As filed with the Securities and Exchange Commission on July 5, 2006
An Exhibit List can be found on page II-4.
Registration No. 333-133952
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------
Amendment No. 1 to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
SAFETEK INTERNATIONAL, INC.
(Name of small business issuer in its charter)
DELAWARE 2834 75-2226896
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
23 AMINADAV ST.
TEL AVIV, ISRAEL 67898
(972) 3-561-3468
(Address and telephone number of principal
executive offices and principal place of business)
AMNON PRESLER, CHIEF EXECUTIVE
OFFICER
SAFETEK INTERNATIONAL, INC.
23 AMINADAV ST.
TEL AVIV, ISRAEL 67898
(972) 3-561-3468
(Name, address and telephone number of agent for service)
Copies to:
GREGORY SICHENZIA, ESQ.
YOEL GOLDFEDER, ESQ.
SICHENZIA ROSS FRIEDMAN FERENCE LLP
1065 AVENUE OF THE AMERICAS, 21ST FLR.
NEW YORK, NEW YORK 10018
(212) 930-9700
(212) 930-9725 (FAX)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box._________
2
CALCULATION OF REGISTRATION FEE
- ------------------------------- -------------------- ---------------- ------------------ --------------------
TITLE OF EACH CLASS OF NUMBER OF SHARES PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED MAXIMUM MAXIMUM REGISTRATION FEE
(1) OFFERING AGGREGATE
PER PRICE OFFERING PRICE
SHARE
- ------------------------------- -------------------- ---------------- ------------------ --------------------
Common stock, $0.0001 par 85,714,286 (2) $0.1325(3) $11,357,142.90 $1,215.21
value issuable upon
conversion of Callable
Secured Convertible Notes
- ------------------------------- -------------------- ---------------- ------------------ --------------------
Common Stock, $0.0001 par 2,000,000 (4) $0.30 $600,000.00 $64.20
value issuable upon exercise
of Warrants
- ------------------------------- -------------------- ---------------- ------------------ --------------------
Total 87,714,286 $11,957,142.90 $1,279.41(5)
- ------------------------------- -------------------- ---------------- ------------------ --------------------
(1) Includes shares of our common stock, par value $0.0001 per share, which may
be offered pursuant to this registration statement, which shares are issuable
upon conversion of callable secured convertible notes and the exercise of
warrants held by the selling stockholders. In addition to the shares set forth
in the table, the amount to be registered includes an indeterminate number of
shares issuable upon conversion of the callable secured convertible notes and
exercise of the warrants, as such number may be adjusted as a result of stock
splits, stock dividends and similar transactions in accordance with Rule 416.
The number of shares of common stock registered hereunder represents a good
faith estimate by us of the number of shares of common stock issuable upon
conversion of the callable secured convertible notes and upon exercise of the
warrants. For purposes of estimating the number of shares of common stock to be
included in this registration statement, we calculated a good faith estimate of
the number of shares of our common stock that we believe will be issuable upon
conversion of the callable secured convertible notes and upon exercise of the
warrants to account for market fluctuations, and antidilution and price
protection adjustments, respectively. Should the conversion ratio result in our
having insufficient shares, we will not rely upon Rule 416, but will file a new
registration statement to cover the resale of such additional shares should that
become necessary. In addition, should a decrease in the exercise price as a
result of an issuance or sale of shares below the then current market price
result in our having insufficient shares, we will not rely upon Rule 416, but
will file a new registration statement to cover the resale of such additional
shares should that become necessary.
(2) Includes a good faith estimate of the shares underlying the callable secured
convertible notes to account for market fluctuations.
(3) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, using the average
of the high and low price as reported on the Over-The-Counter Bulletin Board on
May 1, 2006, which was $0.1325 per share.
(4) Includes a good faith estimate of the shares underlying warrants exercisable
at $.30 per share to account for antidilution and price protection adjustments.
(5) $574.79 previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
3
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 5, 2006
SAFETEK INTERNATIONAL, INC.
87,714,286 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up
to 87,714,286 shares of our common stock, including up to 85,714,286 shares of
common stock underlying secured convertible notes in a principal amount of
$750,000 and up to 2,000,000 issuable upon the exercise of common stock purchase
warrants. The secured convertible notes are convertible into our common stock at
the lower of $0.15 or 50% of the average of the three lowest intraday trading
prices for the common stock on a principal market for the 20 trading days before
but not including the conversion date. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions. The selling
stockholders may be deemed underwriters of the shares of common stock, which
they are offering. We will pay the expenses of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under
the symbol "SFIN.ob". The last reported sales price per share of our common
stock as reported by the Over-The-Counter Bulletin Board on July 3, 2006, was
$0.045.
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
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 _________, 2006.
The information in this Prospectus is not complete and may be changed.
This Prospectus is included in the Registration Statement that was filed by
Safetek International, Inc. with the Securities and Exchange Commission. The
selling stockholders may not sell these securities until the registration
statement becomes effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the sale is not permitted.
4
TABLE OF CONTENTS
PROSPECTUS SUMMARY ................................................. 6
RISK FACTORS ....................................................... 9
USE OF PROCEEDS .................................................... 16
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ........... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS .................................... 18
BUSINESS ........................................................... 27
EMPLOYEES .......................................................... 29
DESCRIPTION OF PROPERTIES .......................................... 29
LEGAL PROCEEDINGS .................................................. 29
MANAGEMENT ......................................................... 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................... 33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..... 34
DESCRIPTION OF SECURITIES TO BE REGISTERED ......................... 35
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES ..................... 35
PLAN OF DISTRIBUTION ............................................... 35
PENNY STOCK ........................................................ 37
SELLING STOCKHOLDERS ............................................... 38
LEGAL MATTERS ...................................................... 41
EXPERTS ............................................................ 41
AVAILABLE INFORMATION .............................................. 41
INDEX TO FINANCIAL STATEMENTS ...................................... 42
5
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements.
SAFETEK INTERNATIONAL, INC.
Since April 15, 2005, we have been focusing on screening new
technologies in the life sciences and health care fields. On May 17, 2005, we
established a wholly owned subsidiary, organized under the laws of the State of
Israel, called Oriens Life Sciences Ltd., to serve as a platform for us to
screen the Israeli life sciences and health care industry and identify, analyze,
and acquire or invest in technologies in this field.
We are in the process of organizing in order to commence our business
activities, particularly to invest our efforts in executing the term sheets that
were signed. Also, we are raising funds in order to ensure that we have the
capabilities to exercise the potential term sheets/agreements and utilizing the
funds we will raise.
For the year ended December 31, 2005 we generated $0 revenue and a net
loss of $2,928,819 and for the quarter ended March 31, 2006 we generated $0
revenue and a net loss of $884,734. As a result of recurring net operating
losses, Sherb & Co., LLP, in their report dated April 14, 2006, has expressed
substantial doubt about our ability to continue as going concern.
Our principal offices are located at 23 Aminadav St., Tel Aviv, Israel
67898, and our telephone number is (972) 3-561-3468. We are a Delaware
corporation.
The Offering
Common stock offered by selling stockholders..........Up to 87,714,286 shares,
including the following:
- up to 85,714,286 shares
of common stock
underlying secured
convertible notes in
the principal amount of
$750,000 (includes a
good faith estimate of
the shares underlying
the callable secured
convertible notes to
account for market
fluctuations
antidilution and price
protection adjustments,
respectively), and
- up to 2,000,000 shares
of common stock
issuable upon the
exercise of common
stock purchase warrants
at an exercise price of
$0.30 per share
(includes a good faith
estimate of the shares
underlying warrants to
account for
antidilution and price
protection
adjustments).
This number represents
approximately 145.9% of
our current outstanding
stock.
Common stock to be outstanding after the offering..... Up to 147,853,209 shares.
6
Use of proceeds......................................We will not receive any
proceeds from the sale of
the common stock. However,
we will receive the sale
price of any common stock
we sell to the selling
stockholder upon exercise
of the warrants. We expect
to use the proceeds
received from the exercise
of the warrants, if any,
for general working
capital purposes. However,
the selling stockholders
will be entitled to
exercise the warrants on a
cashless basis if the
shares of common stock
underlying the warrants
are not then registered
pursuant to an effective
registration statement. In
the event that the selling
stockholder exercises the
warrants on a cashless
basis, then we will not
receive any proceeds. In
addition, we have received
gross proceeds of $500,000
from the sale of the
secured convertible notes
and the investors are
obligated to provide us
with an additional
$250,000 within five days
of this registration
statement being declared
effective. The proceeds
received from the sale of
the callable secured
convertible notes will be
used for business
development purposes,
working capital needs,
payment of consulting and
legal fees and borrowing
repayment.
Over-The-Counter Bulletin Board Symbol................ SFIN.ob
The above information regarding common stock to be outstanding after
the offering is based on 60,138,923 shares of common stock outstanding as of
June 22, 2006 and assumes the subsequent conversion of our issued secured
convertible notes and exercise of warrants by our selling stockholders.
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with New Millennium Capital Partners II, LLC, AJW
Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on November
18, 2005 for the sale of (i) $750,000 in callable secured convertible notes and
(ii) stock purchase warrants to buy 1,000,000 shares of our common stock. This
prospectus relates to the resale of the common stock underlying these callable
secured convertible notes and warrants. We sold to the investors $250,000 in
callable secured convertible notes on November 18, 2005, an additional $250,000
in callable secured convertible notes on May 16, 2006 and an additional $250,000
in callable secured convertible notes is expected to be sold following this
registration statement being declared effective.
The callable secured convertible notes bear interest at 8%, mature
three years from the date of issuance, and are convertible into our common
stock, at the investors' option, at the lower of (i) $0.15 or (ii) 50% of the
average of the three lowest intraday trading prices for our common stock during
the 20 trading days before, but not including, the conversion date. As of June
22, 2006, the average of the three lowest intraday trading prices for our common
stock during the preceding 20 trading days as reported on the Over-The-Counter
Bulletin Board was $0.035 and, therefore, the conversion price for the secured
convertible notes was $0.0175. Based on this conversion price, the $750,000
callable secured convertible notes, excluding interest, were convertible into
42,857,143 shares of our common stock.
We may prepay the callable secured convertible notes in the event that
no event of default exists, there are a sufficient number of shares available
for conversion of the callable secured convertible notes and the market price is
at or below $.15 per share. The full principal amount of the callable secured
convertible notes is due upon default under the terms of callable secured
convertible notes. In addition, we have granted the investors a security
interest in substantially all of our assets and intellectual property as well as
registration rights.
7
The warrants are exercisable until five years from the date of issuance
at a purchase price of $0.30 per share. In addition, the exercise price of the
warrants is adjusted in the event we issue common stock at a price below market.
The investors have contractually agreed to restrict their ability to
convert the callable secured convertible notes and exercise the warrants and
receive shares of our common stock such that the number of shares of our common
stock held by them and their affiliates after such conversion or exercise does
not exceed 4.99% of our then issued and outstanding shares of our common stock.
See the "Selling Stockholders" and "Risk Factors" sections for a
complete description of the callable secured convertible notes.
8
RISK FACTORS
This investment has 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 actually occur,
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 RELATING TO OUR BUSINESS:
AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
In their report dated April 14, 2006, Sherb & Co., LLP stated that our
financial statements for the year ended December 31, 2005 were prepared assuming
that we would continue as a going concern. Our ability to continue as a going
concern is an issue raised as a result of our recurring net operating losses
from operations and our working capital deficiency.
WE ARE IN THE DEVELOPMENTAL STAGE AND HAVE NOT YET ACQUIRED ANY RIGHTS TO
DEVELOP OR COMMERCIALIZE ANY TECHNOLOGIES.
We are just commencing our research and development activity. We are in
a middle of due diligence processes and negotiations on signing definitive
agreements to purchase or license technologies. There is a high risk level that
the due diligence process will fail, or the negotiations on signing definitive
agreement will not succeed.
AT PRESENT OUR SUCCESS DEPENDS ON OUR ABILITY TO PURCHASE TECHNOLOGIES.
Many companies have more access to technologies than we do and the
ability to offer better compensation and scientific support, to form
collaborations with large, established companies to support research,
development and commercialization research and development products than us.
Accordingly, there is no assurance that we will be successful in signing
definitive agreements to purchase technologies or to exercise the agreements it
already signed.
WE HAVE NO OPERATING HISTORY.
Our future operations will be subject to all the risks inherent in the
establishment of a developing enterprise and the uncertainties arising from the
absence of operating history and we are considered in a development stage. No
assurance can be given that we may be able to operate on a profitable basis.
THERE IS NO ASSURANCE THAT OUR FUTURE RESEARCH AND DEVELOPMENT PLANS WILL
COMMENCE AND THERE IS NO ASSURANCE THAT OUR FUTURE RESEARCH AND DEVELOPMENT
PLANS WILL SUCCEED.
We have not yet started our research and developments plans. There is
no assurance that we will succeed in establishing our research and development
plans and conducting its business operation. Our future operations will be
subject to obtaining sufficient science support, qualified and experienced
employees and success in the efficient organizing of our operations. The success
in operating our future research and development plans is substantially
uncertain. All the technologies that we are considering to purchase or license
are in very early stages of development. There are a lot of potential risks and
uncertainties regarding proving their scientific and technological capabilities,
as well as commercializing the technologies.
COMPETITION IN ALL THE FIELDS THAT WE SIGNED TERM SHEETS OR AGREEMENTS ARE
INTENSE AND DEVELOPMENTS BY OTHER COMPANIES COULD RENDER OUR PRODUCTS OR
TECHNOLOGIES NON-COMPETITIVE.
The biotechnology industry is highly competitive and subject to
significant and rapid technological change. Developments by other companies
within the industry could render our future research and development or
technologies non-competitive. Some of the research and development by these
companies may be more effective or have an entirely different approach or means
of accomplishing the desired effect than our future development. We expect
technological competition from biotechnology companies and academic research
institutions to increase over time.
9
Many competitors and potential competitors have substantially greater
product development capabilities and financial, scientific, marketing and human
resources than we do. Our competitors may succeed in developing products earlier
and obtaining regulatory approvals and patent protection for such products more
rapidly than we can.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS AND OPERATE
WITHOUT INFRINGING UPON THE PROPRIETARY RIGHTS OF OTHERS.
