significant expense and is subject to numerous risks, including
unanticipated technological problems and delays. The failure of the
Company to successfully manufacture its Archistrat Computers would have
a material adverse effect on the Company.
8. DEPENDENCE ON KEY PERSONNEL. The success of the Company will be
dependent on the continued personal efforts of Stanford W. Crane, Jr.,
its Chairman and Chief Executive Officer and the principal inventor of
its proprietary products and technologies, and certain other key
personnel. Although Mr. Crane has entered into a five-year employment
agreement with the Company, the agreement provides that he may resign by
giving six months' notice at any time. The loss of his services would
have a material adverse effect on the Company. The Company has obtained
key-man insurance on Mr. Crane's life in the amount of $2,000,000. The
success of the Company also is dependent upon its ability to hire and
retain additional qualified executive, scientific, production and
marketing personnel. Although the Company has been able to hire
qualified personnel, there can be no assurance that the Company will be
able to hire additional qualified personnel or retain such necessary
personnel.
9. PATENTS AND PROPRIETARY INFORMATION. The Company's success will
depend on its ability to obtain patents, protect trade secrets, and
operate without infringing on the proprietary rights of others. As of
May 31, 1997, the Company had obtained seven United States patents and
an aggregate of 33 foreign patents. In addition, the Company had
pending a total of 18 United States and 33 foreign patent applications.
These patents and pending applications relate to VSPA, Compass PGA, the
Archistrat Computers design, the use of the Compass Connector in Compass
PGA and in the Archistrat Computers, and a PCB manufacturing technology
known as Well Tech PCB . The Company s foreign patent filings have
been made in selected countries, including the Republic of China
(Taiwan), Germany, the United Kingdom, Ireland and France. The Company
will continue to file applications in certain foreign jurisdictions to
secure protection in those jurisdictions in accordance with the Patent
Cooperation Treaty and the Paris Convention for the Production of
Industrial Property (which allows such filings to relate back to the
original filing date in the United States) covering the Company s
technology and proposed products. To the extent possible, the Company
also intends to file patent applications with respect to products and
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technology that it may develop in the future.
There can be no assurance that any of the Company's pending patent
applications will ultimately result in an issued patent. Moreover, the
patent laws of other countries may differ from those of the United
States as to the patentability of the Company's products or technology,
and the degree of protection afforded by foreign patents may be
different from that in the United States. The failure by the Company to
obtain patents for which applications are currently pending could have a
material adverse effect on the Company's ability to commercialize
successfully its proposed technology and products. Even if the Company
is able to obtain such patents, there can be no assurance that any such
patents will afford the Company commercially significant protection for
its technology or products. In addition, other companies may
independently develop equivalent or superior technologies or products
and may obtain patent or similar rights with respect to them. Although
the Company believes that its technology has been independently
developed and that its technology does not infringe on the patents or
violate the proprietary rights of others, there can be no assurance that
any of the Company's technology or products, will not be determined to
infringe upon the patents or proprietary rights of others, or that
patents or proprietary rights of others will not have an adverse effect
on the ability of the Company to do business. If the Company's
technology or products were determined to infringe on the patents,
trademarks or proprietary rights of others, the Company could, under
certain circumstances, become liable for damages, which also could have
a material adverse effect on the Company. Moreover, in the event that
the Company's technology or proposed products were deemed to infringe
upon the rights of others, the Company would be required to obtain
licenses to utilize such technology. There can be no assurance that the
Company would be able to obtain such licenses in a timely manner or on
acceptable terms and conditions, and the failure to do so could have a
material adverse effect on the Company. If the Company were unable to
obtain such licenses, it could encounter significant delays in product
market introductions while it attempted to design around the infringed
upon patents or rights, or could find the development, manufacture or
sale of products requiring such licenses to be foreclosed. In addition,
patent disputes are common in the computer industry and there can be no
assurance that the Company will have the financial resources to enforce
or defend a patent infringement or proprietary rights action.
