Item 15 Recent Sales Of Unregistered Securities
Rule 506
We have sold or issued the following securities not registered under the
Securities Act of 1933 by reason of the exemption afforded under SEC Rule 506 of
Regulation D promulgated under Section 4(2) of the Securities Act during the
three year period ending on the date of filing of this registration statement.
The offer and sale of the securities in each offering was exempt from the
registration requirements of the Securities Act under Rule 506 insofar as:
(1) except as stated below, each of the investors was accredited within the
meaning of Rule 501(a); (2) pursuant to Rule 506(b)(2)(i), there were no more
than 35 non-accredited investors in the offering; (3) pursuant to Rule
506(b)(2)(ii), each purchaser in the offering who was not accredited either
alone or with his purchaser representative had such knowledge and experience in
financial and business matters to be capable of evaluating the merits and risk
of the investment, or the company reasonably believed immediately prior to
making the sale that such investor came with this description; (4) no offers or
sales under the offering was effected through any general solicitation or
general advertising within the meaning of Rule 502(c); and (5) the transfer of
the securities in the offering were restricted by the company in accordance with
Rule 502(d). Except as stated below, no underwriting discounts or commissions
were payable with respect to any of the offerings.
· On September 19, 2002, immediately prior to our acquisition of the Signal
Technologies from ARC Finance Group, Mr. Sim Farar, our president and
principal shareholder at that time, invested $125,000 into the company as
working capital in exchange for a warrant entitling him to purchase 600,000
common shares at $0.21 per share (200,000 shares at $0.65 per share
pre-split). The warrant may not be exercised before September 1, 2003, expires
in September 2006, contains cashless exercise options and certain
anti-dilution and other provisions. At the time, Vanguard West LLC, a company
owned and controlled by Mr. Farar, held approximately 98% of our common
shares.
· On September 19, 2002, we issued 23,400,000 common shares (7,800,000 shares
pre-split) to ARC Finance Group in connection with our acquisition of the
Signal Technologies. The shares represented approximately 85% of our issued
and outstanding common shares. We valued the Signal Technologies at $78,023
for financial accounting purposes using the Black-Scholes model.
· On October 11, 2002, we reached an agreement-in-principle with Mr. Ellsworth
Roston to make an investment into the company. Pursuant to that understanding,
on October 30, 2002 we sold Mr. Roston 71,250 common shares (23,750 shares
pre-split) for $190,000 in cash, and granted him five-year warrants to
purchase an additional 150,000 common shares at $5 per share (50,000 shares
at $1.67 per share pre-split) effective as of October 15, 2002.
· On April 8, 2003, we sold to Mr. Mitchell Stein 112,812 common shares (37,604
shares pre-split) for $100,000 in cash and $150,000 in expenses and equipment.
· On May 15, 2003, we completed the first tranche of a private placement
pursuant to which we sold 82,667 units to Mr. Mitchell Stein, SJ Investments
and Ms. Norma Provencio at $3 per unit for cash amounting to $248,000. Each
unit consisted of one common share and one warrant. Each warrant is
exercisable at $3 until May 14, 2004. Upon exercise of the warrants each
investor will receive one common share and an additional warrant to purchase
one common share $6 per share until November 15, 2004. As of October 11, 2004,
66,667 of these warrants exercisable at $3 per share were exercised and
converted into common shares.
· On July 24, 2003, we completed the second tranche of a private placement
pursuant to which we sold 75,075 units to Messrs. Mitchell Stein, Jerry L.
Page and Mark M Giardiano and to Ashton Reed & Company, Inc. at $3.33 per unit
for cash amounting to $250,000. Each unit consisted of one common share and
one warrant. Each warrant is exercisable at $3.33 until July 14, 2004. Upon
exercise of the warrants each investor will receive one common share and an
additional warrant to purchase one common share at $6.66 per share until
November 15, 2004. As of October 11, 2004, 30,030 of these warrants
exercisable at $3.33 per share were exercised and converted into common
shares.
· On October 2, 2003, we completed a private placement through Maxim Group LLC
pursuant to which we sold 53.7875 units to 100 investors at a price
of $100,000 per unit, for gross proceeds of $5,378,750. The net proceeds of
this offering, after expenses, was $4,805,965. Each unit sold consisted
of 33,334 series 'A' preferred shares and 16,667 class 'C' warrants. In total,
we issued 1,792,976 series 'A' preferred shares and 896,488 class 'C'
warrants. Each series 'A' preferred share is convertible into one common
share. Each warrant is exercisable at $3.75 for a period of four years. As of
October 11, 2004, 750,771 of the series 'A' preferred shares were converted
into common shares.