We plan to protect our future technology by patent rights. Patent
rights, in the biotechnology area, are generally uncertain and involve complex
legal and factual questions. We do not know whether any of our future patent
applications will result in the issuance of any patents. Even issued patents may
be challenged, invalidated or circumvented. Patents may not provide a
competitive advantage or afford protection against competitors with similar
technology. Competitors or potential competitors may have filed applications
for, or may have received patents and may obtain additional and proprietary
rights to compounds or processes used by or competitive with ours. In addition,
laws of certain foreign countries do not protect intellectual property rights to
the same extent as do the laws of the United States or Canada.
Patent litigation is becoming widespread in the biotechnology industry
and we cannot predict how this will affect our research and development. If
challenged, our patents may not be held valid. We could also become involved in
interference proceedings in connection with one or more of our future patents or
patent applications to determine priority of invention. If we become involved in
any litigation, interference or other administrative proceedings, we will likely
incur substantial expenses and the efforts of our technical and management
personnel will be significantly diverted. In addition, an adverse determination
could subject us to significant liabilities or require us to seek licenses that
may not be available on favorable terms, if at all. We may be restricted or
prevented from manufacturing and selling our products in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN COLLABORATIVE PARTNERS
OVER WHOM WE HAVE LIMITED CONTROL.
Our business will likely depend on our ability to enter into
arrangements with corporate and academic collaborators relating to the
developing, testing, manufacturing, marketing and commercialization of our
products. Consequently, our success depends upon our potential partners' ability
to perform those tasks. There can be no assurance that we will be able to
establish necessary arrangements on favorable terms, or at all, or that
collaborative agreements will be successful.
WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY.
Our future success will be highly dependent upon our ability to
successfully manage the expansion of our operations. Our ability to manage and
support our growth effectively will be substantially dependent on our ability
to: implement adequate improvements to financial and management controls,
reporting and order entry systems, and other procedures and hire sufficient
numbers of financial, accounting, administrative, and management personnel. Our
expansion and the resulting growth in the number of our employees would result
in increased responsibility for both existing and new management personnel. We
are in the process of establishing and upgrading our financial accounting and
procedures. We may not be able to identify, attract, and retain experienced
accounting and financial personnel. Our future operating results will depend on
the ability of our management and other key employees to implement and improve
our systems for operations, financial control, and information management, and
to recruit, train, and manage its employee base. We may not be able to achieve
or manage any such growth successfully or to implement and maintain adequate
financial and management controls and procedures, and any inability to do so
would have a material adverse effect on its business, results of operations, and
financial condition.
10
OUR COLLABORATIONS WITH SCIENTIFIC ADVISORS AND ACADEMIC INSTITUTIONS MAY BE
SUBJECT TO RESTRICTION AND CHANGE.
We plan on working with scientific advisors and academic collaborators
who will assist us in our ongoing research and development efforts. These
scientists will not be our employees and may have other commitments that limit
their availability to us. If a conflict of interest arises between their work
for us and their work for another entity, we may lose their services. In
addition, although we plan on our scientific advisors and academic collaborators
signing non-disclosure agreements, it is possible that valuable proprietary
knowledge may become publicly known which would compromise our competitive
advantage.
OUR FUTURE OPERATIONS ARE CONTINGENT ON OUR ABILITY TO RECRUIT EMPLOYEES AND WE
ARE SUBJECT TO INTENSE COMPETITION FOR SKILLED PERSONNEL AND THE LOSS OF KEY
PERSONNEL OR THE INABILITY TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL COULD
IMPAIR OUR ABILITY TO CONDUCT OUR OPERATIONS.
In the event we are able to obtain necessary funding, we expect to
experience growth in the number of employees and the scope of our operations. In
particular, we may hire additional scientists, project managers and
administrative personnel. Additionally, acquisitions could result in an increase
in employee headcount and business activity. Such activities could result in
increased responsibilities for management. We believe that our ability to
increase capability and to attract, train, and retain qualified technical, and
management personnel, will be a critical factor to our future success. We are
highly dependent on the principal members of our management and scientific
staff, especially Amnon Presler, our Chief Executive Officer. The loss of his
services might adversely impact the achievement of our objectives and the
continuation of existing collaborations.
OUR OFFICES ARE LOCATED IN ISRAEL, WHICH HAS HISTORICALLY EXPERIENCED MILITARY
AND POLITICAL UNREST.
Our offices are located in Israel. As a result, we are directly
influenced by the political, economic and military conditions affecting Israel.
Any major hostilities involving Israel, or the interruption or curtailment of
trade between Israel and its present trading partners, could significantly harm
our business, operating results and financial condition.
RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:
WE WILL BE REQUIRED TO SEEK ADDITIONAL MEANS OF FINANCING.
On November 18, 2005, we entered into a financing arrangement involving
the sale of an aggregate of $750,000 principal amount of callable secured
convertible notes. However, we currently have no means to generate revenues from
operations. Accordingly, we will still be required to obtain additional private
or public financing including debt or equity financing and there can be no
assurance that such financing will be available as needed, or, if available, on
terms favorable to us. Any additional equity financing may be dilutive to
stockholders and such additional equity securities may have rights, preferences
or privileges that are senior to those of our existing common stock.
Furthermore, debt financing, if available, will require payment of
interest and may involve restrictive covenants that could impose limitations on
our operating flexibility. Our failure to successfully obtain additional future
funding may jeopardize our ability to continue our business and operations.
If we raise additional funds by issuing equity securities, existing
stockholders may experience a dilution in their ownership. In addition, as a
condition to giving additional funds to us, future investors may demand, and may
be granted, rights superior to those of existing stockholders.
11
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CALLABLE SECURED CONVERTIBLE
NOTES AND WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE
SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of June 22, 2006, we had 60,138,923 shares of common stock issued
and outstanding and callable secured convertible notes outstanding or an
obligation to issue callable secured convertible notes that may be converted
into an estimated 42,857,143 shares of common stock at current market prices,
and outstanding warrants or an obligation to issue warrants to purchase
14,233,332 shares of common stock and an obligation to issue options to purchase
3,561,528 shares of common stock pursuant Employees/Consultants/Directors Stock
Compensation Plan. In addition, the number of shares of common stock issuable
upon conversion of the outstanding callable secured convertible notes may
increase if the market price of our stock declines. All of the shares, including
all of the shares issuable upon conversion of the notes and upon exercise of our
warrants, may be sold without restriction. The sale of these shares may
adversely affect the market price of our common stock.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CALLABLE SECURED
CONVERTIBLE NOTES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF
SHARES, WHICH WILL CAUSE DILUTION TO OUR EXISTING STOCKHOLDERS.
Our obligation to issue shares upon conversion of our callable secured
convertible notes is essentially limitless. The following is an example of the
amount of shares of our common stock that are issuable, upon conversion of the
callable secured convertible notes (excluding accrued interest), based on market
prices 25%, 50% and 75% below the current market price, as of June 22, 2006 of
$0.035.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 50% Issuable Stock
- ------ ----- ------ -------- -----
25% $0.0263 $0.0131 57,251,908 48.77%
50% $0.0175 $0.0088 85,227,272 58.63%
75% $0.0088 $0.0044 170,454,545 73.92%
As illustrated, the number of shares of common stock issuable upon
conversion of our secured convertible notes will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CALLABLE SECURED
CONVERTIBLE NOTES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON
STOCK, WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.
The callable secured convertible notes are convertible into shares of
our common stock at a 50% discount to the trading price of the common stock
prior to the conversion. The significant downward pressure on the price of the
common stock as the selling stockholder converts and sells material amounts of
common stock could encourage short sales by investors. This could place further
downward pressure on the price of the common stock. The selling stockholder
could sell common stock into the market in anticipation of covering the short
sale by converting their securities, which could cause the further downward
pressure on the stock price. In addition, not only the sale of shares issued
upon conversion or exercise of notes, warrants and options, but also the mere
perception that these sales could occur, may adversely affect the market price
of the common stock.
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CALLABLE SECURED CONVERTIBLE NOTES
AND EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL
DILUTION TO OUR EXISTING STOCKHOLDERS.
The issuance of shares upon conversion of the callable secured
convertible notes and exercise of warrants may result in substantial dilution to
the interests of other stockholders since the selling stockholders may
ultimately convert and sell the full amount issuable on conversion. Although the
selling stockholders may not convert their Callable Secured Convertible Notes
and/or exercise their warrants if such conversion or exercise would cause them
to own more than 4.99% of our outstanding common stock, this restriction does
not prevent the selling stockholders from converting and/or exercising some of
their holdings and then converting the rest of their holdings. In this way, the
selling stockholders could sell more than this limit while never holding more
than this limit. There is no upper limit on the number of shares that may be
issued which will have the effect of further diluting the proportionate equity
interest and voting power of holders of our common stock, including investors in
this offering.
IN THE EVENT THAT OUR STOCK PRICE DECLINES, THE SHARES OF COMMON STOCK ALLOCATED
FOR CONVERSION OF THE CALLABLE SECURED CONVERTIBLE NOTES AND REGISTERED PURSUANT
TO THIS PROSPECTUS MAY NOT BE ADEQUATE AND WE MAY BE REQUIRED TO FILE A
SUBSEQUENT REGISTRATION STATEMENT COVERING ADDITIONAL SHARES. IF THE SHARES WE
HAVE ALLOCATED AND ARE REGISTERING HEREWITH ARE NOT ADEQUATE AND WE ARE REQUIRED
TO FILE AN ADDITIONAL REGISTRATION STATEMENT, WE MAY INCUR SUBSTANTIAL COSTS IN
CONNECTION THEREWITH.
12
Based on our current market price and the potential decrease in our
market price as a result of the issuance of shares upon conversion of the
Callable Secured Convertible Notes, we have made a good faith estimate as to the
amount of shares of common stock that we are required to register and allocate
for conversion of the Callable Secured Convertible notes. As we do not currently
have the required amount of shares available, we may be required to file an
additional registration statement after we have increased our authorized common
stock. Accordingly, subject to obtaining an increase in our authorized shares of
common stock, we will allocate and register approximately 87,714,286 shares to
cover the conversion of the Callable Secured Convertible Notes and stock
purchase warrants. In the event that our stock price decreases, the shares of
common stock we have allocated for conversion of the Callable Secured
Convertible Notes and are registering hereunder may not be adequate. If the
shares we have allocated to the registration statement are not adequate and we
are required to file an additional registration statement, we may incur
substantial costs in connection with the preparation and filing of such
registration statement.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING CALLABLE SECURED
CONVERTIBLE NOTES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF
AVAILABLE, OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CALLABLE SECURED
CONVERTIBLE NOTES, IF REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH
COULD REQUIRE THE SALE OF SUBSTANTIAL ASSETS.
On November 18, 2005, we entered into a financing arrangement involving
the sale of an aggregate of $750,000 principal amount of callable secured
convertible notes and stock purchase warrants to buy 1,000,000 shares of our
common stock. The callable secured convertible notes are due and payable, with
8% interest, three years from the date of issuance, unless sooner converted into
shares of our common stock. Although we currently have $500,000 callable secured
convertible notes outstanding, the investor is obligated to purchase additional
callable secured convertible notes in the aggregate amount of $250,000. In
addition, any event of default such as our failure to repay the principal or
interest when due, our failure to issue shares of common stock upon conversion
by the holder, our failure to timely file a registration statement or have such
registration statement declared effective, breach of any covenant,
representation or warranty in the Securities Purchase Agreement or related
convertible note, the assignment or appointment of a receiver to control a
substantial part of our property or business, the filing of a money judgment,
writ or similar process against us in excess of $50,000, the commencement of a
bankruptcy, insolvency, reorganization or liquidation proceeding against us and
the delisting of our common stock could require the early repayment of the
callable secured convertible notes, including a default interest rate of 15% on
the outstanding principal balance of the notes if the default is not cured
within the specified grace period. We anticipate that the full amount of the
callable secured convertible notes will be converted into shares of our common
stock, in accordance with the terms of the callable secured convertible notes.
If we are required to repay the callable secured convertible notes, we would be
required to use our limited working capital and raise additional funds. If we
were unable to repay the notes when required, the note holders could commence
legal action against us and foreclose on all of our assets to recover the
amounts due. Any such action would require us to curtail or cease operations.
WE ARE CURRENTLY DELINQUENT IN OUR OBLIGATION TO FILE A REGISTRATION STATEMENT.
According to the financing agreement, we were obligated to file, on or
prior to thirty days from November 18, 2005, a registration statement, to
register the shares of common stock underlying the callable secured convertible
notes and stock purchase warrants. We have been delayed in our obligation and
are currently in default. As a result, we will have to pay penalties at a rate
of 2% of the outstanding amount of debentures for each month of delay. The
penalties can be paid in cash or at our option, in shares of common stock.
As a consequence of the default, the holders of the callable secured
convertible notes can require the early repayment of the callable secured
convertible notes in an amount of 130% times the sum of the principal amount,
plus the unpaid interest on the unpaid principal amount plus default interest,
if any, or the highest number of shares of common stock issuable upon conversion
of the default sum. The current estimated penalty amount is approximately
$50,000.
13
RISKS RELATING TO OUR COMMON STOCK:
OUR COMMON STOCK TRADES IN A LIMITED PUBLIC MARKET, THE NASD OTC ELECTRONIC
BULLETIN BOARD; ACCORDINGLY, INVESTORS FACE POSSIBLE VOLATILITY OF SHARE PRICE.
Our common stock is currently quoted on the NASD OTC Bulletin Board
under the ticker symbol SFIN.OB. As of June 22, 2006, there were approximately
60,138,923 shares of Common Stock outstanding, of which approximately 16,530,423
were tradable without restriction under the Securities Act.
There can be no assurance that a trading market will be sustained in
the future. Factors such as, but not limited to, technological innovations, new
products, acquisitions or strategic alliances entered into by us or our
competitors, government regulatory action, patent or proprietary rights
developments, and market conditions for penny stocks in general could have a
material effect on the liquidity of our common stock and volatility of our stock
price.
IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
Companies trading on the OTC Bulletin Board, such as us, must be
reporting issuers under Section 12 of the Securities Exchange Act of 1934, as
amended, and must be current in their reports under Section 13, in order to
maintain price quotation privileges on the OTC Bulletin Board. If we fail to
remain current on our reporting requirements, we could be removed from the OTC
Bulletin Board. As a result, the market liquidity for our securities could be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
14
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading, about the commissions
payable to both the broker-dealer and the registered representative, and current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
LACK OF ANTI-TAKEOVER PROVISIONS
We do not currently have a shareholder rights plan or any anti-takeover
provisions in our Certificate of Incorporation or By-laws. Without any
anti-takeover provisions, there is no deterrent for a take-over, which may
result in a change in our management and directors success.
