Unassociated Document
Filed
pursuant to Rule 424(b)(2)
Registration
Number 333-140628
PROSPECTUS
BIOMETRX,
INC.
1,550,000
SHARES OF COMMON STOCK
This
prospectus relates to an aggregate of up to 1,550,000 shares of our common
stock, which may be offered by the selling shareholders identified in this
prospectus for their own account. The 1,550,000 shares are issuable upon the
conversion of convertible notes and debentures in the principal amount of
$1,550,000. Our filing of the registration statement of which this prospectus
is
a part is intended to satisfy a portion of our obligations to the selling
shareholders to register for resale the shares underlying the Convertible Notes
and Debentures issued to them and the shares issuable upon exercise of the
warrants issued to them.
We
will
not receive any proceeds from the sale of the shares by these selling
shareholders.
Unless
the context otherwise requires, the terms “bioMETRX”, “we,” “us” or “our” refer
to bioMETRX, Inc.
Our
common stock is listed on the OTC Bulletin Board under the symbol ““BMRX”. The
last reported sales price per share of our common stock, as reported by the
OTC
Bulletin Board on June 22, 2007, was $1.42.
INVESTING
IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE
“RISK FACTORS” BEGINNING ON PAGE 4.
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.
The
date
of this prospectus is June 26, 2007
TABLE
OF
CONTENTS
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5
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PROSPECTUS
SUMMARY
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5
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RISK
FACTORS
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9
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USE
OF PROCEEDS
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17
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MARKET
FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
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17
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BUSINESS
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18
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LEGAL
PROCEEDINGS
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24
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DESCRIPTION
OF PROPERTY
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24
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND
RESULTS OF OPERATIONS
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25
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
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37
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AND
FINANCIAL DISCLOSURE
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37
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MANAGEMENT
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38
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EXECUTIVE
COMPENSATION
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39
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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41
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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42
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DESCRIPTION
OF SECURITIES
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43
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INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
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43
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PLAN
OF DISTRIBUTION
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44
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SELLING
SHAREHOLDERS
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46
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LEGAL
MATTERS
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50
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EXPERTS
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50
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AVAILABLE
INFORMATION
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50
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WE
HAVE
NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY INFORMATION
OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY
ON
ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY
ANY
SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER.
NOTICE
ABOUT FORWARD LOOKING STATEMENTS
When
used
in this prospectus, the words “may,” “will,” “expect,” “anticipate,” “continue,”
“estimate,” “intend,” “plans”, and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) regarding
events, conditions and financial trends which may affect our future plans of
operations, business strategy, operating results and financial position. Forward
looking statements in this prospectus include without limitation statements
relating to:
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trends
affecting our financial condition or results of operations;
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our
business and growth strategies;
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Such
statements are not guarantees of future performance and are subject to risks
and
uncertainties and actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Such
factors include, among other things:
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our
ability to obtain additional sources of capital to fund continuing
operations, in the event that we are unable to timely generate revenues;
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our
ability to retain existing or obtain additional licensees who will
act as
distributors of our products;
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our
ability to obtain additional patent protection for our technology;
and
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other
economic, competitive and governmental factors affecting our operations,
market, products and services.
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Additional
factors are described in our other public reports and filings with the
Securities and Exchange Commission (the “SEC”). Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only
as of
the date made. bioMETRX undertakes no obligation to publicly release the result
of any revision of these forward-looking statements to reflect events or
circumstances after the date they are made or to reflect the occurrence of
unanticipated events.
Our
Company
The
Company was incorporated on March 13, 1985, under the laws of the State of
Utah
with the name Univenture Capital Corp. The Company was organized to engage
in
any lawful business and had no specific business plan except the investigation,
analysis, and possible acquisition of business opportunities.
On
August
29, 1986, the Company acquired all of the outstanding stock of Health &
Leisure Inc., a Delaware corporation which subsequently changed its name to
Entre Vest, Inc. (“Entre Vest”), in a transaction in which a subsidiary of the
Company merged with and into Entre Vest and the former stockholders of Entre
Vest obtained a controlling interest in the Company. The Company subsequently
changed its own name from Univenture Capital Corp. to Health & Leisure, Inc.
and changed its state of incorporation from Utah to Delaware.
Entre
Vest was incorporated on June 6, 1985, under the laws of the State of Delaware.
Pursuant
to an Acquisition Agreement and Plan of Merger dated June 13, 2003 (the “Merger
Agreement”), by and among Health & Leisure, Inc (the “Registrant”); Venture
Sum, Inc., a Delaware corporation and a wholly owned subsidiary of Registrant
(“Mergerco”); and MarketShare Recovery, Inc., a New York corporation, (“MKSR”),
Mergerco merged with and into MKSR, and MKSR became a wholly-owned subsidiary
of
the Registrant. The merger became effective June 13, 2003, (the “Effective
Date,”) however closing of the Agreement occurred on July 15, 2003.
Subsequently, Health & Leisure, Inc. filed an amendment to its certificate
of incorporation and thereby changed its name to MarketShare Recovery, Inc.
Our
former subsidiary similarly named MarketShare Recovery, Inc. was incorporated
in
New York in November 2000. The subsidiary, MarketShare Recovery, Inc. was a
provider of online direct marketing solutions for enterprises. The solutions
enabled corporations to create and deliver online direct marketing programs
that
drive revenue, influence behavior and deepen customer relationships. Our
solutions provided customer insight and powerful program execution through
a
combination of hosted applications and technology infrastructure. As a result
of
new technology, the Company found it harder to maintain and grow this business
and at the end of 2004 this business was discontinued.
On
October 7, 2004, we entered into an Asset Purchase Agreement with Palomar
Enterprises, Inc. (the “Agreement”). Pursuant to the Agreement, we agreed to
purchase certain assets, including certain automotive notes and contracts,
a
business plan and model for an automotive financial services company and a
data
base of potential customers and $150,000 in cash from Palomar in exchange for
a
controlling interest in us.
On
November 2, 2004, by mutual agreement, Palomar and the Company terminated the
Agreement.
In
2004,
we entered into a database license agreement with 110 Media Group to use and
to
sublicense the use of its database for a term of ten years for a total license
fee of $45,567. For financial reporting, revenue is recognized using the
straight-line method, based upon the economic useful life of three years. At
December 31, 2004, our remaining deferred revenue of $30,378 was recognized
as
revenue due to the Company completing its obligations under the agreement and
we
are no longer required to perform any further services nor incur any costs
related to this agreement.
On
May
27, 2005, we completed a merger (“Merger”) of MarketShare Merger Sub, Inc. a
wholly owned subsidiary of the Company (“Merger Sub”) with bioMetrx
Technologies, Inc., a Delaware corporation (“bioMetrx Technologies”) pursuant to
the Agreement and Plan of Merger dated April 27, 2005, by and among the Company,
Merger Sub and bioMetrx Technologies (“Merger Agreement”). bioMetrx
Technologies, a development stage company, is engaged in the development of
biometrics-based products for the home security and electronics market,
including biometrically enabled residential door locks, central station alarm
keypads, thermostats and garage/gate openers.
On
June
1, 2005 (the “Effective Date”), Merger Sub filed a Merger Certificate completing
the acquisition of bioMetrx Technologies. The consideration for the Merger
was
3,554,606 restricted shares of our common stock and the issuance of 45,507
Common Stock Purchase Warrants to the holders of corresponding instruments
of
bioMetrx Technologies. The Merger was completed according to the terms of the
Merger Agreement. Simultaneously with the Merger, certain stockholders of the
Company surrendered 552,130 shares of the Company’s common stock which were
cancelled and returned to the status of authorized and unissued. In addition,
75,000 shares of the Company’s common stock were deposited by these stockholders
into escrow to cover contingent liabilities, if any. As a result of the Merger,
bioMetrx Technologies was merged into the Merger Sub and became our wholly
owned
subsidiary.
Since
the
Company had no meaningful operations immediately prior to the Merger, the Merger
is being treated as a reorganization of bioMetrx Technologies via a reverse
merger with the Company for accounting purposes.
The
3,554,606 shares and the shares issuable upon the exercise of 45,507 warrants
issued as part of Merger to the former bioMetrx Technologies stockholders
represented approximately 90% of the total outstanding post-merger
stock.
On
October 10, 2005, the Company amended its Certificate of Incorporation to change
its name to bioMETRX, Inc., as a result, the Company’s trading symbol was
changed to “BMTX”.
On
March
14, 2006, the Company filed an amendment to its Certificate of Incorporation
to
effect a reverse split of all of the outstanding shares of its Common Stock
at a
ratio of one-for-four and increase the number of authorized shares of its Common
Stock to 25,000,000 shares and decrease the par value of the Company’s common
stock to $.001 per share. Our certificate of incorporation amendment authorized
the issuance of up to 10,000,000 shares of $.01 par value preferred stock,
with
such designation rights and preferences as may be determined from time to time
by the Board of Directors. The Company’s trading symbol was changed to “BMRX.”
The combined companies are hereinafter referred to as the “Company” or
“bioMETRX.”
Our
corporate address is 500 North Broadway, Suite 204, Jericho, New York 11753,
and
our telephone number is (516) 937-2828 and our fax number is (516)
937-2880.
Summary
of the Offerings
bioMETRX,
Inc. (the “Company”) entered into a Securities Purchase Agreement dated as of
June 29, 2006, with four investors relating to the issuance and sale, in a
private placement exempt from the registration requirements of the Securities
Act of 1933, as amended (the “Securities Act”), of units consisting of 8%
Convertible Notes in the principal amount of $950,000, Series A Common Stock
Purchase Warrants and Series B Common Stock Purchase Warrants. In addition,
the
company entered into an Exchange Agreement with the two investors who purchased
$650,000 of the Preferred Stock, on April 28, 2006 whereby the Company agreed
to
issue the units in exchange for the return and cancellation of the previously
issued Preferred Stock units. At the closing the Company issued its 8%
Convertible Notes in the aggregate principal amount of $1,600,000, 1,600,000
A
Warrants and 800,000 B Warrants to the Investors. The Company also issued an
aggregate of 128,000 shares of its common stock to the investors representing
one year’s of prepaid interest on the notes.
The
notes
mature 24 months from the closing. The notes are convertible at the option
of
the holder into the Company’s common stock at the rate of $1.00 per share. The
notes are mandatorily convertible into the Company’s common stock if the closing
bid price of the Company’s common stock is above $2.50 per share for ten (10)
consecutive trading days and if the daily volume for the same period exceeds
100,000 shares per day. The Company may redeem the notes for 125% of the
principal amount of the note together with all accrued and unpaid interest
provided that (i) an event of default had not occurred, and (ii) an effective
registration statement covering the shares underlying the Note
exists.
Each
A
Warrant entitles the holder to purchase one share of the Company’s common stock
at an exercise price of $1.00 per share commencing on the date of issuance
and
expiring at the close of business on the fifth anniversary of the issuance
date.
Each B Warrant entitles the holder to purchase one share of the Company’s common
stock at an exercise price of $.10 per share commencing 181 days after issuance
and expiring at the close of business on the fifth anniversary of the initial
exercise date. Notwithstanding the foregoing if the Company provides the holder
of a B Warrant with validation and acknowledgement, in the form of bona fide
purchase order demonstrating that at least $1,000,000 of the Company’s products
have been ordered, other than its initial order from a national retailer in
the
amount of approximately 23,000 garage door opening units, within 181 days after
the date of the Securities Purchase Agreement, the B Warrants shall
automatically terminate. Both the A and B Warrants contain provisions that
protect the holder against dilution by adjustment of the exercise price in
certain events including, but not limited to, stock dividends, stock splits,
reclassifications, or mergers.
Pursuant
to the Selling Agent Letter Agreement between the Company and the Selling Agent,
the Selling Agent was paid a cash fee of $95,000 (10% of the aggregate purchase
price of the units sold to the subscribers) in addition to the $65,000 it
received on April 28, 2006. The Company also issued the Selling Agent a warrant
to purchase 160,000 shares of its common stock on the same terms as the A
Warrants.
The
Company entered into a Securities Purchase Agreement dated as of December 28,
2006, with three investors relating to the issuance and sale, in a private
placement exempt from the registration requirements of the Securities Act,
of
units consisting of Senior Convertible Debentures in the principal amount of
$1,500,000, 1,500,000 Series A Common Stock Purchase Warrants and 750,000 Series
B Common Stock Purchase Warrants. The closing occurred on January 5,
2007.
The
debentures mature on June 29, 2008. The debentures are convertible at the option
of the holder into the Company’s common stock at the rate of $1.00 per share.
The debentures are convertible at the option of the Company into the Company’s
common stock if the closing bid price of the Company’s common stock is above
$2.50 per share for ten (10) consecutive trading days and if the shares
underlying the debentures are registered. The Company may redeem the debentures
for 125% of the principal amount of the debenture together with all accrued
and
unpaid interest provided that (i) an event of default has not occurred, (ii)
the
price of the Company’s common stock exceeds $1.50, (ii) an effective
registration statement covering the shares underlying the debentures exists,
and
(iii) if for 20 consecutive days the daily VWAP exceeds $1.50 and certain equity
conditions are met, including a condition that the daily volume for the same
period exceeds $50,000 per day.
Each
A
Warrant entitles the holder to purchase one share of the Company’s common stock
at an exercise price of $1.00 per share commencing on the date of issuance
and
expiring at the close of business on the fifth anniversary of the issuance
date.
Each B Warrant entitles the holder to purchase one share of the Company’s common
stock at an exercise price of $.10 per share at any time after July 1, 2007
and
expiring at the close of business on the fifth anniversary of the initial
issuance date. Notwithstanding the foregoing if the Company provides the holder
of a B Warrant with validation and acknowledgement on or before June 30, 2007
that the Company has both received and booked revenues for its products totaling
$1,000,000, the B Warrants shall automatically terminate. Both the A and B
Warrants contain provisions that protect the holder against dilution by
adjustment of the exercise price in certain events including, but not limited
to, stock dividends, stock splits, reclassifications, or mergers.
Pursuant
to the Selling Agent Letter Agreement between the Company and First Montauk
Securities Corporation, the Selling Agent was paid a cash fee of $150,000 (10%
of the aggregate purchase price of the units sold to the subscribers). The
Company also issued the Selling Agent a warrant to purchase 150,000 shares
of
its common stock on the same terms as the A Warrants.
As
part
of the Private Placement, the Company entered into a registration rights
agreement with each subscriber who purchased units in the private placement.
Under the registration rights agreement, the Company is obligated to file a
registration statement on Form SB-2, relating to the resale by the holders
of
the Common Stock underlying the debentures, warrants and Selling Agent warrant.
As
a
condition to closing, the Company obtained consents and waivers from the
investors of its private placement of $1,600,000 principal amount of Convertible
Notes issued on June 29, 2006, pursuant to which each of the prior investors
agreed to waive any and all existing defaults relating to the notes and agreed
to forebear from exercising any rights accruing upon default until March 31,
2007. As of the date hereof, none of the investors have exercised any rights
upon the default. In connection therewith, the Company issued to the investors
convertible notes in the aggregate principal amount of $387,437.39, representing
liquidated damages due under the notes. The notes are convertible into the
Company’s common stock at $1.00 per share.
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None.
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Common
stock offered by selling shareholders:
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1,550,000
shares, issuable upon the conversion of a portion of the Convertible
Notes
and Convertible Debentures.
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Common
stock outstanding:
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As
of June 1, 2007, 10,064,867 shares of our common stock were issued
and
outstanding.
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Proceeds
to bioMETRX:
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We
will not receive proceeds from the resale of shares by the selling
shareholders.
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Working
capital.
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OCT
Bulletin Board Symbol:
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BMRX.
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RISK
FACTORS
THIS
INVESTMENT INVOLVES A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS. IF ANY OF THE FOLLOWING RISKS ARE REALIZED,
OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE HARMED AND THE
VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD LOSE ALL OR A PART OF
YOUR INVESTMENT.
Risks
Related to Our Business
Because
we have a limited operating history, you may not be able to accurately evaluate
our operations.
We
have
had limited operations to date and have never generated revenue. Therefore,
we
have a limited operating history upon which to evaluate the merits of investing
in the Company. Because we are in the early stages of operating our business,
we
are subject to many of the same risks inherent in the operation of a business
with a limited operating history, including the potential inability to continue
as a going concern.
We
are dependent on outside financing for continuation of our
operations.
Because
we have never generated revenue and currently operate at a significant loss,
we
are completely dependent on the continued availability of financing in order
to
continue our business. There can be no assurance that financing sufficient
to
enable us to continue our operations will be available to us in the future.
Our
failure to obtain future financing or to produce levels of revenue to meet
our
financial needs could result in our inability to continue as a going concern
and, as a result, investors in the Company could lose their entire
investment.
Our
business will not grow unless the market for biometric products and services
expands both domestically and internationally.
Our
revenues will be derived from the sale of biometric products and services.
Biometric products have not gained widespread commercial acceptance. We cannot
accurately predict the future growth rate, if any, or the ultimate size of
the
biometric technology market. The expansion of the market for our products
depends on a number of factors including without limitation:
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national
or international events which may affect the need for or interest
in
biometric products or services;
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the
cost, performance and reliability of our products and services and
those
of our competitors;
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customers’
perception of the perceived benefit of biometric products and services
and
their satisfaction with our products and services;
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public
perceptions of the intrusiveness of these products and services and
the
manner in which firms are using the information
collected;
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public
perceptions regarding the confidentiality of private
information;
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proposed
or enacted legislation related to privacy of
information; and
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marketing
efforts and publicity regarding these products and
services.
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Certain
groups have publicly objected to the use of biometric products for some
applications on civil liberties grounds and legislation has been proposed to
regulate the use of biometric security products. From time to time, biometrics
technologies have been the focus of organizations and individuals seeking to
curtail or eliminate such technologies on the grounds that they may be used
to
diminish personal privacy rights. If such initiatives result in restrictive
legislation, the market for biometric solutions may be adversely affected.
Even
if biometric solutions gain wide market acceptance, our products and services
may not adequately address the requirements of the market and may not gain
wide
market acceptance.
