As filed with the Securities and Exchange Commission on May 3, 2005
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------------------------------------------------------------------
PATIENT SAFETY TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
13-3419202
--------------------------------------------------------------------------------
(I.R.S. Employer Identification Number)
100 Wilshire Blvd., Ste. 1500
Santa Monica, CA 90401
(310) 752-1416
--------------------------------------------------------------------------------
(Address, including zip code, and
telephone number, including
area code, of registrant's
principal executive
offices)
Milton "Todd" Ault, III, Chief Executive Officer
100 Wilshire Blvd., Ste. 1500
Santa Monica, CA 90401
(310) 752-1416
--------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
WITH COPIES TO:
Marc J. Ross, Esq.
David Schubauer, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
(COVER CONTINUES ON FOLLOWING PAGE)
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED (1) SECURITY (2) PRICE FEE
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.33 par value (3) 2,190,653 $4.48 $9,814,125.44 $1,155.12
Common Stock, $.33 par value (4) 805,841 $4.48 $3,610,167.68 $424.92
-----------------------------------------------------------------------------------------------------------------------------------
Total 2,996,494 $4.48 $13,424,293.12 $1,580.04
===================================================================================================================================
(1) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, there are also registered hereunder such indeterminate number of
additional shares as may be issued to the selling stockholders to prevent
dilution resulting from stock splits, stock dividends or similar
transactions. (2) Estimated solely for purposes of calculating the
registration fee in accordance with Rule 457(c) and Rule 457(g) under the
Securities Act of 1933, using the average of the high and low prices as
reported on the American Stock Exchange on April 26, 2005, which was $4.48
per share. (3) Represents currently outstanding shares of common stock.
(4) Represents shares of common stock issuable upon the exercise of
outstanding common stock purchase warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A) MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED MAY 3, 2005
PATIENT SAFETY TECHNOLOGIES, INC.
UP TO 2,996,494 SHARES OF
COMMON STOCK
This prospectus relates to the public offering of an aggregate of up to
2,996,494 shares of common stock which may be sold from time to time by the
selling stockholders of Patient Safety Technologies, Inc. named in this
prospectus. Of these shares, 805,841 shares are issuable upon exercise of
warrants held by the selling stockholders.
The shares of common stock are being registered to permit the selling
stockholders to sell the shares from time to time in the public market. The
stockholders may sell the shares through ordinary brokerage transactions,
directly to market makers of our shares or through any other means described in
the section entitled "Plan of Distribution" beginning on page 15. We cannot
assure you that the selling stockholders will sell all or any portion of the
shares offered in this prospectus.
We have paid the expenses of preparing this prospectus and the related
registration expenses.
Our common stock is traded on the American Stock Exchange under the symbol
PST. The last reported sales price for our common stock on April 26, 2005, was
$4.51 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read the entire prospectus and
any amendments or supplements carefully before you make your investment
decision.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
PAGE
------
Where You Can Find More Information.................................... 1
Forward-Looking Statements............................................. 2
Prospectus Summary..................................................... 3
Risk Factors........................................................... 5
Use of Proceeds........................................................ 12
Description of Securities.............................................. 12
Plan of Distribution................................................... 15
Selling Stockholders................................................... 16
Indemnification for Securities Act Liabilities......................... 25
Legal Matters.......................................................... 26
Experts................................................................ 26
Patient Safety Technologies has not authorized anyone to give any information or
make any representation about the company that is different from or in addition
to, that contained in this prospectus or in any of the materials that the
company has incorporated by reference into this document. Therefore, if anyone
does give you information of this sort, you should not rely on it. If you are in
a jurisdiction where offers to sell, or solicitations of offers to purchase, the
securities offered by this document are unlawful, or if you are a person to whom
it is unlawful to direct these types of activities, then the offer presented in
this document does not extend to you. The information contained in this document
speaks only as of the date of this document, unless the information specifically
indicates that another date applied.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, which requires us to file annual, quarterly
and current reports and other information with the Securities and Exchange
Commission. Such reports and other information may be inspected at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Because we file documents electronically with the
SEC, you may also obtain this information by visiting the SEC's Internet website
at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with this prospectus, which means that we can disclose important information to
you by referring you to certain documents. The information incorporated by
reference is considered to be an important part of this prospectus. Any
information that we incorporate by reference is automatically updated and
superseded if information contained in this prospectus modifies or replaces that
information. In addition, any information that we file with the SEC after the
date of this prospectus will update and supersede the information in this
prospectus. You must look at all of our SEC filings that we have incorporated by
reference to determine if any of the statements in a document incorporated by
reference have been modified or superseded.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until all of the shares registered hereby have
been sold:
o Our annual report on Form 10-K for the year ended December 31, 2004;
o Our current report on Form 8-K dated March 30, 2005;
o Our current report on Form 8-K dated April 5, 2005;
o Our current report on Form 8-K dated April 7, 2005; and
o Our current report on Form 8-K dated April 22, 2005.
If you request, either orally or in writing, we will provide you with a
copy of any or all documents which are incorporated by reference. We will
provide such documents to you free of charge, but will not include any exhibits,
unless those exhibits are incorporated by reference into the document. Such
requests should be made to:
Patient Safety Technologies, Inc.
100 Wilshire Blvd., Ste. 1500
Santa Monica, CA 90401
Attention: Secretary
(310) 752-1416
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This prospectus may only be used where it is
legal to sell these securities. The information in this prospectus may only be
accurate on the date of this prospectus.
1
FORWARD-LOOKING STATEMENTS
This prospectus, any prospectus supplement and the documents incorporated
by reference in this prospectus contain "forward-looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements can be identified by the use of words such as "believes,"
"estimates," "could," "possibly," "probably," "anticipates," "projects,"
"expects," "may," "will," or "should" or other variations or similar words. No
assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements. Among the key factors that have a direct
bearing on our results of operations are the effects of various governmental
regulations, the fluctuation of our direct costs and the costs and effectiveness
of our operating strategy. Unless we are required to do so under U.S. federal
securities laws or other applicable laws, we do not intend to update or revise
any forward-looking statements.
2
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus and all documents incorporated
by reference carefully. As used throughout this prospectus, the terms "we,"
"us," and "our" refer to Patient Safety Technologies, Inc.
PATIENT SAFETY TECHNOLOGIES, INC.
We currently have three operating subsidiaries: (1) Franklin Capital
Properties, LLC, a Delaware limited liability company; (2) Patient Safety
Consulting Group, LLC (f/k/a Franklin Medical Products, LLC), a Delaware limited
liability company; and (3) Surgicount Medical, Inc., a California corporation.
Together with our operating subsidiaries we are currently engaged in the
acquisition of controlling interests in companies and research and development
of products and services focused on the health care and medical products field,
particularly the patient safety market, as well as the financial services and
real estate industries. Franklin Capital Properties, LLC, a real estate
development and management company, and Patient Safety Consulting Group, LLC, a
healthcare consulting services company, both were created to augment our
investments in the health care and medical products industries.
Until March 31, 2005, we were a non-diversified internally managed,
closed-end investment company that elected to be treated as a business
development company ("BDC") under the Investment Company Act of 1940, as
amended. On March 30, 2005, our shareholders voted to withdraw our election to
be treated as a business development company and on March 31, 2005 we filed an
election to withdraw the election with the Securities and Exchange Commission.
We are currently involved in providing capital and managerial assistance to
early stage companies in the medical products, health care solutions, financial
services and real estate industries.
In the first half of 2004, we focused our investment strategy on capital
appreciation through long-term equity investments in start-up and early stage
companies in the radio and telecommunications industries. Beginning in June
2004, we undertook a strategic restructuring and recapitalization plan which
culminated in a change in control in our management and a shift in our business
focus away from the radio and telecommunications industries toward the medical
products, health care solutions, financial services and real estate industries.
Accordingly, our primary investment objective has also shifted and is now
focused on maximizing long-term capital growth through the appreciation of our
investments in health care and medical products related companies, and to a
lesser extent in the financial services and real estate industries.
On February 25, 2005, in furtherance of our restructuring plan, we
purchased SurgiCount Medical, Inc., a privately held, California-based developer
of patient safety devices. SurgiCount Medical, Inc. is our first major
acquisition in our plan to become a leader in what we believe to be the
multi-billion dollar patient safety market.
Our principal executive offices are located at 100 Wilshire Boulevard,
Suite 1500, Santa Monica, California 90401. Our telephone number is (310)
752-1416. Our website is located at http://www.patientsafetytechnologies.com.
3
THE OFFERING
Common stock outstanding
before the offering............... 5,276,328 shares as of April 26, 2005
Common stock offered by
selling stockholders............... Up to 2,996,494 shares, based on current
market prices and assuming full exercise
of outstanding common stock purchase
warrants by the selling stockholders.