15
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by the selling stockholders. We will not
receive any proceeds from the sale of shares of common stock in this offering.
However, we will receive the sale price of any common stock we sell to the
selling stockholder upon exercise of the warrants. We expect to use the proceeds
received from the exercise of the warrants, if any, for general working capital
purposes. However, the selling stockholders will be entitled to exercise the
warrants on a cashless basis if the shares of common stock underlying the
warrants are not then registered pursuant to an effective registration
statement. In the event that the selling stockholder exercises the warrants on a
cashless basis, then we will not receive any proceeds. In addition, we have
received gross proceeds of $500,000 from the sale of the callable secured
convertible notes and the investors are obligated to provide us with an
additional $250,000. The proceeds received from the sale of the callable secured
convertible notes will be and are being used for business development purposes
and working capital needs.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the OTC Bulletin Board, referred to
herein as the OTCBB, under the symbol "SFIN.ob". The following table sets forth
the high and low bid prices of our Common Stock, as reported by the OTCBB for
each quarter since our stock began trading on the OTCBB. The quotations set
forth below reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.
2006
--------------------------------
HIGH LOW
--------------- --------------
1st Quarter........................ $ 0.300 $ 0.120
2005
--------------------------------
HIGH LOW
--------------- --------------
1st Quarter........................ $ 0.600 $ 0.350
2nd Quarter........................ 0.490 0.350
3rd Quarter........................ 0.550 0.200
4th Quarter........................ 0.220 0.110
2004
--------------------------------
HIGH LOW
--------------- --------------
1st Quarter........................ $ 0.00 $ 0.00
2nd Quarter........................ 0.00 0.00
3rd Quarter........................ 0.55 0.00
4th Quarter........................ 0.94 0.40
As of June 22, 2006, there were approximately 1,221 holders of record
of our common stock.
DIVIDENDS
We have not declared or paid any cash dividends on our common stock nor
do we anticipate paying any in the foreseeable future. Furthermore, we expect to
retain any future earnings to finance our operations and expansion. The payment
of cash dividends in the future will be at the discretion of our Board of
Directors and will depend upon our earnings levels, capital requirements, any
restrictive loan covenants and other factors the Board considers relevant.
EQUITY COMPENSATION PLAN INFORMATION
The following table shows information with respect to each equity
compensation plan under which our common stock is authorized for issuance as of
the fiscal year ended December 31, 2005.
16
EQUITY COMPENSATION PLAN INFORMATION
- ------------------------------------ ------------------------ ----------------------- ---------------------------
Plan category NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE FOR
EXERCISE OF OUTSTANDING OPTIONS, FUTURE ISSUANCE UNDER
OUTSTANDING OPTIONS, WARRANTS AND RIGHTS EQUITY COMPENSATION PLANS
WARRANTS AND RIGHTS (EXCLUDING SECURITIES
REFLECTED IN COLUMN (A)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
(A) (B) (C)
- ------------------------------------ ------------------------ ----------------------- ---------------------------
EQUITY COMPENSATION PLANS APPROVED -0- -0- -0-
BY SECURITY HOLDERS
- ------------------------------------ ------------------------ ----------------------- ---------------------------
- ------------------------------------ ------------------------ ----------------------- ---------------------------
EQUITY COMPENSATION PLANS NOT 8,348,531 $0.10 8,348,531
APPROVED BY SECURITY HOLDERS
- ------------------------------------ ------------------------ ----------------------- ---------------------------
- ------------------------------------ ------------------------ ----------------------- ---------------------------
TOTAL 8,348,531 $0.146 8,348,531
- ------------------------------------ ------------------------ ----------------------- ---------------------------
On September 15, 2005, our board of directors resolved to adopt the
2005 Employees/Consultants/Directors Stock Compensation Plan. In connection with
the adoption of this plan, we reserved 10,600,000 shares of our common stock for
future issuances and we granted an aggregate of 8,348,531 stock options to our
directors for future services.
These options were allocated as follows:
Shay Goldstein Chairman and the Chief Medical Officer - 2,659,446
options Tamar Tzaban - Director and CFO - 2,127,557 options Gilad Yoeli
- Director - 265,945 options Jean-Pierre Elisha Martinez - Director
-265,945 options
No vesting occurs during the first year after the option grant; the
options commence vesting beginning in the second year in 36 quarterly parts.
On January 10, 2006 we increased the number of options awarded to two
of the board members:
Gilad Yoeli - Director - 185,096 options
Jean-Pierre Elisha Martinez - Director -185,096 options
On March 31, 2006 the board of directors resolved to grant an aggregate
of 2,659,449 stock options to Amnon Presler, or Chief Executive Officer, for
future services exercisable at a price per share equal to 90% of the last
transaction price quoted for such date by the NASDAQ system on the NASDAQ
National Market as of the stock Option Agreement date, according to the plan.
These options vest over the three year period commencing December 1, 2005.
The total number of options that we were obligated to grant to our
directors and employees was 8,348,531. However, on June 23, 2006 three of our
directors, Shay Goldstein, Gilad Yoeli and Jean-Pierre Elisha Martinez, resigned
from our Board of Directors and in connection with such resignations the
3,561,528 options previously awarded to them in the aggregate were cancelled. As
a result of the cancellation of the foregoing options the deferred compensation
reflected in our balance sheet will be reduced by $893,854.
The purpose of the stock plan is to provide incentives to attract,
retain, and motivate eligible persons whose present and potential contributions
are important to the success of our business by offering them an opportunity to
participate in our future performance through awards of options, restricted
stock and stock bonuses. The stock plan offers our directors, officers and
selected key employees, advisors and consultants an opportunity to acquire a
proprietary interest in our success, to receive compensation, or to increase
such interest, by purchasing shares of our common stock. The stock plan provides
both for the direct award or sale of shares and for the grant of options to
purchase shares. Options granted under the stock plan may include non-statutory
options, as well as incentive stock options intended to qualify under section
422 of the Internal Revenue Code of 1986, as amended, and Section 102 or 3(i) of
the Israeli Income Tax Ordinance.
17
The stock plan is to be interpreted and applied by our Board of
Directors. The Board of Directors's responsibilities with respect to the stock
plan are the following: interpret and apply the provisions of the stock plan;
determine when shares are to be awarded or offered for sale and when options are
to be granted under the stock plan; select the offerees and optionees; determine
the number of shares to be offered to each offeree or to be made subject to each
option; prescribe the terms and conditions of each award or sale of shares,
including (without limitation) the purchase price, and to specify the provisions
of the stock purchase agreement relating to such award or sale; prescribe the
terms and conditions of each option, including (without limitation) the exercise
price; determine how such option is to be classified under the Internal Revenue
Code or the Israeli Income Tax Ordinance, and to specify the provisions of the
stock option agreement relating to such option; to prescribe the consideration
for the grant of each option or other right under the Stock Plan and to
determine the sufficiency of such consideration.
Stock options and awards may be granted only to our employees or
independent contractors (including, officers and directors who are also
employees) or of our affiliates.
Each stock option agreement shall specify the exercise price. The
exercise price under any option shall be determined by the Compensation
Committee at its sole discretion, except that the exercise price of an ISO shall
not be less than 100 percent of the fair market value of a share on the date of
grant and the exercise price of a non-statutory option shall not be less than 85
percent of the fair market value of a share on the date of grant.
Each stock option agreement shall specify the date when all or any
installment of the option is to become exercisable. The vesting of any option
shall be determined by the Board of Directors at its sole discretion. A stock
option agreement may provide for accelerated exercisability in the event of the
optionee's death, total and permanent disability or retirement or other events.
The stock option agreement shall also specify the term of the option. The term
shall not exceed 10 years from the date of grant. Subject to the preceding
sentence, the Compensation Committee at its sole discretion shall determine when
an option is to expire.
If an optionee's service to us terminates for any reason other than the
optionee's death, then such optionee's option(s) shall expire on the earliest of
the following: (a) the date it is scheduled to expire; (b) the date 90 days
after the termination of the optionee's service for any reason other than total
and permanent disability; or (c) the date twelve months after the termination of
the optionee's service by reason of total and permanent disability.
If an optionee dies while he or she is in service, then such optionee's
option(s) shall expire on the earlier of the following dates: (a) The date it is
scheduled to expire; or (b) the date twelve months after the optionee's death.
Any shares issued upon exercise of an option shall be subject to such
special forfeiture conditions and other transfer restrictions as the Board of
Directors may determine. Such restrictions shall be set forth in the applicable
stock option agreement and shall apply in addition to any general restrictions
that may apply to all holders of shares.
Options issued under Section 102 of the Israeli Income Tax Ordinance
shall be subject to the receipt of any and all required approvals or permits
from the Israeli tax authorities. We are currently in the process of obtaining
such approvals.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS
OVERVIEW
The following discussion contains forward-looking statements that are
subject to significant risks and uncertainties about us, our current and planned
products, our current and proposed marketing and sales, and our projected
results of operations. There are several important factors that could cause
actual results to differ materially from historical results and percentages and
results anticipated by the forward-looking statements. We have sought to
identify the most significant risks to our business, but cannot predict whether
or, to what extent, any of such risks may be realized nor can there be any
assurance that we have identified all possible risks that might arise.
18
Investors should carefully consider all of such risks before making an
investment decision with respect to our stock. The following discussion and
analysis should be read in conjunction with our financial statements and notes
thereto. This discussion should not be construed to imply that the results
discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future. Such discussion represents only the best present
assessment from our management.
Information about us, including a description of our business, markets,
properties, competition and historical financial information, is provided in
summary form regarding our business and affairs. This information is not
intended to be complete and should be read in conjunction with the financial
statements and other documents appended hereto or described herein.
PLAN OF OPERATION
As of April 15, 2005, Dr. Goldstein was appointed as our Chairman,
Chief Executive Officer and Secretary, and since then we have been focusing on
screening new technologies in the life sciences and health care fields and other
business opportunities in the life science field. On May 17, 2005, we
established an Israeli wholly owned subsidiary under the laws of the State of
Israel, called "Oriens Life Sciences Ltd.", to serve as a platform for us to
screen the Israeli life sciences and health care industry and identify, analyze,
and acquire or invest in technologies in this field. On December 1, 2005 Mr.
Amnon Presler was appointed as the Chief Executive Officer and Dr. Goldstein was
appointed as the Chief Medical Officer on December 7, 2005. On March 12, 2006
Dr. Goldstein resigned from serving as our Chairman and Mr. Jean-Pierre Elisha
Martinez was appointed as our Chairman. On June 23, 2006 Dr. Goldstein, Mr.
Martinez and Mr. Yoel1 resigned from serving as members of our Board of
Directors and Mr. Presler was appointed as a member of our Board of Directors.
In accordance with Financial Accounting Standards Board (FASB) No. 7,
we are considered a development stage company, beginning on April 16, 2005, the
date we commenced with our new business activity.
During the fiscal year ended December 31, 2005, we signed 4 term sheets
to purchase technologies in the life science field. In due course, on January 4,
2006, we closed on a transaction contemplated by the Exclusive Patent and Know
How License Option Agreement dated December 28, 2005 with Matrix Pharma Inc., a
Delaware corporation. Pursuant to the Agreement, we acquired from Matrix an
option to purchase an exclusive, world-wide license in all of Matrix's
intellectual property rights in its Thrombin inhibition compounds in
consideration of $60,000.
On March 30 2006, we signed an amendment to the Agreement with Matrix,
extending the exercise date of the option to May 15, 2006. The amendment
provides that until April 15, 2006 we will pay Matrix $15,000 in consideration
for Matrix's agreement to extend the exercise date. Such amount was to be
deducted from the repayment of costs that were to be paid if we exercised the
option. The exercise date for this option had since passed and we have made the
determination not to pursue this transaction any further.
On March 23, 2006, we entered into a term sheet with Resdevco Ltd, a
company incorporated under the laws of Israel. The term sheet sets forth the
principal terms of a proposed agreement between us and Resdevco, pursuant to
which Resdevco will grant us an exclusive, worldwide license in Resdevco's
Antioxidant salicylate compounds. We are conducting a due diligence process
using the services of applicable expert, in order to evaluate the probability
and the potential uses of those compounds.
On March 27, 2006 we exercised our right that was given to us in a
Letter Agreement dated December 1, 2005 to purchase certain biological materials
from Serapis for a purchase price of $100,000 plus value added tax (VAT). The
purchase price was paid by the forgiveness of $29,906 debt owed to us, and the
balance to be paid by Serapis in 12 equal monthly payments, with the first
payment on the signing date. We didn't pay the second payment that was due on
April 27, 2006 and we have since made the determination not continue making any
further payments and to relinquish any rights we had to the biological materials
from Serapis.
19
On April 25, 2006, we entered into a term sheet with Interactive Health
Pharmacy Services, Inc. The term sheet sets forth the principal terms of a
proposed agreement between us and Interactive Health, pursuant to which we will
acquire Interactive Health at the closing, after the parties agree to a mutually
acceptable definitive acquisition agreement. In consideration therefore at the
closing of the acquisition, we will issue to Interactive Health shares of common
stock in an amount equal to 50.01% of our issued and outstanding shares of
common stock. In addition, at the closing of the acquisition we are obligated to
have no less than $1,500,000 in cash and working capital. We anticipate closing
on this acquisition as soon as the requisite documentation is completed.
Interactive Health is a New York area specialty pharmacy provider (SPP)
whose goal is to increase HIV/AIDS patients' compliance with their prescribed
treatments by providing confidential, home-delivery of prescriptions drugs,
Package by dose, with therapy management and educational materials that help a
patient optimally control his or her condition. Services include counseling by a
highly trained pharmacist and patient specialist, compliance monitoring, refill
reminders, automated reorder capabilities, and direct shipments to patients. The
company was founded in 1995 by Marvin Sirota. We intend to use IHPS as a
platform of distribution Israeli OTC drugs.
We currently invest our efforts in conducting its due diligence on the
companies with which we have signed term sheets.