The Company relies on confidentiality and nondisclosure
arrangements with its employees, consultants and others involved with
the Company s product and technological development efforts. There can
be no assurance that these agreements will provide meaningful protection
to the Company or that other companies will not acquire information
which the Company considers proprietary. Moreover, there can be no
assurance that other companies will not independently develop know-how
comparable or superior to that of the Company.
The Company has registered the Archistrat and VSPA trademarks with
the U.S. Patent and Trademark Office and has applied for appropriate
trademark, copyright and other legal protection for its product names,
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logos and other identifications. There can be no assurance that the
Company will not be precluded by others from using any of such
identifications or creating proprietary rights with respect to them.
10. DEPENDENCE ON THE CRANE-PANDA LICENSING AGREEMENT; POTENTIAL
CONFLICTS OF INTEREST. Pursuant to a license agreement entered into in
January 1996 between the Company and Mr. Crane (the "Crane-Panda
License"), Mr. Crane has granted the Company the nonexclusive right to
utilize the Compass Connector, a key component in the commercialization
of the Company's Archistrat Computers and the development and
commercialization of Compass PGA. The Crane-Panda License was executed
in connection with the conversion to a nonexclusive license of the 3M
License described below and supersedes an earlier license agreement
between Mr. Crane and the Company relating to the Compass Connector.
Under the Crane-Panda License, the Company is required to pay Mr. Crane
a royalty on any sales of Compass Connectors as discrete parts in the
amount of 5% of the net sales price for the first five years of the term
of the agreement, 2.5% of the net sales price for the next five years of
the term of the agreement and 2% of the net sales price thereafter,
provided that no royalty is payable until aggregate net sales of the
Compass Connector as discrete parts exceed $100,000. The royalty rate
will be reduced after the fifth anniversary of the agreement if no
patent remains in effect with respect to the Compass Connector. No
royalty is payable on sales of the Compass Connector as incorporated in
the Archistrat Computers or other computer system or assembly. The
Company may grant sublicenses under the Crane-Panda License, but only
for the use of products as incorporated in the Archistrat Computers or
other computer system or assembly. To date, there have been no sales
requiring the payment of royalties to Mr. Crane under the Crane-Panda
License. The Crane-Panda License obligates the Company to maintain
proprietary information relating to the Compass Connector on a
confidential basis, notify Mr. Crane of any evidence of infringement
with respect to the Compass Connector and related technology, and
cooperate with Mr. Crane to contest any such infringement. In the event
that the Company becomes bankrupt or insolvent or defaults in any of its
material obligations under the Crane-Panda License and fails to cure any
such defaults within specified cure periods, Mr. Crane may terminate the
Crane-Panda License. The Company is substantially dependent upon the
Crane-Panda License. The termination of the agreement under any
circumstances would have a material adverse effect on the Company. There
can be no assurance that conflicts of interest will not arise with
respect to the Crane-Panda License or that such conflicts will be
resolved in a manner favorable to the Company. In addition, Mr. Crane
retains ownership of the Compass Connector technology, and has the right
to grant licenses to or otherwise transfer rights to the Compass
Connector technology to third parties.
In September 1992, Mr. Crane granted an exclusive license (the "3M
License") to Minnesota Mining and Manufacturing Co. ("3M") to develop,
manufacture, use and sell the Compass Connector other than as part of a
computer system. In February 1996, Mr. Crane and 3M agreed to convert
the 3M License to a nonexclusive license. The 3M License provides in
certain circumstances for the payment of a royalty to Mr. Crane. As of
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the date of this Prospectus, Mr. Crane had received no such payments.
11. SUBSTANTIAL CONTROL BY MANAGEMENT. As of the date of this
report, officers and directors of the Company own of record and
beneficially approximately 34% of the issued and outstanding shares of
Common Stock and are thus able to exert substantial influence over the
policies and affairs of the Company.