We
may face intense competition from other biometric solution providers as well
as
identification and security systems providers.
A
significant number of established and startup companies are marketing or
developing software and hardware for facial and/or fingerprint biometric
products and applications that may eventually compete with our current
offerings.
The
biometric security market is a rapidly evolving and intensely competitive,
and
we believe that additional significant long-term competitors will continue
to
enter the market. We expect competition in the biometrics markets to increase
and intensify in the near term. Companies competing with us may introduce
products that are targeted at our target markets and competitively priced,
have
increased performance or functionality or incorporate technological advances
we
have not yet developed or implemented. Some present and potential competitors
have financial, marketing, research, and manufacturing resources substantially
greater than ours. Other players in the biometric do have the potential to
directly compete with us. Among these companies are Sagem Morpho, Inc., Cogent,
NEC, Printrak International, Inc., (a Motorola company), and Saflink. However,
these companies primarily focus on networked-based, or computer based systems
that require a sophisticated computer-based infrastructure to operate. Our
company’s products are embedded and self contained and do not require a computer
to operate.
The
biometrics industry is characterized by rapid technological change and requires
introduction of new and enhanced products at competitive
prices.
In order
to compete effectively in the biometrics market, we must continually design,
develop and market new and enhanced products at competitive prices and we must
have the resources available to invest in significant research and development
activities. Our future success will depend upon our ability to address the
changing and sophisticated needs of the marketplace. Frequently, technical
development programs in the biometric industry require assessments to be made
of
the future directions of technology and technology markets generally, which
are
inherently risky and difficult to predict. Delays in introducing new products,
services and enhancements, the failure to choose correctly among technical
alternatives or the failure to offer innovative products and services at
competitive prices may cause customers to forego purchases of our products
and
services and purchase those of our competitors, and could adversely affect
our
business operations, financial results and stock price.
Our
financial and operating results often vary significantly from quarter to quarter
and may be negatively affected by a number of factors.
Our
financial and operating results may fluctuate from quarter to quarter because
of
the following reasons:
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unavailability
or delays in authorization of government funding or cancellations,
delays
or contract amendments by government agency customers;
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reduced
demand for products and services caused, for example, by product
offerings
from new competitors;
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the
inability to timely and successfully (i) complete development of
complex designs, components and products, (ii) complete new product
introductions that may result in improved gross margins,
(iii) manufacture in volume or
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install
certain of our complex products or (iv) obtain relevant government
agency certifications for newly introduced products on a timely
basis;
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changes
in the mix of products and services we or our distributors
sell;
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the
readiness of customers to accept delivery of new products on a timely
basis;
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protests
of federal, state or local government contract awards by
competitors;
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unforeseen
legal expenses, including litigation and/or administrative protest
costs;
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expenses
related to acquisitions or mergers;
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impairment
charges arising out of our assessments of goodwill and
intangibles;
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other
one-time financial charges;
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the
lack of availability or increase in cost of key components and
subassemblies;
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competitive
pricing pressures; and
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unpredictable
product installation schedules
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Particularly
important is the need to invest in planned technical development programs to
maintain and enhance our competitiveness, and to successfully develop and launch
new products and services on a timely basis. Managing and improving the
likelihood of success of such programs requires the development of budgets,
plans and schedules for the execution of these programs and the adherence to
such budgets, plans and schedules. The majority of such program costs are
payroll and related staff expenses, and secondarily materials, subcontractors
and promotional expenses. These costs are very difficult to adjust in response
to short-term fluctuations in our revenues, compounding the difficulty of
achieving profitability in the event of a revenue downturn.
A
security breach or failure in systems that we use could result in the disclosure
of private personal information that could harm our business by adversely
affecting the market’s perception of our products and
services.
Many
of
the systems we use are designed to secure or manage private personal information
or information maintained by governmental agencies or credit card processing
companies. In addition to being costly to repair and causing delays and other
difficulties, a security breach or failure in one of these systems could cause
serious harm to our business as a result of negative publicity or decisions
by
clients to limit our access or involvement with this information.
The
terrorist attacks of September 11, 2001, and the continuing threat of
global terrorism, have increased financial expectations that may not
materialize.
The
September 11, 2001 terrorist attacks, and continuing concerns about global
terrorism, may have created an increase in awareness for biometric security
solutions generally. However, it is uncertain whether the actual level of demand
for our biometric products and services will grow as a result of such increased
awareness. Increased demand may not result in an actual increase in our
revenues. In addition, it is uncertain which security solutions, if any, will
be
adopted as a result of terrorism and whether our products will be a part of
those solutions.. These factors may adversely impact us and create
unpredictability in revenues and operating results.
Our
lengthy and variable sales cycle will make it difficult to predict operating
results.
Certain
of our products often have a lengthy sales cycle while the customer evaluates
and receives approvals for purchase. If, after expending significant funds
and
effort, we fail to receive an order, a negative impact on our financial results
and stock price could result. It is difficult to predict accurately the sales
cycle of any large order for any of our products. If we do not ship and or
install one or more large orders as forecast for a fiscal quarter, our total
revenues and operating results for that quarter could be materially and
adversely affected.
The
substantial lead-time required for ordering parts and materials may lead to
inventory problems.
The
lead-time for ordering parts and materials and building many of our products
can
be many months. As a result, we must order parts and materials and build our
products based on forecasted demand. If demand for our products lags
significantly behind our forecasts, we may produce more products than we can
sell, which can result in cash flow problems and write-offs or write-downs
of
obsolete inventory.
We
will rely in part upon original equipment manufacturers (“OEM”) and distribution
partners to distribute our products, and we may be adversely affected if those
parties do not actively promote our products or pursue installations that use
our equipment.
We
estimate that a significant portion of our revenue will come from sales to
partners including OEMs, systems integrators, distributors and resellers. Some
of these relationships have not been formalized in a detailed contract, and
may
be subject to termination at any time. Even where these relationships are
formalized in a detailed contract, the agreements are often terminable with
little or no notice and subject to periodic amendment. We cannot control the
amount and timing of resources that our partners devote to activities on our
behalf.
We
intend
to continue to seek strategic relationships to distribute, license and sell
certain of our products. We, however, may not be able to negotiate acceptable
relationships in the future and cannot predict whether current or future
relationships will be successful.
Loss
of sole or limited source suppliers may result in delays or additional
expenses.
We
obtain
certain hardware components and complete products, as well as software
applications, from a single source or a limited group of suppliers. We do not
have long-term agreements with any of our suppliers. We will experience
significant delays in manufacturing and shipping of products to customers if
we
lose these sources or if supplies from these sources are delayed.
As
a
result, we may be required to incur additional development, manufacturing and
other costs to establish alternative sources of supply. It may take several
months to locate alternative suppliers, if required, or to re-tool our products
to accommodate components from different suppliers. We cannot predict if we
will
be able to obtain replacement components within the time frames we require
at an
affordable cost, or at all. Any delays resulting from suppliers failing to
deliver components or products on a timely basis in sufficient quantities and
of
sufficient quality or any significant increase in the price of components from
existing or alternative suppliers could have a severe negative impact on our
financial results and stock price.
We
may be subject to loss in market share and market acceptance as a result of
performance failures, manufacturing errors, delays or
shortages.
Performance
failure in our products may cause loss of market share, delay in or loss of
market acceptance, additional warranty expense or product recall, or other
contractual liabilities. The complexity of certain of our fingerscanners makes
the manufacturing and assembly process of such products, especially in volume,
complex. This may in turn lead to delays or shortages in the availability of
certain products, or, in some cases, the unavailability of certain products.
The
negative effects of any delay or failure could be exacerbated if the delay
or
failure occurs in products that provide personal security, secure sensitive
computer data, authorize significant financial transactions or perform other
functions where a security breach could have significant consequences. If a
product launch is delayed or is the subject of an availability shortage because
of problems with our ability to manufacture or assemble the product successfully
on a timely basis, or if a product or service otherwise fails to meet
performance criteria, we may lose revenue opportunities entirely and/or
experience delays in revenue recognition associated with a product or service
in
addition to incurring higher operating expenses during the period required
to
correct the defects. There is a risk that for unforeseen reasons we may be
required to repair or replace a substantial number of products in use or to
reimburse customers for products that fail to work or meet strict performance
criteria. We carry product liability insurance, but existing coverage may not
be
adequate to cover potential claims.
We
may be subject to repair, replacement, reimbursement and liability claims as
a
result of products that fail to work or to meet applicable performance
criteria.
There
is
a risk that for unforeseen reasons we may be required to repair or replace
a
substantial number of products in use or to reimburse customers for products
that fail to work or meet strict performance criteria. We attempt to limit
remedies for product failure to the repair or replacement of malfunctioning
or
noncompliant products or services, and also attempt to exclude or minimize
exposure to product and related liabilities by including in our standard
agreements warranty disclaimers and disclaimers for consequential and related
damages as well as limitations on our aggregate liability. From time to time,
in
certain complex sale or licensing transactions, we may negotiate liability
provisions that vary from such standard forms. There is a risk that our
contractual provisions may not adequately minimize our product and related
liabilities or that such provisions may be unenforceable. We carry product
liability insurance, but existing coverage may not be adequate to cover
potential claims. We maintain warranty reserves as deemed adequate by
management.
Failure
by us to maintain the proprietary nature of our technology, intellectual
property and manufacturing processes could have a material adverse effect on
our
business, operating results, financial condition, stock price, and on our
ability to compete effectively.
We
principally rely upon patent, trademark, copyright, trade secret and contract
law to establish and protect our proprietary rights. There is a risk that claims
allowed on any patents or trademarks we hold may not be broad enough to protect
our technology. In addition, our patents or trademarks may be challenged,
invalidated or circumvented and we cannot be certain that the rights granted
thereunder will provide competitive advantages to us. Moreover, any current
or
future issued or licensed patents, or trademarks, or currently existing or
future developed trade secrets or know-how may not afford sufficient protection
against competitors with similar technologies or processes, and the possibility
exists that certain of our already issued patents or trademarks may infringe
upon third party patents or trademarks or be designed around by others. In
addition, there is a risk that others may independently develop proprietary
technologies and processes, which are the same as, substantially equivalent
or
superior to ours, or become available in the market at a lower
price.
In
addition, foreign laws treat the protection of proprietary rights differently
from laws in the United States and may not protect our proprietary rights to
the
same extent as U.S. laws. The failure of foreign laws or judicial systems
to adequately protect our proprietary rights or intellectual property, including
intellectual property developed on our behalf by foreign contractors or
subcontractors may have a material adverse effect on our business, operations,
financial results and stock price.
There
is
a risk that we have infringed or in the future will infringe patents or
trademarks owned by others, that we will need to acquire licenses under patents
or trademarks belonging to others for technology potentially useful or necessary
to us, and that licenses will not be available to us on acceptable terms, if
at
all.
We
may
have to litigate to enforce our patents or trademarks or to determine the scope
and validity of other parties’ proprietary rights. Litigation could be very
costly and divert management’s attention. An adverse outcome in any litigation
may have a severe negative effect on our financial results and stock price.
To
determine the priority of inventions, we may have to participate in interference
proceedings declared by the United States Patent and Trademark Office or
oppositions in foreign patent and trademark offices, which could result in
substantial cost and limitations on the scope or validity of our patents or
trademarks.
We
also
rely on trade secrets and proprietary know-how, which we seek to protect by
confidentiality agreements with our employees, consultants, service providers
and third parties. There is a risk that these agreements may be breached, and
that the remedies available to us may not be adequate. In addition, our trade
secrets and proprietary know-how may otherwise become known to or be
independently discovered by others.
Compliance
with changing regulation of corporate governance and public disclosure may
result in additional expenses.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and
NASDAQ National Market rules, are creating uncertainty for companies such as
ours. These new or changed laws, regulations and standards are subject to
varying interpretations in many cases due to their lack of specificity, and
as a
result, their application in practice may evolve over time as new guidance
is
provided by regulatory and governing bodies, which could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by
ongoing revisions to disclosure and governance practices. We are committed
to
maintaining high standards of corporate governance and public disclosure. As
a
result, we intend to invest resources to comply with evolving laws, regulations
and standards, and this investment may result in increased general and
administrative expenses and a diversion of management time and attention from
revenue-generating activities to compliance activities. If our efforts to comply
with new or changed laws, regulations and standards differ from the activities
intended by regulatory or governing bodies due to ambiguities related to
practice, our reputation may be harmed.
If
we fail to adequately manage the size of our business, it could have a severe
negative effect on our financial results or stock
price.
Our
management believes that in order to be successful we must appropriately manage
the size of our business. This may mean reducing costs and overhead in certain
economic periods, and selectively growing in periods of economic expansion.
In
addition, we will be required to implement operational, financial and management
information procedures and controls that are efficient and appropriate for
the
size and scope of our operations. The management skills and systems currently
in
place may not be adequate and we may not be able to manage any significant
cost
reductions or effectively provide for our growth.
If
we fail to attract and retain qualified senior executive and key technical
personnel, our business will not be able to expand.
We
are
dependent on the continued availability of the services of our employees, many
of whom are individually key to our future success, and the availability of
new
employees to implement our business plans. The market for skilled employees
is
highly competitive, especially for employees in technical fields. Although
our
compensation programs are intended to attract and retain the employees required
for us to be successful, there can be no assurance that we will be able to
retain the services of all our key employees or a sufficient number to execute
our plans, nor can there be any assurance we will be able to continue to attract
new employees as required.
Our
personnel may voluntarily terminate their relationship with us at any time,
and
competition for qualified personnel, especially engineers, is intense. The
process of locating additional personnel with the combination of skills and
attributes required to carry out our strategy could be lengthy, costly and
disruptive.
If
we
lose the services of key personnel, or fail to replace the services of key
personnel who depart, we could experience a severe negative effect on our
financial results and stock price. In addition, there is intense competition
for
highly qualified engineering and marketing personnel in the locations where
we
principally operate. The loss of the services of any key engineering, marketing
or other personnel or our failure to attract, integrate, motivate and retain
additional key employees could have a material adverse effect on our business,
operating and financial results and stock price.
If
we fail to comply with the new rules under the Sarbanes-Oxley Act related to
accounting controls and procedures, or if material weaknesses or other
deficiencies are discovered in our internal accounting procedures, our stock
price could decline significantly.
Section
404 of the Sarbanes-Oxley Act requires annual management assessments of the
effectiveness of our internal controls over financial reporting and a report
by
our independent auditors addressing these assessments. We are in the process
of
documenting and testing our internal control procedures, and we may identify
material weaknesses in our internal control over financial reporting and other
deficiencies. If material weaknesses and deficiencies are detected, it could
cause investors to lose confidence in our Company and result in a decline in
our
stock price and consequently affect our financial condition. In addition, if
we
fail to achieve and maintain the adequacy of our internal controls, we may
not
be able to ensure that we can conclude on an ongoing basis that we have
effective internal controls over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal
controls, particularly those related to revenue recognition, are necessary
for
us to produce reliable financial reports and are important to helping prevent
financial fraud. If we cannot provide reliable financial reports or prevent
fraud, our business and operating results could be harmed, investors could
lose
confidence in our reported financial information, and the trading price of
our
Common Stock could drop significantly. In addition, we cannot be certain that
additional material weaknesses or significant deficiencies in our internal
controls will not be discovered in the future.
The
following risks relate principally to our common stock and its market
value:
Trading
on the OTC Bulletin Board may be volatile and sporadic, which could depress
the
market price of our common stock and make it difficult for our stockholders
to
resell their shares.
Trading
in stock quoted on the OTC Bulletin Board is often thin and characterized by
wide fluctuations in trading prices, due to many factors that may have little
to
do with a company’s operations or business prospects. This volatility could
depress the market price of our common stock for reasons unrelated to our
business or operating performance. Moreover, the OTC Bulletin Board is not
a
stock exchange, and trading of securities on the OTC Bulletin Board is often
more sporadic than the trading of securities listed on a quotation system like
NASDAQ or a stock exchange like the American Stock Exchange. Accordingly,
stockholders may have difficulty reselling any of their shares of common
stock.
Our
Common Stock price may be volatile and could fluctuate widely in price, which
could result in substantial losses for investors.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including:
|
·
|
technological
innovations or new products and services by us or our
competitors;
|
|
·
|
government
regulation of our products and
services;
|
|
·
|
the
establishment of partnerships with other technology
companies;
|
|
·
|
intellectual
property disputes;
|
|
·
|
additions
or departures of key personnel;
|
|
·
|
sales
of our common stock
|
|
·
|
our
ability to integrate operations, technology, products and services;
|
|
·
|
our
ability to execute our business plan;
|
|
·
|
operating
results below expectations;
|
|
·
|
loss
of any strategic relationship;
|
|
·
|
economic
and other external factors; and
|
|
·
|
period-to-period
fluctuations in our financial results.
|
Because
we are a development stage company with no revenues to date, you should consider
any one of these factors to be material. Our stock price may fluctuate widely
as
a result of any of the above.
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
We
have not paid cash dividends in the past and do not expect to pay cash dividends
in the future on our common stock. Any return on investment may be limited
to
the value of our common stock.
We
have
never paid cash dividends on our common stock and do not anticipate paying
cash
dividends in the foreseeable future. The payment of cash dividends on our common
stock will depend on earnings, financial condition and other business and
economic factors at such time as the board of directors may consider relevant.
If we do not pay cash dividends, our common stock may be less valuable because
a
return on your investment will only occur if its stock price appreciates.
Penny
stock regulations may impose certain restrictions on marketability of our
stock.
Our
common stock is currently listed for trading on the OTC Bulletin Board which
is
generally considered to be a less efficient market than markets such as NASDAQ
or other national exchanges, and which may cause difficulty in conducting trades
and difficulty in obtaining future financing. Further, our securities are
subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the
Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock
rules apply to non-NASDAQ companies whose common stock trades at less than
$5.00
per share or which have tangible net worth of less than $5,000,000 ($2,000,000
if the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
"penny stock" because of the requirements of the penny stock rules and, as
a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the "penny stock
rules" for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
"penny stock rules," investors will find it more difficult to dispose of our
securities. Further, for companies whose securities are traded in the OTC
Bulletin Board, it is more difficult: (i) to obtain accurate quotations, (ii)
to
obtain coverage for significant news events because major wire services, such
as
the Dow Jones News Service, generally do not publish press releases about such
companies, and (iii) to obtain needed capital.