· Under the terms of our agreement with Maxim Group, we were obligated to pay
Maxim Group $537,875, representing an 8% commission and a 2% non-accountable
expense allowance. In addition, we are obligated to issue to Maxim an agent's
warrant entitling it to purchase a number of units equal to 10% of the total
units sold in this offering. Maxim has the right under the agent's warrant to
purchase at total of 179,292 units at the price of $3.60 per unit, each unit
comprised on one series 'A' preferred share and one-half of a class C warrant.
The agent's warrant expires in five years to the extent unexercised. We valued
the grant at $238,431 for financial statement purposes using the Black-Scholes
model.
· On April 28, 2004, we issued to Mr. Rex Julian Beaber warrants to
purchase 250,000 restricted common shares at $7.90 per share. The warrants are
exercisable on or after August 1, 2004, and lapse if unexercised on
July 31, 2007. The warrants were granted to Mr. Beaber in connection with a
settlement agreement pursuant to which Mr. Beaber agreed to surrender 369,000
unregistered common shares in exchange for the warrants and the company's
agreement to register another 80,000 shares held by Mr. Beaber. The value of
the grant was $757,207 for financial statement purposes using the
Black-Scholes model. The foregoing value does not take into consideration the
value of 369,000 common shares Mr. Beaber is required to surrender under the
settlement agreement. In July 2004, the parties agree to cancel the warrants
in consideration of a payment to Mr. Beaber in the amount of $14,500.
Rule 505
We have sold or issued the following securities not registered under the
Securities Act of 1933 by reason of the exemption afforded under SEC Rule 505 of
Regulation D promulgated under Section 3(b) of the Securities Act during the
three year period ending on the date of filing of this registration statement.
The offer and sale of the securities in each offering was exempt from the
registration requirements of the Securities Act under Rule 505 insofar as:
(1) except as stated below, none of the investors in the offering are to the
company's knowledge accredited within the meaning of Rule 501(a); (2) pursuant
to Rule 505(b)(2)(i), the aggregate offering price for the offering did not
exceed $5,000,000, less the offering price of all securities sold within the
twelve months preceding the start of and during the offering of securities under
Rule 505 or in reliance upon any exemption under Section 3(b) of the Securities
Act of 1933 or in violation of Section 5 of the Securities Act of 1933;
(3) pursuant to Rule 505(b)(2)(ii), there were no more than 35 non-accredited
investors in the offering; (4) no offers or sales under the offering was
effected through any general solicitation or general advertising within the
meaning of Rule 502(c); and (5) the transfer of the securities in the offering
were restricted by the company in accordance with Rule 502(d). Except as stated
below, no underwriting discounts or commissions were payable with respect to any
of the offerings.
· In July 2001, we issued 150,000 common shares (50,000 shares pre-split) to
Messrs. Jack Brehm, John Carrassco, Roger Linn, Art Lyons, Stephen Roseberry
and Erik Sterling and the law firm of Weintraub, Genshler, Chediak, Sproul as
partial compensation for consulting services rendered to the Company. We
valued the total grants at $5,000 for financial statement purposes using the
Black-Scholes model.
· On October 11, 2002, we reached an agreement-in-principle with Mr. Marvin H.
Fink to become our Chief Executive Officer and President. Pursuant to that
understanding, we entered into an employment agreement with Mr. Fink on
October 12, 2002 and contemporaneously issued to him 2,100,000 restricted
common shares (700,000 shares pre-split) as an inducement for that employment.
These shares vest over a period of three years based upon Mr. Fink's
continuous provision of services. We valued the grant at $15,140 for financial
statement purposes using the Black-Scholes model. For further information
relating to this transaction see that section of the prospectus contained in
this registration statement captioned "Management-Employment And Consulting
Agreements With Management". Mr. Fink was accredited.
· On October 11, 2002, we reached an agreement-in-principle with Dr. Budimir
Drakulic to become our Vice President and Chief Technology Officer on a
consulting basis through his consulting companies. Pursuant to that
understanding, on October 15, 2002, we entered into a loan-out agreement with
Dr. Drakulic's two consulting companies, B World Technologies, Inc. and B
Technologies, Inc., relative to the provision of Dr. Drakulic's services, and
contemporaneously issued to one of those companies, B World
Technologies, 600,000 restricted common shares (200,000 shares pre-split) as
an inducement for the provision of those services. These shares vest over a
period of five years. B World Technologies and B World are each owned and
controlled by Dr. Drakulic. We valued the grant at $4,140 for financial
statement purposes using the Black-Scholes model. For further information
relating to this transaction see that section of the prospectus contained in
this registration statement captioned "Management-Employment And Consulting
Agreements With Management".