This number represents approximately
56.8% of our current outstanding stock
and includes up to 805,841 shares of
common stock issuable upon exercise of
outstanding common stock purchase
warrants.
Common stock to be outstanding
after the offering................. Up to 6,082,169 shares
Use of proceeds...................... We will not receive any proceeds from
the sale of the common stock hereunder.
We will, however, receive the sale price
of any common stock we sell for cash to
the selling stockholders upon exercise
of warrants. See "Use of Proceeds" for a
complete description.
AMEX Symbol.......................... PST
4
RISK FACTORS
An investment in our securities involves a high degree of risk. Before you
invest in our securities you should carefully consider the risks and
uncertainties described below and the other information in this prospectus. Each
of the following risks may materially and adversely affect our business, results
of operations and financial condition. These risks may cause the market price of
our common stock to decline, which may cause you to lose all or a part of the
money you paid to buy our securities.
We provide the following cautionary discussion of risks, uncertainties and
possible inaccurate assumptions relevant to our business and our products. These
are factors that we think could cause our actual results to differ materially
from expected results.
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
WE RECENTLY RESTRUCTURED OUR BUSINESS STRATEGY AND OBJECTIVE AND HAVE LIMITED
OPERATING HISTORY UNDER OUR NEW STRUCTURE. IF WE CANNOT SUCCESSFULLY IMPLEMENT
OUR NEW BUSINESS STRUCTURE THE VALUE OF YOUR INVESTMENT IN OUR BUSINESS COULD
DECLINE.
Upon the change of control that occurred in October 2004, we restructured
our business strategy and objective to focus on the medical products, healthcare
solutions, financial services and real estate industries instead of the radio
and telecommunications industries. We have a limited operating history under
this new structure. Historically, we have not typically invested in these
industries and therefore our historical results of operations should not be
relied upon as an indication of our future financial performance. If we do not
successfully implement our new business structure the value of your investment
in our business could decline substantially.
WITHDRAWAL OF OUR ELECTION TO BE TREATED AS A BDC MAY INCREASE THE RISKS TO OUR
SHAREHOLDERS SINCE WE ARE NO LONGER SUBJECT THE REGULATORY RESTRICTIONS OR
FINANCIAL REPORTING BENEFITS OF THE INVESTMENT COMPANY ACT OF 1940 (THE "1940
ACT").
Since we withdrew our election to be treated as a BDC, we are no longer
subject to regulation under the 1940 Act, which is designed to protect the
interests of investors in investment companies. As a non-BDC, we are no longer
subject to many of the regulatory, financial reporting and other requirements
and restrictions imposed by the 1940 Act including, but not limited to,
limitations on the amounts, types and prices at which we may issue securities,
participation in related party transactions, the payment of compensation to
executives, and the scope of eligible investments.
The nature of our business is changing from investing in radio and
telecommunications companies with the goal of achieving gains on appreciation
and dividend income, to actively operating businesses in the medical products,
health care solutions, financial services and real estate industries, with the
goal of generating income from the operations of those businesses. No assurance
can be given that our business strategy or investment objectives will be
achieved by withdrawing our election to be treated as a BDC.
Further, our election to withdraw as a BDC under the 1940 Act will result
in a significant change in our method of accounting. BDC financial statement
presentation and accounting utilizes the value method of accounting used by
investment companies, which allows BDCs to recognize income and value their
investments at market value as opposed to historical cost. As an operating
company, the required financial statement presentation and accounting for
securities held will be either fair value or historical cost methods of
accounting, depending on the classification of the investment and our intent
with respect to the period of time we intend to hold the investment.
A change in our method of accounting could reduce the market value of our
investments in privately held companies by eliminating our ability to report an
increase in the value of our holdings as they occur. Also, as an operating
company, we will have to consolidate our financial statements with subsidiaries,
thus eliminating the portfolio company reporting benefits available to BDCs.
5
WE MAY NEED TO UNDERTAKE ADDITIONAL FINANCINGS TO MEET OUR GROWTH, OPERATING
AND/OR CAPITAL NEEDS, WHICH MAY RESULT IN DILUTION TO YOUR OWNERSHIP AND VOTING
RIGHTS.
We anticipate that revenue from our operations for the foreseeable future
may not be sufficient to meet our growth, operating and/or capital requirements.
We believe that we currently have the financial resources to meet our operating
requirements for the next twelve months. We may however undertake additional
equity or debt financings to better enable us to meet our future growth,
operating and/or capital requirements. We currently have no commitments for any
such financings. Any equity financing may be dilutive to our stockholders, and
debt financing, if available, may involve restrictive covenants or other adverse
terms with respect to raising future capital and other financial and operational
matters. We may not be able to obtain additional financing in sufficient amounts
or on acceptable terms when needed, which could adversely affect our operating
results and prospects. If we fail to arrange for sufficient capital in the
future, we may be required to reduce the scope of our business activities until
we can obtain adequate financing.
THERE ARE SIGNIFICANT POTENTIAL CONFLICTS OF INTEREST WITH OUR OFFICERS,
DIRECTORS AND OUR AFFILIATED ENTITIES WHICH COULD ADVERSELY AFFECT OUR RESULTS
FROM OPERATIONS.
Certain of our officers, directors and/or their family members have
existing responsibilities and, in the future, may have additional
responsibilities, to act and/or provide services as executive officers,
directors, owners and/or managers of Ault Glazer & Company Investment Management
LLC. In particular, Milton "Todd" Ault, III, our Chairman and Chief Executive
Officer, Melanie Glazer, Manager of our subsidiary Franklin Capital Properties,
LLC, and Lynne Silverstein, our President and Secretary, are all principals of
Ault Glazer & Company Investment Management LLC. Mr. Ault and Ms. Silverstein
devote approximately 85% of their time to our business, based on a 60-hour,
6-day workweek. Ms. Glazer works full time for Franklin Capital Properties, LLC.
Ms. Silverstein is the stepdaughter of Louis Glazer, one of our Directors and
Chief Health and Science Officer of Patient Safety Consulting Group, LLC.
Accordingly, certain conflicts of interest may arise from time to time with our
officers, directors and Ault Glazer & Company Investment Management LLC. Because
of these possible conflicts of interest, such individuals may direct potential
business and investment opportunities to other entities rather than to us, which
may not be in the best interest of our stockholders. We will attempt to resolve
any such conflicts of interest in our favor.
Our Board of Directors does not believe that we currently have any
conflicts of interest with the business of Ault Glazer & Company Investment
Management LLC, other than certain of our officers' responsibility to provide
management and administrative services to Ault Glazer & Company Investment
Management LLC. and its clients from time-to-time. However, subject to
applicable law, we may engage in transactions with Ault Glazer & Company
Investment Management LLC. and other related parties in the future. These
related party transactions may raise conflicts of interest and, although we do
not have a formal policy to address such conflicts of interest, our Audit
Committee intends to evaluate relationships and transactions involving conflicts
of interest on a case-by-case basis and the approval of our Audit Committee is
required for all such transactions. The Audit Committee intends that any related
party transactions will be on terms and conditions no less favorable to us than
terms and conditions reasonably obtainable from third parties and in accordance
with applicable law.
OUR MANAGEMENT HAS LIMITED EXPERIENCE IN MANAGING AND OPERATING A PUBLIC
COMPANY. ANY FAILURE TO COMPLY OR ADEQUATELY COMPLY WITH FEDERAL SECURITIES
LAWS, RULES OR REGULATIONS COULD SUBJECT US TO FINES OR REGULATORY ACTIONS,
WHICH MAY MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Prior to the change in control that occurred in October 2004, our current
senior management was primarily engaged in operating a private investment
management firm. In this capacity they developed a general understanding of the
administrative and regulatory environment in which public companies operate.
However, our senior management lacks practical experience operating a public
company and relies in many instances on the professional experience and advice
of third parties including its consultants, attorneys and accountants. Failure
to comply or adequately comply with any laws, rules, or regulations applicable
to our business may result in fines or regulatory actions, which may materially
adversely affect our business, results of operation, or financial condition.
6
WE ARE DEPENDENT ON OUR CHIEF EXECUTIVE OFFICER FOR OUR FUTURE SUCCESS. THE
DEPARTURE OF OUR CHIEF EXECUTIVE OFFICER COULD MATERIALLY ADVERSELY AFFECT OUR
ABILITY TO RUN OUR BUSINESS.
Our future success is dependent on the personal efforts, performance and
abilities of Milton "Todd" Ault, III, our Chairman and Chief Executive Officer.
Mr. Ault is an integral part of our daily operations. Although Mr. Ault does not
currently have any plans to retire or leave our company in the near future, he
is not currently subject to an employment contract with us. The departure of Mr.