12. RISKS RELATING TO POTENTIAL INTERNATIONAL OPERATIONS. Although
the Company currently prices all of its international sales in U.S.
dollars, future sales or licensing of its products or technologies
outside the U.S., may be subject to the risks associated with
fluctuations in currency exchange rates. The Company may also be subject
to other risks associated with international operations, including
tariff regulations and requirements for export licenses, particularly
with respect to the export of certain technologies (which licenses may
on occasion be delayed or difficult to obtain), unexpected changes in
regulatory requirements, longer accounts receivable requirements,
difficulties in managing international operations, potentially adverse
tax consequences, economic and political instability, restrictions on
repatriation of earnings, and the burdens of complying with a wide
variety of foreign laws. In addition, the laws of certain countries do
not protect the Company's products and intellectual property rights to
the same extent as do the laws of the United States. There can be no
assurance that such factors will not have a material adverse effect on
the Company's future international sales or licenses and, consequently,
on the Company's business and operations as a whole.
13. NEGATIVE EFFECT OF FUTURE SALES OF STOCK ON MARKET PRICE AND
ABILITY TO RAISE CAPITAL; SUBSTANTIAL RESERVED SHARES. Future sales of
substantial amounts of Common Stock, including the Shares offered
hereby, or the perception that such sales could occur, could have a
negative impact on the market price of the Common Stock and adversely
affect the ability of the Company to raise capital through the sale of
its equity securities. Virtually all of the outstanding Common Stock,
including the Shares offered hereby, is freely tradeable in the public
markets without restriction, subject in some cases to the volume
limitations imposed by Rule 144 under the Securities Act and
restrictions under Regulation S under the Securities Act. On April 14,
1997 the Company issued 4% subordinated convertible debentures (the
"Debentures") in the aggregate principal amount of $4,800,000. The
Debentures are convertible into Common Stock at a price per share equal
to the lesser of $5.625 or 82% of the average closing bid price for the
Common Stock for the five days preceding conversion. As of July 7,
1997, $3,285,000 in principal under the Debentures had been converted
into an aggregate of 1,317,987 shares of Common Stock. Assuming
conversion of the remaining principal balance of Debentures at 82% of
the closing bid price for the Common Stock on July 7, 1997 ($2.255) and
payment of interest on the Debentures in cash, the total shares that
have been issued and those that are issuable upon conversion of the
remaining principal balance of Debentures represent approximately 16.5%
of the total number of shares of Common Stock outstanding at July 7,
1997. A decrease in the market value of the Common Stock would increase
<PAGE>
Page 12
the number of shares issuable upon conversion of the remaining principal
balance of Debentures, resulting in additional dilution to shareholders.
As of July 7, 1997, the Company had reserved 2,309,321 shares of
Common Stock for issuance upon the exercise of warrants. In addition,
the Company has reserved 1,124,357 shares of Common Stock for issuance
to employees, officers, directors and consultants under its 1995
Employee Stock Incentive Plan, 1993 Performance Incentive Plan and Non-
Employee Director Stock Option Plan. The price which the Company may
receive for the Common Stock issuable upon exercise of such warrants and
options will, in all likelihood, be less than the market price of the
Common Stock at the time of such exercise. Consequently, for the life
of such warrants and options, the holders thereof may have been given,
at nominal cost, the opportunity to profit from a rise in the market
price of the Common Stock. The exercise of all of the aforementioned
securities may also adversely effect the terms under which the Company
could obtain additional equity capital. Should a significant number of
these securities be exercised, the resulting increase in the amount of
the Common Stock in the public market may reduce the market price of the
Common Stock.
14. ANTITAKEOVER STATUTES. Florida has enacted legislation that
may deter or frustrate takeovers of the Company. The Florida Control
Share Act generally provides that shares acquired in excess of certain
specified thresholds, starting at 20%, will not possess any voting
rights unless such voting rights are approved by a majority vote of a
corporation's disinterested shareholders. The Florida Affiliated
Transactions Act generally requires supermajority approval by
disinterested directors or shareholders of certain specified
transactions between a corporation and holders of more than 10% of the
outstanding voting shares of the corporation or their affiliates. The
Company has also proposed for adoption by its shareholders certain
amendments to its Articles of Incorporation and By-Laws, including
implementation of a staggered Board of Directors and restrictions on the
ability of the shareholders to remove Directors of the Company, as well
as establishment of a new class of Preferred Stock, any of which, if
adopted, could make a takeover of the Company more difficult.