Our
Board of Directors may issue and fix the terms of shares of our preferred stock
without stockholder approval, which could adversely affect the voting power
of
holders of our common stock or any change in control of our
company.
Our
certificate of incorporation authorizes the issuance of up to 10,000,000 shares
of "blank check" preferred stock, with such designation rights and preferences
as may be determined from time to time by the Board of Directors. Our Board
of
Directors is empowered, without shareholder approval, to issue additional shares
of preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of our common stock. In the event of such issuances, the preferred
stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of our company.
A
sale of a substantial number of shares of our common stock may cause the price
of our common stock to decline.
The
market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. All
of
the shares of our common stock covered by this prospectus will be freely
transferable without restriction or further registration under the Securities
Act.
USE
OF PROCEEDS
This
prospectus relates to 1,550,000 shares of our common stock, which may be sold
from time to time by the selling shareholders. We will not receive any part
of
the proceeds from the sale of common stock by the selling shareholders.
Market
Information
Our
common stock has been quoted on the OTCBB under the symbol BMRX since March
16,
2006. Prior to that, the Company traded under the symbol BMTX and prior to
that
the Company’s common stock traded under the symbol MKSH. The following table
sets forth, for the periods indicated, the high and low sales prices per share
of common stock as reported on the OTCBB. These quotations reflect interdealer
prices, without retail markup, markdown or commission and may not necessarily
represent actual transactions:
|
|
High
|
|
Low
|
|
COMMON
STOCK
|
|
|
|
|
|
First
quarter
|
|
$
|
12.00
|
|
$
|
3.36
|
|
Second
quarter
|
|
$
|
9.60
|
|
$
|
1.49
|
|
Third
quarter
|
|
$
|
2.64
|
|
$
|
1.20
|
|
Fourth
quarter
|
|
$
|
1.39
|
|
$
|
0.06
|
|
|
|
High
|
|
Low
|
|
COMMON
STOCK
|
|
|
|
|
|
First
quarter
|
|
$
|
1.28
|
|
$
|
0.60
|
|
Second
quarter
|
|
$
|
15.40
|
|
$
|
0.60
|
|
Third
quarter
|
|
$
|
15.80
|
|
$
|
2.20
|
|
Fourth
quarter
|
|
$
|
8.00
|
|
$
|
2.40
|
|
|
|
High
|
|
Low
|
|
COMMON
STOCK
|
|
|
|
|
|
First
quarter
|
|
$
|
6.80
|
|
$
|
2.40
|
|
Second
quarter
|
|
$
|
3.75
|
|
$
|
1.35
|
|
Third
quarter
|
|
$
|
1.80
|
|
$
|
0.60
|
|
Fourth
quarter
|
|
$
|
2.95
|
|
$
|
1.05
|
|
|
|
High
|
|
Low
|
|
COMMON
STOCK
|
|
|
|
|
|
First
quarter
|
|
$
|
3.49
|
|
$
|
1.75
|
|
All
prices for fiscal 2004, 2005, 2006 and 2007 are split-adjusted to reflect a
reverse 1:12 stock split which occurred on December 20, 2004 and also reflect
a
reverse 1:4 stock split which occurred March 14, 2006.
On
June
4, 2007, the last sale price of our common stock reported by the OTCBB was
$1.10
per share.
Shareholders
Records
of our stock transfer agent indicate that as of May 17, 2007, we had 696 record
holders of our common stock. The Company estimates there are nearly 500 holders
of lots of 100 or more shares. Since a significant number of our shares are
held
by financial institutions in “street name,” it is likely that we have
significantly more stockholders than indicated above. We estimate that we have
approximately 1,000 beneficial holders, including such shares held in “street
name.” As of June 4, 2007 we had 10,064,867 outstanding shares of common
stock.
Dividend
Policy
Our
board
of directors determines any payment of dividends. We have never declared or
paid
any cash dividends, and we do not anticipate or contemplate paying cash
dividends in the foreseeable future. It is our Board of Directors intention
to
utilize all available funds for working capital of bioMETRX.
The
Company, through its wholly owned subsidiaries, designs, develops, engineers
and
markets biometrics-based products for the consumer home security, consumer
electronics, medical records and medical products markets. The Company’s
executive offices are located in Jericho, New York.
Originally
founded in 2001, bioMETRX is focused on developing simple-to-use,
cost-efficient, finger-activated, lifestyle products under the trade name
smartTOUCH™
.As a
result of the agreement with MasterLOCK™, various products will be branded using
the MasterLOCK™ powered by smartTOUCH™ brand name. The Company’s product line
includes biometrically enabled residential locks, central station alarm keypads,
thermostats, garage/gate openers, medical crash carts and industrial medicine
cabinets. Our products utilize finger recognition technology designed to augment
or replace conventional security methods such as keys, keypads, and PIN
numbers.
The
Company operates its business through three (3) wholly owned subsidiaries,
bioMETRX Technologies Inc., which conducts the product engineering and design,
smartTOUCH Consumer Products, Inc., the consumer-based marketing and sales
group
and smartTOUCH Medical, Inc. which is designing and will market medical industry
products.
The
home
security industry consists of garage door manufacturers, key and lock
manufacturers and central station alarm monitoring companies, representing
a $25
billion global market. bioMETRX develops market-specific products in this area
which are being sold through retailers, dealers and direct to consumers in
the
Unites States. The company’s first product, the Garage Door Opener, also known
as the MasterLock™ GDO powered by SmartTOUCH, will be available through the Home
Depot this summer.
The
Company has also developed a finger-activated thermostat (smartSTAT) that will
be marketed
to the
general public as well as small box retailers, restaurant chains and small
business owners. The Company’s smartSTAT thermostat allows only authorized users
the ability to access and change the HVAC settings, after they have been
authenticated by placing their finger on a sensor built into the device. This
provides consumers and small business owners complete control over the heating
and cooling settings within their homes or business establishments by preventing
unwanted tampering and hence offers direct energy and cost savings benefits,
without the need to install a cumbersome, ineffective security box around the
thermostat.
The
Company is presently completing some software enhancements on its smartSTIK
product and will soon commence distribution and fulfillment of on-line orders.
At this point we cannot offer a specific date or assurances that the release
of
the product will result in any meaningful revenues.
The
Company is also developing technology for the medical products market.
Currently, devices such as medical crash carts, rolling medicine drawers and
cabinets and medical tool supply bins are either accessible in a hallway of
a
hospital or require medical personnel to enter a 4-digit PIN code to unlock
these products. The Company is developing technology to secure these items
while
simplifying the procedure so that the proper medical personnel can access them
quickly when necessary.
Management’s
plan of operations for the next twelve months is to raise additional capital,
complete further development of its product line and commence marketing the
Company’s products and services through its disparate distribution channels. The
Company has recently executed a licensing agreement as well as a
co-marketing/co-development agreement with MasterLock™ for its garage door
opener and other products whereby the garage door opener will be marketed under
the MasterLock™ brand and the companies will jointly undertake development of
new products. The Company expects it will require $8,000,000 - $10,000,000
over
the next 12 months to accomplish these goals and expects to be financed by
the
private sale of its securities and lines of credit with commercial banks for
continuous manufacturing output of its products. The Company has initiated
production of its garage door openers and it is estimated that delivery will
commence incrementally in late second quarter though exact delivery dates are
still uncertain. As the Company has no lines of credit with its contract
manufacturer at this point, it will necessitate the requirement for advance
purchase of components. To that end, the company has paid its manufacturer
approximately $150,000 for components. Further as Company will replenish orders
and maintain inventories, it will require additional financing until it is
internally generating positive cash flow. Although the Company has retained
the
services of an investment banker, there are no firm commitments on anyone’s part
to invest in the Company and if it is unable to obtain financing through the
sale of its securities or other financing, the Company’s products and services
may never be commercially sold. The Company though expecting to receive revenues
within the second quarter of 2007 does not expect to be profitable in 2007
and
cannot reasonably insure that it will be cash flow positive during this period.
The Company’s balance sheet continues to reflect negative shareholder equity and
for the foreseeable year will be solely reliant on the attraction of additional
equity in order for it to reflect shareholder equity unless revenues should
exceed expectations for the current market ready products or other products
planned for release during this fiscal year 2007. Should the Company
prevail in its efforts to attract capital and fulfill its delivery requirements
of its initial orders, it will require strict budget adherence in order to
manage the many demands for capital.
Current
Market Outlook - Target Markets/Applications
There
is
a unique opportunity in the consumer electronics market for the incorporation
of
biometrics technology in multiple devices, requiring personal identification
or
key access. Two current examples are biometrically secured laptops (IBM-Lenovo
Thinkpad) and cell phones (Samsung SCH370). Prospective home/office security
and
electronics devices includes the introduction of “biometric” access controls on
anything that presently requires a key, keypad or Personal Identification Number
(“PIN”). bioMETRX is the first company to offer biometric security and
electronics products for the home consumer market at any significant
level.
We
are
focused on developing simple to use, cost efficient, finger activated consumer
electronics products principally under the trade name “smartTOUCH™”.
Our
current and prospective consumer products include biometrically enabled and
secure residential garage/gate door openers/locks, central station alarm pads
and thermostats.
Product
Offerings
smartTOUCH™
products
allow a person to open a door, or set an alarm or thermostat simply by placing
a
finger upon a sensor chip, the size of a postage stamp. smartTOUCH™ products
are designed to simplify access, while substantially increasing the security
level of the systems used for such purposes. Our smartTOUCH™
products
use one-to-one biometrics matching authenticated systems embodied in its
products. The bioMETRX patent-pending system includes a hand held universal
programmer designed to control access to the administrative functions of each
smartTOUCH™
device.
All smartTOUCH™
products
are designed to work with this universal programmer, and permit up to twenty
(20) authorized users to be enrolled. Our system allows two types of users,
an
access user who can only operate the smartTOUCH™
device,
and an administrative user who can operate and also add or delete other
users.
Consumer
Products
smartTOUCH™
Garage
Door Opener
As
a
result of the licensing agreement with the MasterLock™, the
smartTOUCH™
Garage
Door Opener (GDO) will be marketed as MasterLock™ Garage Door Opener powered by
smartTOUCH. The GDO is a weatherproof, shockproof, tamper resistant, garage
door
opener switch that allows a homeowner to control the opening of a garage door
with a touch of a finger. The garage door opener originally a hardwired unit,
has been redesigned to be wireless and works universally with any manufacturer’s
opener mechanism. The GDO is designed specifically to withstand the elements
for
years of reliable service and dependability. The homeowner’s finger is used to
activate the garage door opening mechanism.
The
GDO
unit is programmed using a proprietary handheld programmer that was designed
by
the Company to program the complete range of smartTOUCH products. The programmer
simply plugs into the main Sensor Unit and initiates a series of simple prompts
on the menu screen, allowing the GDO to be programmed quickly and
easily.
In
developing a wireless biometric version of the smartTOUCH GDO unit, thus
removing the need for a hard-wired connection between the Sensor unit and Relay,
we have made the GDO system easier to install and more secure, as the unit
transmits data using die code hopping encryption . In addition, future versions
of the wireless GDO will allow the unit to communicate with a device such as
a
cell phone or other alternative wireless remote. The need for biometric
authentication to operate the GDO will eliminate the possibility of a criminal
using a frequency descrambler to open the garage door. Our wireless technology
is being designed to actually transmit the user’s information that is
authenticated at the remote device first, then transmitted to the receiver
located on the garage door frame for re-authentication. We call this feature
our
“Failsafe Authentication Process” (“FAP”).
Although
market data on the use of automatic garage door openers is limited, management
estimates that there are 30 million homes in the United States equipped with
automatic garage doors. For many families, the automatic garage door opener
has
made the garage door the most frequently used door for entering and exiting
the
home. Consequently, there is a large potential market for the
smartTOUCH™
Garage
Door Opener which meets the consumer need for security and convenience combined.
We have filed our initial patent for this device with the United States Patents
and Trademark Office in March 2004 and the patent was granted in January 2007
for the design of the biometric electronic garage door opener
device.
During
the quarter ended March 31, 2006 we received an initial purchase order for
our
smartTOUCH™
Garage
Door Opener and purchase orders were subsequently modified in January 2007
in
the amount of 17,340 units from The Home Depot. Delivery of the order is
scheduled for early summer 2007. As a result of its co-marketing agreement
with
MasterLock™, the GDO will be marketed under the name of MasterLock™ GDO powered
by smartTOUCH™. The company has received numerous inquiries from other home
improvement and consumer electronic retailers and is making every effort to
meet
with these other retailers.
The
Company has had discussions with garage door manufacturers with the objective
of
providing the Company’s product as an additional option to their standard garage
door openers. In addition, following numerous inquiries, we have begun to
establish a National Dealer Network, with the introduction of our proTOUCH
Dealer Program. Our products are also available on the Company’s website. To
date, the Company has received approximately 1,200 on-line orders for its garage
door opener unit.
We
are
currently initiating manufacturing of the garage door opener unit with a third
party contract manufacturer located in the United States with manufacturing
operations in China, who will be providing turn-key manufacturing services.
We
have also established a credit facility with our major component
supplier.
smartSTAT™
Thermostat
Every
residential, commercial and industrial building is equipped with at least one
thermostat. Typically, thermostats can be adjusted by children, housekeepers,
employees, guests and even strangers, which can cost the homeowner or business
owner hundreds, if not thousands, of dollars per year in lost energy costs
due
to unauthorized operations. Currently, the only security device available for
thermostats is a clear plastic “lockbox” that fits over the thermostat. These
boxes are used in a number of different buildings, including, but not limited
to, shopping malls, apartment buildings office buildings, restaurants and
factories. They are cumbersome and ineffective deterrents. In fact, these
lockboxes are usually broken or simply ripped off the wall.
Management
estimates that approximately 10 million thermostats are sold in the United
States annually, 45% of which are electronic models, either programmable or
non-programmable. Management expects that there will be an increase in the
sale
of electronic thermostats as several states enact laws addressing the sale
and
disposal of mercury-based thermostats, some are even offering rebate programs
to
consumers that replace mercury thermostats with new energy-efficient
programmable models.
The
Company intends to manufacture approximately one thousand (1,000) thermostat
units for two programs. One program will be designed for commercial applications
and the Company has had several discussions with a number of restaurant chains
who have expressed interest in participating in the program. The second program
will be designed for residential use. The Company anticipates that these
programs will commence within the next six months.
smartSTIK™
USB Flash Drive
USB
flash
drives are compact and easy-to-use flash memory data storage devices integrated
with a USB interface. USB devices are utilized for personal data storage and
portable desktop computing. Rather than carrying bulky disks that may not be
read by certain devices or trusting email to transfer important or confidential
files or pictures, a USB flash drive offers a simple, portable means of securely
storing data. Common applications range from consumers using USB flash drives
to
transport digital music, pictures and videos, to the transportation of sensitive
data such as banking information, personal PIN numbers, and corporate
documents.
The
common problem with current USB flash devices is that, if lost or stolen, the
data on the device is not protected and can be accessed by unauthorized users.
bioMETRX has developed smartSTIK™, a secure USB flash drive that has the
capacity to securely store 1 to 2 GB of data. All files saved on the drive
are
protected by a biometric finger sensor embedded in the flash drive, which
requires a recognized finger swipe from an authorized user to access the data
stored. None of the data stored on the smartSTIK™ can be viewed or edited until
biometric recognition is achieved through successful finger scanning. This
protects the integrity and confidentiality of the information stored in the
drive, while still offering the convenience and ease of use of traditional
USB
flash drives. We expect that our smartSTIK USB flash drive will retail for
approximately $69.95 and will also carry the MasterLOCK™ brand
name.
smartGATE™
Automatic Gate Opener
The
smartGATE™
Automatic Gate Opener to be branded also with the MasterLOCK™ brand name serves
a similar function as our garage door opener, as it allows homeowners and
employees who gain access to their premises or place of business through either
drive-through or walk-through security gates, easy, simple to use access with
just a touch of a finger. Automatic gates work on the same principles as
mechanized overhead garage door units. Many residences and businesses that
use
security gates use some sort of digital keypad, or universal “clicker” to open
the gate from outside the premises.
The
smartGATE™
Automatic Gate Opener is designed similarly to our garage door opener, except
that it is housed in a weatherproof box that is usually an aftermarket product,
purchased through gate installation companies. Our automatic gate opener is
designed to fit conveniently into most vendors weatherproof containers designed
for automatic gate opener units. While presently targeted for high-end
residential installations, this unit will be re-engineered to meet the
prospective needs of gated communities and moderate traffic commercial
users.
Although
market data is not readily available for this product, our own market analysis
and information gathered through membership in industry organizations indicates
large potential for the sale of this product for both residential and commercial
use. These products will be marketed through traditional retail channels, as
well as through contractor/installer channels.
Other
smartTOUCH™
Consumer
Products
The
smartTOUCH™
line of
products under development includes a biometric deadbolt, smartLOCK™
for use
on residential doors, a biometric vehicle access and ignition system and a
biometrically enabled home alarm/central station alarm keypad
smartALARM™
that
will be designed to communicate directly with home monitoring
systems.
smartTOUCH™
Medical
We
are
also developing products for the healthcare industry. Government legislation
surrounding the integrity, confidentiality and privacy of patient data was
enacted under HIPAA. HIPAA requires the healthcare industry to restructure
current information technology (“IT”) infrastructures and methods. We are
developing biometrics products and solutions for end users, as well as enabling
biometric technology for original equipment manufacturers (“OEMs”) and
application developers to incorporate into their offerings, to assist healthcare
organizations working towards meeting these legislative demands, while
increasing efficiencies and user convenience and lowering overall administrative
costs and risks associated with passwords, PINs and keys. To that end, the
Company is working on a number of prospective medical products, some of which
are expected to be available by late 2007. These products, which will
incorporate biometric protection, include a series of medical crash carts,
rolling medicine carts, fixed medicine and supply cabinets and a portable
patient medical record system that integrates digital medical records with
biometrics-based technology. In January 2007 the Company acquired a patent
for
the biometric storage and retrieval of an electronic medical
record.