As of March 31, 2006, we had an accumulated deficit of $8,045,623. Our
prospects must therefore be evaluated in light of the problems, expenses, delays
and complications associated with our financial situation. We are in the process
of raising funds to finance our activities, including without limitation, the
completion of the above described prospective transactions, and other potential
business opportunities. We require funds in order to execute the term sheet with
Interactive Health, to finance our current activities and in order to begin the
development of the technologies we have the opportunity to purchase, if and when
definitive agreements will be executed.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements and accompanying notes have been prepared in
accordance with generally accepted accounting principles in the United States of
America. The preparation of these financial statements requires our Management
to make estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. We continually evaluate the
accounting policies and estimates we use to prepare the consolidated financial
statements. We base our estimates on historical experiences and assumptions
believed to be reasonable under current facts and circumstances. Actual amounts
and results could differ from these estimates made by Management. We do not
participate in, nor have we created, any off-balance sheet special purpose
entities or other off-balance sheet financing. In addition, we do not enter into
any derivative financial instruments for speculative purposes and use derivative
financial instruments primarily for managing our exposure to changes in interest
rates.
GOING CONCERN
As of March 31, 2006, we have cash on hand of $134,436. This amount is
inadequate for us to effectuate our planned activities during the next 12
months. Accordingly, we may be unable to continue operations in the future as a
going concern. Our plans to deal with this uncertainty include raising
additional capital or entering into a strategic arrangement with a third party.
There can be no assurance that our plans can be realized. There can be no
assurance that we will be able to obtain additional financing if and when needed
or that, if available, financing will be on acceptable terms. Additional equity
financings may be dilutive to holders of our common stock and debt financing, if
available, and may involve significant payment obligations and covenants that
restrict how we operate our business.
Certain conditions raise substantial doubt about our ability to
continue as a going concern beyond the next twelve (12) month period. As of
March 31, 2006, we had stockholders' deficit of $3,987,995 and an accumulated
deficit of $8,045,623. Our balance sheet as of March 31, 2006 reflects total
liabilities of $4,339,272. We need to obtain additional financing to fund
payment of its obligations and to provide working capital for operations.
OFF BALANCE SHEET ARRANGEMENTS
None
20
FINANCIAL CONDITION AND RESULTS OF OPERATION.
COMPARISON OF THE THREE MONTHS MARCH 31, 2006 TO THE THREE MONTHS ENDED MARCH
31, 2005.
REVENUES
For the three months ended March 31, 2006, there were no revenues.
OPERATING EXPENSES
The following table summarizes the Company's operating expenses for the
three months ended March 31, 2006 and 2005:
FOR THE THREE MONTHS ENDED
----------------------------------------
MARCH 31,2006 MARCH 31,2005
-------------------- -------------------
(Unaudited) (Unaudited)
Operating Expenses
Payroll and Related Expenses $ 111,756 $ --
Gain From Securities (2,263)
Office & General Expenses 28,717 3,810
Exchange Rate Loss 1,738
Professional Fees 61,614 12,000
Amortization 28,230
Business Development Cost 93,423 --
---------------------------------------------
Total Operating Expenses 323,215 15,810
Loss from Operations 323,215 15,810
For the three months ended March 31, 2006, our operating expenses were
$323,215 as compared to $15,810 for the three months ended March 31, 2005. Our
expenses increased mainly as a result of our efforts of screening technologies
and other business opportunities in the life sciences field and as a result of
the due diligence procedures and the efforts invested in executing the signed
term sheets and progressing to definitive agreements.
The main expenses in the period consist of payroll and related expenses
to our management of $111,756.
Business development costs consisted primarily of payment of $60,000 to
Matrix, as a consideration to an option to an Exclusive Patent and Know How
License to Thrombin Inhibitor compounds. Professional fees expenses consist
primarily auditing and legal consulting regarding the Company's transactions.
OTHER INCOME AND EXPENSES
For the three months ended March 31, 2006, we recognized $1,192 from
interest income.
21
The following table presents the Company's other expenses:
FOR THE THREE
MONTHS ENDED MARCH
31,2006
--------------------
(Unaudited)
Interest expenses convertible debentures 1 4,932
Derivative Convertible Liability Expenses
----------------------------------------------------
Derivative liability expenses (warrants) 2 429,725
Derivative liability expenses (convertible debentures) 3 103,901
Derivative liability expenses (warrants debentures) 14,153
Penalties 4 10,000
-------------
Total derivative liability expenses $ 557,779
========
1. Interest expenses includes, $4,932 interest related to the convertible
debentures that the Company issued on November 18, 2005.
2. The Warrants that the Company issued presented at their fair value and
classified as liabilities, according to paragraphs 20 and 24 of EITF 00-19
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock,". The derivative liability expenses reflect
an adjustment to the fair value as of March 31, 2006.
3. Adjustment of the debentures issued on November 18, 2005 to their fair value
as of March 31, 2006. 4. Adjustment the Company's penalties allowance. According
to the debentures terms, the Company was obligated to file a registration
statement on or prior to thirty days from November 18, 2005, to register the
shares of common stock underlying the notes and warrants issued to the
investors. The Company has been delayed in its obligation and is currently in
default.
NET INCOME (LOSS)
During the three months period ended March 31, 2006, we reported a net
loss of $884,734 compared to a net loss of $18,510 for the three months ended
March 31, 2005. The difference is primarily attributable our operating expenses
as a result of our activity during this period.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2005 TO THE YEAR ENDED DECEMBER 31,
2006.
In the fiscal year ending December 31, 2005, and 2004, we had no
revenues. There can be no assurance that we will generate revenues in the
future, or that we will be able to operate profitably in the future. Our
expenses in 2005 amounted to $2,928,819, and in 2004 was $124,827. The reason
for the increase in expenses was primarily due to the increased activity and
derivative liability relating to debentures and warrants that we issued to
finance our current activity.
ADJUSTMENTS
As part of the quarterly report for the nine months ended September 30,
2005, the financial statements for the year ended December 31, 2004 were
adjusted to reflect the proper accounting treatment accorded to the terms of
subordinated convertible redeemable debentures that were issued in the years
2001 and 2002 and to add to the accumulated deficit $14,293 as a result of
interest expense which should have been recorded for the fiscal year ended
December 31, 2003. The interest was waived by the debentures holders during the
third quarter of 2005, and as a result, we recognized additional gain from
cancellation of indebtedness of $14,293. Additionally, $323,282 was charged to
paid in capital and accumulated deficit in order to reflect a beneficial
conversion feature charge that should have been recorded when the debentures
were initially issued.
We concluded that since there was no material effect on the results of
operations and the balance sheet on the annual report for the fiscal year ended
December 31, 2004, a restatement was not necessary.
22
To reflect a correction in the number of shares issued and outstanding,
we restated the weighted average number of shares outstanding (basic and
diluted) as of the year ended December 31, 2004. The average number of shares
was restated from 557,249 to 659,518. This was not a material difference and
therefore for the year ended December 31, 2004 the restatement did not have a
material effect on the net income (loss) per share.
The following table summarizes our statement of operations data for the
years ended December 31, 2004 and December 31, 2005:
YEAR ENDED YEAR ENDED
DECEMBER 31,2004 DECEMBER 31,2005
-------------------- -------------------
$ $
Operating Expenses
Payroll and Related Expenses - 144,600
Office & General Expenses 37,400 75,092
Professional Fees - 304,984
Business Development Cost - 40,324
Net Loss from Operations (37,400) (565,000)
Other Income (Expenses)
Income from Cancellation of Indebedtness 212,432
Gains from Sale of Securities 9,001
Exchange Rate Losses - (11,734)
Interest Expenses 87,427 (5,001)
Interest Income - 1,616
Amortization of debentures and
warrants discount (9,817)
Derivative Liabilities Expenses (2,560,316)
----------
Net Income (124,827) (2,928,819)
======== ===========
REVENUES
For years 2004 and 2005, there were no revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
For 2005, our general and administrative expenses were $565,000 as
compared to $37,400 for 2004. Our expenses increased mainly as a result of our
efforts of screening technologies in the life sciences field and as a result of
the due diligence procedures and the efforts invested in executing the signed
term sheets and progressing to definitive agreements. The main expenses in 2005
consisted of professional fees of $304,984 and payroll related expenses of
$144,600 that primarily related to salaries of our new management and benefit
expenses.
Business development costs consisted primarily of the payment of
$15,000 to Nanodiagnostic, a company that we signed a term sheet with. The
parties did not reach agreement and the contemplated transaction was terminated.
Additionally, we made a $6,072 loan to Cygnus to be repaid on the date of
signing a definitive agreement. The binding date was due, and the Company did
not sign the definitive agreement. In the event a definitive agreement is signed
in the future, Cygnus will be obligated to repay the loan
In 2005, we had a net loss from operations of $565,000. In 2004, we had
a net loss from operations of $37,400.
23
OTHER INCOME AND EXPENSES
For the year 2005, we recognized indebtness income from cancellation of
$212,432 as a result of the (a) write- off of $131,300 accounts payable to two
vendors who confirmed that the amount was not owed. (b) waiver of accrued
interest in the amount of $81,132 and (c) realized gains from securities that we
are holding for financing its current activity.
The following table presents our other expenses:
2005
Exchange rate loss $ 11,734
Interest expenses convertible debentures 5,001
Amortization of debentures discount 9,817
Derivative Convertible Liability Expenses
Derivative liability expenses (warrants) 1,949,748
Derivative liability expenses (convertible debentures) 542,015
Derivative liability expenses (warrants debentures) 38,956
Penalties 29,597
---------------
Total derivative liability expenses $ 2,560,316
===============
Interest expenses includes, $5,001 interest related to the debentures.
The warrants that we issued presented at their fair value and
classified as liabilities, according to paragraphs 20 and 24 of EITF 00-19
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock,"
As a result of the terms of debentures we issued, and because
theoretically the debentures can be converted into a number of shares that will
exceed our authorized shares if our market price is reduced below 0.000569. We
recorded a derivative liability expense of 1,949,749.
Expenses related to the debentures issued on November 18, 2005 include
$580,971 evaluation of the convertible debt at fair value.
$29,597 penalties allowance. According to the debentures terms, we
were obligated to file a registration statement on or prior to thirty days from
November 18, 2005, to register the shares of common stock underlying the notes
and warrants issued to the investors. We have been delayed in our obligation and
are currently in default.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents as March 31, 2006 were $134,436 compared
to none as of March 31, 2005. The increase in the cash and cash equivalents is
primarily a result of receiving $685,000 in consideration for Units consisting
of common stock and warrants subscribed, and $190,000 as a result of debentures
issuance during 2005.
Net cash used in operating activities decreased mainly as result of
increase in the Company's business activity and an increase in our accounts
payable and accrued expenses. The primary finance source to our operating during
the period was consideration from a securities sale.
We are in the process of attempting to raise funds in order to have the
capability of conducting our activity. The Company intends to finance its
operations by private placements, stocks and debt issuance and financial
arrangements. There are currently no plans or arrangements regarding any of the
foregoing.
We currently have no revenues. We currently have no commitments or
agreements with any third party to provide financial accommodations to us, other
than the commitment of NIR and the other investors to lend us an additional
$250,000 when the registration statement will be filed and an additional
$250,000 when said registration statement is declared effective. However, such
proceeds and any proceeds we may receive from private placements and additional
capital that the Company, will not be sufficient to satisfy the Company's cash
requirements for the next twelve (12) months.
24
FINANCING
To obtain funding for ongoing operations, we entered into a Securities
Purchase Agreement with New Millennium Capital Partners II, LLC, AJW Qualified
Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC on November 18, 2005 for
the sale of (i) $750,000 in callable secured convertible notes and (ii) warrants
to buy 1,000,000 shares of our common stock.
On November 18, 2005, the investors purchased $250,000 in callable
secured convertible notes and received warrants to purchase 333,332 shares of
the Company's common stock. The Company received net proceeds of $190,000.00,
after deducting expenses of $60,000.00. On May 16, 2005, the investors purchased
an additional $250,000 in callable secured convertible notes and received
warrants to purchase an additional 333,332 shares of the Company's common stock.
The Company received net proceeds of $217,500.00, after deducting expenses of
$32,500.00. In addition, provided that the terms and conditions of the
Securities Purchase Agreement are satisfied, the investors are obligated to
provide us with an additional $250,000 to be disbursed following this
registration statement being declared effective.
The callable secured convertible notes bear interest at 8%, mature
three years from the date of issuance, and are convertible into our common
stock, at the investors' option, at the lower of (i) $0.15 or (ii) 50% of the
average of the three lowest intraday trading prices for the common stock on a
principal market for the 20 trading days before but not including the conversion
date. The full principal amount of the callable secured convertible notes is due
upon default under their terms. The warrants are exercisable until five years
from the date of issuance at a purchase price of $0.30 per share. In addition,
the conversion price of the callable secured convertible notes and the exercise
price of the warrants will be adjusted in the event that we issue common stock
at a price below the fixed conversion price, below market price, with the
exception of any securities issued in connection with the Securities Purchase
Agreement. The conversion price of the callable secured convertible notes and
the exercise price of the warrants may be adjusted in certain circumstances such
as if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholder's position. The
selling stockholders have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 4.99% of the then issued and
outstanding shares of common stock. In addition, we have granted the investors a
security interest in substantially all of our assets and intellectual property
and registration rights.
We applied the provisions of APB 14 and allocated the proceeds to the
detachable warrants and the convertible notes based on their respective fair
values. We further evaluated the convertible notes to determine if they contain
derivatives that warrant bifurcation. We concluded that in accordance with EITF
05-2 the convertible debentures do not meet the definition of conventional
convertible debt instruments for purposes of evaluating the existence of
embedded derivatives under EITF 00-19. We further concluded that as a
freestanding derivative, the embedded feature would not be classified as equity
under EITF 00-19, and as such, determined that the embedded feature needs to be
bifurcated from the host contract.
In addition, we determined that the liquidated damages clause contained
in the registration rights agreement needs to be bifurcated as well. The clause
requires us to pay 2% per month of the outstanding principal amount of the
debentures, in cash, to the debenture holders in the event that a registration
statement covering the shares underlying the convertible debentures is not
declared effective within 120 days of the date the debentures were issued. The
probability that in such occur the holders will announce on a default event is
remote since the economical motivation to receive registrant shares.
We also determined that a contingent interest payment feature exists
and needs to be bifurcated from the host instrument. That feature exempts us
from having to pay the stated interest on the debentures if the stock price
reaches a price of $0.1875.