Ault as our Chief Executive Officer could have a material adverse effect on our
ability to implement our business strategy or achieve our investment objective.
OUR CHIEF EXECUTIVE OFFICER CONTROLS A SIGNIFICANT PORTION OF OUR OUTSTANDING
COMMON STOCK AND HIS OWNERSHIP INTEREST MAY CONFLICT WITH OUR OUTSIDE
STOCKHOLDERS WHO MAY BE UNABLE TO INFLUENCE MANAGEMENT AND EXERCISE CONTROL OVER
OUR BUSINESS.
As of April 26, 2005, Milton "Todd" Ault, III, our Chief Executive Officer
and Chairman, beneficially owned approximately 27.2% of our common stock. As a
result, Mr. Ault may be able to exert significant influence over our management
and policies to:
o elect or defeat the election of our directors;
o amend or prevent amendment of our certificate of incorporation or
bylaws;
o effect or prevent a merger, sale of assets or other corporate
transaction; and
o control the outcome of any other matter submitted to the
shareholders for vote.
Accordingly, our outside stockholders may be unable to influence
management and exercise control over our business.
RISKS RELATED TO OUR MEDICAL PRODUCTS AND HEALTHCARE-RELATED BUSINESS
WE RELY ON THIRD PARTY MANUFACTURERS AND SUPPLIERS, THE LOSS OF WHICH MAY
INTERRUPT OUR OPERATIONS.
We rely on third parties to supply raw materials and components and to
manufacture our products. We cannot assure you that we will be able to maintain
our existing supplier and manufacturer relationships or secure additional
suppliers and manufacturers as needed. The loss of a major supplier or
manufacturer, the deterioration of our relationship with a major supplier or
manufacturer, changes by in the specifications of components used in our
products, or our failure to establish good relationships with major new
suppliers or manufacturers could have a material adverse effect on our business,
financial condition and results of operations.
THE UNPREDICTABLE PRODUCT CYCLES OF THE MEDICAL DEVICE AND HEALTHCARE-RELATED
INDUSTRIES AND UNCERTAIN DEMAND FOR PRODUCTS COULD CAUSE OUR REVENUES TO
FLUCTUATE.
Our target customer base includes hospitals, physicians, nurses and
clinics. The medical device and healthcare-related industries are subject to
rapid technological changes, short product life cycles, frequent new product
introductions and evolving industry standards, as well as economic cycles. If
the market for our products does not grow as rapidly as our management expects,
our revenues could be less than expected. We also face the risk that changes in
the medical device industry, for example, cost-cutting measures, changes to
manufacturing techniques or production standards, could cause our manufacturing,
design and engineering capabilities to lose widespread market acceptance. If our
products do not gain market acceptance or suffer because of competing products,
unfavorable regulatory actions, alternative treatment methods or cures, product
recalls or liability claims, they will no longer have the need for our products
and we may experience a decline in revenues. Adverse economic conditions
affecting the medical device and healthcare-related industries, in general, or
the market for our products in particular, could result in diminished sales,
reduced profit margins and a disruption in our business.
7
WE ARE SUBJECT TO CHANGES IN THE REGULATORY AND ECONOMIC ENVIRONMENT IN THE
HEALTHCARE INDUSTRY, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
The healthcare industry in the United States continues to experience
change. In recent years, the United States Congress and state legislatures have
introduced and debated various healthcare reform proposals. Federal, state and
local government representatives will, in all likelihood, continue to review and
assess alternative healthcare delivery systems and payment methodologies, and
ongoing public debate of these issues is expected. Cost containment initiatives,
market pressures and proposed changes in applicable laws and regulations may
have a dramatic effect on pricing or potential demand for medical devices, the
relative costs associated with doing business and the amount of reimbursement by
both government and third-party payors to persons providing medical services. In
particular, the healthcare industry is experiencing market-driven reforms from
forces within the industry that are exerting pressure on healthcare companies to
reduce healthcare costs. Managed care and other healthcare provider
organizations have grown substantially in terms of the percentage of the
population in the United States that receives medical benefits through such
organizations and in terms of the influence and control that they are able to
exert over an increasingly large portion of the healthcare industry. Managed
care organizations are continuing to consolidate and grow, increasing the
ability of these organizations to influence the practices and pricing involved
in the purchase of medical devices, including our products, which is expected to
exert downward pressure on product margins. Both short-and long-term cost
containment pressures, as well as the possibility of continued regulatory
reform, may have an adverse impact on our business, financial condition and
operating results.
WE ARE SUBJECT TO GOVERNMENT REGULATION IN THE UNITED STATES AND ABROAD, WHICH
CAN BE TIME CONSUMING AND COSTLY TO OUR BUSINESS.
Our products and operations are subject to extensive regulation by
numerous governmental authorities, including, but not limited to, the FDA and
state and foreign governmental authorities. In particular, we must obtain
specific clearance or approval from the FDA before we can market new products or
certain modified products in the United States. The FDA administers the Food,
Drug and Cosmetics Act (the "FDC Act"). Under the FDC Act, most medical devices
must receive FDA clearance through the Section 510(k) notification process
("510(k)") or the more lengthy premarket approval ("PMA") process before they
can be sold in the United States. To obtain 510(k) marketing clearance, a
company must show that a new product is "substantially equivalent" in terms of
safety and effectiveness to a product already legally marketed and which does
not require a PMA. Therefore, it is not always necessary to prove the actual
safety and effectiveness of the new product in order to obtain 510(k) clearance
for such product. To obtain a PMA, we must submit extensive data, including
clinical trial data, to prove the safety, effectiveness and clinical utility of
our products. The process of obtaining such clearances or approvals can be
time-consuming and expensive, and there can be no assurance that all clearances
or approvals sought by us will be granted or that FDA review will not involve
delays adversely affecting the marketing and sale of our products. FDA's quality
system regulations also require companies to adhere to certain good
manufacturing practices requirements, which include testing, quality control,
storage, and documentation procedures. Compliance with applicable regulatory
requirements is monitored through periodic site inspections by the FDA. In
addition, we are required to comply with FDA requirements for labeling and
promotion. The Federal Trade Commission also regulates most device advertising.
In addition, international regulatory bodies often establish varying
regulations governing product testing and licensing standards, manufacturing
compliance, such as compliance with ISO 9001 standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements and pricing and reimbursement levels. Our inability or failure to
comply with the varying regulations or the imposition of new regulations could
restrict our ability to sell our products internationally and thereby adversely
affect our business, financial condition and operating results.
Failure to comply with applicable federal, state or foreign laws or
regulations could subject us to enforcement actions, including, but not limited
to, product seizures, injunctions, recalls, possible withdrawal of product
clearances, civil penalties and criminal prosecutions, any one or more of which
could have a material adverse effect on our business, financial condition and
operating results. Federal, state and foreign laws and regulations regarding the
manufacture and sale of medical devices are subject to future changes, as are
administrative interpretations of regulatory requirements. Any such changes may
have a material adverse effect on our business, financial condition and
operating results.
8
WE ARE SUBJECT TO INTENSE COMPETITION IN THE MEDICAL PRODUCTS AND HEALTH-CARE
RELATED MARKETS, WHICH COULD HARM OUR BUSINESS.
The medical products and healthcare solutions industry is highly
competitive. We compete against other medical products and healthcare solutions
companies, some of which are much larger and have significantly greater
financial resources, management resources, research and development staffs,
sales and marketing organizations and experience in the medical products and
healthcare solutions industries than us. In addition, these companies compete
with us to acquire technologies from universities and research laboratories. We
also compete against large companies that seek to license medical products and
healthcare solutions technologies for themselves. We cannot assure you that we
will be able to successfully compete against these competitors in the
acquisition, development, or commercialization of any medical products and
healthcare solutions, funding of medical products and healthcare solutions
companies or marketing of our products and solutions. If we cannot compete
effectively against our competitors, our business, financial condition and
results of operations may be materially adversely affected.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS AND IF OUR INSURANCE IS NOT
SUFFICIENT TO COVER PRODUCT LIABILITY CLAIMS OUR BUSINESS AND FINANCIAL
CONDITION WILL BE MATERIALLY ADVERSELY AFFECTED.
The nature of our business exposes us to potential product liability
risks, which are inherent in the distribution of medical equipment and
healthcare products. We may not be able to avoid product liability exposure,
since third parties develop and manufacture our equipment and products. If a
product liability claim is successfully brought against us or any third party
manufacturer then we would experience adverse consequences to our reputation, we
might be required to pay damages, our insurance, legal and other expenses would
increase, we might lose customers and/or suppliers and there may be other
adverse results.