· As part of the October 11, 2002 agreement-in-principle with Dr. Budimir
Drakulic described above, we also reached an agreement-in-principle to offer
to sell our common shares to certain individuals in order to protect our
rights in the Signal Technologies from any litigation that might be filed
against Dr. Drakulic and to ensure that our development of the technology
would not be interrupted or disrupted while Dr. Drakulic defended any such
action. Pursuant to this understanding, on October 22, 2002, we sold 564,810
common shares (188,270 shares pre-split) to eleven of those individuals, and
issued a five-year warrant to purchase 375,000 common shares (125,000 shares
pre-split) for $0.007 per share to one of those individuals, in consideration
of their cash investment of $17,786. For further information relating to this
transaction see that section of the prospectus contained in this registration
statement captioned "Transactions And Business Relationships With Management
And Principal Shareholders".
· On October 11, 2002, we reached an agreement-in-principle with Mr. Ellsworth
Roston to provide consulting advice to us relating to engineering, developing
and refining our products and technologies and to become a director of the
company. Pursuant to that understanding, on October 30, 2002 we entered into a
two year consulting agreement with Mr. Roston documenting the provision of his
consulting services and his appointment to our board of directors. Pursuant to
that agreement, we granted Mr. Roston 225,000 common shares (75,000 shares
pre-split) effective as of October 15, 2002. We valued the grant at $1,553 for
financial statement purposes using the Black-Scholes model. For further
information relating to these transactions, see that section of the prospectus
contained in this registration statement captioned "Management-Employment And
Consulting Agreements With Management". Mr. Roston was accredited.
· On February 5, 2003, pursuant to a director's compensation plan adopted by our
board of directors on that date, we issued to each of our five directors as of
that date, including Messrs. Fink and Roston and Dr. Robert Koblin, options to
purchase 150,000 common shares at $0.88 per share (50,000 shares at $2.65 per
share pre-split) under our 2002 Stock Plan. The options are fully vested and
lapse, if unexercised, on February 4, 2008. We valued the grant at $446,122
for financial statement purposes using the Black-Scholes model. For further
information relating to these transactions, see that section of the prospectus
contained in this registration statement "Management-Board Compensation". Each
of the directors was accredited.
· On February 14, 2003 we issued to Dr. Lowell Harmison (1) fully vested options
entitling him to purchase 108,000 common shares at $0.97 per share (36,000
shares $2.91 per share pre-split), and (2) options entitling him to purchase
an purchase an additional 108,000 common shares at $0.97 per share (36,000
shares $2.91 per share pre-split) to vest over twelve quarters. These options
were issued as an inducement for Dr. Harmison to provide consulting services
pursuant to a consulting agreement entered into on that same date. We valued
the grant initial at $80,456 for financial statement purposes using the
Black-Scholes model. Since the initial grant, Dr. Harmison has been receiving
quarterly options grants per his agreement. To date, these subsequent grants
have been valued at $151,710 for financial statement purposes. For further
information relating to this transaction, see that section of the prospectus
contained in this registration statement captioned "Management-Employment And
Consulting Agreements With Management".
· On March 10, 2003, we issued to Dr. Budimir S. Drakulic, our Vice President
and Chief Technology Officer, options to purchase 750,000 common shares
at $0.95 per share (250,000 shares at $2.76 per share pre-split) under
our 2002 Stock Plan. The options vest over a period of four years, and lapse
if unexercised on March 9, 2008. We valued the grant at $479,000 for financial
statement purposes using the Black-Scholes model. Dr. Drakulic was accredited.
· On March 10, 2003, we issued to Mr. Charles McGill options to purchase 900,000
common shares at $0.95 per share (300,000 common shares at $2.85 per share
pre-split). These options were issued as an inducement for Mr. McGill to
become our Chief Financial Officer pursuant to an employment agreement entered
into on that same date. The options were to vest over a period of three years,
and lapse if unexercised on March 24, 2008. Mr. McGill retired in
November 2003, at which time 150,000 options vested and the balance lapsed. We
valued the grant at $574,196 for financial statement purposes.