In order to evaluate the embedded derivatives, weestimated the fair
market values using the Binomial model and the Black - Scholes model.
25
We concluded that the conversion option in the debt instrument embedded
needs to be bifurcated from the host contract. Since the value of the features
exceed the value of the debt instrument, and we are in a default, the Company
decided to present the convertible instrument at its fair value.
The Derivative Liability - convertible debentures and warrants
detachable are presented together in amount of $860,567. As disclosed in Note
15B, we remeasured the class A and class B warrants that it issued during the
year. As a result of the remeasurment, we recorded the Class A warrants at
December 2005 at $1,096,059 and the class B at $1,160,769. As a result, we
charge a derivative liabilities expense a $1,949,748.
We will still need additional investments in order to continue
operations to cash flow break even. Additional investments, including $250,000
to be received under the Securities Purchase Agreement should our registration
statement that we filed be declared effective, are being sought, but we cannot
guarantee that we will be able to obtain such investments. Financing
transactions may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. However, the trading price of
our common stock and the downturn in the U.S. stock and debt markets could make
it more difficult to obtain financing through the issuance of equity or debt
securities. Even if we are able to raise the funds required, it is possible that
we could incur unexpected costs and expenses, fail to collect significant
amounts owed to us, or experience unexpected cash requirements that would force
us to seek alternative financing. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. If additional financing is not available
or is not available on acceptable terms, we will have to curtail our operations
again.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements and accompanying notes have been prepared in
accordance with generally accepted accounting principles in the United States of
America. The preparation of these financial statements requires our Management
to make estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. We continually evaluate the
accounting policies and estimates we use to prepare the consolidated financial
statements. We base our estimates on historical experiences and assumptions
believed to be reasonable under current facts and circumstances. Actual amounts
and results could differ from these estimates made by Management. We do not
participate in, nor have we created, any off-balance sheet special purpose
entities or other off-balance sheet financing. In addition, we do not enter into
any derivative financial instruments for speculative purposes and use derivative
financial instruments primarily for managing our exposure to changes in interest
rates
26
BUSINESS
OUR HISTORY
We were incorporated in April 1988 under the name Theoretics, Inc. In
January 1989, we changed our name to Safetek International, Inc. In May 2001,
pursuant to a Stock Purchase Agreement between Halter Capital Corporation, which
was our majority shareholder at the time, and Shmuel Shneibalg, we sold to Mr.
Shneibalg 47,761 shares of our common stock, representing approximately 51.1% of
our issued and outstanding shares of common stock. Such sale effectively
transferred control of us to Mr. Shneibalg. Simultaneously, our then current
directors and officers resigned and Mr. Shneibalg was appointed the sole
director and officer of the Company.
We have not had any products, services or business operations since
December 31, 2002. Prior to December 31, 2002, we manufactured prototypes and
distributed the final product on behalf of technology developers. During 2003
and 2004, we did not have any business activity.
In accordance with Financial Accounting Standards Board (FASB) SFAS No.
7, we are considered a development stage company, beginning April 16, 2005, the
date we commenced with our new business activity.
LIFE SCIENCES AND HEALTH CARE FIELDS POTENTIAL TRANSACTIONS
On May 17, 2005, we established an Israeli wholly owned subsidiary
under the laws of the State of Israel, called Oriens Life Sciences Ltd., to
serve as a platform for us to screen the Israeli life sciences and health care
industry and identify, analyze, and acquire or invest in technologies in this
field.
Resdevco
On March 23, 2006, we entered into a term sheet with Resdevco Ltd, a
company incorporated under the laws of Israel. The term sheet sets forth the
principal terms of a proposed agreement between us and Resdevco, pursuant to
which Resdevco will grant us an exclusive, worldwide license in Resdevco's
Antioxidant salicylate compounds.
The consummation of the transactions contemplated by the term sheet is
subject to the execution of mutually acceptable definitive agreement, approval
of the transaction and definitive agreements by the respective Boards of
Directors of the parties, completion of due diligence to our satisfaction,
receipt of financial reports of the last three years, receipt of any required
approvals of governmental authorities, and receipt of necessary consents and
approvals of third parties. It is anticipated that a definitive agreement will
be executed within 60 days after the completion of our due diligence.
Pursuant to the license, we will have the right to research, develop,
make, have made, use, sell, dispose, sub-lease, distribute, display, bundle,
import and export any and all products or services based on the licensed
technology, including a right to sub-license. The license will be exclusive,
world-wide, and perpetual, subject to certain earlier termination provisions. We
shall have the right to terminate the license at any time, with prior written
notice of 90 days. Resdevco will have the right, after prior written notice of
90 days, to terminate the license or, at its option, to convert it into a
non-exclusive license, if we fail to pay any payment pursuant to the definitive
agreement, or fails to satisfy certain milestones as set out in a schedule to be
concluded and attached in the definitive agreement.
We will be fully responsible for the development of the licensed
technology after the execution of the definitive agreements, at our own expense.
Resdevco will agree to assist us in developing the licensed technology at our
cost and expense. Any new intellectual property developed by us based on the
licensed technology will be owned by Resdevco and subject to the license.
In consideration for the license, we will pay to Resdevco a specified
license fee at the beginning of each year of the term of the license. We will
also pay to Resdevco a percentage of its net sales of any products it develops
based on the license technology and a specified portion of any consideration or
other benefits actually received by us from third parties in connection with
sublicensing of the licensed technology.
27
Resdevco and its shareholders and directors agreed to refrain from
negotiating any licensing of the licensed technology until the earlier of
signing the definitive agreement, or receipt by Resdevco of notice from us that
we do not wish to close the transaction, or the expiry of 90 days from the date
of the term sheet. Such agreement is binding.
Upon execution of the term sheet, we advanced Resdevco $5,000. An
additional $5,000 will be advanced at the beginning of each month thereafter,
provided Resdevco continues to provide us with due diligence materials in its
possession in a timely manner, but not more than 14 days after the date of
request, until the earlier to occur of: (a) we finish our due diligence, up to
an aggregate amount (together with the initial payment) of $15,000, or (b) we
provide Resdevco with written notice that it does not wish to close the
transaction. All monthly payments will be part of the total first year License
Fee. No monthly payments will be paid to Resdevco in the time period between
completion of due diligence and signing the definitive agreement.
Interactive Health Pharmacy Services, Inc.
On April 25, 2006, we entered into a term sheet with Interactive
Health Pharmacy Services, Inc. The term sheet sets forth the principal terms of
a proposed agreement between us and Interactive Health, pursuant to which we
will acquire Interactive Health at a closing to he held after the parties agree
to a mutually acceptable definitive acquisition agreement. In consideration
therefor, at the closing of the acquisition, we will issue to Interactive Health
shares of common stock in an amount equal to 50.01% of our issued and
outstanding shares of common stock. Upon the closing of the acquisition, our
Board of Directors shall consist of Dr. Marvin Sirota, two members selected by
Dr. Sirota, and two members selected by our shareholders. Dr. Sirota will be
appointed as the Chairman of our Board of Directors. Amnon Presler will remain
as the Chief Executive Officer and Tamar Tzaban-Nuhomov will remain as the Chief
Financial Officer. All of the foregoing officers will sign employment agreements
with the company.
The term sheet may be terminated at any time by either party. Except
for certain specified sections, the term sheet is a non-binding document. The
consummation of the transactions contemplated therein is subject to the
execution of mutually acceptable definitive agreement, approval of the
transaction and definitive agreements by the respective Boards of Directors of
the parties, completion of due diligence to the satisfaction by us, receipt of
any required approvals of governmental authorities, and receipt of necessary
consents and approvals of third parties. In addition, the closing of the
acquisition shall be made conditional on the following events: (1) we shall have
not less than $1,500,000 in cash as a working capital; (2) we shall have
effectuated a 1:10 reverse stock split, so that we will have approximately
6,013,900 shares issued and outstanding before the closing; (3) the shares
issued to Interactive Health upon the closing shall have a valuation of not less
than $7,000,000; (4) we shall have a deficit not higher than $250,000; and (4)
Interactive Health shall be free of debt and any outstanding liabilities or
obligations.
From April 25, 2006 until the earlier of the closing of the
acquisition or the termination of the term sheet, Interactive Health is
prohibited from participating in any proposals involving the acquisition of
Interactive Health by a third party. The foregoing provision is binding on the
parties. From April 25, 2006 and until the earlier of the closing, the
termination of the term sheet, or sixty days after April 25, 2006, each party
shall have the right to conduct its due diligence investigation with respect to
the other.
Interactive Health is a New York area specialty pharmacy provider
(SPP) whose goal is to increase HIV/AIDS patients' compliance with their
prescribed treatments by providing confidential, home-delivery of prescriptions
drugs, Package by dose, with therapy management and educational materials that
help a patient optimally control his or her condition. Services include
counseling by a highly trained pharmacist and patient specialist, compliance
monitoring, refill reminders, automated reorder capabilities, and direct
shipments to patients. The company was founded in 1995 by Marvin Sirota. We
intend to use Interactive Health as a platform of distribution Israeli OTC
drugs.
We also intend to try and exercise the other term sheets and business
opportunities that we already achieved. In order to finance our business
activity, the Company invests efforts in raising funds.
28
COMPETITION
Competition in the area of life sciences and health care industry
research and development and in each of the fields we signed a term sheet or
agreement to purchase technology is intense. Our competitive ability depends
mainly on the ability to purchase high level technology, to successfully raise
enough funds to finance those purchases, to keep and develop scientific
innovativeness, to protect its technology by patents and other protective
methods, to raise sufficient funds to finance its research and developments
plans, to receive government approval to its developments, to commercialize its
developments, and to successfully employ and retain highly qualified scientific
personnel and consultants.
In all the fields we are considering entering there are many companies
which have financial, technical and marketing resources significantly greater
than us. In addition, many biotechnology companies have more accessibility to
high level technology and the ability to offer better financial compensation and
science support to form collaborations to support research and development and
for the commercialization of their research and development products. In
addition, academic institutions, governmental agencies and other public and
private research organizations also conduct research activities and seek patent
protection and may commercialize products on their own or through joint
ventures, and many of those institutions also have more accessibility to
financing sources and to technological innovations than we do.
We are aware of certain other technology or products in the fields that
we have term sheets or agreements, some of them in more advanced development
stages than the products or technologies that we intend to purchase. There can
be no assurance that developments by third parties will not render our
technologies obsolete or noncompetitive, that we will be able to keep pace with
new technological developments or that our technology will be able to supplant
established products and methodologies. The foregoing factors could have a
material adverse affect on our business, financial condition and results of
operations.
EMPLOYEES
As of June 23, 2006 we had 3 full time employees. We have not
experienced any work stoppages and we consider relations with our employees to
be good.
DESCRIPTION OF PROPERTIES
We lease our main office which is located at 23 Aminadav Street, Tel
Aviv, Israel 67898. The lease expires on July 31, 2007 and we currently pay rent
of $1,000 per month indexed to the Israeli CPI.
We are not dependent on a specific location for the operation of our
business.
LEGAL PROCEEDINGS
No legal proceedings are pending against the Company or its officers
and directors, and the Company has no knowledge that any such proceedings are
threatened.
29
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors and their respective ages and
positions as of June 23, 2006 are as follows:
- ---------------------------------------- ------------------------- ----------------------------------------------
NAMES AGES POSITION
- ---------------------------------------- ------------------------- ----------------------------------------------
Amnon Presler 53 Chief Executive Officer and Director
- ---------------------------------------- ------------------------- ----------------------------------------------
Tamar Tzaban-Nuhomov 45 Chief Financial Officer and Director
- ---------------------------------------- ------------------------- ----------------------------------------------
AMNON PRESLER has been our Chief Executive Officer since December 1, 2005 and
was appointed to our Board of Directors on June 23, 2006. Mr. Presler has more
than 29 years of executive management, operations and international marketing
experience, mainly in Datacom. He served as Chief Executive Officer of Corigin,
and of Broadlight for 3 years and as President and Chief Executive Officer of
Visonic, for 3 years. Before that he served at RAD Data Communications as
President of RAD USA for 7 years and head of R&D for 9 years. Mr, Presler holds
B,Sc in Electric Engineering from Ben Gurion University of the Negev, Israel.
TAMAR TZABAN-NUHOMOV has been a director of our Company since May 4, 2005 and
has been our Chief Financial Officer since October 30, 2005. Ms. Nuhomov has
extensive experience in analysis and value assessments for companies and
projects, business plans, credit allocation, financial planning and analysis,
accounting opinion and policy, auditing and investigative auditing of public
corporations; operation and construction of reporting and data analysis systems,
senior-level management, and management of computerized projects and information
systems. Since September 2004, Ms. Nuhomov has been an independent accountant
and business consultant. From November 1999 to January 2004, she was a director
of the economics department of Discount Bank, where she was responsible for,
among other duties, analysis of credit requests made by the bank's major
business customers. From November 2001 to January 2004, Ms. Nuhomov was a
project manager for Accenture Company, where she was responsible for planning
the computerized support for various credit processes.
BOARD COMMITTEES
Our Board of Directors currently does not have standing audit,
compensation or nominating committees. The functions of the audit, compensation
and nominating committees are currently performed by the entire Board of
Directors, neither of the members of which are independent.
CODE OF ETHICS
Because we are an early-development stage company with limited
resources, we have not yet adopted a "code of ethics", as defined by the SEC,
that applies to our Chief Executive Officer, Chief Financial Officer, principal
accounting officer or controller and persons performing similar functions. We
are in the process of drafting and adopting a Code of Ethics.
DIRECTOR COMPENSATION
Our directors are entitled to receive $400 for each board meeting
attended. The fee increases to $500 if the aggregate investment exceeds
$3,000,000 after said date.
30
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation
for services paid to our Chief Executive Officer and the other executive
officers who earned more than $100,000 per year at the end of the last completed
fiscal year. We refer to all of these officers collectively as our "named
executive officers."