The
Company currently owns three patents and has one patent pending, all of which
incorporate the biometric design and/or architecture used within our smartTOUCH
products. The Company’s design patent, application number 29/252,518 for our
biometric keypad was recently granted and we are awaiting the issuance of a
patent number from the USPTO. In December the Company acquired patent number
6,042, 005 for a Personal Identification System incorporating biometric
authentication for Personal and Medical Information. In March 2007, the Company
acquired patent number 6,644,557 for a biometric access controlled thermostat
system. In addition, the Company is seeking patents on its system that utilizes
a combination of software and hardware into an architecture that allows the
offloading of all of the administrative functionality for any biometric device.
By off loading the administrative functionality, the Company’s products can be
smaller and hence more compatible with multiple consumer applications. In
addition, this function enables the products to comply with and connect to
any
OEM’s equipment specifications.
The
Company also seeks to protect its trademarks and branding and consequently
has
filed with the USTC for the following marks: “powered by smartTOUCH”,
“smartALARM”, “smartGDO”, “smartCART”, “smartGATE”, “smartLOCK”, “smartSTART”,
“smartSTAT” and “smartSTIK”.
Wherever
possible we seek to protect our inventions through filing U.S. patents and
foreign counterpart applications in selected other countries. Because patent
applications in the U.S. are maintained in secrecy for at least eighteen months
after the applications are filed and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we cannot
be certain that we were the first to make the inventions covered by each of
our
issued or pending patent applications or that we were the first to file for
protection of inventions set forth in such patent applications. Our planned
or
potential products may be covered by third-party patents or other intellectual
property rights, in which case continued development and marketing of the
products would require a license. Required licenses may not be available to
us
on commercially acceptable terms, if at all. If we do not obtain these licenses,
we could encounter delays in product introductions while we attempt to design
around the patents, or could find that the development, manufacture or sale
of
products requiring these licenses is foreclosed.
We
may
rely on trade secrets to protect our technology. Trade secrets are difficult
to
protect. We seek to protect our proprietary technology and processes by
confidentiality agreements with our employees and certain consultants and
contractors. These agreements may be breached, we may not have adequate remedies
for any breach and our trade secrets may otherwise become known or be
independently discovered by competitors. To the extent that our employees or
our
consultants or contractors use intellectual property owned by others in their
work for us, disputes may also arise as to the rights in related or resulting
know-how and inventions.
We
do not
own any manufacturing facilities and have been negotiating with, and are now
working with a third party contract manufacturer, RDI, Inc. (“RDI”), to
manufacture our garage door opening units. RDI is located in the United States
and has overseas capabilities which mitigate the production costs. As the need
arises, we plan to either contract additional contract manufacturers or license
our technology to third party manufacturers to incorporate into their products.
Each decision will depend on demand, our available cash resources and our
ability to access expertise.
Marketing
The
primary target market for our marketing effort of our home security and
electronics products will be consumers and hardware security and device
manufacturers. bioMETRX has established marketing initiatives by developing
channel distribution through retailers, development partner's, authorized
dealers and original equipment manufacturers and solutions-based
companies.
An
initial pilot program was implemented to test the consumer market for response
as to the acceptance and use of the smartTOUCH™ line of home security
products. Feedback from the “test” families demonstrates that our products
are consumer friendly and competitively priced. The first product tested was
our
garage door opener. The reports indicate that most every family member enrolled
into the devices now use the garage as their main access point to their homes.
The families seem to end up relying on our product since it is easy to operate.
The units have had no material operational problems and have been subjected
to
temperatures well below zero and various snow and ice storms with no
problems.
The
Company will market its products through three (3) distinct sales channels,
(i)
vendors/installers, (ii) Retailers, and (iii) direct internet sales. The
Company’s first product to be introduced to the pubic will be its garage door
opener. The Company, through its membership in the Door Access Systems
Manufacturing Association (“DASMA”) and the International Door Association (IDA)
has access to most garage door vendors/installers. The Company has commenced
an
e-mail campaign to recruit these installers, has begun taking pre-orders and
in
the near future will begin a training program for each vendor/installer. The
Company offers three levels of participation in this program, corresponding
to
the level of sales volume generated by each vendor/installer.
The
Company has entered into a development and co-marketing agreement with
MasterLock™ which will also allow the Company to access their distribution
channels and co-brand with the trusted name of MasterLock™.
The
Company will also market its products to large do-it-yourself retail chains.
To
date, the Company has received an initial purchase order from The Home Depot
for
17,340 units. The Company also intends on private labeling its products for
large retail chains upon expiration of the limited exclusivity agreement with
Home Depot which is only applicable to its GDO product presently.
Competition
The
markets for our products and solutions are extremely competitive and are
characterized by rapid technological change as a result of technical
developments exploited by competitors, the changing technical needs of the
customers, and frequent introductions of new features. We expect competition
to
increase as other companies introduce products that are competitively priced,
that may have increased performance or functionality, or that incorporate
technological advances not yet developed or implemented by us. In order to
compete effectively in this environment, we must continually develop and market
new and enhanced products at competitive prices, and have the resources to
invest in significant research and development activities. There is a risk
that
we may not be able to make the technological advances necessary to compete
successfully. Existing and new competitors may enter or expand their efforts
into our markets, or develop new products to compete against ours. Our
competitors may develop new technologies or enhancements to existing products
or
introduce new products that will offer superior price or performance features.
New products or technologies may render our products obsolete.
Employees
As
of
December 31, 2006, the Company has 8 full time employees and no part time
employees. The Company expects that it will hire at least 4 more key people
over
the next 6 months. We believe our employee relations are
satisfactory.
On
November 16, 2006, the Company was the subject of a complaint filed in the
Supreme Court of New York State, County of Nassau (Index No. 019475-06) by
Intellicon seeking final payment of $20,000 plus accrued interest for
engineering design services performed for the Company. The Company
answered and counter-claimed on January 5, 2007 asserting damages of $25,000
incurred then and continuing to incur to remedy design defects performed by
Intellicon. The Company intends to vigorously defend its position in this
claim.
On
March
7, 2007 the Company’s subsidiary, bioMETRX Technologies Inc. became the subject
of a complaint filed by Frank Giannuzzi, the former Chief Financial Officer
and
Sante Santopadre, a former consultant with whom it had previously had severed
its business relationship. The complaint was filed in the Supreme Court of
the
State of New York, County of Nassau (Index No. 07-004088). The plaintiffs allege
damages arising from certain inducements which were relied upon to their
detriment.
The
Company considers these allegations to be baseless and without merit and expects
to file a Motion to Dismiss both claims of both plaintiffs and intends to
vigorously pursue damages in the course of its defense of this complaint and
other previous acts of the plaintiffs.
We
operate our business in leased facilities. We occupy approximately 3,200 square
feet in an office building in Jericho, New York. Our rent for this space is
$8,800, plus utilities, per month. The Company’s lease for this space expires on
January 31, 2010. The Company believes this space is adequate for its needs.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the Financial Statements and
the
related notes. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Our actual results and the timing
of
certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those
set
forth under “Risks Relating to Our Business,” “Description of Business” and
elsewhere in this document. See “Forward-Looking Statements.”
The
Company was incorporated on March 13, 1985, under the laws of the State of
Utah
with the name Univenture Capital Corp. The Company was organized to engage
in
any lawful business and had no specific business plan except the investigation,
analysis, and possible acquisition of business opportunities.
On
August
29, 1986, the Company acquired all of the outstanding stock of Health &
Leisure Inc., a Delaware corporation which subsequently changed its name to
Entre Vest, Inc. (“Entre Vest”), in a transaction in which a subsidiary of the
Company merged with and into Entre Vest and the former stockholders of Entre
Vest obtained a controlling interest in the Company. The Company subsequently
changed its own name from Univenture Capital Corp. to Health & Leisure, Inc.
and changed its state of incorporation from Utah to Delaware. Entre Vest was
incorporated on June 6, 1985, under the laws of the State of
Delaware.
Pursuant
to an Acquisition Agreement and Plan of Merger dated June 13, 2003 (the “Merger
Agreement”), by and among Health & Leisure, Inc (the “Registrant”); Venture
Sum, Inc., a Delaware corporation and a wholly owned subsidiary of Registrant
(“Mergerco”); and MarketShare Recovery, Inc., a New York corporation, (“MKSR”),
Mergerco merged with and into MKSR, and MKSR became a wholly-owned subsidiary
of
the Registrant. The merger became effective June 13, 2003, however closing
of
the Agreement occurred on July 15, 2003. Subsequently, Health & Leisure,
Inc. filed an amendment to its certificate of incorporation and thereby changed
its name to MarketShare Recovery, Inc.
Our
former subsidiary similarly named MarketShare Recovery, Inc. was incorporated
in
New York in November 2000. The subsidiary, MarketShare Recovery, Inc. was a
provider of online direct marketing solutions for enterprises. The solutions
enabled corporations to create and deliver online direct marketing programs
that
drive revenue, influence behavior and deepen customer relationships. Our
solutions provided customer insight and powerful program execution through
a
combination of hosted applications and technology infrastructure. As a result
of
new technology, the Company found it harder to maintain and grow this business
and at the end of 2004 this business was discontinued.
On
October 7, 2004, we entered into an Asset Purchase Agreement with Palomar
Enterprises, Inc. (the “Agreement”). Pursuant to the Agreement, we agreed to
purchase certain assets, including certain automotive notes and contracts,
a
business plan and model for an automotive financial services company and a
data
base of potential customers and $150,000 in cash from Palomar in exchange for
a
controlling interest in us.
On
November 2, 2004, by mutual agreement, Palomar and MarketShare Recovery
terminated the Agreement.
On
May
27, 2005, we completed a merger (“Merger”) of MarketShare Merger Sub, Inc. a
wholly owned subsidiary of the Company (“Merger Sub”) with bioMetrx
Technologies, Inc., a Delaware corporation (“bioMetrx Technologies”) pursuant to
the Agreement and Plan of Merger dated April 27, 2005, by and among the Company,
Merger Sub and bioMetrx Technologies (“Merger Agreement”). bioMetrx
Technologies, a development stage company, is engaged in the development of
biometrics-based products for the home security and electronics market,
including biometrically enabled residential door locks, central station alarm
keypads, thermostats and garage/gate openers.
On
June
1, 2005, Merger Sub filed a Merger Certificate completing the acquisition of
bioMetrx Technologies. The consideration for the Merger was 3,554,606 restricted
shares of our common stock and the issuance of 45,507 Common Stock Purchase
Warrants to the holders of corresponding instruments of bioMetrx Technologies.
The Merger was completed according to the terms of the Merger Agreement.
Simultaneously with the Merger, certain stockholders of the Company surrendered
552,130 shares of the Company’s common stock which was cancelled and returned to
the status of authorized and unissued. In addition, 75,000 shares of the
Company’s common stock were deposited by these stockholders into escrow to cover
contingent liabilities, if any. As a result of the Merger, bioMetrx Technologies
was merged into the Merger Sub and became our wholly owned
subsidiary.
Since
the
Company had no meaningful operations immediately prior to the Merger, the Merger
is being treated as a reorganization of bioMetrx Technologies via a reverse
merger with the Company for accounting purposes.
The
3,554,606 shares and the shares issuable upon the exercise of 45,507 warrants
issued as part of Merger to the former bioMetrx Technologies stockholders
represented approximately 90% of the total outstanding post-merger
stock.
On
October 10, 2005, the Company amended its Certificate of Incorporation to change
its name to bioMETRX, Inc., as a result, the Company’s trading symbol was
changed to “BMTX”.
On
March
14, 2006, the Company filed an amendment to its Certificate of Incorporation
to
effect a reverse split of all of the outstanding shares of its Common Stock
at a
ratio of one-for-four and increase the number of authorized shares of its Common
Stock to 25,000,000 shares and decrease the par value of the Company’s common
stock to $.001 per share. Our certificate of incorporation amendment authorized
the issuance of up to 10,000,000 shares of $.01 par value preferred stock,
with
such designation rights and preferences as may be determined from time to time
by the Board of Directors. The Company’s trading symbol was changed to “BMRX.”
The combined companies are hereinafter referred to as the “Company” or
“bioMETRX.”
On
June
29, 2006, the Company entered into a Securities Purchase Agreement dated as
of
June 29, 2006, with four investors relating to the issuance and sale, in a
private placement exempt from the registration requirements of the Act, of
units
consisting of 8% Convertible Notes in the principal amount of $950,000, Series
A
Common Stock Purchase Warrants and Series B Common Stock Purchase Warrants.
In
addition, the company entered into an Exchange Agreement with the two investors
who purchased $650,000 of the Preferred Stock Units, on April 28, 2006 whereby
the Company agreed to issue the Units in exchange for the return and
cancellation of the previously issued Preferred Stock Units. Accordingly, at
closing the Company issued its 8% Convertible Notes in the aggregate principal
amount of $1,600,000, 1,600,000 A Warrants and 800,000 B Warrants to the
Investors. The Company also issued an aggregate of 128,000 shares of its common
stock to the investors representing one year’s of prepaid interest on the
Notes.
Pursuant
to the Selling Agent Letter Agreement between the Company and the Selling Agent,
the Selling Agent was paid a cash fee of $95,000 (10% of the aggregate purchase
price of the Units sold to the subscribers) in addition to the $75,000 it
received on April 28, 2006, inclusive of $10,000 in expenses. The Company also
issued the Selling Agent a warrant to purchase 160,000 shares of its common
stock on the same terms as the A Warrants. In addition, the Company paid $15,000
to the Selling Agent’s counsel and $32,500 to its counsel.
As
part
of the Private Placement, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with each subscriber who
purchased Units in the Private Placement. Under the Registration Rights
Agreement, the Company is obligated to file a registration statement (the
“Registration Statement”) on Form SB-2, relating to the resale by the holders of
the Common Stock underlying the Notes, Warrants and Selling Agent Warrant.
If
such Registration Statement was not filed by July 14, 2006, or does not become
effective within 90 days after closing, the Company has agreed to pay to the
investors 1.5% of the gross proceeds of the offering for each month in which
the
Company fails to comply with such requirements. The Company did not file the
Registration Statement by July 14, 2006 and therefore is accruing 1.5% ($24,000)
of the gross proceeds for each month the Company fails to file the Registration
Statement. (See Footnote 11 “Forbearance Notes”).
On
July
11, 2006, Mr. Steven Kang resigned as the Company’s Chief Technology Officer and
as a director of the company. In connection with his resignation, the Company
entered into a termination agreement terminating this employment.
On
July
11, 2006, the Company elected Ms. Lorraine Yarde to the Company’s Board of
Directors to replace Mr. Kang.
On
August
4, 2006, the Company entered into an employment agreement with J. Richard Iler
under which Mr. Iler will serve as our Chief Financial Officer. Mr. Iler
replaces Mr. Frank Giannuzzi in this position; Mr. Giannuzzi resigned as the
Company’s CFO and director on August 7, 2006. Mr. Iler was also elected to the
Company’s Board of Directors.
On
September 18, 2006, the Company entered into a Securities Purchase Agreement
with two investors relating to the issuance and sale of the Company’s 10%
Promissory Notes due March 15, 2007 in the aggregate principal amount of
$400,000, 400,000 Common Stock Purchase warrants and 160,000 shares of the
company’s Common Stock. In connection with this transaction, the two investors
provided the Company with $300,000 and exchanged $100,000 in Notes that were
previously issued by the Company to the investors.
In
September 2006, the Company entered into a Securities Purchase Agreement with
two investors relating to the issuance and sale of the Company’s 10% Promissory
Notes due March 30, 2007 in the aggregate principal amount of $55,000, 55,000
Warrants and 22,000 shares of the Company’s Common Stock.
On
December 28, 2006, the Company entered into a Securities Purchase Agreement
with
three investors relating to the issuance and sale in a private placement of
units consisting of 8% Senior Convertible Debentures in the principal amount
of
$1,500,000, 1,500,000 Series A Common Stock Purchase Warrants and 750,000 Series
B common Stock Purchase Warrants. The closing occurred on January 5,
2007.
Pursuant
to the Selling Agent Letter Agreement between the Company and First Montauk
Securities Corporation (“Selling Agent”), the Selling Agent was paid a cash fee
of $150,000(10% of the aggregate purchase price of the units sold to the
subscribers). The Company also issued the Selling Agent a warrant to purchase
150,000 shares of its common stock on the same terms as the A
Warrants.
As
part
of the private placement, the Company entered into a registration rights
agreement with each subscriber who purchased units in the private placement.
Under the registration rights agreement, the Company is obligated to file a
registration statement on Form SB-2 relating to the resale by the holders of
the
common stock underlying the debentures, warrants and Selling Agent
warrant.
As
a
condition to closing, the Company obtained consents and waivers from the
investors of its private placement of $1,600,000 principal amount of Convertible
Notes (“Notes”) issued on June 29, 2006, pursuant to which each of the prior
investors agreed to waive any and all existing defaults relating to the Notes
and agreed to forebear from exercising any rights accruing upon default until
March 31, 2007. In connection therewith, the Company issued to the investors
Convertible Notes (“Forbearance Notes”) in the aggregate principal amount of
$387,437.39, representing liquidated damages due under the Notes. The
Forbearance Notes are convertible into the Company’s common stock at $1.00 per
share.
Our
corporate address is 500 North Broadway, Suite 204, Jericho, New York 11753, our
telephone number is (516) 937-2828 and our facsimile number is (516)
937-2880.
Operations
The
Company, through its wholly owned subsidiaries, designs, develops, engineers
and
markets biometrics-based products for the consumer home security, consumer
electronics, medical records and medical products markets. The Company’s
executive offices are located in Jericho, New York.