Through our subsidiary SurgiCount Medical, Inc. we are in the process of
obtaining general liability insurance to cover claims up to $1,000,000. This
insurance, if obtained, will cover the clinical trial/time study relating to the
bar coding of surgical sponges only. In addition, A Plus International, Inc.,
the manufacturer of our surgical sponges, maintains general liability insurance
for claims up to $4,000,000 that covers product liability claims against
SurgiCount Medical, Inc. There can be no assurance that one or more liability
claims will not exceed the coverage limits of any of such policies. If we or our
manufacturer are subjected to product liability claims, the result of such
claims could harm our reputation and lead to less acceptance of our products in
the healthcare products market. In addition, if our insurance or our
manufacturer's insurance is not sufficient to cover product liability claims,
our business and financial condition will be materially adversely affected.
RISKS RELATED TO OUR REAL ESTATE HOLDINGS
THE VALUE OF REAL ESTATE FLUCTUATES DEPENDING ON CONDITIONS IN THE GENERAL
ECONOMY AND THE REAL ESTATE BUSINESS. THESE CONDITIONS MAY LIMIT REVENUES FROM
OUR REAL ESTATE PROPERTIES AND AVAILABLE CASH.
The value of our real estate holdings is affected by many factors
including, but not limited to: national, regional and local economic conditions;
consequences of any armed conflict involving or terrorist attacks against the
United States; our ability to secure adequate insurance; local conditions such
as an oversupply of space or a reduction in demand for real estate in a
particular area; competition from other available space; whether tenants
consider a property attractive; the financial condition of tenants, including
the extent of tenant bankruptcies or defaults; whether we are able to pass some
or all of any increased operating costs through to tenants; how well we manage
our properties; fluctuations in interest rates; changes in real estate taxes and
other expenses; changes in market rental rates; the timing and costs associated
with property improvements and rentals; changes in taxation or zoning laws;
government regulation; potential liability under environmental or other laws or
regulations; and general competitive factors. The rents we expect to receive and
the occupancy levels at our properties may not materialize as a result of
adverse changes in any of these factors. If our rental revenue fails to
materialize, we generally would expect to have less cash available to pay our
operating costs. In addition, some expenses, including mortgage payments, real
estate taxes and maintenance costs, generally do not decline when the related
rents decline.
9
OUR CURRENT REAL ESTATE HOLDINGS ARE CONCENTRATED IN BALTIMORE, MARYLAND AND
HEBER SPRINGS, ARKANSAS. ADVERSE CIRCUMSTANCES AFFECTING THESE AREAS GENERALLY
COULD ADVERSELY AFFECT OUR BUSINESS.
A significant proportion of our real estate investments are in Baltimore,
Maryland and Heber Springs, Arkansas and are affected by the economic cycles and
risks inherent to those regions. Like other real estate markets, the real estate
markets in these areas have experienced economic downturns in the past, and we
cannot predict how the current economic conditions will impact these markets in
both the short and long term. Further declines in the economy or a decline in
the real estate markets in these areas could hurt our financial performance and
the value of our properties. The factors affecting economic conditions in these
regions include: business layoffs or downsizing; industry slowdowns; relocations
of businesses; changing demographics; and any oversupply of or reduced demand
for real estate.
RISKS RELATED TO OUR FINANCING
THERE ARE A LARGE NUMBER OF SHARES OF COMMON STOCK AND SHARES UNDERLYING
OUTSTANDING WARRANTS FROM OUR RECENT PRIVATE PLACEMENT THAT MAY BE AVAILABLE FOR
FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK.
As of April 26, 2005, we had 5,276,328 shares of common stock outstanding.
There are 1,517,700 outstanding shares of common stock and 758,841 shares of
common stock issuable upon exercise of outstanding warrants from our recent
private placement being offered pursuant to this prospectus. All of these shares
may be sold without restriction. The sale of these shares may adversely affect
the market price of our common stock.
THE ISSUANCE OF SHARES UPON EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE
AND SUBSTANTIAL DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon exercise of our outstanding warrants may
result in substantial dilution to the interests of other stockholders since the
selling stockholders may ultimately exercise and sell the full amount issuable
on exercise.
RISKS RELATED TO OUR COMMON STOCK
OUR HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR
COMMON STOCK MAY CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET FOR OUR
SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT FOR YOU TO
SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT.
The public market for our common stock has historically been very
volatile. Over the past two fiscal years and the interim quarterly periods, the
market price for our common stock has ranged from $0.50 to $14.75. Any future
market price for our shares may continue to be very volatile. This price
volatility may make it more difficult for you to sell shares when you want at
prices you find attractive. We do not know of any one particular factor that has
caused volatility in our stock price. However, the stock market in general has
experienced extreme price and volume fluctuations that often are unrelated or
disproportionate to the operating performance of companies. Broad market factors
and the investing public's negative perception of our business may reduce our
stock price, regardless of our operating performance. Further, the market for
our common stock is limited and we cannot assure you that a larger market will
ever be developed or maintained. Our common stock is currently listed on the
American Stock Exchange ("AMEX"). The average daily trading volume of our common
stock over the past three months was approximately 16,909 shares. The last
reported sales price for our common stock on April 26, 2005, was $4.51 per
share. Market fluctuations and volatility, as well as general economic, market
and political conditions, could reduce our market price. As a result, this may
make it difficult or impossible for you to sell our common stock.
10
IF WE FAIL TO MEET CONTINUED LISTING STANDARDS OF AMEX, OUR COMMON STOCK MAY BE
DELISTED WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE PRICE OF OUR COMMON
STOCK.
Our common stock is currently traded on the American Stock Exchange
("AMEX") under the symbol "PST". In order for our securities to be eligible for
continued listing on AMEX, we must remain in compliance with certain listing
standards. Among other things, these standards require that we remain current in
our filings with the SEC and comply with certain provisions of the
Sarbanes-Oxley Act of 2002. If we were to become noncompliant with AMEX's
continued listing requirements, our common stock may be delisted which would
have a material adverse affect on the price of our common stock.
IF WE ARE DELISTED FROM AMEX, OUR COMMON STOCK MAY BE SUBJECT TO THE "PENNY
STOCK" RULES OF THE SEC, WHICH WOULD MAKE TRANSACTIONS IN OUR COMMON STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 3a51-1 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price 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, Rule
15g-9 require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the SEC relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
11
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. However, we
will receive the sale price of any common stock we sell to the selling
stockholders upon exercise of outstanding warrants for cash. We expect to use
the proceeds received from the exercise of the warrants, if any, for general
working capital purposes.
DESCRIPTION OF SECURITIES
CAPITAL STRUCTURE
Our authorized capital consists of 25,000,000 shares of common stock,
$0.33 par value per share, and 1,000,000 shares of preferred stock, $1.00 par
value per share, of which 500,000 shares have been designated as Series A
Convertible Preferred Stock. At the close of business on April 26, 2005, we had
5,276,328 shares of common stock and 10,950 shares of Series A Preferred Stock
issued and outstanding.
DIVIDEND POLICY
We paid $76,650, $76,652 and $115,152 in dividends to preferred
stockholders during 2004, 2003 and 2002, respectively, and have not paid any
dividends to common stockholders during the past three years. Dividends to our
preferred stockholders are cumulative and paid at the rate of 7% a year. Our
Board of Directors has no present intention of declaring any cash dividends, as
we expect to re-invest all profits in the business for additional working
capital for continuity and growth. The future declaration and payment of
dividends will be determined by our Board of Directors after considering the
conditions then existing, including our earnings, financial condition, capital
requirements, and other factors.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held
of record on all matters to be voted on by the stockholders. The holders of
common stock are entitled to receive dividends ratably, when, as and if declared
by the Board of Directors, out of funds legally available therefore. In the
event of a liquidation, dissolution or winding-up of our business, the holders
of common stock are entitled to share equally and ratably in all assets
remaining available for distribution after payment of liabilities and after
provision is made for each class of stock having preference over the common
stock.
The holders of shares of common stock, as such, have no conversion,
preemptive, or other subscription rights and there are no redemption provisions
applicable to the common stock. All of the outstanding shares of common stock
are, and the shares of common stock offered hereby, when issued will be, validly
issued, fully paid and non-assessable.
SERIES A CONVERTIBLE PREFERRED STOCK
On February 22, 2000, we sold 16,450 shares of Series A Convertible
Preferred Stock at a price of $100 per share. The Series A Convertible Preferred
Stock is convertible into our common stock at any time prior to February 22,
2010 at a conversion price of $4.4444 per common share
We may redeem the Series A Convertible Preferred Stock in whole or in
part, on a pro rata basis, if at any time on or after February 22, 2000 the
average trading price of our common stock for at least 20 days during any 30
consecutive trading days is equal to or in excess of 150% of the conversion
price; provided, however, that the holders of the Series A Convertible Preferred
Stock have the right until 5:00 p.m., New York time, on the third business day
preceding the redemption date to convert the Series A Convertible Preferred
Stock at the conversion price. If any holder fails to convert the Series A
Convertible Preferred Stock during a redemption period, then we may redeem the
Series A Convertible Preferred Stock in cash at a price per share equal to the
liquidation preference ($100) plus any accrued and unpaid dividends through the
date of redemption, and plus any dividends that were scheduled to accrue thereon
through the end of the calendar year of such redemption.