Summary Compensation Table
- ---------------------- -------------------------------------------- -----------------------------------------------------------
LONG TERM COMPENSATION
- ---------------------- -------------------------------------------- -----------------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ---------------------- -------------------------------------------- ------------------------------ ----------------------------
Securities
Other Restricted Under-
Name And Annual Stock Lying LTIP All Other
Principal Salary Bonus Award(s) Compensation Options/ Payouts Compensation
Position Year ($) ($) ($) ($) SARs (#) ($) ($)
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Amnon Presler, 2005 (1) $10,219 0 0 -- -- -- --
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Chief Executive
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Officer
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Dr. Shay 2005 (2) $64,774 0 0 2,659,449 -- -- --
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Goldstein,
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Former CEO
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Shmuel 2004 (3) 0 0 0 -- -- -- --
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Shneibalg 2003 0 0 0 -- -- -- --
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
Former CEO
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
- ---------------------- ---------- ---------- --------- ------------ ----------------- ------------ ---------- -----------------
(1) Mr. Amnon Presler has been serving as the Chief Executive Officer since
December 7, 2005. On March 31, 2006 the board of directors resolved to grant an
aggregate of 2,659,449 stock options to Amnon Presler for future services
exercisable at a price per share equal to 90% of the last transaction price
quoted for such date by the NASDAQ system on the NASDAQ National Market as of
the stock Option Agreement date, according to the plan. These options vest over
the three year period commencing December 1, 2005.
(2) Dr. Shay Goldstein served as the Company's Chief Executive Officer,
Chairman, Secretary, and Director from April 15, 2005 until December 7, 2005. On
such date, he resigned as Chief Executive Officer and was appointed as the
Company's Chief Medical Officer. On March 12, 2005, he resigned as the Chairman,
and Secretary. On June 23, 2006 he resigned as a director of the Company. In
accordance with the terms of the options granted to Dr. Goldstein they were
cancelled upon his resignation.
(3) Mr. Shneibalg was the Chief Executive Officer and a director until April 15,
2005, when he was replaced by Dr. Shay Goldstein. Mr. Shneibalg owns 120,000
shares of the Company's common stock.
STOCK OPTIONS GRANTS
On September 15, 2005, pursuant to our 2005 Employees / Consultants /
Directors Stock Compensation Plan, we authorized the grant of stock options
under Section 102 of the Israeli Income Tax Ordinance for the purchase of an
aggregate of 5,318,893 shares of our common stock to each of our directors in
the following amounts set forth next to their names: Jean-Pierre Elisha Martinez
- - 265,945; Gilad Yoeli - 265,945; Tamar Tzaban Nuhomov - 2,127,557; and Shay
Goldstein - 2,659,446. The exercise price of such stock options is $0.10 per
share. The granting of such stock options is subject to the approval of the
appropriate Israeli tax authorities and the appointment of a trustee pursuant to
Section 102 of the Israeli Income Tax Ordinance. The options are not exercisable
for at least one year after the date of grant.
31
On January 10, 2006 pursuant to our 2005 Employees / Consultants /
Directors Stock Compensation Plan, we authorized the grant of stock options
under Section 102 of the Israeli Income Tax Ordinance, to add to the current
board members' Mr. Martinez and Mr. Yoeli 137,847 options (0.25% out of 60 138,
923 issued and outstanding shares of the company), at an exercise price per
share equal to 90% of the last transaction price quoted for such date by the OTC
Bulletin Board, as of theStock Option Agreement date, according to our 2005
Employees/Consultants/Directors Stock Compensation Plan.
On March 31, 2006 the board of directors resolved to grant an aggregate
of 2,659,449 stock options to Amnon Presler for future services exercisable at a
price per share equal to 90% of the last transaction price quoted for such date
by the NASDAQ system on the NASDAQ National Market as of the stock option
Agreement date, according to the plan. These options vest over the three year
period commencing December 1, 2005.
On June 23, 2006 three of our directors, Shay Goldstein, Gilad Yoeli
and Jean-Pierre Elisha Martinez, resigned from our Board of Directors and in
connection with such resignations the 3,561,528 options previously awarded to
them in the aggregate were cancelled. As a result of the cancellation of the
foregoing options the deferred compensation reflected in our balance sheet will
be reduced by $893,854.
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
AMNON PRESLER
On December 7, 2005, we entered into an employment agreement with Amnon
Presler, pursuant to which Mr. Presler was engaged as our Chief Executive
Officer and the Chief Executive Officer of our wholly owned subsidiary, Oriens
Life Sciences (Israel), Ltd. As compensation for his services, Mr. Presler shall
receive a monthly salary as follows: During the first two months, the monthly
salary shall be $7,500; thereafter the monthly salary shall be $8,500. In
addition, Mr. Presler shall receive a bonus of $8,500 if the aggregate
investments we receive after the date of his employment agreement exceed
$4,000,000. Mr. Presler shall also be entitled to participate in the employee
stock option plan to be adopted by us as well as vacation, insurance benefits,
and use of a company automobile.
The term of Mr. Presler's employment shall continue until terminated by
either party as provided in the employment agreement. We may terminate the
employment agreement without notice for cause or in the event Mr. Presler
becomes disabled. Either party may terminate the employment agreement without
cause, for any reason whatsoever, upon 30 days notice within the first year of
Mr. Presler's employment and upon 90 days prior written notice thereafter.
During the term of the employment agreement and for a period of one
year thereafter, Mr. Presler shall not compete with our subsidiary nor solicit
any of our subsidiary's employees or customers. Mr. Presler agreed to hold our
subsidiary's confidential information in strict confidence.
TAMAR TZABAN-NAHOMOV
On June 7, 2005, our subsidiary entered into a Consulting Agreement
with Tamar Tzaban-Nuhomov. Pursuant to such consulting agreement, Ms. Nuhomov
shall be engaged by our subsidiary as a consultant to provide our subsidiary
with advisory services, concerning such financial matters as shall be reasonably
requested by our subsidiary from time to time. The term of such engagement
commenced as of May 15, 2005, and will continue until terminated by either
party, for any reason whatsoever, upon 30 days' prior written notice. As
compensation for her services, Ms. Nuhomov will be paid a monthly fee equal to
(a) $3,500 for every month in which Ms. Nuhomov performs services for our
subsidiary for at least 20 weekly working hours, but no more than 25 weekly
working hours; or (b) $5,000 for every month in which Ms. Nuhomov performs
services for our subsidiary for at least 25 weekly working hours.
32
On October 30, 2005, our subsidiary entered into an employment
agreement with Ms. Nuhomov, pursuant to which Ms. Nuhomov shall be employed as
the Chief Financial Officer of our subsidiary. As compensation for her services,
Ms. Nuhomov shall receive a monthly salary as follows: During the first two
months, the monthly salary shall be $6,000; during the third through fourth
months, the monthly salary shall be $7,000; and thereafter the monthly salary
shall be $7,700. The salary shall be paid in the currency of Israel translated
pursuant to the official representative rate of exchange of the US$ as published
by the Bank of Israel on the payment date. Ms. Nuhomov also shall be entitled to
participate in the employee stock option plan to be adopted by us as well as
vacation, insurance benefits, and use of a company automobile. The term of the
employment commenced as of September 1, 2005 and shall continue until terminated
by either party as provided in the employment agreement. Our subsidiary may
terminate Ms. Nuhomov's employment agreement without notice for cause or in the
event Ms. Nuhomov becomes disabled. Either party may terminate the employment
agreement without cause, for any reason whatsoever, upon 30 days notice within
the first year of the employment and upon 90 days prior written notice
thereafter.
On December 7, 2005, Ms. Nuhomov's employment agreement was amended
for the purpose of changing Ms. Nuhomov's salary to $8,000 per month, commencing
as of December 1, 2005 and continuing throughout the term of her employment. All
other provisions of the employment agreement remained unchanged.
INDEMNITY AGREEMENTS
On June 7, 2005, we entered into a separate indemnity agreement with
each of Dr. Shay Goldstein, Tamar Tzaban-Nahumov, and Jean Pierre Elisha
Martinez. The substantive terms of each indemnity agreement are identical.
Pursuant to such indemnity agreement, we shall indemnify the indemnitee for all
liabilities and damages that may be incurred by the indemnitee in connection
with his or her position as our director or officer and/or an director or
officer of our subsidiary, as the case may be. Such indemnity will be effective
unless proved that such liabilities arose as a result of the indemnitee's breach
of his or her fiduciary duties, and such breach involved intentional misconduct,
fraud, or a knowing violation of law.
On January 10, 2006 we entered into a separate indemnity agreement with
Amnon Presler, which agreement was identical to the terms described above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that the terms of all of the above transactions are
commercially reasonable and no less favorable to us than we could have obtained
from an unaffiliated third party on an arm's length basis. Our policy requires
that all related parties recuse themselves from negotiating and voting on behalf
of our company in connection with related party transactions.
On February 5, 2006, we appointed Dr. Yigal Koltin as a director. On
the same date, we entered into a letter agreement with Dr. Koltin, which set
forth Dr. Koltin's duties and compensation for his services as a director, and
an indemnity agreement, pursuant to which we agreed to indemnify Dr. Koltin to
the fullest extent permitted by law for liabilities which he may incur in his
service as director. On the same date, we entered into a consulting agreement
with Dr. Koltin and our subsidiary, Oriens Life Sciences (Israel), Ltd.,
pursuant to which Dr. Koltin shall provide additional consulting services to us
and our subsidiary. Dr. Koltin resigned from his position as director on March
8, 2006, and the foregoing agreements were terminated on such date. No payments
were made to Dr. Koltin pursuant to any of the foregoing agreement. Dr. Koltin
agreed to act as a consultant when we request at the rate of $300 per hour.
33
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of June 23, 2006
with respect to the beneficial ownership of the outstanding common stock by (i)
any holder of more than five (5%) percent; (ii) each of our executive officers
and directors; and (iii) our directors and executive officers as a group. Except
as otherwise indicated, each of the stockholders listed below has sole voting
and investment power over the shares beneficially owned.
Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting and investment power. Under SEC rules, a person is
deemed to be the beneficial owner of securities which may be acquired by such
person upon the exercise of options and warrants or the conversion of
convertible securities within 60 days from the date on which beneficial
ownership is to be determined. Each beneficial owner's percentage ownership is
determined by dividing the number of shares beneficially owned by that person by
the base number of outstanding shares, increased to reflect the
beneficially-owned shares underlying options, warrants or other convertible
securities included in that person's holdings, but not those underlying shares
held by any other person.
The percentages below are calculated based on 60,138,923 issued and
outstanding shares of common stock. Unless indicated otherwise, the address for
each person named is c/o Safetek International, Inc., 23 Aminadav St., Tel Aviv,
Israel 67898.
- ---------------------------------------- ---------------------- ----------------
NAME OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ---------------------------------------- ---------------------- ----------------
Amnon Presler (1) 0 *
- ---------------------------------------- ---------------------- ----------------
Tamar Tzaban-Nahomov (2) 0 *
- ---------------------------------------- ---------------------- ----------------
All Executive Officers and Directors 0 *
as a Group (2 persons)
- ---------------------------------------- ---------------------- ----------------
* Less than 1%
(1) Amnon Preseler is the holder of 2,659,449 options to purchase common
stock, but none of such options have vested.
(2) Tamar Tzaban Nuhomov is the holder of 2,127,557 options to purchase
common stock, but none of such options have vested.
34
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
We are authorized to issue up to 500,000,000 shares of common stock,
par value $.0001. As of June 23, 2006, there were 60,138,923 shares of common
stock outstanding. Holders of the common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Certificate of Incorporation, as amended, incorporates certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, including gross negligence,
except in circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. These provisions do not eliminate a
director's duty of care. Moreover, the provisions do not apply to claims against
a director for violations of certain laws, including federal securities laws.
Our Certificate of Incorporation, as amended, also contains provisions
to indemnify the directors, officers, employees or other agents to the fullest
extent permitted by the General Corporation Law of Delaware. These provisions
may have the practical effect in certain cases of eliminating the ability of
stockholders to collect monetary damages from directors. We believe that these
provisions will assist us in attracting or retaining qualified individuals to
serve as directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o short sales that are not violations of the laws and regulations of
any state or the United States;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o through the writing of options on the shares;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
35
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholders, but excluding brokerage commissions or underwriter
discounts.
The selling stockholders, alternatively, may sell all or any part of
the shares offered in this prospectus through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the selling stockholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments the
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholders and the broker-dealer.
36
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny
stocks, the broker or dealer must
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Securities and Exchange
Commission relating to the penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
37
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the
shares of common stock by the selling stockholders. We will not receive any
proceeds from the resale of the common stock by the selling stockholders. We
will receive proceeds from the exercise of the warrants unless the selling
stockholders exercise the warrants on a cashless basis. Assuming all the shares
registered below are sold by the selling stockholders, none of the selling
stockholders will continue to own any shares of our common stock.
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.
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Total
Total Shares of Percentage Percentage
Common Stock of Common Shares of Beneficial of Common
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership Stock Owned
Conversion of Assuming Included in Ownership Common Stock After the After
Name Notes Full Prospectus Before the Owned Before Offering Offering
and/or Warrants* Conversion (1) Offering** Offering** (4) (4)
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
AJW Offshore, Ltd.(3) 23,682,857 36.24% Up to 3,158,544(2) 4.99% -- --
47,365,714
shares of
common stock
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
AJW Qualified 14,297,429 19.21% Up to 3,158,544(2) 4.99% -- --
Partners, LLC (3) 28,594,857
shares of
common stock
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
AJW Partners, LLC 5,219,000 7.99% Up to 3,158,544(2) 4.99% -- --
(3) 10,438,000
shares of
common stock
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
New Millennium 657,857 0.15% Up to 3,158,544(2) 4.99% -- --
Capital Partners 1,315,714
II, LLC (3) shares of
common stock
- ------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
* This column represents an estimated number based on a conversion price as of a
recent date of June 22, 2006 of $0.0175, divided into the principal amount.
** These columns represent the aggregate maximum number and percentage of shares
that the selling stockholders can own at one time (and therefore, offer for
resale at any one time) due to their 4.99% limitation.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, 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 stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the secured convertible notes is subject to adjustment depending
on, among other factors, the future market price of the common stock, and could
be materially less or more than the number estimated in the table.
38
(1) Includes a good faith estimate of the shares issuable upon conversion of
the secured convertible notes and exercise of warrants, based on current market
prices. Because the number of shares of common stock issuable upon conversion of
the secured convertible notes is dependent in part upon the market price of the
common stock prior to a conversion, the actual number of shares of common stock
that will be issued upon conversion will fluctuate daily and cannot be
determined at this time. Under the terms of the Callable Secured Convertible
Notes, if the Callable Secured Convertible Notes had actually been converted on
June 22, 2006, the conversion price would have been $0.0175.