Originally
founded in 2001, bioMETRX is focused on developing simple-to-use,
cost-efficient, finger-activated, lifestyle products under the trade name
smartTOUCH™
. The
Company’s product line includes biometrically enabled residential locks, central
station alarm keypads, thermostats, garage/gate openers, medical crash carts
and
industrial medicine cabinets. Our products utilize finger recognition technology
designed to augment or replace conventional security methods such as keys,
keypads, and PIN numbers.
The
Company operates its business through three (3) wholly owned subsidiaries,
bioMETRX Technologies Inc., which conducts the product engineering and design,
smartTOUCH Consumer Products, Inc., the consumer-based marketing and sales
group
and smartTOUCH Medical, Inc. which is designing and will market medical industry
products.
The
home
security industry consists of garage door manufacturers, key and locks
manufacturers and central station alarm monitoring companies, representing
a $25
billion global market. bioMETRX develops market-specific products in this area
which are being sold through retailers, dealers and direct to consumers in
the
Unites States. The company’s first product, the Garage Door Opener, also known
as the MasterLock™ GDO powered by smartTOUCH, will be available through the Home
Depot this summer.
The
Company also developed a finger-activated thermostat (smartSTAT) that will
be
marketed to the general public as well as small box retailers, restaurant chains
and small business owners. The Company’s smartSTAT product will allow consumers
and small business owners the ability to prevent unwanted tampering of their
heating and cooling settings and hence control the temperature within their
homes or business establishments, as the case may be, without having to install
a cumbersome security box around the thermostat. The Company’s smartSTAT
thermostat allows homeowners and small business owner’s complete control and
security over their costly HVAC systems.
The
Company is also developing technology for the medical products market.
Currently, devices such as medical crash carts, rolling medicine drawers and
cabinets and medical tool supply bins are either accessible in a hallway of
a
hospital or require medical personnel to enter a 4-digit PIN code to unlock
these products. The Company is developing technology to secure these items
while
simplifying the procedure so that the proper medical personnel can access them
quickly when necessary.
bioMETRX,
to date, has not introduced its products and services commercially and is
considered an entry level market vendor of consumer-based biometric products.
bioMETRX has limited assets, significant liabilities and limited business
operations. To date, activities have been limited to organizational matters,
development of its products and services and capital raising.
Current
Market Outlook - Target Markets/Applications
There
is
a unique opportunity in the consumer electronics market for the incorporation
of
biometrics technology in multiple devices, requiring personal identification
or
key access. Two current examples are biometrically secured laptops (IBM-Lenovo
Thinkpad) and cell phones (Samsung SCH370). Prospective home/office security
and
electronics devices include the introduction of “biometric” access controls on
anything that presently requires a key, keypad or Personal Identification Number
(“PIN”). bioMETRX is the first company to offer biometric security and
electronics products for the home consumer market at any significant
level.
We
are
focused on developing simple to use, cost efficient, finger activated consumer
electronics products principally under the trade name “smartTOUCH™”.
Our
current and prospective consumer products include biometrically enabled and
secure residential garage/gate door openers/locks, central station alarm pads
and thermostats.
Product
Offerings
smartTOUCH™
products
allow a person to open a door, or set an alarm or thermostat simply by placing
a
finger upon a sensor chip, the size of a postage stamp. smartTOUCH™
products
are designed to simplify access, while substantially increasing the security
level of the systems used for such purposes. Our smartTOUCH™
products
use one-to-one biometrics matching authenticated systems embodied in its
products. The bioMETRX patent-pending system includes a hand held universal
programmer designed to control access to the administrative functions of each
smartTOUCH™
device.
All smartTOUCH™
products
are designed to work with this universal programmer, and permit up to fifteen
(15) authorized users to be enrolled. Our system allows two types of users,
an
access user who can only operate the smartTOUCH™
device,
and an administrative user who can operate and also add or delete other
users.
For
the Three-Month Period Ended March 31, 2007 and 2006
During
the quarter ended March 31, 2007, the Company had $0 revenues.
From
inception (February 1, 2001) through March 31, 2007, bioMetrx has not generated
any revenues. During the period from inception (February 1, 2001) through March
31, 2007, bioMetrx had net operating losses totaling $27,599,703. During the
three months ended March 31, 2007, net operating losses totaled $3,011,147.
From
inception through March 31, 2007, bioMetrx’ general and administrative expenses
totaled $25,654,392 or 92.9% % of total expenses, while for the three months
ended March 31, 2007 general and administrative expenses totaled $1,378,823
or
95.9% of total expenses. From inception through March 31, 2007, bioMetrx
stock-based compensation was $18,831,066 or 68.2 % of expenses, of which
$872,474 or 60.7% of total expenses was incurred during the three months ended
March 31, 2007. From inception through March 31, 2007, bioMetrx’ research and
development costs were $1,236,283, or 4.5% of total expenses, while research
and
development costs for the three months ended March 31, 2007 were $58,238 or
4.1%
of the total expenses.
For
the
three months ending March 31, 2007, interest expense was $1,575,803, as compared
to $6,544 for the three months ending March 31 2006.
From
Inception through December 31, 2006
From
inception (February 1, 2001) through December 31, 2006, bioMETRX has generated
no revenues. During the period from inception (February 1, 2001) through
December 31, 2006, bioMETRX had net losses totaling $24,588,556. From inception
through December 31, 2006, bioMETRX’s general and administrative expenses
totaled $25,167,846 or 92.9% of total expenses. From inception through December
31, 2006, bioMETRX incurred stock-based compensation of $19,169,334 or 70.6%
of
expenses, of which $7,573,191 or 55.7% of total expenses was incurred during
the
twelve months ended December 31, 2006. Research and development costs were
$1,178,045 or 4.3% of total expenses incurred in the period from inception
through December 31, 2006.
Results
of Operations for the years ended December 31, 2006 and
2005
For
Twelve Month period ended December 31, 2006 compared to December 31,
2005
During
the twelve months ended December 31, 2006, net losses totaled $10,837,218
compared to $12,173,969 for the same twelve month period ending December 31,
2005. For the twelve months ending December 31, 2006, bioMETRX’s general and
administrative expenses totaled $12,673,521, or 94.9% of total operating
expenses. During the same twelve month period in 2005, general and
administrative expenses totaled $11,074,632 or 91.0% of total operating
expenses. Salaries comprised $786,333, or 6.90% of total expenses for the
twelve month period ended December 31, 2006 as compared to $396,504, or 4.42%
for the nine months ended December 31, 2005. Included in the net loss for
2006 was a one-time gain of $2,600,000 related to the return to the Company
by a
former officer and director of 187,500 stock options valued at $2,362,500 and
62,500 shares of common stock valued at $237,500.
For
the
twelve months ending December 31, 2006, interest expense was $104,356, as
compared to $7,012 for the twelve months ending December 31 2005.
Research
and development expenses for the nine months ending December 31, 2006 was
$658,579, 5.00% of net loss as compared to $361,490, or 2.97% for the same
period in 2005.
Liquidity
and Capital Resources
As
of
March 31, 2007 bioMETRX had total assets of $2,133,980 and total current assets
of $1,137,322 At March 31, 2007 bioMETRX had total liabilities of $2,552,106
and
total current liabilities of $1,405,908. bioMETRX had negative working capital
at March 31, 2007 of $268,586 and an equity deficit of $418,126. Because of
this
deficit, the Company’s ability to continue to operate and its future remain in
question as a going concern unless additional capital is contributed or until
such time as it generates revenues and become cash flow positive.
Since
inception, bioMETRX has financed its activities solely from the private
sales of its securities and the incurrence of debt. In November 2001 bioMetrx
Technologies issued 275,000 shares of its common stock, valued at $275,000
($1.00 per share), for services rendered. In December 2002, bioMETRX sold 20,000
shares of its common stock for $5,000 ($2.50 per share).
In
2003,
bioMETRX sold 231,250 shares of its common stock for gross proceeds of $231,250
or $1.00 per share. During 2003, bioMETRX issued 75,000 shares of its common
stock, valued at $150,000 ($2.00 per share), for services rendered to it
pursuant to consulting agreements. During 2003, bioMETRX issued 129,500 shares
of its common stock, valued at $518,000 ($4.00 per share), as commission on
sales of its stock. Also in 2003 bioMETRX issued 378,000 shares of its common
stock, valued at $94,500 ($.25 per share), as commission on sales of its common
stock.
In
2004,
bioMETRX sold 27,000 shares of its common stock for aggregate gross proceeds
of
$27,000 ($1.00 per share). During that same year, bioMETRX sold 83,750 shares
of
its common stock for aggregate gross proceeds of $335,000 ($4.00 per share).
Also in 2004, bioMETRX issued 50,000 and 8,750 shares of its common stock valued
at $200,000 and $8,750, respectively, as commissions on sales of its common
stock.
In
July
2005, the Company sold 233,334 shares of its common stock and 46,667 warrants
for an aggregate purchase price of $700,000 or $3.00 per share without
allocating any part of the purchase price for the warrants.
On
October 28, 2005 the Company sold 562,500 shares and 562,500 warrants for an
aggregate purchase price of $450,000 or $.80 per share without allocating any
part of the purchase price for the warrants.
The
warrants entitle the holder to purchase shares of the Company’s common stock for
a period commencing on the date of issuance and expiring on December 15, 2005
at
an exercise price of $.80 per share.
From
December 2005 to February 2006, the Company sold an aggregate of 746,250 shares
to Kuhn for an aggregate purchase price of $597,000 or $.80 per share. As part
of this transaction, Kuhn exercised 562,500 warrants, which were issued to
him
on October 28, 2005 in connection with a previously reported financing. In
addition to the exercise of the warrants, Kuhn provided the Company with an
additional $147,000 and the Company agreed to issue him the shares at the same
purchase price ($.80 per share) as the warrants.
On
March
21, 2006, the Company received debt financing in the aggregate amount of
$100,000 from Jane Petri and Joseph Panico. The principal and interest of 12%
per annum was due on June 21, 2006. The note carried a default rate of 18%
per
annum. In addition, the Company issued 25,000 restricted shares of common stock
to Petri and Panico as debt issuance costs at a cost of $71,250. On June 21,
2006, Petri and Panico agreed to extend the maturity date of these notes to
September 21, 2006. In consideration, the Company issued 10,000 shares each
to
Panico and Petri.
The
Company entered into a Securities Purchase Agreement dated September 18, 2006,
with Jane Petri and Joseph Panico relating to the issuance and sale, in a
private placement exempt from the registration requirements of the Securities
Act of the Company’s 10% Promissory Notes due March 15, 2007 in the aggregate
principal amount of $400,000, 400,000 Common Stock Purchase Warrants and 160,000
Shares of the Company’s Common Stock. In connection with this transaction the
two investors provided the Company with $300,000 and exchanged $100,000 in
Notes, described above, that were previously issued by the Company to the
investors.
On
November 17, 2006, the Company received additional debt financing in the
aggregate amount of $300,000 from Jane Petri and Joseph Panico. This loan is
evidenced by a 10% Promissory Note due March 15, 2007. In consideration for
making this loan, the Company issued an aggregate of 300,000 shares of its
common stock and issued 99,000 warrants exercisable at $1.35 per share and
expiring on September 11, 2011. The aggregate principal amount of the debt
due
Panico and Petri as of March 31, 2007 was $700,000.
The
Company is in default of the loans. The default relates to the fact that the
Company has not repaid these loans despite their maturity. The Company entered
into an extension Agreement dated March 30, 2007 (“Extension Agreement”) whereby
the lenders agreed to extend the Notes to March 15, 2008. Such Extension
Agreement was entered into in contemplation of a proposed financing for the
Company in an amount of up to $1,000,000. The Extension Agreement provided
that
the financing had to be consummated by April 5, 2007 or the Extension Agreement
would be null and void. The Company failed to close this financing; accordingly,
the Extension Agreement is null and void. On May 8, 2007 the Company received
a
letter from the lenders’ counsel seeking evidence that the financing closed or,
alternatively, if we were unable to provide such evidence, the lenders would
pursue all remedies at law or in equity available to them pursuant to the Notes.
As of May 18, 2007, the Company has paid the Lenders $130,000, thereby reducing
the principal amount of the loans to $570,000.
On
June
29, 2006, the Company entered into a Securities Purchase Agreement dated as
of
June 29, 2006, with four investors relating to the issuance and sale, in a
private placement (“Private Placement”) exempt from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”),
of units (the “Units”) consisting of 8% Convertible Notes in the principal
amount of $950,000 (“Notes”), Series A Common Stock Purchase Warrants (“A
Warrants”) and Series B Common Stock Purchase Warrants (“B Warrants”). In
addition, the company entered into an Exchange Agreement with the two investors
who purchased $650,000 of the Preferred Stock Units, on dated April 28, 2006
whereby the Company agreed to issue the Units in exchange for the return and
cancellation of the previously issued Preferred Stock Units. Accordingly, at
closing the Company issued its 8% Convertible Notes in the aggregate principal
amount of $1,600,000, 1,600,000 A Warrants and 800,000 B Warrants to the
Investors. The Company also issued an aggregate of 128,000 shares of its common
stock to the investors representing one year’s of prepaid interest on the
Notes.
The
Notes
mature 24 months from the closing. The Notes are convertible at the option
of
the holder into the Company’s common stock at the rate of $1.00 per share. The
Notes are mandatorily convertible into the Company’s common stock if the closing
bid price of the Company’s common stock is above $2.50 per share for ten (10)
consecutive trading days and if the daily volume for the same period exceeds
100,000 shares per day. The Company may redeem the Notes for 125% of the
principal amount of the Note together with all accrued and unpaid interest
provided that (i) an event of default has not occurred, and (ii) an effective
registration statement covering the shares underlying the Note
exists.
Each
A
Warrant entitles the holder to purchase one share of the Company’s common stock
at an exercise price of $1.00 per share commencing on the date of issuance
and
expiring at the close of business on the fifth anniversary of the issuance
date.
Each B Warrant entitles the holder to purchase one share of the Company’s common
stock at an exercise price of $.10 per share commencing 181 days after issuance
and expiring at the close of business on the fifth anniversary of the initial
exercise date. Notwithstanding the foregoing if the Company provides the holder
of a B Warrant with validation and acknowledgement, in the form of bona fide
purchase order demonstrating that at least $1,000,000 of the Company’s products
have been ordered, other than its initial order from a national retailer in
the
amount of approximately 23,000 garage door opening units, within 181 days after
the date of the Securities Purchase Agreement, the B Warrants shall
automatically terminate. Both the A and B Warrants contain provisions that
protect the holder against dilution by adjustment of the exercise price in
certain events including, but not limited to, stock dividends, stock splits,
reclassifications, or mergers.
Pursuant
to the Selling Agent Letter Agreement between the Company and the Selling Agent,
the Selling Agent was paid a cash fee of $95,000 (10% of the aggregate purchase
price of the Units sold to the subscribers) in addition to the $75,000 it
received on April 28, 2006, inclusive of $10,000 in expenses. The Company also
issued the Selling Agent a warrant to purchase 160,000 shares of its common
stock on the same terms as the A Warrants. In addition, the Company paid $15,000
to the Selling Agent’s counsel and $32,500 to its counsel.
As
part
of the Private Placement, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with each subscriber who
purchased Units in the Private Placement. Under the Registration Rights
Agreement, the Company is obligated to file a registration statement (the
“Registration Statement”) on Form SB-2, relating to the resale by the holders of
the Common Stock underlying the Notes, Warrants and Selling Agent Warrant.
If
such Registration Statement was not filed by July 14, 2006, or does not become
effective within 90 days after closing, the Company has agreed to pay to the
investors 1.5% of the gross proceeds of the offering for each month in which
the
Company fails to comply with such requirements. The Company did not file the
Registration Statement by July 14, 2006 and therefore is accruing 1.5% ($24,000)
of the gross proceeds for each month the Company fails to file the Registration
Statement. For the period ended December 31, 2006 a total of $72,000 has been
accrued as finance costs to reflect these provisions.
Each
Warrant entitles the holder to purchase one share of the Company’s Common Stock
at an exercise price of $1.00 per share commencing on the date of issuance
and
expiring at the close of business on September 15, 2011.
The
Company entered into a Securities Purchase Agreement dated September 30, 2006,
with two investors relating to the issuance and sale, in a private placement
exempt from the registration requirements of the Securities Act of the Company’s
10% Promissory Notes due March 30, 2007 in the aggregate principal amount of
$55,000, 55,000 Common Stock Purchase Warrants and 22,000 Shares of the
Company’s Common Stock.
Each
Warrant entitles the holder to purchase one share of the Company’s Common Stock
at an exercise price of $1.00 per share commencing on the date of issuance
and
expiring at the close of business on September 15, 2011.
As
part
of the Private Placement, the Company agreed to register the 55,000 shares
of
Common Stock underlying the Warrants and the 22,000 shares of the Common Stock
issued as part of this Private Placement.
The
Company entered into a Securities Purchase Agreement dated as of December 28,
2006, with three investors relating to the issuance and sale, in a private
placement (“Private Placement”) exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”), of units (the
“Units”) consisting of Senior Convertible Debentures in the principal amount of
$1,500,000 (“Debentures”), 1,500,000 Series A Common Stock Purchase Warrants (“A
Warrants”) and 750,000 Series B Common Stock Purchase Warrants (“B Warrants”).
The closing occurred on January 5, 2007.
The
Debentures mature on June 29, 2008. The Debentures are convertible at the option
of the holder into the Company’s common stock at the rate of $1.00 per hare. The
Debentures are convertible at the option of the Company into the Company’s
common stock if the closing bid price of the Company’s common stock is above
$2.50 per share for ten (10) consecutive trading days and if the shares
underlying the Debentures are registered. The Company may redeem the Debentures
for 125% of the principal amount of the Debenture together with all accrued
and
unpaid interest provided that (i) an event of default has not occurred, (ii)
the
price of the Company’s common stock exceeds $1.50 and (ii) an effective
registration statement covering the shares underlying the Debentures
exists.
Each
A
Warrant entitles the holder to purchase one share of the Company’s common stock
at an exercise price of $1.00 per share commencing on the date of issuance
and
expiring at the close of business on the fifth anniversary of the issuance
date.