12
Upon liquidation, dissolution or winding up of our business, or a
reduction or decrease in our capital stock resulting in a distribution of assets
to our security holders, each holder of Series A Convertible Preferred Stock is
entitled to payment out of our assets available for distribution a liquidation
preference in an amount equal to $100 per share, plus accrued and unpaid
dividends. After payment in full of the $100 liquidation preference, and all
accrued and unpaid dividends to which holders of Series A Convertible Preferred
Stock are entitled, such holders will not be entitled to any further
participation in any distribution of our assets. Upon liquidation, dissolution
or winding up of our business, the Series A Convertible Preferred Stock ranks:
(a) senior to all classes of common stock and to each other class of capital
stock or series of preferred stock the terms of which do not expressly provide
that it ranks senior to or on parity with the Series A Convertible Preferred
Stock; (b) on parity with any other class of capital stock or any additional
series of preferred stock the terms of which expressly provide that such class
or series ranks on parity with the Series A Convertible Preferred Stock; and (c)
junior to each class of capital stock or series of preferred stock the terms of
which expressly provide that such class or series ranks senior to the Series A
Convertible Preferred Stock.
While the Series A Convertible Preferred Stock is outstanding, holders of
Series A Convertible Preferred Stock are entitled to receive out of funds
legally available therefore, preferential dividends in cash at a rate of 7% per
annum of the liquidation preference, payable quarterly.
Except as otherwise required by law, each holder of Series A Convertible
Preferred Stock is entitled to vote on all matters submitted to our
stockholders, voting together with the holders of our common stock as a single
class, with each shares of Series A Convertible Preferred Stock entitled to one
vote per share. The holders of the Series A Convertible Preferred Stock, voting
separately as one class, have the right to elect: (a) two directors at all times
during which the Series A Convertible Preferred Stock is outstanding; and (b) a
majority of the directors, if at any time dividends on the Series A Convertible
Preferred Stock have not been paid in an amount equal to two full years' of
dividends, and to continue to be so represented until all dividends in arrears
have been paid or otherwise provided for, subject to the prior rights, if any,
of the holders of any class of senior securities outstanding.
2004 PRIVATE PLACEMENT
On November 3, 2004, we entered into a subscription agreement with several
accredited investors led by Bodnar Capital Management, LLC, relating to the
issuance and sale of shares of our common stock and common stock purchase
warrants in one or more closings of a private placement. Pursuant to the
subscription agreement, we could sell to accredited investors an aggregate of up
to 625,000 shares (1,875,000 shares post 3:1 forward stock split) at a price of
$8.00 per share ($2.67 post 3:1 forward stock split). For each two shares
purchased by investors under the subscription agreement, investors received a
warrant to purchase one share of common stock. The sales under the subscription
agreement were made pursuant to the exemption from registration requirements
provided by Section 4(2) of the Securities Act of 1933 and Rule 506 promulgated
thereunder.
On November 3, 2004, in the first closing of the private placement, we
sold 405,625 shares of common stock and warrants to purchase 202,810 shares of
common stock for gross proceeds of $3,245,000. On November 15, 2004, in the
second closing of the private placement, we sold 32,500 shares of common stock
and warrants to purchase 16,250 shares of common stock for gross proceeds of
$260,000. On December 2, 2004, in the third closing of the private placement, we
sold 38,525 shares of common stock and warrants to purchase 19,262 shares of
common stock for gross proceeds of $308,200. On December 21, 2004, in the fourth
and final closing of the private placement, we sold 29,250 shares of common
stock and warrants to purchase 14,625 shares of common stock for gross proceeds
of $234,000. In total, we sold an aggregate of 505,900 shares of common stock
and warrants to purchase 252,947 shares of common stock for aggregate gross
proceeds of $4,047,200. On April 5, 2005, we declared a 3:1 forward split on our
common stock. Accordingly, we are registering in this offering 1,517,700 shares
of common stock and 758,841 shares of common stock issuable upon exercise of
warrants sold in the private placement.
13
Warrants sold in the private placement are exercisable for a term of five
year from the closing date at an exercise price equal to 110% of the closing bid
price of the common stock on the closing date. If after the first anniversary of
the issue date of the warrants there is no effective registration statement
under which the holders may sell their warrant shares, then the warrants may be
exercised by means of a cashless exercise. We have the right to call 50% of the
warrants and require the holders to exercise such warrants in the event that:
(a) any one of the following events occurs: (i) a registration statement
covering all shares issuable upon exercise of the warrants has been filed and
declared effective by the Securities and Exchange Commission, (ii) all the
warrant shares then owned by a holder, acting independently of all other
holders, are eligible for sale under Rule 144, or (iii) the second anniversary
of the issue date of the warrants has passed; and (b) after the occurrence of
any one of the events listed in (a) above, the closing price of our common stock
exceeds 200% of the warrant exercise price for at least five consecutive trading
days. If we exercise our right to call the warrants, then we must deliver to the
holders a written call notice stating that the conditions to call have been
satisfied and specifying the number of warrant shares that must be exercised.
Within 20 business days after delivery of the call notice to the holders, the
holders must exercise their warrants in accordance with the call notice. If a
holder fails to timely pay the amount required upon exercise of the warrant
call, then our sole remedy is to cancel a corresponding portion (50%) of the
holder's warrant, which cancellation may be done in our sole discretion and
without further written notice to the holder.
In the subscription agreement, we agreed to file a registration statement
with the Securities and Exchange Commission within 90 days after closing to
register the resale of all the shares of common stock and warrant shares sold in
the private placement. We also agreed to use our best efforts to cause such
registration statement to be declared effective no later than the 90 days
following the date the registration statement is filed with the Securities and
Exchange Commission. The subscription agreement provides that in the event the
registration statement has not been filed on or prior to 120 days after the
closing date, then each month thereafter we must pay to the investors liquidated
damages in cash equal to 1% of the aggregate purchase price originally paid in
the private placement. After the registration statement is declared effective,
we must maintain the effectiveness of the registration statement until the
earlier of: (a) the date on which all the shares of common stock and warrant
shares have been sold by the holders; (b) such time as we reasonably determine
that each holder, acting independently of all other holders, is eligible to sell
all the shares of common stock and warrant shares then owned by such holder
under Rule 144; or (c) the second anniversary of the closing date.
On March 2, 2005, we entered into an amendment to the subscription
agreement with certain investors holding a majority of the shares of common
stock and warrants sold in the private placement to extend the deadlines
relating to our obligations to file the registration statement and to pay
liquidated damages in the event of a failure to timely register the resale of
the shares of common stock and warrant shares. Pursuant to the amendment, we
agreed to file the registration statement within 180 days of the initial closing
of the private placement and to begin paying liquidated damages to the investors
in the amount set forth above in the event that the registration statement is
not filed within 180 days of the initial closing date.
APRIL 2005 PRIVATE PLACEMENT
On April 22, 2005, we entered into a subscription agreement with James
Colen, an accredited investor, pursuant to which we sold Mr. Colen 20,000 shares
of common stock and warrants to purchase an additional 20,000 shares of common
stock. We received gross proceeds of $100,000 from the sale of stock and
warrants to Mr. Colen. The sale was made in a private placement exempt from
registration requirements pursuant to Section 4(2) of the Securities Act of
1933, as amended, and Rule 506 promulgated thereunder.
We sold shares of common stock to Mr. Colen at a price of $5.00 per share.
For each two shares of common stock purchased Mr. Colen received one callable
warrant and one non-callable warrant to purchase additional shares of our common
stock. In aggregate, Mr. Colen purchased 20,000 shares of common stock, callable
warrants to purchase 10,000 shares of common stock and non-callable warrants to
purchase 10,000 shares of common stock. Pursuant to the subscription agreement,
we granted Mr. Colen piggy back registration rights to register the resale of
the shares of common stock and shares issuable upon exercise of the warrants.
Both the callable and non-callable warrants are exercisable for a period
of five years from April 22, 2005 and have an exercise price per share equal to
$6.05. In the event the closing sale price of our common stock equals or exceeds
$7.50 for at least five consecutive trading days, upon 30 days prior written
notice we may call the callable warrant at a redemption price equal to $0.01 per
share of common stock then purchasable pursuant to such warrant. Notwithstanding
such notice, the warrant holder may exercise the callable warrant prior to the
end of the 30-day notice period.
14
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o short sales that are not violations of the laws and regulations of
any state or the United States;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
15
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholders and the broker-dealer.