· On March 10, 2003, we issued warrants to purchase 900,000 restricted common
shares post-split at $0.50 per share (300,000 shares at $1.50 per share
pre-split). The warrants, which are held by Crown Reef for its provision of
strategic planning, marketing and business advisory consulting services, lapse
if not exercised by March 9, 2008. We valued the grant at $657,779 for
financial statement purposes using the Black-Scholes model.
· On March 10, 2003, we issued to an employee options to purchase 240,000 common
shares at $0.95 per share (80,000 shares at $2.76 per share pre-split) under
our 2002 Stock Plan. The options vest over a period of four years, and lapse
if unexercised on March 9, 2008. We valued the grant at $153,280 for financial
statement purposes using the Black-Scholes model.
· On March 10, 2003, we issued to Mr. Rowland Perkins, in connection with the
provision of consulting services relating to identifying prospective
directors, warrants to purchase 21,000 common shares at $0.81 per share (7,000
shares at $2.43 per share pre-split). The warrants were fully vested, and
lapse if unexercised on March 9, 2008. We valued the grant at $17,010 for
financial statement purposes using the Black-Scholes model.
· On April 15, 2003, we issued to an employee options to purchase 10,000 common
shares at $2.85 per share under our 2002 Stock Plan. The options vest over a
period of four years, and lapse if unexercised on April 14, 2010. We valued
the grant at $14,847 for financial statement purposes using the Black-Scholes
model.
· On April 15, 2003, we issued to Brookstreet Securities Corporation warrants to
purchase 200,000 common pursuant to an investment banking agreement. The
warrants are exercisable in four tranches of 50,000 common shares each. The
first tranche was fully vested upon grant and exercisable at $1.25 per share.
The second tranche vested 90 days after issuance with an exercise price
of $2.25 per share. The third tranche vested 180 days after issuance with an
exercise price of $3.25 per share. The fourth tranche vested 270 days after
issuance with an exercise price of $4.25 per share. We valued the grant
at $432,147 for financial statement purposes using the Black-Scholes model.
Brookstreet Securities is accredited. As of October 11, 2004, 100,000 of these
warrants were exercised and converted into common shares.
· On June 2, 2003, we issued to Dr. Michael Laks, as compensation providing
medical advisory and technical consulting services, options to
purchase 108,000 common shares at $2.40 per share under our 2002 Stock Plan.
The options vest over a period of four years, and lapse if unexercised on
June 4, 2008. We valued the grant at $199,266 for financial statement purposes
using the Black-Scholes model.
· On June 5, 2003, we issued to Dr. Lowell T. Harmison, in his capacity as a
director, options to purchase 50,000 common shares at $4.20 per share under
our 2002 Stock Plan. These options are fully vested, and lapse if unexercised
on June 5 2008. We valued the grant at $109,402 for financial statement
purposes using the Black-Scholes model. For further information relating to
this transaction, see that section of the prospectus contained in this
registration statement captioned "Management-Board Compensation". Dr. Harrison
was accredited.
· On July 17, 2003, we issued to Maxim Group, LLC warrants to purchase 100,000
common shares at $4.62 per share pursuant to an investment banking agreement.
The warrants lapse if unexercised on July 16, 2008. We valued the grant
at $136,482 for financial statement purposes using the Black-Scholes model.
Maxim was accredited.
· On July 29, 2003, we issued to an employee options to purchase 10,000 common
shares at $3.19 per share under our 2002 Stock Plan. The options vest over a
period of five years, and lapse if unexercised on July 28, 2008. We valued the
grant at $14,574 for financial statement purposes using the Black-Scholes
model.
· On August 5, 2003, we issued to two shareholders, Messrs. John Epperson Jr.
and Jack Lee, warrants entitling them to purchase 23,501 common shares
at $3.29 per share pursuant to a voluntary partial trading restriction
(lock-up) agreement entered into with each of those shareholders on that date.
These warrants lapse on August 4, 2008 to the extent not exercised by the
first shareholder, and February 4, 2005 to the extent not exercised by the
second shareholder. We valued the grant at $77,318 for financial statement
purposes using the Black-Scholes model.
· On September 23, 2003, we issued to a current shareholder, Mr. Aaron
Grunfield, warrants to purchase 18,000 common shares at $5.29 per share
pursuant to a voluntary partial trading restriction (lock-up) agreement with
that shareholder entered into on that same date. These warrants lapse on
March 22, 2005 to the extent not exercised. We valued the grant at $37,655 for
financial statement purposes using the Black-Scholes model.