Each B Warrant entitles the holder to purchase one share of the Company’s common
stock at an exercise price of $.10 per share at any time after July 1, 2007
and
expiring at the close of business on the fifth anniversary of the initial
issuance date. Notwithstanding the foregoing if the Company provides the holder
of a B Warrant with validation and acknowledgement on or before June 30, 2007
that the Company has both received and booked revenues for its products totaling
$1,000,000, the B Warrants shall automatically terminate. Both the A and B
Warrants contain provisions that protect the holder against dilution by
adjustment of the exercise price in certain events including, but not limited
to, stock dividends, stock splits, reclassifications, or mergers.
Pursuant
to the Selling Agent Letter Agreement between the Company and First Montauk
Securities Corporation (“Selling Agent”), the Selling Agent was paid a cash fee
of $150,000 (10% of the aggregate purchase price of the Units sold to the
subscribers). The Company also issued the Selling Agent a warrant to purchase
150,000 shares of its common stock on the same terms as the A
Warrants.
As
part
of the Private Placement, the Company entered into a registration rights
agreement (the “Registration Rights Agreement”) with each subscriber who
purchased Units in the Private Placement. Under the Registration Rights
Agreement, the Company is obligated to file a registration statement (the
“Registration Statement”) on Form SB-2, relating to the resale by the holders of
the Common Stock underlying the Debentures, Warrants and Selling Agent
Warrant.
As
a
condition to closing, the Company obtained consents and waivers from the
investors of its private placement of $1,600,000 principal amount of Convertible
Notes (“Notes”) issued on June 29, 2006, pursuant to which each of the prior
investors agreed to waive any and all existing defaults relating to the Notes
and agreed to forebear from exercising any rights accruing upon default until
March 31, 2007. In connection therewith, the Company issued to the investors
Convertible Notes (“Forbearance Notes”) in the aggregate principal amount of
$387,437.39, representing liquidated damages due under the Notes. The
Forbearance Notes are convertible into the Company’s common stock at $1.00 per
share.
The
Company is in default under the terms of the registration rights agreements
entered into between the Company and the several investors who purchased an
aggregate of $3,100,000 of the Company’s Notes and Debentures described
elsewhere herein. The default relates to the Company’s failure to get the
Registration Statement registering the underlying securities issued in
connection with the aforementioned transactions on a timely basis. As of the
date of this report, none of the investors have asserted any claims or commenced
any legal actions related to the default.
On
January 17, 2007, the Company entered into several agreements with BLX Funding
LLC (“BLX”) whereby BLX will purchase the Company’s accounts receivable in
factoring transactions.
Pursuant
to the agreements, BLX will purchase accounts receivables from the Company
and
varying discounts from the face value of the individual accounts receivable
dependent upon the age of the receivable. The discounts range from 2.5% for
receivables 30 days or less to 15% for receivables that are older than 90 days.
BLX will advance to the Company 80% of the face amount of each of the accounts
receivable it elects to purchase.
In
addition to the factoring arrangement, the Company and BLX entered into a
Funding Agreement whereby BLX arranged to provide the Company with Letters
of
Credit necessary for the Company to acquire the goods required to fulfill
outstanding purchase orders. As of the date hereof, BLX has opened a Letter
of
Credit on behalf of the Company in the amount of $1,040,400 for the benefit
of
the Company’s third party manufacturer. Pursuant to the Funding Agreement, the
Company will pay BLX 2.5% of the Letter of Credit amount for the first 30 days,
thereafter the Company has agreed to pay BLX .84% of the Letter of Credit amount
for each additional 10 day period the Letter of Credit is outstanding beyond
the
initial 30 day period. In addition, the Company paid BLX prior to opening the
Letter of Credit an amount equal to .5% of the Letter of Credit amount to cover
costs incurred by BLX with the opening of the Letter of Credit.
As
a
condition precedent to the obligation of BLX entering into the various
agreements and arrangements with the Company, its CEO was required to provide
BLX a Performance Guaranty guarantying (a) the due and punctual performance
by
the Company of the representations contained in the agreements (b) the payment
(and not merely the collectibility) of any loss, liability or expense incurred
by BLX in the event any one or more of the representations is untrue in any
respect or fail to be performed and (c) the payment (and not merely the
collectibility) of any other obligation owed by the Company to BLX of any
nature. The Company has agreed to issue the CEO 50,000 shares of its common
stock as consideration for providing the Company his guarantee and the Company
has agreed to make additional financial accommodations to the CEO in the event
there is a demand or claim against Mr. Basile arising out of the personal
guarantee.
On
February 7, 2007, the Company deposited $200,000 into an escrow account with
its
counsel. The funds are to be utilized in connection with the manufacture of
the
Company’s garage door openers. As of June 6, 2007, approximately $195,000 has
been sent to the Company’s manufacturer and the balance remaining in that
account is approximately $5,000.
On
April
24, 2007 the Company’s CEO, Mark Basile, loaned the Company $130,000. The
proceeds were used to repay a portion of the Panico/Petri notes, described
elsewhere herein.
bioMETRX
is dependent on raising additional funding necessary to implement its business
plan. bioMETRX’ auditors have issued a “going concern” opinion on the financial
statement for the year ended December 31, 2006, indicating bioMETRX is in the
development stage of operations, has a working capital and net equity
deficiency. These factors raise substantial doubt in bioMETRX’ ability to
continue as a going concern. If bioMETRX is unable to raise the funds necessary
to complete the development of its products and fund its operations, it is
unlikely that bioMETRX will remain as a viable going concern.
Critical
Accounting Policies and Estimates:
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make significant estimates and judgments
that affect the reported amounts of assets, liabilities, revenues, expenses
and
related disclosure of contingent assets and liabilities. We evaluate our
estimates, including those related to contingencies, on an ongoing basis. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may
differ from these estimates under different assumptions or
conditions.
We
believe the following critical accounting policy, among others; involve the
more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
The
Company accounts for compensation costs associated with stock options and
warrants issued to non-employees using the fair-value based method prescribed
by
Financial Accounting Standard No. 123 - Accounting for Stock-Based Compensation.
The Company uses the Black-Scholes options-pricing model to determine the fair
value of these instruments as well as to determine the values of options granted
to certain lenders by the principal stockholder. The following estimates are
used for grants in 2005: Expected future volatility over the expected lives
of
these instruments is estimated to mirror historical experience, measured by
a
weighted average of closing share prices prior to each measurement date.
Expected lives are estimated based on management’s judgment of the time period
by which these instruments will be exercised.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 123R (“SFAS 123R) “Share Based Payment, “a revision of statement
No. 123, “Accounting for Stock Based Compensation.” This standard requires the
Company to measure the cost of employee services received in exchange for equity
awards based on grant date fair value of the awards. The Company adopted SFAS
123R effective January 1, 2006. The standard provides for a prospective
application. Under this method, the Company will begin recognizing compensation
cost for equity based compensation of or all new or modified grants after the
date of adoption.
When
used
in this Report on Form 10-QSB, the words “may,” “will,” “expect,” “anticipate,”
“continue,” “estimate,” “intend,” “plans”, and similar expressions are intended
to identify forward-looking statements within the meaning of Section 27A of
the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
regarding events, conditions and financial trends which may affect the Company’s
future plans of operations, business strategy, operating results and financial
position. Such statements are not guarantees of future performance and are
subject to risks and uncertainties and actual results may differ materially
from
those included within the forward-looking statements as a result of various
factors. Such factors include, among others: (i) the Company’s ability to obtain
additional sources of capital to fund continuing operations; in the event it
is
unable to timely generate revenues (ii) the Company’s ability to retain existing
or obtain additional licensees who will act as distributors of its products;
(iii) the Company’s ability to obtain additional patent protection for its
technology; and (iv) other economic, competitive and governmental factors
affecting the Company’s operations, market, products and services. Additional
factors are described in the Company’s other public reports and filings with the
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
made. The Company undertakes no obligation to publicly release the result of
any
revision of these forward-looking statements to reflect events or circumstances
after the date they are made or to reflect the occurrence of unanticipated
events.
Recent
Accounting Pronouncements
Statement
of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs
Associated with Exit or Disposal Activities”, SFAS No. 147, “Acquisitions of
Certain Financial Institutions - an Amendment of FASB Statements No. 72 and
144
and FASB Interpretation No. 9”, SFAS No. 148, “ Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement No.
123”, SFAS No. 149, “Amendment of Statement 33 on Derivative Instruments and
Hedging Activities”, and SFAS No. 150, “Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity”, were recently
issued. SFAS No. 146, 147, 148, 149 and 150 have no current applicability to
the
Company or their effect on the financial statements would not have been
significant.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement No. 123R (“SFAS 123R”) “Share Based Payment, “a revision of Statement
No. 123, “Accounting for Stock Based Compensation.” This standard requires the
Company to measure the cost of employee services received in exchange for equity
awards based on grant date fair value of the awards. The Company is required
to
adopt SFAS 123R effective January 1, 2006. The standard provides for a
prospective application. Under this method, the Company will begin recognizing
compensation cost for equity based compensation for all new or modified grants
after the date of adoption.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets,”
(“SFAS 153”). SFAS 153 amends Accounting Principles Board (“APB”) Opinion No.
29, Accounting for Non-monetary Transactions,” to require exchanges of
non-monetary assets are accounted for at fair value, rather than carryover
basis. Non-monetary exchanges that lack commercial substance are exempt from
this requirement.
SFAS
153
is effective for non-monetary exchanges entered into in fiscal years beginning
after June 15, 2005. The Company does not routinely enter into exchanges that
could be considered non-monetary; accordingly the Company does not expect
adoption of SFAS 153 to have a material impact on the Company’s financial
statements.
In
January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, (“FIN No. 46”), “Consolidation of Variable Interest
Entities” (VIEs), which is an interpretation of Accounting Research Bulletin
(ARB) No. 51, “Consolidated Financial Statement”. FIN 46, as revised by FIN 46R
in December 2003, addresses the application of ARB No. 51 to VIEs, and generally
would require assets, liabilities and result of activity of a VIE be
consolidated into the financial statements of the enterprise that is considered
the primary beneficiary. FIN 46R shall be applied to all VIEs by the end of
the
first reporting period ending after December 15, 2004. The Company has
determined that FIN 46R has no material impact on its financial
statements.
COMMITMENTS
We
do not
have any commitments that are required to be disclosed in tabular form as of
March 31, 2006 and as of March 31, 2007.
OFF
BALANCE SHEET ARRANGEMENTS
We
do not
have any off balance sheet arrangements.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
On
April
18, 2005, based upon the recommendation of and approval by our board of
directors, the “Company dismissed Marcum & Kliegman LLP (“M&K”) as its
independent auditor and engaged Wolinetz Lafazan & Co., P.C. to serve as its
independent auditor for the fiscal year ending December 31, 2005.
M&K’s
reports on the Company’s consolidated financial statements for each of the
fiscal years ended December 31, 2004 and 2003 did not contain an adverse opinion
or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. However, M&K’s reports each contained
an explanatory paragraph about the Company’s ability to continue as a going
concern.
During
the years ended December 31, 2004 and 2003 and through April 18, 2005, there
were no disagreements with M&K on any matter of accounting principle or
practice, financial statement disclosure or auditing scope or procedure which,
if not resolved to M&K’s satisfaction, would have caused them to make
references to the subject matter in connection with their reports of the
Company’s consolidated financial statements for such years.
In
addition, the Company believes there were no reportable events as defined in
Item 304(a) (1) (iv) (B) of Regulation S-B.
The
Company provided M&K with a copy of the foregoing statements and requested
that M&K provide it with a letter addressed to the Securities and Exchange
Commission stating whether it agrees with the foregoing statements. A copy
of
M&K’s letter, dated April 25, 2005, was filed as Exhibit 16.1 to Current
Report on Form 8-K filed with the SEC on April 25, 2005.
Name
|
|
Age
|
|
Position
|
|
Held
Position Since
|
Mark
Basile
|
|
47
|
|
Chief
Executive Officer and Chairman
|
|
2002
|
|
|
|
|
|
|
|
J.
Richard Iler
|
|
53
|
|
Chief
Financial Officer and Director
|
|
2006
|
|
|
|
|
|
|
|
Lorraine
Yarde
|
|
36
|
|
Chief
Operating Officer and Director
|
|
2005
|
Mark
R. Basile
is the
Company's founder, Chairman of the Board and CEO. Since founding the Company
in
2001, Mr. Basile has been responsible for its overall strategic direction,
capital transactions, business development, executive hires, and the management
of its overall operations. Mr. Basile has assembled a highly qualified team,
completed the introduction of the first products, and developed strong
relationships with prospective industry partners. In 1999, Mr. Basile founded
and became CEO of Sickbay Health Media, Inc., a publicly owned company. During
his tenure at Sickbay, Mr. Basile led several diverse initiatives and operations
including the repositioning of the company to reflect the internet marketplace
in which it competed directly with WebMD, the acquisition of publisher
Healthline Publications and expanded the company’s health information content
and distribution. Mr. Basile left Sickbay in April 2001. Mr. Basile is also
one
of the co-founding members of the eHI - e-Health
Initiative,
the
single largest not-for-profit trade organization that promotes awareness and
develops platforms for electronic health through interactivity of its
membership. Mr. Basile began his career as a private practice attorney in 1988.
Mr. Basile received a BS in Economics and BA in Political Science from Hofstra
University in 1985, and a Juris Doctorate from Touro Law School in 1988.
Lorraine
Yarde is
Chief
Operating Officer for bioMETRX Inc., and President of smartTOUCH Consumer
Products, Inc. Ms. Yarde is currently responsible for the day to day operations
of bioMETRX and the sales direction, focus and the complete concept to market
life cycle for new product development for smartTOUCH Consumer Products. Ms.
Yarde has over 15 years experience in Sales/Sales Management, Marketing and
Business Development, predominantly in the fields of software, engineering
and
computer consulting, holding various senior management positions with complete
operational accountability for a number of computer consulting organizations.
At
those entities, Ms. Yarde had been responsible for providing direction, driving
revenue, and securing and maintaining successful business relationships with
prestigious companies, such as Estee Lauder, Pfizer, Schering Plough and Henry
Schein. As an entrepreneur, Ms. Yarde owned and operated a successful family
run
Commercial Flooring organization, which at its peak, employed over 20 installers
and performed work for major construction firms such as Turner Construction.
Notable installation accounts included Home Depot, Circuit City and Toys r
Us.
J.
Richard Iler is
the
Chief Financial Officer of bioMETRX, Inc. From April 2003 to July 2006 Mr.
Iler
was the Chief Financial Officer and a member of the Board of Directors of
SiriCOMM, Inc., and a publicly traded company. From 2001 through 2003, Mr.
Iler
was managing director of a private equity fund responsible for financing
activities, management consulting and investor relations of the funds portfolio
companies and served as a management consultant to SiriCOMM, Inc. from June
2002
to the time of his appointment in April 2003. From 1998 through 2001 Mr. Iler
was Chief Financial Officer of United American eHealth Technologies, a publicly
traded company which he assisted in raising capital and preparation of
regulatory filings. Mr. Iler graduated from Grand Valley State University in
Allendale, Michigan, with a B.S. and attended South Texas College of Law in
Houston, Texas.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
table
below shows certain compensation information for services rendered in all
capacities for the fiscal years ended December 31, 2004, 2005 and 2006. Other
than as set forth herein, no executive officer’s salary and bonus exceeded
$100,000 in any of the applicable years. The following information includes
the
dollar value of base salaries, bonus awards, the number of stock options granted
and certain other compensation, if any, whether paid or deferred.
SUMMARY
COMPENSATION TABLE
|
|
Annual
Compensation
|
|
Long
Term Compensation
|
|
Name
and
Principal
Position
|
|
Fiscal
Year
End
|
|
Salary
($)
|
|
Bonus
($)
|
|
All
other and annual Compensation and LTIP Payouts ($)
|
|
Securities
under Options/
SARS
Granted (#)
|
|
Restricted
Shares or Restricted Share Units
(#)
|
|
Mark
Basile
|
|
|
2006
|
|
$
|
370,384
|
|
$
|
80,000
|
|
$
|
18,000
|
|
|
1,250,000
|
|
|
—
|
|
President,
CEO and
|
|
|
2005
|
|
$
|
360,000
|
|
|
—
|
|
|
—
|
|
|
187,500
|
|
|
—
|
|
Chairman
|
|
|
2004
|
|
$
|
360,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorraine
Yarde
|
|
|
2006
|
|
$
|
150,577
|
|
|
|
|
$
|
7,500
|
|
|
850,000
|
|
|
150,000
|
|
Chief
Operating Officer
|
|
|
2005
|
|
$
|
33,334
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
|
—
|
|
|
|
|
2004
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Richard Iler
|
|
|
2006
|
|
$
|
49,538
|
|
|
|
|
$
|
9,500
|
|
|
400,000
|
|
|
100,000
|
|
Chief
Financial Officer
|
|
|
2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2004
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employment
Contracts
We
have
full-time employment agreements with our three executive officers, Mark Basile,
J. Richard Iler and Lorraine Yarde.
Mr.
Basile’s employment agreement, originally entered into in December 2002, and
amended on February 6, 2006 has an initial term of five years from the date
of
the Amendment and a base salary of:
$360,000
for Calendar Year 2006
$500,000
for Calendar Year 2007
$560,000
for Calendar Year 2008
$620,000
for Calendar Year 2009
$700,000
for Calendar Year 2010
Upon
signing the Amendment, Mr. Basile also received options to purchase up to
1,250,000 shares of the Company’s common stock at the following
prices:
Number
of Shares
|
|
Exercise
Price
|
|
*250,000
|
|
$
|
1.25
|
|
250,000
|
|
$
|
2.00
|
|
250,000
|
|
$
|
3.00
|
|
250,000
|
|
$
|
4.00
|
|
250,000
|
|
$
|
5.00
|
|
(*These
options are included in the Company’s 2005 Equity Incentive Plan)
After
the
initial term, Mr. Basile’s agreement automatically renews for additional
one-year periods. Under the terms of this agreement, any accrued compensation
may be converted into shares of the Company’s common stock at $2.00 per share.