SELLING STOCKHOLDERS
The following table sets forth the common stock ownership of the selling
stockholders as of April 26, 2005, including the number of shares of common
stock issuable upon the exercise of warrants held by the selling stockholders.
The selling stockholders acquired their securities: (1) through our private
placement of common stock and warrants in the fourth quarter of 2004, the
material terms of which are described on pages 13-14 of this prospectus; (2)
through a private placement of common stock and warrants that closed on April
22, 2005, the material terms of which are described on page 14 of this
prospectus; (3) through our acquisition of Surgicount Medical, Inc., which
closed on February 25, 2005; (4) as compensation for services; and (5) pursuant
to private transactions exempt from registration pursuant to Section 4(1) of the
Securities Act of 1933, as amended. The transactions described in (1) through
(4) above were made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended. Other than as set forth
in the following table, the selling stockholders have not held any position or
office or had any other material relationship with us or any of our predecessors
or affiliates within the past three years.
SHARES BENEFICIALLY
OWNED AFTER THE
NUMBER OF SHARES NUMBER OF SHARES OFFERING (2)
BENEFICIALLY OWNED OFFERED PURSUANT TO -------------------
NAME PRIOR TO OFFERING (1) THIS PROSPECTUS NUMBER PERCENT
---------------------------------------------- --------------------- --------------------- ------ -------
Abby M. Treloggen (3) 5,625 5,625 0 *
Alice M. Campbell (4) 19,875 19,875 0 *
Arnold Spangler (5) 56,250 56,250 0 *
Bodnar Capital Management, LLC (6) 843,750 843,750 0 *
16
SHARES BENEFICIALLY
OWNED AFTER THE
NUMBER OF SHARES NUMBER OF SHARES OFFERING (2)
BENEFICIALLY OWNED OFFERED PURSUANT TO -------------------
NAME PRIOR TO OFFERING (1) THIS PROSPECTUS NUMBER PERCENT
---------------------------------------------- --------------------- --------------------- ------ -------
Brian Stewart (7) 285,000 285,000 0 *
Brigadier General (Ret.) Lytle Brown III (8) 10,500 10,500 0 *
Catalysis Partners (9) 135,000 135,000 0 *
Chantal Soichet IRA (10) 13,500 13,500 0 *
Charles Ault & Stacy Ault JTWROS (11) 22,500 22,500 0 *
Charles J. Kalina III (12) 56,250 56,250 0 *
Chinquapin Investors, LLC (13) 112,500 112,500 0 *
Claudia L. Meyers TTEE The Emily Rev Trust U/A 5,625 5,625 0 *
3/13/98 (14)
Daniel James Heckman II (15) 42,186 42,186 0 *
Darrell Grimsley Jr. IRA R/O (16) 14,250 14,250 0 *
Darren Magot (17) 11,250 11,250 0 *
Darrin Adkins (18) 5,625 5,625 0 *
David Moss (19) 9,000 9,000 0 *
Delores Ault Roth IRA (20) 12,150 12,150 0 *
Dennis Ault & Delores Ault (21) 10,575 10,575 0 *
Dennis Ault Roth IRA (22) 9,900 9,900 0 *
Dennis R. Ault & Delores D. Ault Co-TTEES FBO 2,925 2,925 0 *
Ault Family Trust (23)
Dennis R. Ault, Delores D. Ault Co-TTEES Ault 20,025 20,025 0 *
Family TR UA DTD 10-28-92 FBO Ault Family
Trust (24)
Dori Ellen Hall 11,250 11,250 0 *
(25)
DSAM Fund, LP (26) 270,000 270,000 0 *
Fred S. & Sandra R. Silverstein JT (27) 4,500 4,500 0 *
Gary Debruin (28) 5,625 5,625 0 *
George Freyre (29) 11,250 11,250 0 *
17
SHARES BENEFICIALLY
OWNED AFTER THE
NUMBER OF SHARES NUMBER OF SHARES OFFERING (2)
BENEFICIALLY OWNED OFFERED PURSUANT TO -------------------
NAME PRIOR TO OFFERING (1) THIS PROSPECTUS NUMBER PERCENT
---------------------------------------------- --------------------- --------------------- ------ -------
Herbert Langsam (30) 24,000 24,000 0 *
Industrial Management and Research Group (31) 11,250 11,250 0 *
Irene Sharon Durham (32) 13,953 13,953 0 *
James Cliffton & Patricia Cliffton Co-Ttees 4,500 4,500 0 *
James & Patricia Cliffton TR U/A DTD 9/25/86
(33)
James Colen (34) 40,000 40,000 0 *
James P. Hughes & Marian V. Hughes JTWROS (35) 11,250 11,250 0 *
James P. Hughes Roth IRA (36) 22,500 22,500 0 *
James Sveinson (37) 14,061 14,061 0 *
Jean Cosby (38) 11,250 11,250 0 *
Jean Cosby IRA R/O (39) 56,250 56,250 0 *
Jo Ann Kerr IRA R/O (40) 11,250 11,250 0 *
Joseph Farray (41) 13,500 13,500 0 *
Joyce Schmidt IRA R/O (42) 4,500 4,500 0 *
Judy Margolis IRA (43) 14,061 14,061 0 *
Katie Queen (44) 5,625 5,625 0 *
Kelly Hammond & Betty Lou Hammond TTEES for 5,625 5,625 0 *
the Hammond Family Trust DTD 6-12-85 (45)
Kevin & Tiffany Hammond (46) 11,250 11,250 0 *
Lasalle Bank (47) 30,000 30,000 0 *
Lloyd Margolis & Judy Margolis Trust (48) 14,061 14,061 0 *
Maria Brockelman Trust (49) 11,250 11,250 0 *
Marian V. Hughes Roth IRA (50) 3,375 3,375 0 *
Mark & Mary Harmon JTWROS (51) 11,250 11,250 0 *
18
SHARES BENEFICIALLY
OWNED AFTER THE
NUMBER OF SHARES NUMBER OF SHARES OFFERING (2)
BENEFICIALLY OWNED OFFERED PURSUANT TO -------------------
NAME PRIOR TO OFFERING (1) THIS PROSPECTUS NUMBER PERCENT
---------------------------------------------- --------------------- --------------------- ------ -------
Mark & Tara Fullbright (52) 6,750 6,750 0 *
Mark Harmon IRA R/O (53) 16,875 16,875 0 *
Michael G. Sedlak (54) 16,875 16,875 0 *
Michael Horvitz (55) 5,625 5,625 0 *
Michael Van Patten (56) 27,000 27,000 0 *
Milton C. Ault Jr. (57) 4,500 4,500 0 *
Milton Todd Ault & Kristine Louise Ault 1,433,700 (58) 3,000 (59) 1,430,700 27.1%
Not That Cosby, Inc. (60) 18,561 18,561 0 *
Patrick Gaynes (61) 5,625 5,625 0 *
Progressive Plumbing Systems (62) 5,625 5,625 0 *
Randy Ludensky (63) 18,000 18,000 0 *
Raymond R. Koziak (64) 45,000 45,000 0 *
Robert & Suzanne Royston (65) 5,625 5,625 0 *
Robert Brown (66) 5,625 5,625 0 *
Ron & Crystal Budd (67) 13,500 13,500 0 *
Scott Krinsky (68) 5,625 5,625 0 *
Sempad S. Pinedjian and Arshalous A. Pinedjian 11,250 11,250 0 *
Fam TR DTD 2-24-94 (69)
Sothi Thillairajah (70) 22,500 22,500 0 *
Steven E. Sipe (71) 11,250 11,250 0 *
Strome Alpha Fund (72) 28,125 28,125 0 *
Strome Offshore Ltd. (73) 28,125 28,125 0 *
Suzanne Stevenson IRA (74) 4,500 4,500 0 *
Sylvia Johnson (75) 11,250 11,250 0 *
Sylvia Schmidt Miller Living Trust U/A 4,500 4,500 0 *
5-7-98 (76)
19
SHARES BENEFICIALLY
OWNED AFTER THE
NUMBER OF SHARES NUMBER OF SHARES OFFERING (2)
BENEFICIALLY OWNED OFFERED PURSUANT TO -------------------
NAME PRIOR TO OFFERING (1) THIS PROSPECTUS NUMBER PERCENT
---------------------------------------------- --------------------- --------------------- ------ -------
Thomas Duhamel (77) 5,850 5,850 0 *
Timothy Sedlak IRA R/O (78) 8,436 8,436 0 *
Velan Thillairajah (79) 11,250 11,250 0 *
William & Betty Loewenberg (80) 9,000 9,000 0 *
William Stewart (81) 285,000 285,000 0 *
---------------------------------------------- --------------------- --------------------- ------ -------
TOTAL SHARES OFFERED 2,996,494
=====================
----------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock that
are currently exercisable or exercisable within 60 days of April 26, 2005
are deemed to be beneficially owned by the person holding such securities
for the purpose of computing the percentage of ownership of such person,
but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Assumes that all securities registered will be sold and that all shares of
common stock underlying common stock purchase warrants will be issued.