15. POSSIBLE LACK OF RESOURCES OF SELLING SECURITYHOLDERS. The
Selling Securityholders may be deemed to be Underwriters pursuant to the
Securities Act, and in that regard may become liable to the purchasers
of the Common Stock offered hereby pursuant to the terms of the
Securities Act if certain provisions of the Securities Act are not
complied with by them. There can be no assurance that any of the
Selling Securityholders have the financial resources to discharge any
such liability.
16. GENERAL. Because of factors discussed above and other factors,
past financial performance should not be considered an indicator of
future performance. Investors should not use historical trends to
anticipate future results and should be aware that the trading price of
the Company's Common Stock may be subject to wide fluctuations in
response to quarter-to-quarter variations in operating results, general
<PAGE>
Page 13
conditions in the semiconductor packaging and computer industries,
changes in earnings estimates and recommendations by analysts and other
events.
RECENT DEVELOPMENTS
DEBENTURE FINANCING. On April 14, 1997, the Company completed a
private placement of subordinated convertible debentures (the
"Debentures") in the aggregate principal amount of $4,800,000. The
Company plans to use the proceeds of this transaction to expand
manufacturing capacity for the Company's VSPA semiconductor package and
for working capital and general corporate purposes.
In connection with the transaction, the Company paid a fee of
$384,000 to Dusseldorf Securities Limited ("Dusseldorf") of which
$192,000 was paid in cash and the balance by the issuance to Dusseldorf
of 30,918 shares of Common Stock (the "DSL Shares"). In addition, the
Company issued to Dusseldorf and Jefferies & Company, Inc. ("Jefferies")
warrants (the "Warrants"), exercisable during the period beginning April
14, 1997 and ending April 2, 2002 to purchase 42,667 shares and 27,429
shares, respectively, of Common Stock of the Company ("Common Stock") at
respective exercise prices of $6.75 and $7.00 per share. The
debentures, the DSL Shares and the Dusseldorf warrant have been issued
pursuant to an exemption from registration under Regulation S under the
Securities Act of 1933; such issuance was made solely to non-U.S.
persons in an offshore transaction and resale of such securities is
restricted in the manner provided in Regulation S. The Jefferies
warrant was issued in a private placement under Regulation D under the
Securities Act of 1933.
The principal amount of the Debentures is convertible into shares
of Common Stock at a price equal to the lesser of $5.625 or 82% of the
average closing bid price for the Common Stock for the five days
preceding the date of conversion. The Debentures bear interest at the
rate of 4% per annum, payable in cash or Common Stock, and mature on
April 2, 1999, at which time all outstanding principal and accrued but
unpaid interest shall be converted to Common Stock. Any conversion of
the Debentures is subject to the condition that in no event shall the
aggregate number of shares issuable upon conversion of the Debentures,
equal or exceed 2,071,249 shares, i.e. 20% of the Company's outstanding
stock before the transaction. As of July 7, 1997, $3,285,000 in
principal under the Debentures had been converted into an aggregate of
1,317,987 shares of Common Stock and the Company had issued an
additional 13,592 shares of Common Stock in payment of interest under
the Debentures. The Company shall have the right to redeem the
Debentures with 60 days notice to the purchasers at a redemption price
equal to 122% of the outstanding principal amount.
In connection with this transaction, the Company has agreed to file
and has filed a Registration Statement on Form S-3 with the Securities
and Exchange Commission to effect the registration of the DSL Shares for
resale. The Company has also agreed to effect the registration of the
shares issuable upon conversion of the Debentures in the event of
<PAGE>
Page 14
certain amendments to Regulation S and has granted certain piggyback
registration rights to the holders of the Warrants.