Bonuses, if any, are to be paid at the sole discretion of the Board of
Directors.
On
August
14, 2006, the Company entered into a three-year employment agreement with
Lorraine Yarde with a base annual salary of:
$150,000
through December 31, 2006
$175,000
for calendar year 2007
$200,000
for the remainder of the term of the agreement
Ms.
Yarde’s compensation will be automatically increased in the 2007 calendar year
to $200,000 upon the Company achieving $10,000,000 in revenue and $250,000
during the last year of the agreement upon the Company achieving $15,000,000
in
revenue. Ms. Yarde also receives a $750 per month car allowance.
Upon
signing the employment agreement, Ms. Yarde also received immediately vested
options to purchase up to 600,000 shares of the Company’s common stock at the
following prices:
|
|
Exercise
Price
|
|
200,000
|
|
$
|
1.00
|
|
200,000
|
|
$
|
1.25
|
|
200,000
|
|
$
|
1.50
|
|
On
August
4, 2006, the Company entered into a three-year employment agreement with J.
Richard Iler with a base salary of:
$180,000
for the first year of the agreement
$207,000
for the second year of the agreement
$238,050
for the third year of the agreement
Mr.
Iler
also receives $500 per month car allowance.
Upon
signing the employment agreement, Mr. Iler also received options to purchase
up
to 400,000 shares of the Company’s common stock at the following prices and
subject to the vesting schedule set forth below.
Number
of Options
|
|
Exercise
Price
|
|
Vesting
|
|
200,000
|
|
$
|
1.05
|
|
|
Immediately
|
|
100,000
|
|
$
|
1.10
|
|
|
1
year from date of agreement
|
|
100,000
|
|
$
|
1.00
|
|
|
2
years form date of agreement
|
|
Upon
signing Mr. Iler also received 100,000 shares of the Company’s common
stock.
Stock
Options
OPTIONS/SAR
GRANTS TABLE
Option/SAR
Grants in the Last Fiscal Year
Individual
Grants
Name
and
Principal
Position
|
|
Number
of Securities Underlying
Options/SARs
Granted (#)
|
|
%
of Total Options/SARs Granted to Employees in Fiscal
Year
|
|
Exercise
or Base Price ($/Sh)
|
|
Expiration
Date
|
|
Market
Price on Date of Grant ($/Sh)
|
|
Mark
Basile
|
|
|
1,250,000
|
|
|
50
|
%
|
$ |
3.50 |
|
|
01/31/2010
|
|
$
|
1.50
|
|
President,
CEO, Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorraine
Yarde
|
|
|
850,000
|
|
|
34
|
%
|
$ |
1.25 |
|
|
08/14/2011
|
|
$
|
1.25
|
|
Chief
Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Richard Iler
|
|
|
400,000
|
|
|
16
|
%
|
$ |
1.05 |
|
|
08/14/2011
|
|
$
|
1.05
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
April
24, 2007 the Company’s CEO, Mark Basile, loaned the Company $130,000. The
proceeds were used to pay a portion of the debt due Jane Petri and Joseph
Panico. In consideration for making the loan, the Company issued Mr. Basile
140,000 shares of its common stock and 140,000 common stock purchase warrants
exercisable at $1.00 per share.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of April 17, 2007, the number and percentage
of
shares of Common Stock of the Company, owned of record and beneficially, by
each
person known by the Company to own 5% or more of such stock, each director
of
the Company, and by all executive officers and directors of the Company, as
a
group:
Name
and Address
|
|
Number
of Shares
|
|
Percentage
|
|
Mark
Basile
|
|
|
3,432,199
|
(1)(2)
|
|
30.9
|
%
|
500
N. Broadway
|
|
|
|
|
|
|
|
Jericho,
NY 11753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J.
Richard Iler
|
|
|
198,000
|
|
|
2.0
|
%
|
500
N. Broadway
|
|
|
|
|
|
|
|
Jericho,
NY 11753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lorraine
Yarde
|
|
|
944,545
|
(3)
|
|
9.3
|
%
|
500
N. Broadway
|
|
|
|
|
|
|
|
Jericho,
NY 11753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Naples Trust (4)
|
|
|
1,130,600
|
|
|
11.6
|
%
|
736
Carlisle Road
|
|
|
|
|
|
|
|
Jericho,
NY 11753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Russell
Kuhn
|
|
|
1,184,094
|
(5)
|
|
12.1
|
%
|
8680
Greenback Lane
|
|
|
|
|
|
|
|
Orangevale,
CA 95662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BridgePointe
Master Fund Ltd.
|
|
|
2,000,000
|
(6)
|
|
17.0
|
%
|
c/o
Roswell Capital Partners, LLC
|
|
|
|
|
|
|
|
1125
Sanctuary Parkway, Suite 725
|
|
|
|
|
|
|
|
Alpharetta,
GA 30004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linden
Growth Partners Master Fund, LP
|
|
|
1,746,000
|
(7)
|
|
15.2
|
%
|
718
South State Street
|
|
|
|
|
|
|
|
Clarks
Summit, PA 18411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whalehaven
Capital Fund
|
|
|
1,410,878
|
(8)
|
|
12.7
|
%
|
3rd
Floor, 14 Par-La-Ville Road
|
|
|
|
|
|
|
|
P.O.
Box HM1027
|
|
|
|
|
|
|
|
Hamilton,
HMDX Bermuda
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpha
Capital Aktiengesellschaft
|
|
|
1,128,666
|
(9)
|
|
10.4
|
%
|
Pradafaut
7
|
|
|
|
|
|
|
|
Furstentums
1490
|
|
|
|
|
|
|
|
Vaduz
Liechtenstein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
and directors as a group (3
persons) (1)(2)(3)(4)
|
|
|
4,574,744
|
|
|
39.7
|
%
|
(1)
|
|
Includes
1,130,600 shares held by The Naples Trust. Mr. Basile’s mother-in-law is
the trustee for The Naples Trust and Mr. Basile’s wife is the
beneficiary.
|
(2)
|
|
Includes
1,375,000 shares of common stock issuable upon the exercise of stock
options to purchase a like number of
shares.
|
(3)
|
|
Includes
400,000 shares of common stock issuable upon the exercise of stock
options
to purchase a like number of shares.
|
(4)
|
|
Mr.
Basile’s mother-in-law is the trustee for The Naples Trust and Mr.
Basile’s wife is the beneficiary. Mr. Basile disclaims any beneficial
ownership to these shares.
|
(5)
|
|
Includes
86,238 shares of common stock issuable upon the exercise of stock
options
to purchase a like number of shares.
|
(6)
|
|
Includes
(i) 1,000,000 shares issuable upon conversion of the 8% Senior Convertible
Debenture, and (ii) stock underlying a warrant to purchase 1,000,000
shares of common stock at an exercise price of $1.00 per share. Does
not
include a warrant to purchase 500,000 shares of common stock at an
exercise price of $.10 per share which are not exercisable within
60 days
of the date hereof. These shares would not be deemed beneficially
owned
within the meaning of Sections 13(d) and 13(g) of the Exchange Act
before
their acquisition by BridgePointe Master Fund Ltd. Eric Swartz, who
hold
voting and dispositive power with respect to the securities held
by
BridgePointe Master Fund Ltd., disclaims beneficial ownership of
such
securities. The debenture and warrant contain language restricting
the
shareholder from owning in excess of 4.99% of the Company’s common stock
at any given time.
|
(7)
|
|
Includes
securities owned by Linden Growth Partners LP and includes (i) 300,000
shares issuable upon conversion of the 8% Convertible Note , (ii)
450,000
shares issuable upon conversion of the 8% Senior Convertible Debenture,
(iii) 72,500 shares issuable upon conversion of the Forbearance Note,
(iv)
stock underlying warrants to purchase 750,000 shares at an exercise
price
of $1.00 per share, and (v) stock underlying warrants to purchase
150,000
shares at an exercise price of $.10 per share. Does not include a
warrant
to purchase 225,000 shares of common stock at exercise price of $.10
per
share which are not exercisable within 60 days of the date hereof.
Paul
Coviello, who holds voting and dispositive power with respect to
the
securities held by Linden
Growth Partners Master Fund, LP, disclaims beneficial ownership of
such
securities.
The debenture and warrant contain language restricting the shareholder
from owning in excess of 4.99% of the Company’s common stock at any given
time.
|
(8)
|
|
Includes
(i) 500,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) 120,855 shares issuable upon conversion of the Forbearance Note,
(iii) stock underlying warrants to purchase 500,000 shares at an
exercise
price of $1.00 per share and (iv) stock underlying warrants to purchase
250,000 shares at an exercise price of $.10 per share. Evan Schemenauer,
who holds
voting and dispositive power with respect to the securities held
by
Whalehaven
Capital Fund, disclaims beneficial ownership of such securities.
The
debenture and warrant contain language restricting the shareholder
from
owning in excess of 4.99% of the Company’s common stock at any given
time.
|
(9)
|
|
Includes
(i) 400,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) 96,666 shares issuable upon conversion of the Forbearance Note,
(iii)
stock underlying warrants to purchase 400,000 shares at an exercise
price
of $1.00 per share and (iv) stock underlying warrants to purchase
200,000
shares at an exercise price of $.10 per share. Konrad Ackerman, who
holds
voting and dispositive power with respect to the securities held
by Alpha
Capital Aktiengesellschaft,
disclaims beneficial ownership of such securities. The
debenture and warrant contain language restricting the shareholder
from
owning in excess of 4.99% of the Company’s common stock at any given
time.
|
As
ownership of shares of the Common Stock by each of the Company’s directors and
executive officers is included within the foregoing table, and as the Company
currently employs no additional executive officers, no separate table has been
provided to identify Company stock ownership by management
personnel.
The
following description includes the material terms of our common stock. However,
it is a summary and is qualified in its entirety by the provisions of our
Certificate of Incorporation, with amendments, all of which have been filed
as
exhibits to our registration statement of which this prospectus is a part.
Our
authorized capital stock consists of 35,000,000 shares of stock. We are
authorized to issue two classes of stock that consist of 10,000,000 shares
of
preferred stock, par value $0.01 per share of which none are issued and
outstanding, and 25,000,000 shares of common stock, par value $0.001 per share.
As
of
June 4, 2007, we had 10,064,867 outstanding shares of common stock, $.001 par
value. We have reserved 9,143,493 shares of common stock for issuance pursuant
to outstanding options and warrants. Each issued and outstanding share is fully
paid and non-assessable. No pre-emptive rights exist with respect to any of
our
common stock. Holders of shares of our common stock are entitled to one vote
for
each share on all matters to be voted on by the stockholders. Holders of shares
of our common stock have no cumulative voting rights. Holders of shares of
our
common stock are entitled to share ratably in dividends, if any, as may be
declared, from time to time by our Board of Directors in its discretion, from
funds legally available for any such dividends. In the event of a liquidation,
dissolution or winding up of bioMETRX, the holders of shares of our common
stock
are entitled to their pro rata share of all assets remaining after payment
in
full of all liabilities.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
The
Delaware General Corporation Law and our Bylaws provide for indemnification
of
our directors for liabilities and expenses that they may incur in such
capacities. In general, our directors and officers are indemnified with respect
to actions taken in good faith and in a manner such person believed to be in
our
best interests, and with respect to any criminal action or proceedings, actions
that such person has no reasonable cause to believe were unlawful. Furthermore,
the personal liability of our directors is limited as provided in our
Certificate of Incorporation.
We
currently carry directors and officers insurance in the amount of $1,000,000,
but existing coverage may not be adequate to cover potential claims.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC,
such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The
selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our 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 shareholders may use any one or more of the
following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker/dealer
solicits purchasers;
|
|
·
|
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;
|
|
·
|
purchases
by a broker/dealer as principal and resale by the broker/dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the Rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the date of this prospectus;
|
|
·
|
broker/dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per share;
|
|
·
|
a
combination of any such methods of sale; and
|
|
·
|
any
other method permitted pursuant to applicable law.
|
The
selling shareholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker/dealers
engaged by the selling shareholders may arrange for other brokers/dealers to
participate in sales. Broker/dealers may receive commissions from the selling
shareholders (or, if any broker/dealer acts as agent for the purchaser of
shares, from the purchaser) in amounts to be negotiated. The selling
shareholders do not expect these commissions to exceed what is customary in
the
types of transactions involved.
The
selling shareholders may from time to time pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock from time to time under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list
of
selling shareholders to include the pledgee, transferee or other successors
in
interest as selling shareholders under this prospectus.
The
selling shareholders and any broker/dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. 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 under
the
Securities Act. The selling shareholders have informed us that they do not
have
any agreement or understanding, directly or indirectly, with any person to
distribute the common stock.
We
are
required to pay all fees and expenses incident to the registration of the
shares. We have agreed to indemnify the selling shareholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold under Rule 144 rather than under this prospectus. Each selling
stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the selling
stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on
which the shares may be resold by the selling stockholders without registration
and without regard to any volume limitations by reason of Rule 144(k) under
the
Securities Act or any other rule of similar effect or (ii) all of the
shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. Our obligation to keep
the
registration statement to which this prospectus relates effective is subject
to
specified, permitted exceptions. In these cases, we may suspend offers and
sales
of the securities pursuant to the prospectus to which this prospectus relates.
The resale shares will be sold only through registered or licensed brokers
or
dealers if required under applicable state securities laws. In addition, in
certain states, the resale shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied
with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to our common stock for a period of two business
days prior to the commencement of the distribution. In addition, the selling
stockholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including Regulation M, which may
limit the timing of purchases and sales of shares of our common stock by the
selling stockholders or any other person. We will make copies of this prospectus
available to the selling stockholders and have informed them of the need to
deliver a copy of this prospectus to each purchaser at or prior to the time
of
the sale.
First
Montauk Securities Corp, Inc. is a registered broker dealer and NASD member
firm. First Montauk Securities Corp served as placement agent in our recently
completed private placement offerings, and received, in addition to cash
commissions and reimbursement of certain expenses, warrants to purchase an
aggregate of 310,000 shares of our Common Stock with an exercise price of $1.00
per share.
The
160,000 warrants held by First Montauk Securities Corp expire on June 29, 2011
and 150,000 warrants expire on January 5, 2012. The 310,000 shares of common
stock issued or issuable upon conversion of placement agent warrants received
by
First Montauk Securities Corp are restricted from sale, transfer, assignment,
pledge or hypothecation or be the subject of any hedging, short sale,
derivative, put, or call transaction that would result in the effective economic
disposition of the securities by any person for a period of 180 days immediately
following the effective date of a Registration Statement except transfers of
the
warrants to officers or partners of First Montauk Securities Corp. as allowed
under NASD Rule 2710 (g)(1) and (2).
First
Montauk Securities Corp has indicated to us its willingness to act as selling
agent on behalf of certain of the selling shareholders named in the Prospectus
under "Selling Shareholders." that purchased our privately placed securities.
All shares sold, if any, on behalf of selling shareholders by First Montauk
Securities Corp would be in transactions executed by First Montauk Securities
Corp on an agency basis and commissions charged to its customers in connection
with each transaction shall not exceed a maximum of 4.5% of the gross proceeds.
First Montauk Securities Corp does not have an underwriting agreement with
us
and/or the selling shareholders and no selling shareholders are required to
execute transactions through First Montauk Securities Corp. Further, other
than
their existing brokerage relationship as customers with First Montauk Securities
Corp, no selling shareholder has any pre-arranged agreement, written or
otherwise, with First Montauk Securities Corp to sell their securities through
First Montauk Securities Corp.
NASD
Rule
2710 requires NASD members firms (unless an exemption applies) to satisfy
the
filing requirements of Rule 2710 in connection with the resale, on behalf
of
selling shareholders, of the securities on a principal or agency basis.
NASD Notice to Members 88-101 states that in the event a
selling shareholder intends to sell any of the shares registered for resale
in this Prospectus through a member of the NASD participating in a distribution
of our securities, such member is responsible for insuring that a timely
filing,
if required, is first made with the Corporate Finance Department of the NASD
and
disclosing to the NASD the following:
|
·
|
it
intends to take possession of the registered securities or to facilitate
the transfer of such certificates;
|
|
·
|
the
complete details of how the selling shareholders shares are and
will be
held, including location of the particular
accounts;
|
|
·
|
whether
the member firm or any direct or indirect affiliates thereof have
entered
into, will facilitate or otherwise participate in any type of payment
transaction with the selling shareholders, including details regarding
any
such transactions; and
|
|
·
|
in
the event any of the securities offered by the selling shareholders
are
sold, transferred, assigned or hypothecated by any selling shareholder
in
a transaction that directly or indirectly involves a member firm
of the
NASD or any affiliates thereof, that prior to or at the time of
said
transaction the member firm will timely file all relevant documents
with
respect to such transaction(s) with the Corporate Finance Department
of
the NASD for review.
|
The
NASD
has recently proposed rule changes to NASD Rule 2710 which may, if approved,
modify the requirements of its members to make filings under NASD Rule 2710.
Further, no NASD member firm may receive compensation in excess of that
allowable under NASD rules, including Rule 2710, in connection with the resale
of the securities by the selling shareholders, which total compensation may
not
exceed 8%.
We
have
advised the selling shareholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling shareholders and their affiliates. In addition,
we
will make copies of this Prospectus available to the selling shareholders
for
the purpose of satisfying the Prospectus delivery requirements of the Securities
Act.
This
prospectus covers the offer and sale by the selling shareholders of up to
800,000 shares of common stock issuable upon conversion of 8% Convertible
Notes
in the principal amount of $800,000 and 750,000 shares of common stock issuable
upon the conversion of 8% Senior Convertible Debentures in the principal
amount
of $750,000.
We
are
registering for resale shares issuable on conversion of Convertible Notes
and
Convertible Debentures issued by us in private placements. All such shares
issued or to be issued are and will be restricted securities as that term
is
defined in Rule 144 under the Securities Act, and will remain restricted
unless
and until such shares are sold pursuant to this prospectus or otherwise are
sold
in compliance with Rule 144.