(2) The actual number of shares of common stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon conversion of the Callable Secured Convertible Notes and exercise
of the related warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under the
Securities Act of 1933. However the selling stockholders have contractually
agreed to restrict their ability to convert their Callable Secured Convertible
Notes or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them in the aggregate and
their affiliates after such conversion or exercise does not exceed 4.99% of the
then issued and outstanding shares of common stock as determined in accordance
with Section 13(d) of the Exchange Act. Accordingly, the number of shares of
common stock set forth in the table for the selling stockholders exceeds the
number of shares of common stock that the selling stockholders could own
beneficially at any given time through their ownership of the Callable Secured
Convertible Notes and the warrants. In that regard, the beneficial ownership of
the common stock by the selling stockholder set forth in the table is not
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended.
(3) The selling stockholders are affiliates of each other because they are under
common control. AJW Partners, LLC is a private investment fund that is owned by
its investors and managed by SMS Group, LLC. SMS Group, LLC, of which Mr. Corey
S. Ribotsky is the fund manager, has voting and investment control over the
shares listed below owned by AJW Partners, LLC. AJW Offshore, Ltd., formerly
known as AJW/New Millennium Offshore, Ltd., is a private investment fund that is
owned by its investors and managed by First Street Manager II, LLC. First Street
Manager II, LLC, of which Corey S. Ribotsky is the fund manager, has voting and
investment control over the shares owned by AJW Offshore, Ltd. AJW Qualified
Partners, LLC, formerly known as Pegasus Capital Partners, LLC, is a private
investment fund that is owned by its investors and managed by AJW Manager, LLC,
of which Corey S. Ribotsky and Lloyd A. Groveman are the fund managers, have
voting and investment control over the shares listed below owned by AJW
Qualified Partners, LLC. New Millennium Capital Partners II, LLC, is a private
investment fund that is owned by its investors and managed by First Street
Manager II, LLC. First Street Manager II, LLC, of which Corey S. Ribotsky is the
fund manager, has voting and investment control over the shares owned by New
Millennium Capital Partners II, LLC. We have been notified by the selling
stockholders that they are not broker-dealers or affiliates of broker-dealers
and that they believe they are not required to be broker-dealers.
(4) Assumes that all securities registered will be sold.
TERMS OF SECURED CONVERTIBLE NOTES
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with four accredited investors on November 18,
2005 for the sale of (i) $750,000 in Callable Secured Convertible Notes and (ii)
warrants to buy 1,000,000 shares of our common stock. This prospectus relates to
the resale of the common stock underlying these Callable Secured Convertible
Notes and warrants. The investors are obligated to provide us with an aggregate
of $750,000 as follows:
o $250,000 was disbursed on November 18, 2005;
o $250,000 was disbursed on May 16, 2006; and
o $250,000 will be disbursed within five days of this prospectus being
declared effective.
Accordingly, we have received a total of $500,000 pursuant to the
Securities Purchase Agreement. The funds from the sale of the Callable Secured
Convertible Notes will be and are being used for business development purposes,
business acquisitions, working capital needs, pre-payment of interest, payment
of consulting and legal fees and borrowing repayment.
39
The Callable Secured Convertible Notes bear interest at 8%, mature
three years from the date of issuance, and are convertible into our common
stock, at the investors' option, at the lower of (i) $0.15 or (ii) 50% of the
average of the three lowest intraday trading prices for the common stock on a
principal market for the 20 trading days before but not including the conversion
date. The full principal amount of the Callable Secured Convertible Notes is due
upon default under the terms of Callable Secured Convertible Notes. The warrants
are exercisable until five years from the date of issuance at a purchase price
of $0.30 per share. In addition, the conversion price of the Callable Secured
Convertible Notes and the exercise price of the warrants will be adjusted in the
event that we issue common stock at a price below the fixed conversion price,
below market price, with the exception of any securities issued in connection
with the Securities Purchase Agreement. The conversion price of the callable
secured convertible notes and the exercise price of the warrants may be adjusted
in certain circumstances such as if we pay a stock dividend, subdivide or
combine outstanding shares of common stock into a greater or lesser number of
shares, or take such other actions as would otherwise result in dilution of the
selling stockholder's position. The selling stockholders have contractually
agreed to restrict their ability to convert or exercise their warrants and
receive shares of our common stock such that the number of shares of common
stock held by them and their affiliates after such conversion or exercise does
not exceed 4.99% of the then issued and outstanding shares of common stock. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.
The warrants are exercisable until five years from the date of issuance
at a purchase price of $0.30 per share. The selling stockholders will be
entitled to exercise the warrants on a cashless basis if the shares of common
stock underlying the warrants are not then registered pursuant to an effective
registration statement. In the event that the selling stockholder exercises the
warrants on a cashless basis, then we will not receive any proceeds. In
addition, the exercise price of the warrants will be adjusted in the event we
issue common stock at a price below market, with the exception of any securities
issued as of the date of this warrant or issued in connection with the Callable
Secured Convertible Notes issued pursuant to the Securities Purchase Agreement,
dated November 18, 2005.
Upon the issuance of shares of common stock below the market price, the
exercise price of the warrants will be reduced accordingly. The market price is
determined by averaging the last reported sale prices for our shares of common
stock for the five trading days immediately preceding such issuance as set forth
on our principal trading market. The exercise price shall be determined by
multiplying the exercise price in effect immediately prior to the dilutive
issuance by a fraction. The numerator of the fraction is equal to the sum of the
number of shares outstanding immediately prior to the offering plus the quotient
of the amount of consideration received by us in connection with the issuance
divided by the market price in effect immediately prior to the issuance. The
denominator of such issuance shall be equal to the number of shares outstanding
after the dilutive issuance.
The conversion price of the secured convertible notes and the exercise
price of the warrants may be adjusted in certain circumstances such as if we pay
a stock dividend, subdivide or combine outstanding shares of common stock into a
greater or lesser number of shares, or take such other actions as would
otherwise result in dilution of the selling stockholder's position.
The selling stockholders have contractually agreed to restrict their
ability to convert their secured convertible notes or exercise their warrants
and receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 4.99% of the then issued and outstanding shares of
common stock.
A complete copy of the Securities Purchase Agreement and related
documents are filed with the SEC as exhibits to our Form SB-2 relating to this
prospectus.
SAMPLE CONVERSION CALCULATION
The number of shares of common stock issuable upon conversion of the
notes is determined by dividing that portion of the principal of the Callable
Secured Convertible Notes to be converted and interest, if any, by the
conversion price. For example, assuming conversion of $750,000 of Callable
Secured Convertible Notes on June 22, 2006, a conversion price of $0.0175 per
share, the number of shares issuable upon conversion would be:
$750,000/$(50%*0.035) = 42,857,143 shares
40
Our obligation to issue shares upon conversion of our callable secured
convertible notes is essentially limitless. The following is an example of the
amount of shares of our common stock that are issuable, upon conversion of the
callable secured convertible notes (excluding accrued interest), based on market
prices 25%, 50% and 75% below the current market price, as of June 22, 2006 of
$0.035.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 50% Issuable Stock
- ------ ----- ------ ----------- ------
25% $0.0263 $0.0131 57,251,908 48.77%
50% $0.0175 $0.0088 85,227,272 58.63%
75% $0.0088 $0.0044 170,454,545 73.92%
As illustrated, the number of shares of common stock issuable upon conversion of
our secured convertible notes will increase if the market price of our stock
declines, which will cause dilution to our existing stockholders.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
EXPERTS
Our consolidated financial statements for the years ended December 31,
2005 and 2004, have been included herein in reliance upon the report of Sherb &
Co., LLP, independent registered public accounting firm, appearing elsewhere
herein, and upon authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of The Certo Group Corp.,
filed as part of the registration statement, and it does not contain all
information in the registration statement, as certain portions have been omitted
in accordance with the rules and regulations of the Securities and Exchange
Commission.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, which requires us to file reports, proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information may be inspected by public
reference facilities of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
41
INDEX TO FINANCIAL STATEMENTS
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
TABLE OF CONTENTS
QUARTERLY FINANCIAL INFORMATION
Financial Statements:
Consolidated Balance Sheet (Unaudited) at March 31, F-1
2006
Consolidated Statements of Operations (Unaudited) for the three F-2
months ended March 31, 2006 and 2005 and for the Period from April 16,
2005 Through March 31, 2006 (Development stage)
Consolidated Statements of Cash Flows (Unaudited) for the three F-3
months ended March 31, 2006 and 2005 and for the Period from April 16,
2005 Through March 31, 2006 (Development
stage)
Notes to Consolidated Financial F-4
Statements
ANNUAL FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm F-14
Financial Statements:
Consolidated Balance Sheet F-15
Consolidated Statements of Operations F-16
Consolidated Statements of Changes in Stockholders' Deficit F-17
Consolidated Statements of Cash Flows F-18
Notes to Financial Statements F-19
42
SAFETEK INTERNATIONAL INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
March 31,
2006
(Unaudited)
ASSETS
Current Assets
Cash & Cash Equivalents $ 134,436
Other Receivable 25,665
Prepaid Expenses 11,006
Biological Materials Supply Inventory 100,000
-----------
Total Current Assets 271,107
Available for Sale Securities 5,417
Property and Equipment, Net 17,353
Other 4,683
Debt Financing Cost, Net of Amortization 52,717
-----------
TOTAL ASSETS $ 351,277
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable $ 152,629
Accrued Expenses 120,552
Accrued Payroll and Related Expenses 58,107
Loans Payable 69,647
Convertible Debentures, Net of Discount of $201,248 28,061
Warrants, Net of Discount of $17,988 2,703
Derivative Liability - Convertible Debentures and 988,621
Warrants
Derivative Liability - Warrants, Current Portion 1,300,613
-----------
Total Current Liabilities 2,720,933
Other
Derivative Liability - Warrants 1,385,939
Redeemable Convertible Preferred Shares (4,648 shares, par value $
.0001, redeemable prior to February 21, 2002 at $50 per share)
50,000,000 shares authorized 232,400
-----------
TOTAL LIABILITIES 4,339,272
-----------
Stockholders' Deficit:
Common Stock, $.0001 Par Value Authorized
500,000,000 Shares, Issued and Outstanding
60,138,923 6,014
Additional Paid in Capital 6,080,396
Accumulated Deficit Through April 15, 2005* (4,250,580)
Deficit Accumulated During the Development Stage (3,795,043)
Deferred Compensation (2,028,782)
-----------
Total Stockholders' Deficit (3,987,995)
-----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 351,277
===========
*Commencement of development stage
F-1
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
Cumulative for
the Period from
April 16, 2005*
March 31, March 31, Through March
2006 2005 31, 2006
------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited)
Operating Expenses (Income)
Payroll and Related Expenses $ 111,756 $ -- $ 256,356
Income from Cancellation of Indebtedness (212,432)
Gain from Securities (2,263) (11,264)
Office & General Expenses 28,717 3,810 100,000
Exchange Rate Loss 1,738 -- 13,300
Professional Fees 61,614 12,000 354,598
Amortization of
Convertible Debentures and
Warrant Discount 28,230 -- 38,047
Business Development Costs 93,423 -- 133,746
------------ ------------ ------------
Total Operating Expenses (323,215) (15,810) (672,351)
Loss from Operations (323,215) (15,810) (672,351)
Other Income (Expenses)
Interest Income 1,192 -- 2,808
Interest Expenses Convertible Debentures (4,932) (2,700) (7,233)
Derivative Liability Expenses (557,779) -- (3,118,267)
------------ ------------ ------------
Total Other Income (Expenses) (561,519) (2,700) (3,122,692)
------------ ------------ ------------
Net (Loss) $ (884,734) $ (18,510) $ (3,795,043)
============ ============ ============
Net (Loss) Per Share
Basic & Diluted Per
Common Shares $ (0.0147) $ -- $ (0.0676)
------------ ------------ ------------
Weighted Average Number of
Shares Outstanding -
Basic and Diluted 60,138,923 26,902,974 56,115,607
------------ ------------ ------------
* Commencement of development stage
F-2
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
Cumulative
for the
Period from
April 16,
March 31, March 31, 2005* Through
2006 2005 March 31, 2006
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period $ (884,734) $ (18,510) $(3,795,043)
Adjustment to Reconcile Net Loss to Net Cash
Used in Operating Activities:
Depreciation 1,738 -- 2,966
Stock Issued for Services -- -- 179
Income from Cancellation of Indebtedness -- -- (212,432)
Non Cash Interest Expenses -- -- 5,001
Derivative Liability Expenses 557,779 -- 3,118,095
Amortization of Debentures and Warrants
Discount 28,230 -- 38,047
Other 75 -- (4,180)
Changes in Assets and Liabilities
Sale of Trading Securities 122,162 -- 4,256
Decrease in Prepaid Expenses 13,247 -- (11,006)
(Increase)in Other Receivable (9,572) -- (25,666)
Decrease in Other Current Assets 54,906 54,906
(Increase) in Supplies Inventory (100,000) (100,000)
Increase in Account Payable 62,710 6,000 99,051
(Decrease) in Accrued Expenses (10,515) 2,700 115,550
Increase in Accrued Payroll and Related
Expenses 7,845 -- 58,110
----------- ----------- -----------
Net Cash Used in Operating Activities (156,129) (9,810) (652,166)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (3,842) -- (20,318)
Advance payment to Matrix -- -- (25,000)
Loan to Serapis -- -- (29,906)
Other Long Term Assets 59 -- (4,684)
Available-For-Sale Securities -- -- (5,490)
----------- ----------- -----------
Net Cash Used in Investing Activities (3,783) -- (85,398)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceed from Issuance of Shares
and Warrants, Net of Issuance -- 37,369 685,001
Expenses
Proceeds from Issuance of Debentures, Net of -- -- 190,000
Issuance Expenses
Payment on Debentures -- (15,827) --
Payments on Loan Payable -- (11,732) (3,001)
----------- ----------- -----------
Net Cash Provided by Financing Activities -- 9,810 872,000
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUVALENTS (159,912) -- 134,436
BALANCE OF CASH AND CASH EQVIVALENTS
AT THE BEGINNING OF PERIOD 294,348 -- --
----------- ----------- -----------
BALANCE OF CASH AND CASH EQVIVALENS
AT THE END OF PERIOD $ 134,436 $ -- $ 134,436
----------- ----------- -----------
*Commencement of development stage
F-3
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
Safetek International, Inc. (the "Company") was incorporated in April 1988
under the name Theoretics, Inc. The Company reorganized in May 2001 for
the purpose of providing embryonic companies with good concepts and
promising patented ideas. During the years 2002-2004 the Company did not
have any business activity.