(3) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Ms. Treloggen in the first
closing of our private placement conducted during the fourth quarter of
2004.
(4) Includes: (a) 11,250 shares of common stock and 5,625 shares of common
stock issuable upon exercise of warrants purchased by Ms. Campbell in the
first closing of our private placement conducted during the fourth quarter
of 2004; and (b) 3,000 shares of common stock acquired pursuant to a
private purchase transaction exempt from registration pursuant to Section
4(1) of the Securities Act of 1933, as amended.
(5) Includes 37,500 shares of common stock and 18,750 shares of common stock
issuable upon exercise of warrants purchased by Mr. Spangler in the third
closing of our private placement conducted during the fourth quarter of
2004.
(6) Includes 562,500 shares of common stock and 281,250 shares of common stock
issuable upon exercise of warrants purchased by Bodnar Capital Management,
LLC in the first closing of our private placement conducted during the
fourth quarter of 2004. Steven J. Bodnar has voting and investment control
over the securities held by Bodnar Capital Management, LLC.
(7) Mr. Stewart acquired his shares in consideration for his shares of common
stock of Surgicount Medical, Inc.
(8) Includes: (a) 3,000 shares of common stock and 1,500 shares of common
stock issuable upon exercise of warrants purchased in the first closing of
our private placement conducted during the fourth quarter of 2004; and (b)
6,000 shares of common stock acquired pursuant to a private purchase
transaction exempt from registration pursuant to Section 4(1) of the
Securities Act of 1933, as amended.
(9) Includes 90,000 shares of common stock and 45,000 shares of common stock
issuable upon exercise of warrants purchased by Catalysis Partners in the
first closing of our private placement conducted during the fourth quarter
of 2004. John Francis has voting and investment control over the
securities held by Catalysis Partners.
(10) Includes 9,000 shares of common stock and 4,500 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(11) Includes 15,000 shares of common stock and 7,500 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
20
(12) Includes 37,500 shares of common stock and 18,750 shares of common stock
issuable upon exercise of warrants purchased in the third closing of our
private placement conducted during the fourth quarter of 2004.
(13) Includes 75,000 shares of common stock and 37,500 shares of common stock
issuable upon exercise of warrants purchased by Chinquapin Investors, LLC
in the second closing of our private placement conducted during the fourth
quarter of 2004. Stephen T. Dunavant has voting and investment control
over the securities held by Chinquapin Investors, LLC.
(14) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(15) Includes 28,125 shares of common stock and 14,061 shares of common stock
issuable upon exercise of warrants purchased by Mr. Heckman in the third
closing of our private placement conducted during the fourth quarter of
2004.
(16) Includes: (a) 7,500 shares of common stock and 3,750 shares of common
stock issuable upon exercise of warrants purchased in the first closing of
our private placement conducted during the fourth quarter of 2004; and (b)
3,000 shares acquired in a private purchase transaction exempt from
registration pursuant to Section 4(1) of the Securities Act of 1933, as
amended.
(17) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased by Mr. Magot in the first
closing of our private placement conducted during the fourth quarter of
2004.
(18) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Mr. Adkins in the first
closing of our private placement conducted during the fourth quarter of
2004.
(19) Includes 6,000 shares of common stock and 3,000 shares of common stock
issuable upon exercise of warrants purchased by Mr. Moss in the first
closing of our private placement conducted during the fourth quarter of
2004.
(20) Includes 8,100 shares of common stock and 4,050 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(21) Includes 7,050 shares of common stock and 3,525 shares of common stock
issuable upon exercise of warrants purchased in the third closing of our
private placement conducted during the fourth quarter of 2004.
(22) Includes 6,600 shares of common stock and 3,300 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(23) Includes 1,950 shares of common stock and 975 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(24) Includes 13,350 shares of common stock and 6,675 shares of common stock
issuable upon exercise of warrants purchased by Ms. Meyer in the first
closing of our private placement conducted during the fourth quarter of
2004.
(25) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased by Ms. Hall in the first
closing of our private placement conducted during the fourth quarter of
2004.
(26) Includes 180,000 shares of common stock and 90,000 shares of common stock
issuable upon exercise of warrants purchased by DSAM Fund, LP in the first
closing of our private placement conducted during the fourth quarter of
2004. Neil Danics has voting and investment control over the securities
held by DSAM Fund, LP.
(27) Includes 3,000 shares of common stock and 1,500 shares of common stock
issuable upon exercise of warrants purchased in the second closing of our
private placement conducted during the fourth quarter of 2004.
(28) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Mr. Debruin in the first
closing of our private placement conducted during the fourth quarter of
2004.
(29) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased by Mr. Freyre in the third
closing of our private placement conducted during the fourth quarter of
2004.
21
(30) Includes: (a) 6,000 shares of common stock and 3,000 shares of common
stock issuable upon exercise of warrants purchased by Mr. Langsam in the
first closing of our private placement conducted during the fourth quarter
of 2004; and (b) 15,000 shares of common stock acquired pursuant to a
private purchase transaction exempt from registration pursuant to Section
4(1) of the Securities Act of 1933, as amended.
(31) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased by Industrial Management and
Research Group in the first closing of our private placement conducted
during the fourth quarter of 2004. Janet Sedlak has voting and investment
control over the securities held by Industrial Management and Research
Group.
(32) Ms. Durham acquired her shares in consideration for services as architect
to our real properties located in Baltimore, Maryland.
(33) Includes 3,000 shares of common stock and 1,500 shares of common stock
issuable upon exercise of warrants purchased in the fourth closing of our
private placement conducted during the fourth quarter of 2004.
(34) Includes 20,000 shares of common stock and 20,000 shares of common stock
issuable upon exercise of warrants purchased by Mr. Colen in a private
placement closed on April 22, 2005.
(35) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(36) Includes 15,000 shares of common stock and 7,500 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(37) Includes 9,375 shares of common stock and 4,686 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(38) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the fourth closing of our
private placement conducted during the fourth quarter of 2004.
(39) Includes 37,500 shares of common stock and 18,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(40) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(41) Includes 9,000 shares of common stock and 4,500 shares of common stock
issuable upon exercise of warrants purchased by Mr. Farray in the third
closing of our private placement conducted during the fourth quarter of
2004.
(42) Includes 3,000 shares of common stock and 1,500 shares of common stock
issuable upon exercise of warrants purchased in the second closing of our
private placement conducted during the fourth quarter of 2004.
(43) Includes 9,375 shares of common stock and 4,686 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(44) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Ms. Queen in the third
closing of our private placement conducted during the fourth quarter of
2004.
(45) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(46) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(47) Shares acquired in connection with the acquisition of Surgicount Medical,
Inc.
(48) Includes 9,375 shares of common stock and 4,686 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
22
(49) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(50) Includes 2,250 shares of common stock and 1,125 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(51) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(52) Includes 4,500 shares of common stock and 2,250 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(53) Includes 11,250 shares of common stock and 5,625 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(54) Includes 11,250 shares of common stock and 5,625 shares of common stock
issuable upon exercise of warrants purchased by Mr. Sedlak in the first
closing of our private placement conducted during the fourth quarter of
2004.
(55) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Mr. Horvitz in the first
closing of our private placement conducted during the fourth quarter of
2004.
(56) Includes 27,000 shares of common stock issuable upon exercise warrants
issued to Mr. Van Patten in consideration for investor relations
consulting services.
(57) Includes 3,000 shares of common stock and 1,500 shares of common stock
issuable upon exercise of warrants purchased by Mr. Ault in the fourth
closing of our private placement conducted during the fourth quarter of
2004.
(58) Includes 1,430,700 shares beneficially owned directly by Ault Glazer &
Company Investment Management LLC as a result of the company's
discretionary authority to buy, sell and vote such shares of common stock
for its investment fund clients. Mr. Ault beneficially owns these shares
indirectly as a result of his control of Ault Glazer & Company Investment
Management LLC.
(59) Shares were acquired pursuant to a private purchase transaction exempt
from registration pursuant to Section 4(1) of the Securities Act of 1933,
as amended.
(60) Includes: (a) 9,375 shares of common stock and 4,686 shares of common
stock issuable upon exercise of warrants purchased by Not That Cosby in
the first closing of our private placement conducted during the fourth
quarter of 2004; and (b) 3,000 shares of common stock and 1,500 shares of
common stock issuable upon exercise of warrants purchased by Not That
Cosby, Inc. in the fourth closing of our private placement conducted
during the fourth quarter of 2004. Andy Cosby has voting and investment
control over the securities held by Not That Cosby, Inc.