In
the
purchase agreements, each of the selling shareholders represented that it
had
acquired the shares for investment purposes only and with no present intention
of distributing those shares, except in compliance with all applicable
securities law. In addition, each of the selling shareholders represented
that
each qualifies as an “accredited investor” as such term is defined in Rule 501
under the Securities Act.
The
table
below sets forth information concerning the resale of the shares of common
stock
by the selling shareholders. We will not receive any proceeds from the resale
of
the common stock by the selling shareholders. We will receive proceeds from
the
warrants, if exercised. The following table also sets forth the name of each
person who is offering the resale of shares of common stock by this prospectus,
the number of shares of common stock beneficially owned by each person, the
number of shares of common stock that may be sold in this offering and the
number of shares of common stock each person will own after the offering,
assuming they sell all of the shares offered.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Exchange Act, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any shares as to which the selling shareholder
has
sole or shared voting power or investment power and also any shares the selling
shareholder has the right to acquire within 60 days. Percentages are based
on a
total of 10,064,867 shares of common stock outstanding on June 1, 2007. Shares
of common stock subject to options and warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of June 1, 2007,
are
deemed outstanding for computing the percentage of the selling shareholder
holding such option or warrant but are not deemed outstanding for computing
the
percentage of any other selling shareholder.
|
|
|
|
Shares
Owned Prior
to
the Offering
|
|
Shares
Owned After
the
Offering
|
|
Name
|
|
No.
of Shares Offered
|
|
Number
(including
stock underlying
warrants)
|
|
Percentage
(%)
|
|
Number
|
|
Percentage(%)
|
|
Whalehaven
Capital Fund Limited
|
|
|
250,000
|
(1)
|
|
1,410,878
|
(10)
|
|
12.7
|
%
|
|
1,160,878
|
|
|
10.3
|
%
|
Nite
Capital LP
|
|
|
75,000
|
(2)
|
|
423,976
|
(11)
|
|
4.2
|
%
|
|
348,976
|
|
|
3.6
|
%
|
Lighthouse
Capital Insurance Company, Policy #03-046
|
|
|
62,500
|
(3)
|
|
352,708
|
(12)
|
|
3.5
|
%
|
|
290,208
|
|
|
2.8
|
%
|
Peter
Thomson
|
|
|
62,500
|
(4)
|
|
352,708
|
(13)
|
|
3.5
|
%
|
|
290,208
|
|
|
2.8
|
%
|
Alpha
Capital Aktiengesellschaft
|
|
|
200,000
|
(5)
|
|
1,128,666
|
(14)
|
|
10.4
|
%
|
|
928,666
|
|
|
8.4
|
%
|
Linden
Growth Partners LP
|
|
|
150,000
|
(6)
|
|
846,500
|
(15)
|
|
8.0
|
%
|
|
696,500
|
|
|
6.5
|
%
|
Linden
Growth Partners Master Fund L.P.
|
|
|
225,000
|
(7)
|
|
1,125,000
|
(16)
|
|
10.0
|
%
|
|
900,000
|
|
|
8.2
|
%
|
BridgePointe
Master Fund Ltd.
|
|
|
500,000
|
(8)
|
|
2,500,000
|
(17)
|
|
19.9
|
%
|
|
2,000,000
|
|
|
16.6
|
%
|
Osher
Capital Partners LLC
|
|
|
25,000
|
(9)
|
|
125,000
|
(18)
|
|
1.0
|
%
|
|
100,000
|
|
|
*
|
|
*
Less
than 1%
(1) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Note.
|
(2) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Note.
|
(3) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Note.
|
(4) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Note.
|
(5) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Note.
|
(6) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Note.
|
(7) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Debenture.
|
(8) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Debenture.
|
(9) |
These
shares represent a portion of the shares issuable upon conversion
of the
8% Convertible Debenture.
|
(10)
|
Includes
(i) 500,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) stock underlying a warrant to purchase 500,000 shares of common
stock
at an exercise price of $1.00 per share, (iii) shares underlying
a warrant
to purchase 250,000 shares of common stock at an exercise price of
$.10
per share, and (iv) 120,855 shares issuable upon conversion of the
Forbearance Note. Evan Schemenauer, who holds voting and dispositive
power
with respect to the securities held by Whalehaven Capital Fund Limited
disclaims beneficial ownership of such securities.
|
(11)
|
Includes
(i) 150,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) stock underlying a warrant to purchase 150,000 shares of common
stock
at an exercise price of $1.00 per share, (iii) shares underlying
a warrant
to purchase 75,000 shares of common stock at an exercise price of
$.10 per
share, and (iv) 36,999 shares issuable upon conversion of the Forbearance
Note. Keith Goodman, who holds voting and dispositive power with
respect
to the securities held by Nite Capital LP disclaims beneficial ownership
of such securities.
|
(12) |
Includes
(i) 125,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) stock underlying a warrant to purchase 125,000 shares of common
stock
at an exercise price of $1.00 per share, (iii) shares underlying
a warrant
to purchase 62,500 shares of common stock at an exercise price of
$.10 per
share, and (iv) 30,208 shares issuable upon conversion of the Forbearance
Note. Janet Sairsingh, who holds voting and dispositive power with
respect
to the securities held by Lighthouse Capital Insurance Company, Policy
#
03046, disclaims beneficial ownership of such
securities.
|
(13) |
Includes
(i) 125,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) stock underlying a warrant to purchase 125,000 shares of common
stock
at an exercise price of $1.00 per share, (iii) shares underlying
a warrant
to purchase 62,500 shares of common stock at an exercise price of
$.10 per
share, and (iv) 30,208 shares issuable upon conversion of the Forebearance
Note.
|
(14) |
Includes
(i) 400,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) stock underlying a warrant to purchase 400,000 shares of common
stock
at an exercise price of $1.00 per share, and (iii) shares underlying
a
warrant to purchase 200,000 shares of common stock at an exercise
price of
$.10 per share, and (iv) 96,666 shares issuable upon conversion of
the
Forbearance Note. Konrad Ackerman, who holds voting and dispositive
power
with respect to the securities held by Alpha Capital Aktiengesellschaft,
disclaims beneficial ownership of such
securities.
|
(15) |
Includes
(i) 300,000 shares issuable upon conversion of the 8% Convertible
Note,
(ii) stock underlying a warrant to purchase 300,000 shares of common
stock
at an exercise price of $1.00 per share, (iii) shares underlying
a warrant
to purchase 150,000 shares of common stock at an exercise price of
$.10
per share, and (iv) 72,500 shares issuable upon conversion of the
Forbearance Note. Paul Coviello, who holds voting and dispositive
power
with respect to the securities held by Linden Growth Partners L.P.,
disclaims beneficial ownership of such
securities.
|
(16)
|
Includes
(i) 450,000 shares issuable upon conversion of the 8% Convertible
Debenture, (ii) stock underlying a warrant to purchase 450,000 shares
of
common stock at an exercise price of $1.00 per share, and (iii) shares
underlying a warrant to purchase 225,000 shares of common stock at
an
exercise price of $.10 per share. Paul Coviello, who holds voting
and
dispositive power with respect to the securities held by Linden Growth
Partners Master Fund L.P., disclaims beneficial ownership of such
securities.
|
(17)
|
Includes
(i) 1,000,000 shares issuable upon conversion of the 8% Convertible
Debenture, (ii) stock underlying a warrant to purchase 1,000,000
shares of
common stock at an exercise price of $1.00 per share, and (iii) shares
underlying a warrant to purchase 500,000 shares of common stock at
an
exercise price of $.10 per share. Eric Swartz, who holds voting and
dispositive power with respect to the securities held by BridgePointe
Master Fund Ltd., disclaims beneficial ownership of such
securities.
|
(18)
|
Includes
(i) 50,000 shares issuable upon conversion of the 8% Convertible
Debenture, (ii) stock underlying a warrant to purchase 50,000 shares
of
common stock at an exercise price of $1.00 per share, and (iii) shares
underlying a warrant to purchase 25,000 shares of common stock at
an
exercise price of $.10 per share. Yisrael Kluger, who holds voting
and
dispositive power with respect to the securities held by Osher Capital
Partners LLC, disclaims beneficial ownership of such
securities.
|
Additional
Disclosures
The
total
value of the shares of the Company’s common stock underlying the $1,600,000 in
Convertible Notes issued on June 29, 2006 was $2,160,000 based on the last
sale
price of our common stock reported by the OTCBB of $1.35. The total value of
the
shares of the Company’s common stock underlying the $1,500,000 in Convertible
Debentures issued on January 5, 2007 was $4,575,000 based on the last sale
price
of our common stock reported by the OTCBB of $3.05.
Payments
Made in Connection with the Convertible Note Offering closed on June 29, 2006
and the Convertible Debenture Offering closed on January 5,
2007.
Selling
Stockholder
|
|
Invested
June 2006
|
|
Cash
Payments(1)
|
|
Penalties
Converted into Shares (5)
|
|
Series
A Warrants
|
|
Series
B Warrants
|
|
Pre-Paid
Interest Shares
|
|
Stock
Price on Issuance
|
|
Stock
Value
|
|
Value
of A Warrants (2)
|
|
Value
of B Warrants (3)
|
|
Pre-paid
Interest (4)
|
|
Total
Value
|
|
Whalehaven
Capital Fund Limited
|
|
$
|
500,000
|
|
$
|
50,000
|
|
|
|
|
|
500,000
|
|
|
250,000
|
|
|
40,023
|
|
$
|
1.35
|
|
$
|
675,000
|
|
$
|
175,000
|
|
$
|
312,500
|
|
$
|
54,031
|
|
$
|
1,216,531
|
|
Nite
Capital LP
|
|
|
150,000
|
|
|
15,000
|
|
|
|
|
|
150,000
|
|
|
75,000
|
|
|
11,977
|
|
$
|
1.35
|
|
|
202,500
|
|
|
52,500
|
|
|
93,750
|
|
|
16,169
|
|
|
364,919
|
|
Lighthouse
Capital Insurance Company, Policy #03-046
|
|
|
125,000
|
|
|
12,500
|
|
|
|
|
|
125,000
|
|
|
62,500
|
|
|
10,000
|
|
$
|
1.35
|
|
|
168,750
|
|
|
43,750
|
|
|
78,125
|
|
|
13,500
|
|
|
304,125
|
|
Peter
Thomson
|
|
|
125,000
|
|
|
12,500
|
|
|
|
|
|
125,000
|
|
|
62,500
|
|
|
10,000
|
|
$
|
1.35
|
|
|
168,750
|
|
|
43,750
|
|
|
78,125
|
|
|
13,500
|
|
|
304,125
|
|
Alpha
Capital Aktiengesellschaft
|
|
|
400,000
|
|
|
40,000
|
|
|
|
|
|
400,000
|
|
|
200,000
|
|
|
32,000
|
|
$
|
1.35
|
|
|
540,000
|
|
|
140,000
|
|
|
250,000
|
|
|
43,200
|
|
|
973,200
|
|
Linden
Growth Partners LP
|
|
|
300,000
|
|
|
30,000
|
|
|
|
|
|
300,000
|
|
|
150,000
|
|
|
24,000
|
|
$
|
1.35
|
|
|
405,000
|
|
|
105,000
|
|
|
187,500
|
|
|
32,400
|
|
|
729,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Montauk Securities Corp.& Designees
(below):
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
160,000
|
|
|
-
|
|
|
-
|
|
$
|
1.35
|
|
|
-
|
|
|
56,000
|
|
|
-
|
|
|
-
|
|
|
56,000
|
|
Ernest
Pellegrino
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor
K. Kuylak
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Max
Povolsky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ed
Pitlake
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angela
Meteliska
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Casolaro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Coviello
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forbearance
Note Allocation (5)
|
|
|
|
|
|
|
|
|
387,435
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
2.90
|
|
|
1,123,562
|
|
|
|
|
|
|
|
|
|
|
|
1,123,562
|
|
|
|
$
|
1,600,000
|
|
$
|
160,000
|
|
|
387,435
|
|
|
1,760,000
|
|
|
800,000
|
|
|
128,000
|
|
|
|
|
$
|
3,283,562
|
|
$
|
616,000
|
|
$
|
1,000,000
|
|
$
|
172,800
|
|
$
|
5,072,362
|
|
(1)
Represents commissions paid by the Company to First Montauk Securities
Corp. in connection with this
transaction
|
(2)
Value of A Warrants determined by subtracting strike price of
warrant
($1.00) from price of stock at time of issuance
|
(3)
Value of A Warrants determined by subtracting strike price of
warrant
($0.10) from price of stock at time of issuance
|
(4)
Determined by multiplying the number of prepaid interest shares
issued by
the value of common stock at time of
issuance
|
(5)
As a condition of closng the December 28, 2006 financing, the
Company was
required to obtain the consent and waiver from each investor
in the June
29, 2006 transaction.
|
In
that regard, the Company issued forbearance notes in the aggregate principal
amount of $387,435 to the above listed investors in connection with them
providing the Company with
their consent and waiver. The principal of the note was allocated to
each
investor based on their percentage of the total investment. The notes
are
convertible into the Company's
common stock at $1.00 per share.
|
|
Invested
January 2007
|
|
Cash
Payments (1)
|
|
Series
A Warrants
|
|
Series
B Warrants
|
|
Stock
Price on Issuance
|
|
Stock
Value
|
|
Value
of A Warrants (2)
|
|
Value
of B Warrants (3)
|
|
Total
Value
|
|
Linden
Growth Partners Master Fund L.P.
|
|
$
|
450,000
|
|
$
|
45,000
|
|
|
450,000
|
|
|
225,000
|
|
$
|
3.05
|
|
|
1,372,500
|
|
|
922,500
|
|
|
663,750
|
|
$
|
2,958,750
|
|
BridgePointe
Master Fund Ltd.
|
|
|
1,000,000
|
|
|
100,000
|
|
|
1,000,000
|
|
|
500,000
|
|
$
|
3.05
|
|
|
3,050,000
|
|
|
2,050,000
|
|
|
1,475,000
|
|
|
6,575,000
|
|
Osher
Capital Partners LLC
|
|
|
50,000
|
|
|
5,000
|
|
|
50,000
|
|
|
25,000
|
|
$
|
3.05
|
|
|
152,500
|
|
|
102,500
|
|
|
73,750
|
|
|
328,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Montauk Securities Corp.& Designees
(below):
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
$
|
3.05
|
|
|
|
|
|
307,500
|
|
|
|
|
|
307,500
|
|
Ernest
Pellegrino
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor
K. Kuylak
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Max
Povolsky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ed
Pitlake
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Angela
Meteliska
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Casolaro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Coviello
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,500,000
|
|
$
|
150,000
|
|
|
1,650,000
|
|
|
750,000
|
|
|
|
|
$
|
4,575,000
|
|
$
|
3,382,500
|
|
$
|
2,212,500
|
|
$
|
10,170,000
|
|
(1)
Represents commissions paid by the Company to First Montauk
Securities
Corp. in connection with this
transaction
|
(2)
Value of A Warrants determined by subtracting strike price
of warrant
($1.00) from price of stock at time of
issuance
|
(3)
Value of A Warrants determined by subtracting strike price
of warrant
($0.10) from price of stock at time of
issuance
|
The
aggregate net proceeds received by the Company as a result of both offerings
was
$2,760,000 after deduction of a 10% ($310,000) commission paid to First Montauk
Securities Corporation and the payment of an aggregate of $30,000 in legal
fees
payable to the investors and placement agent’s legal counsel.
Potential
Profits on Conversion of the Convertible Notes and
Debentures:
Note
Holder
|
|
Closing
Dates
|
|
Shares
Underlying Convertible Note on Closing Date
|
|
Market
Price of Common Stock on Closing Date
|
|
Conversion
Price of Common Stock
|
|
Combined
Market Price of Shares Underlying Convertible
Note
|
|
Combined
Conversion Price of Shares Underlying Convertible
Note
|
|
Total
Possible Discount to Market Price
|
|
Whalehaven
Capital Fund Limited
|
|
|
06/29/06
|
|
|
660,878
|
|
$
|
1.35
|
|
$
|
1.00
|
|
$
|
892,185
|
|
$
|
660,878
|
|
$
|
231,307
|
|
Nite
Capital LP
|
|
|
06/29/06
|
|
|
198,976
|
|
$
|
1.35
|
|
$
|
1.00
|
|
|
268,618
|
|
|
198,976
|
|
|
69,642
|
|
Lighthouse
Capital Insurance, Policy #03-046
|
|
|
06/29/06
|
|
|
165,208
|
|
$
|
1.35
|
|
$
|
1.00
|
|
|
223,031
|
|
|
165,208
|
|
|
57,823
|
|
Peter
Thompson
|
|
|
06/29/06
|
|
|
165,208
|
|
$
|
1.35
|
|
$
|
1.00
|
|
|
223,031
|
|
|
165,208
|
|
|
57,823
|
|
Linden
Growth Partners, LP
|
|
|
06/29/06
|
|
|
396,500
|
|
$
|
1.35
|
|
$
|
1.00
|
|
|
535,275
|
|
|
396,500
|
|
|
138,775
|
|
Alpha
Capital
|
|
|
06/29/06
|
|
|
528,667
|
|
$
|
1.35
|
|
$
|
1.00
|
|
|
713,700
|
|
|
528,667
|
|
|
185,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linden
Growth Partners Master Fund LP
|
|
|
01/05/07
|
|
|
450,000
|
|
$
|
3.05
|
|
$
|
1.00
|
|
|
1,372,500
|
|
|
450,000
|
|
|
922,500
|
|
BridgePointe
Master Fund Ltd
|
|
|
01/05/07
|
|
|
1,000,000
|
|
$
|
3.05
|
|
$
|
1.00
|
|
|
3,050,000
|
|
|
1,000,000
|
|
|
2,050,000
|
|
Osher
Capital Fund Partners LLC
|
|
|
01/05/07
|
|
|
50,000
|
|
$
|
3.05
|
|
$
|
1.00
|
|
|
152,500
|
|
|
50,000
|
|
|
102,500
|
|