DTM SETTLEMENT. In March 1997, the Company settled certain
litigation with Direct Target Manufacturing, Inc. ("DTM"). Under the
settlement agreement, DTM and certain other parties released the Company
from all claims in connection with the litigation and the Company agreed
to pay $40,000 toward the plaintiff's legal fees, to issue 17,500 shares
of Common Stock to DTM and to file a registration statement with respect
to such shares within 60 days after the date of the settlement agreement
and has done so.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Shares by the Selling Securityholders.
SELLING SECURITYHOLDERS
All of the shares of Common Stock of the Company offered hereby are
being sold by the Selling Securityholders named below. The Company will
receive none of the proceeds from the sale of shares offered hereby. To
the best knowledge of the Company, none of the Selling Securityholders
beneficially owns 5% or more of the Company's outstanding Common Stock
and none of the Selling Securityholders has held any office or
maintained any material relationship with the Company or its
predecessors or affiliates over the past three years.
The following table sets forth information to the best of the
knowledge of the Company concerning the beneficial ownership of shares
of Common Stock by the Selling Securityholders as of July 7, 1997 and
the number of such shares included for sale in this Prospectus, assuming
the sale of all Shares being offered by this Prospectus. The Common
Stock offered hereby consists of (i) 30,918 shares issued in connection
with the sale of the Debentures; and (ii) 17,500 shares issued in
settlement of the DTM litigation.
SHARES OWNED PRIOR SHARES SHARES OWNED
TO OFFERING OFFERED HEREBY AFTER OFFERING
----------- -------------- --------------
SELLING SECURITYHOLDERS
- -----------------------
Dusseldorf Securities
Limited 73,585(1) 30,918 42,667
Direct Target
Marketing, Inc. 17,500 17,500 --
(1) Consists of 42,667 shares of Common Stock issuable upon exercise of
Warrants.
<PAGE>
Page 15
PLAN OF DISTRIBUTION
The Shares may be offered for sale from time to time by the Selling
Securityholders to various purchasers, or they may be retained. The
Selling Securityholders may elect to sell the Shares in negotiated
transactions at prices and on terms related to the then-current market
price or otherwise, or in market transactions, in each case without the
participation of underwriters, brokers or dealers. The Selling
Securityholders may also from time to time offer the Shares through
brokers, dealers or agents, or through underwriters, who may receive
underwriting discounts, concessions or commissions from the Selling
Securityholders and/or the purchasers for whom they act as agent. In
that event, the offers or sales may be made (i) by a block trade in
which a broker or dealer, engaged for the purpose, will attempt to sell
the Shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction, (ii) by purchases by a
broker or dealer as principal and resale by such broker or dealer for
its own account, (iii) by ordinary brokerage transactions or
transactions in which the broker solicits purchasers, (iv) with the
permission of the Company, in an underwritten transaction, or
(v) otherwise. In the event that brokers or dealers are engaged by the
Selling Securityholders, such brokers or dealers may arrange for other
brokers or dealers to participate.
Any Shares which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than pursuant to this
Prospectus.
In offering the Shares, the Selling Securityholders and any
broker-dealers and any other participating broker-dealers who execute
sales for the Selling Securityholders may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales,
and any profits realized by the Selling Securityholders and the
compensation of such broker-dealers may be deemed to be underwriting
discounts and commissions.
The public offering of the Shares by the Selling Securityholders
will terminate on the earlier of (a) nine months from the date of this
Prospectus, or (b) the date on which all Shares have been sold by the
Selling Securityholders.
The Company will pay certain expenses incidental to the offering
and sale of the Shares to the public estimated to be approximately
$25,000. The Company will not pay for, among other expenses, selling
expenses or underwriting discounts, if applicable.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of The Panda Project, Inc.
for the year ended March 31, 1997 have been so incorporated in reliance
on the report (which contains an explanatory paragraph relating to The
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Page 16
Panda Project, Inc.'s ability to continue as a going concern as
described in Note 2 to the financial statements) of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