· On September 25, 2003, we issued to Mr. Bill Mathews, as compensation for
providing consulting services relating to the procurement of FDA approval for
our products, warrants to purchase 25,000 common shares at $3.19 per share
under our 2002 Stock Plan. These warrants lapse on March 24, 2010 to the
extent not exercised. We valued the grant at $41,202 for financial statement
purposes using the Black-Scholes model.
· On November 3, 2003, we issued to Messrs. Fink and Roston, in their capacity
as directors, options entitling each of them to purchase 28,000 common shares
at $4.40 per share pursuant to our director's compensation plan. The options
vest quarterly over a period of one year, and lapse if unexercised on
November 2, 2008. We valued the grant at $66,236 for financial statement
purposes using the Black-Scholes model. For further information relating to
these transactions, see that section of the prospectus contained in this
registration statement captioned "Management-Board Compensation". Messrs. Fink
and Roston are accredited.
· On January 20 2004, we issued to Ms. Jennifer Black, in her capacity as a
director, options to purchase 50,000 common shares at $3.60 per share under
our 2002 Stock Plan. The options were fully vested upon grant, and lapse if
unexercised on January 19,2009. We valued the grant at $69,798 for financial
statement purposes using the Black-Scholes model. For further information
relating to this transaction, see that section of the prospectus contained in
this registration statement captioned "Management-Board Compensation". Ms.
Black is accredited.
· On January 20, 2004, we issued to four employees options to purchase a total
of 80,000 common shares at $3.60 per share. The options vest over a period of
five years, and lapse if unexercised on January 19, 2009. We valued the grant
at $114,868 for financial statement purposes using the Black-Scholes model.
· On February 5 2004, we issued to Dr. Robert Koblin, in his capacity as a
director, options to purchase 28,000 common shares at $3.70 per share. The
options vest quarterly over a period of one year, and lapse if unexercised on
February 4, 2008. We valued the grant at $41,321 for financial statement
purposes using the Black-Scholes model. For further information relating to
these transactions, see that section of the prospectus contained in this
registration statement captioned "Management-Board Compensation". Dr. Koblin
is accredited.
· On February 11, 2004, we entered into a marketing agreement with The Ruth
Group under which we agreed to issue 500 restricted common shares to it per
month as partial compensation under the agreement for the provision of
investor relations and media relations consulting services over a six-month
period, including introducing our company to its' broker network,
disseminating information about our company, organizing conferences and due
diligence meetings, fielding calls investors and brokers, and procuring
analyst coverage or investment banking sponsorships. We have granted 3,500
common shares to date pursuant to the agreement, with a total value of $15,530
for financial statement purposes.
· On March 10, 2004, we entered into a marketing agreement with Aurelius
Consulting Group, Inc. under which we agreed to issue 25,000 restricted common
shares to it as partial compensation under the agreement for the provision of
various investor relations services over a six-month period, including
introducing our company to its' broker network, disseminating information
about our company, organizing conferences and due diligence meetings, fielding
calls investors and brokers, and procuring analyst coverage or investment
banking sponsorships. We valued the grant at $113,750 for financial statement
purposes.
· On April 1 2004, we issued to Messrs. Marvin H. Fink and Ellsworth Roston,
Dr. Robert Koblin, and Ms. Jennifer Black, in their capacity as directors,
options to purchase 2,000, 2,000, 4,000 and 2,000 common shares at $6 per
share. The options vest quarterly over a period of one year, and lapse if
unexercised on March 31, 2009. We valued the grant at $23,536 for financial
statement purposes using the Black-Scholes model. For further information
relating to these transactions, see that section of the prospectus contained
in this registration statement captioned "Management-Board Compensation".
Messrs. Fink and Roston and Dr. Koblin are each accredited.
· On June 6 2004, we issued to Dr. Lowell T. Harmison, in his capacity as a
director, options to purchase 28,000 common shares at $6.25 per share. The
options vest quarterly over a period of one year, and lapse if unexercised on
June 5, 2009. We valued the grant at $68,647 for financial statement purposes
using the Black-Scholes model. For further information relating to these
transactions, see that section of the prospectus contained in this
registration statement captioned "Management-Board Compensation". Dr. Harmison
is accredited.
· On July 8 2004, we issued to Mr. Ellsworth Roston, in his capacity as a
director, options to purchase 2,000 common shares at $3.95 per share. The
options vest quarterly over a period of one year, and lapse if unexercised on
July 7, 2009. We valued the grant at $3,408 for financial statement purposes
using the Black-Scholes model. For further information relating to these
transactions, see that section of the prospectus contained in this
registration statement captioned "Management-Board Compensation". Mr. Roston
is accredited.
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