(61) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Mr. Gaynes in the third
closing of our private placement conducted during the fourth quarter of
2004.
(62) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Progressive Plumbing
Systems in the first closing of our private placement conducted during the
fourth quarter of 2004. Trena Ault has voting and investment control over
the securities held by Progressive Plumbing Systems.
(63) Includes 12,000 shares of common stock and 6,000 shares of common stock
issuable upon exercise of warrants purchased by Mr. Ludensky in the third
closing of our private placement conducted during the fourth quarter of
2004.
(64) Includes 30,000 shares of common stock and 15,000 shares of common stock
issuable upon exercise of warrants purchased by Mr. Koziak in the fourth
closing of our private placement conducted during the fourth quarter of
2004.
(65) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(66) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased in the fourth closing of our
private placement conducted during the fourth quarter of 2004.
23
(67) Includes 9,000 shares of common stock and 4,500 shares of common stock
issuable upon exercise of warrants purchased in the second closing of our
private placement conducted during the fourth quarter of 2004.
(68) Includes 3,750 shares of common stock and 1,875 shares of common stock
issuable upon exercise of warrants purchased by Mr. Krinsky in the second
closing of our private placement conducted during the fourth quarter of
2004.
(69) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(70) Includes 15,000 shares of common stock and 7,500 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(71) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased by Mr. Sipe in the first
closing of our private placement conducted during the fourth quarter of
2004.
(72) Includes 18,750 shares of common stock and 9,375 shares of common stock
issuable upon exercise of warrants purchased by Strome Alpha Fund in the
first closing of our private placement conducted during the fourth quarter
of 2004. Mark Strome has voting and investment control over the securities
held by Strome Alpha Fund.
(73) Includes 18,750 shares of common stock and 9,375 shares of common stock
issuable upon exercise of warrants purchased by Strome Offshore Ltd. in
the first closing of our private placement conducted during the fourth
quarter of 2004. Mark Strome has voting and investment control over the
securities held by Strome Offshore Ltd.
(74) Includes 3,000 shares of common stock and 1,500 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(75) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased by Ms. Johnson in the first
closing of our private placement conducted during the fourth quarter of
2004.
(76) Includes 3,000 shares of common stock and 1,500 shares of common stock
issuable upon exercise of warrants purchased in the third closing of our
private placement conducted during the fourth quarter of 2004.
(77) Includes 3,900 shares of common stock and 1,950 shares of common stock
issuable upon exercise of warrants purchased by Mr. Duhamel in the third
closing of our private placement conducted during the fourth quarter of
2004.
(78) Includes 5,625 shares of common stock and 2,811 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(79) Includes 7,500 shares of common stock and 3,750 shares of common stock
issuable upon exercise of warrants purchased in the first closing of our
private placement conducted during the fourth quarter of 2004.
(80) Shares were acquired pursuant to a private purchase transaction exempt
from registration pursuant to Section 4(1) of the Securities Act of 1933,
as amended.
(81) Mr. Stewart acquired his shares in consideration for his shares of common
stock of Surgicount Medical, Inc.
24
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 ("Section 145") of the Delaware General Corporation Law, as
amended (the "DGCL"), permits indemnification of directors, officers, agents and
controlling persons of a corporation under certain conditions and subject to
certain limitations. Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer or agent of the corporation or another enterprise if serving
at the request of the corporation. Depending on the character of the proceeding,
a corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if the person indemnified
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a present or former director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended (the "Charter"), provides that no current or former director of the
Registrant shall be personally liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability: (a) for any breach of the director's duty of loyalty to the
Registrant or its stockholders; (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (c) under
Section 174 of the DGCL; or (d) for any transaction from which the director
derived any improper personal benefit. The Registrant's Charter also authorizes
the Registrant, to the fullest extent permitted by applicable law, to provide
indemnification of, and advanced expenses to, the Registrant's agents and any
other persons to which the DGCL permits.
In accordance with Section 145, the Registrant's Bylaws provide that the
Registrant shall indemnify its officers and directors, and any employee who
serves as an officer or director of any corporation at the Registrant's request.
According to Article IV of the Bylaws, directors and officers as well as
employees and individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation as a derivative action) if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
25
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for us by Sichenzia Ross Friedman Ference LLP, New York, New York.
EXPERTS
The financial statements of Patient Safety Technologies, Inc. appearing in
the company's annual report on Form 10-K as of and for the year ended December
31, 2004, and the related consolidated statements of operations, cash flows and
changes in net assets for the year ended December 31, 2004, and the financial
highlights for the year ended December 31, 2004, have been audited by Rothstein,
Kass & Company, P.C., independent registered public accounting firm, as set
forth in their report included therein and incorporated herein by reference.
Such financial statements are incorporated herein by reference in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The financial statements of Franklin Capital Corporation (currently known
as Patient Safety Technologies, Inc.) at December 31, 2003, and for the two
years in the period ended December 31, 2003, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
registered public accounting firm, and the financial highlights for each of the
four years in the period ended December 31, 2003, appearing in this Prospectus
and Registration Statement have been derived from financial statements audited
by Ernst & Young LLP, as set forth in their report thereon appearing elsewhere
herein.
Such financial statements and financial highlights are included in
reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.
26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE
AMOUNT
----------
SEC registration fee $ 1,580.04
Accounting fees and expenses 15,000.00*
Legal fees and expenses 40,000.00*
----------
TOTAL $56,580.04*
==========
----------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 ("Section 145") of the Delaware General Corporation Law, as
amended (the "DGCL"), permits indemnification of directors, officers, agents and
controlling persons of a corporation under certain conditions and subject to
certain limitations. Section 145 empowers a corporation to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer or agent of the corporation or another enterprise if serving
at the request of the corporation. Depending on the character of the proceeding,
a corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with such action, suit or proceeding if the person indemnified
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. In the case of an action by or in the right of the
corporation, no indemnification may be made with respect to any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine that despite the
adjudication of liability such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Section 145
further provides that to the extent a present or former director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to above or in the defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
The Registrant's Amended and Restated Certificate of Incorporation, as
amended (the "Charter"), provides that no current or former director of the
Registrant shall be personally liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability: (a) for any breach of the director's duty of loyalty to the
Registrant or its stockholders; (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (c) under
Section 174 of the DGCL; or (d) for any transaction from which the director
derived any improper personal benefit. The Registrant's Charter also authorizes
the Registrant, to the fullest extent permitted by applicable law, to provide
indemnification of, and advanced expenses to, the Registrant's agents and any
other persons to which the DGCL permits.
In accordance with Section 145, the Registrant's Bylaws provide that the
Registrant shall indemnify its officers and directors, and any employee who
serves as an officer or director of any corporation at the Registrant's request.
According to Article IV of the Bylaws, directors and officers as well as
employees and individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation as a derivative action) if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
II-1
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
--------------------------------------------------------------------------------
5.1 Opinion and Consent of Sichenzia Ross Friedman Ference LLP
23.1 Consent of Sichenzia Ross Friedman Ference LLP (See Exhibit 5)
23.2 Consent of Rothstein, Kass & Company, P.C, independent registered
public accounting firm
23.3 Consent of Ernst & Young LLP, independent registered public accounting
firm
24.1 Powers of Attorney (Included on the signature page hereto)
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof), which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement,
2. That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
4. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended,
each filing of the Registrant's Annual Report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as amended, that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-2
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
6. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulations S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Santa Monica, California on April 26, 2005.
PATIENT SAFETY TECHNOLOGIES, INC.
By: /s/ Milton Ault, III
-------------------------------
Milton "Todd" Ault, III
Chief Executive Officer,
Acting Chief Financial Officer
and Principal Accounting Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Milton
"Todd" Ault, III his or her true and lawful attorney-in-fact and agent, acting
alone, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, any
Amendments thereto and any Registration Statement of the same offering which is
effective upon filing pursuant to Rule 462(b) under the Securities Act, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, granting unto said attorney-in-fact and agent,
each acting alone, full powers and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorney-in-fact and agent, acting alone, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
------------------------------- ------------------------- -------------
/s/ Milton Ault, III
------------------------------- Chairman of the Board April 26, 2005
Milton "Todd" Ault, III
/s/ Alice M. Campbell
-------------------------------
Alice M. Campbell Director April 26, 2005
/s/ Lytle Brown III
-------------------------------
Brigadier General (Ret.) Director April 26, 2005
Lytle Brown III
/s/ Louis Glazer, M.D., PH.G.
-------------------------------
Louis Glazer, M.D., PH.G. Director April 26, 2005
/s/ Herbert Langsam
-------------------------------
Herbert Langsam Director April 26, 2005
II-4