As of April 15, 2005, Dr. Goldstein was appointed as the Company's
Chairman, Chief Executive Officer and Secretary, and since then the
Company has been focusing on screening new technologies and other business
opportunities in the life sciences and health care fields. On May 17,
2005, the Company established an Israeli wholly owned subsidiary under the
laws of the State of Israel, called "Oriens Life Sciences Ltd. (the
"Subsidiary") , to serve as a platform for the Company to screen the
Israeli life sciences and health care industry and identify, analyze, and
acquire or invest in technologies in this field.
In accordance with Financial Accounting Standards Board (FASB) No. 7, the
Company is considered a development stage company, beginning on April 16,
2005, the date it commenced with its new business activity.
During the fiscal year ended December 31, 2005, the Company signed 4 term
sheets to purchase technologies in the life science field. In due course,
on January 4, 2006, the Company closed on a transaction contemplated by
the Exclusive Patent and Know How License Option Agreement dated December
28, 2005 with Matrix Pharma Inc., a Delaware corporation ("Matrix").
Pursuant to the Agreement, the Company acquired from Matrix for a
consideration of $60,000 an option to purchase an exclusive, world-wide
license in all of Matrix's intellectual property rights in its Thrombin
inhibition compounds.
On March 30, 2006, the Company and Matrix signed an amendment, extending
the exercise date of the option to May 15, 2006. The amendment provides
that until April 15 the Company will pay Matrix $15,000 in consideration
for Matrix's agreement to extend the exercise date. Such amount will be
deducted from the repayment of costs that the Company shall pay if it
exercises the option. The Company is considering whether to exercise the
option, due to the amounts needed to finance such development and the
other business opportunities that the Company obtained.
On March 23, 2006, the Company entered into a term sheet with Resdevco
Ltd, a company incorporated under the laws of Israel ("Resdevco"). The
term sheet sets forth the principal terms of a proposed agreement between
the Company and Resdevco, pursuant to which Resdevco will grant the
Company an exclusive, worldwide license in Resdevco's Antioxidant
salicylate compounds. The Company is conducting a due diligence process
using the services of applicable expert, in order to evaluate the
probability and the potential uses of those compounds.
On April 25, 2006, the Company entered into a term sheet with Interactive
Health Pharmacy Services, Inc. ("IHPS"). The term sheet sets forth the
principal terms of a proposed agreement between the Company and IHPS,
pursuant to which the Company will acquire IHPS at the closing, after the
parties agree to a mutually acceptable definitive acquisition agreement.
In consideration therefore at the closing of the acquisition, the Company
will issue to IHPS shares of common stock in an amount equal to 50.01% of
the issued and outstanding shares of common stock. In addition, at the
closing of the acquisition the Company is obligated to have no less than
$1,500,000 in cash and working capital. Anticipated date for the execution
of a definitive agreement is June 25, 2006. IHPS is engaged in preparing
and distributing HIV and AIDS drugs in the New York area.
The Company currently invests its efforts in conducting its due diligence
on the companies with which it has signed term sheets.
As of March 31, 2006, the Company has an accumulated deficit of
$8,045,623. Our prospects must therefore be evaluated in light of the
problems, expenses, delays and complications associated with the financial
situation of the Company. The Company is in the process of raising funds
to finance its activities, including without limitation, the completion of
the above described prospective transactions, and other potential business
opportunities. The Company requires funds in order to execute the
transaction with IHPS, to finance its current activities and in order to
begin the development of the technologies it has the opportunity to
purchase if and when definitive agreements will be executed.
F-4
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
NOTE 2: GOING CONCERN
As of March 31, 2006, we have cash on hand of $134,436 which we received
for securities issuance. This amount is inadequate for us to effectuate
our planned activities during the next 12 months. Accordingly, we may be
unable to continue operations in the future as a going concern. Our plans
to deal with this uncertainty include raising additional capital or
entering into a strategic arrangement with a third party. There can be no
assurance that our plans can be realized. There can be no assurance that
we will be able to obtain additional financing if and when needed or that,
if available, financing will be on acceptable terms. Additional equity
financings may be dilutive to holders of our common stock and debt
financing, if available, and may involve significant payment obligations
and covenants that restrict how we operate our business.
Certain conditions raise substantial doubt about the Company's ability to
continue as a going concern beyond the next twelve (12) month period. As
of March 31, 2006, the Company had stockholders' deficit of $3,987,995 and
an accumulated deficit of $8,045,623. Our balance sheet as of March 31,
2006 reflects total liabilities of $4,339,272. The Company needs to obtain
additional financing to fund payment of its obligations and to provide
working capital for operations.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of Safetek
International, Inc. and its subsidiary have been prepared in accordance
with accounting principles generally accepted in the United States of
America for interim financial information and with instructions for Form
10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include
all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Results
of operations for the three months ended March 31, 2006 are not
necessarily indicative of the results that may be expected for the fiscal
year ended December 31, 2006. The accompanying consolidated financial
statements should be read in conjunction with the consolidated financial
statements in the Company's annual report on Form 10-KSB for the fiscal
year ended December 31, 2005 and notes thereto filed with the Securities
and Exchange Commission in April 2006.
USE OF ESTIMATES
The preparation of these financial statements requires our management to
make estimates, judgments and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. We continually evaluate the
accounting policies and estimates we use to prepare the consolidated
financial statements. We base our estimates on historical experiences and
assumptions believed to be reasonable under current facts and
circumstances. Actual amounts and results could differ from these
estimates made by Management. We do not participate in, nor have we
created, any off-balance sheet special purpose entities or other
off-balance sheet financing. In addition, we have not and do not
anticipate entering into any derivative financial instruments for
speculative purposes or use derivative financial instruments primarily for
managing our exposure to changes in interest rates. Significant estimates
include the useful life of property and equipment and the fair value of
derivative liabilities.
RECLASSIFICATION
The Company has reclassified certain amounts and descriptions to enhance
financial statement presentation.
DEVELOPMENT STAGE COMPANY
In accordance with Financial Accounting Standards Board (FASB) No. 7, the
Company is considered a development stage company, beginning on April 16,
2005, the date it commenced with its new business activity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its subsidiary. All material inter-company balances and
transactions have been eliminated in consolidation.
F-5
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
FUNCTIONAL CURRENCY
The currency of the primary economic environment in which the operations
of the Company and its subsidiary are conducted is the US dollar. A
significant part of the Company's capital expenditures and most of its
financing is in dollars. Most of the Company's expenses incurred in
dollars and all intercompany balances are denominated in dollars. In
addition, a substantial portion of the subsidiary's expenses are incurred
in dollars. Thus, the functional currency of the Company and its
subsidiary is the US dollar.
Transactions and balances originally denominated in dollars are presented
at their original amounts. Balances in foreign currencies are translated
into dollars using historical and current exchange rates for non-monetary
and monetary balances, respectively. For foreign transactions and other
items reflected in the statements of operations, the following exchange
rates are used: (1) for transactions - exchange rates at transaction dates
or average rates and (2) for other items (derived from non- monetary
balance sheet items such as depreciation) - historical exchange rates. The
resulting transaction gains or losses are carried to financial income or
expenses, as appropriate.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, which include
short-term bank deposits (up to three months from date of deposit) that
are not restricted as to withdrawal or use, to be cash equivalents.
OTHER RECEIVABLE
Other receivable consist of refundable value added tax (VAT) payments that
the Company paid during the year.
INVESTMENTS IN SECURITIES
The Company and its subsidiary account for securities in accordance with
Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities"
Securities that are bought and held principally for the purpose of selling
them in the near term shall be classified as trading securities.
Investments not classified as trading securities shall be classified as
available-for-sale securities.
Unrealized holding gains and losses for trading securities shall be
included in earnings. Unrealized holding gains and losses for
available-for-sale securities shall be excluded from earnings and reported
in other comprehensive income until realized except in hedge transactions.
PREPAID EXPENSES
Prepaid expenses consist of insurance payments that are amortized over the
service and contract period.
BIOLOGICAL MATERIALS SUPPLY INVENTORY
Disposal biological materials are expensed as used and the remaining
balance is stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated by the
straight-line method over the estimated useful lives of the assets (2-7
years).
OTHER LONG TERM ASSETS
Other long term assets include deposits on leased property that will be
applied toward the last three months of the three year leasing period.
F-6
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
DEBT FINANCING COSTS
Consist of costs that were incurred by issuance of the convertible
debentures on November 18, 2006. The balance is amortized on a straight
line basis over the three years debentures period.
DEBENTURES
The Company accounts for debentures that were issued in accordance with
APB 14, SFAS 133 and EITF 00-19. Per APB 14, when Warrants are detachable
from the debt instrument, and the warrants are used as security for the
debt instrument, the proceeds from the sale of the debt instrument and the
detachable warrants should be allocated between the warrants and the debt
instrument.
Paragraph 12 of Statement of Financial Accounting Standard No. 133
provides that in the case of contracts that do not in their entirety meet
the definition of a derivative instrument such as bonds, insurance
policies, and leases, any embedded derivative instruments shall be
separated from the host contract and accounted for as a derivative
instrument.
Paragraph 11(a) of Statement of Financial Accounting Standard No. 133
provides that contracts issued or held by a reporting entity that are both
(1) indexed to its own stock and (2) classified in stockholders' equity in
its statement of financial position, shall not be considered derivative
instruments for purposes of this statement.
EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock," provides
guidance in determining whether an embedded derivative which is indexed to
its own stock would be classified in stockholders' equity in accordance
with paragraph 11(a) of Statement of Financial Accounting Standard No. 133
or if it was freestanding. EITF Issue No. 00-19 excludes from its
classification requirements "conventional instruments".
Such instruments are defined in EITF 05-2 as: instruments that provide the
holder with an option to convert into a fixed number of shares (or
equivalent amount of cash at the discretion of the issuer) for which the
ability to exercise the option is based on the passage of time or a
contingent event should be considered "conventional" for purposes of
applying Issue 00-19. Instruments that contain "standard" antidilution
provisions would not preclude a conclusion that the instrument is
convertible into a fixed number of shares. Standard antidilution
provisions are those that result in adjustments to the conversion ratio in
the event of an equity restructuring transaction (as defined in the
glossary of Statement 123(R) 2 ) that are designed to maintain the value
of the conversion option.
WARRANTS
The Warrants that the Company issued are presented at their fair value and
classified as liabilities, according to paragraphs 20 and 24 of EITF 00-19
"Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock".
As a result of the terms of the debentures that the Company issued and
since theoretically the debentures can be converted into a number of
shares that will exceed the company's authorized shares if the Company's
market price falls below 0.000569. (As of March 23, 2006 as reported on
http://Bloomberg.com, the average bid and ask price was 0.25), all
convertible instruments of the Company including warrants (but excluding
employee stock options) are accounted as for derivative liabilities.
INCOME TAX
The Company and its subsidiary account for income taxes in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes". This Statement requires the use of the liability method of
accounting for income taxes, whereby deferred tax asset and liability
account balances are determined based on the differences between financial
reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company and its subsidiary provide a
valuation allowance, if necessary, to reduce deferred tax assets to their
estimated realizable value.
F-7
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net losses per common share are presented in accordance
with FAS No. 128 "Earning per share" ("FAS 128"), for all periods
presented. Outstanding warrants have been excluded from the calculation of
the diluted loss per share because such securities have an anti-dilutive
effect for all periods presented. The total number of shares of common
stock outstanding excluded 22,581,863 warrants and options. In addition,
2,092,050, shares to be exercised into the Company's Common stock by
converting debentures that were issued and 627,615 shares upon a default
event (calculated according the market price as of March 31 2006).
STOCK BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB") issued
the revised Statement of Financial Accounting Standards ("FAS") No. 123,
"Share-Based Payment" (FAS 123R), which addresses the accounting for
share-based payment transactions in which the Company obtains employee
services in exchange for (a) equity instruments of the Company or (b)
liabilities that are based on the fair value of the Company's equity
instruments or that may be settled by the issuance of such equity
instruments. The Statement will be effective as of the beginning of the
first interim or annual reporting period that begins after December 15,
2005, for small business issuers.
The Company decided to adopt FAS 123R and to reflect the fair value of the
options granted to employees during the year 2005.
NOTE 4: BIOLOGICAL MATERIALS SUPPLY INVENTORY
On March 27, 2006 the Company exercised its right that was given to it in
a Letter Agreement dated December 1, 2005 to purchase certain biological
materials from Serapis Biotech Ltd ( "Serapis") for a purchase price of
$100,000 plus value added tax (VAT). The purchase price was paid by the
forgiveness of $29,906 debt owed to the Company, and the balance to be
paid in 12 equal monthly payments, with the first payment on the signing
date. With these biological materials, the Company intends to develop a
technology that will assist and accelerate the identification of new
generation of lead compounds stimulating the activity of muscarinic
receptors, for the development of new therapies for variety of diseases
such as Alzheimer's disease, glaucoma, and over active bladder.
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31, 2006:
Useful Life
Computer Equipment & Hardware 3 $ 6,679
Office Furniture and Equipment 7 4,715
Leasehold Improvement 2 2,854
Website 2 4,431
Communication 6.7 1,640
--------
Total 20,319
Accumulated depreciation (2,966)
--------
Property and Equipment, Net $ 17,353
========
Depreciation expense totaled $1,738 in the three months ended
March 31, 2006.
NOTE 6: ACCOUNTS PAYABLE
Consist of $ 37,397 of old debt from the Company's business activity from
the years 2001- 2003 and $70,094 owed to Serapis for biological materials
that the Company purchased. The amount owed to Serapis is to be paid in 12
equal monthly payments, with the first payment on the signing date. On
April 4, 2006 the Company paid the first payment. The Company didn't pay
the second payment that was due on April 27, 2006.
F-8
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
NOTE 7: ACCRUED EXPENSES
Consist of $74,650 accrued auditing fee. The balance primarily consists
of accrued payments to advisories, legal fees and office and general
expenses to be paid.
NOTE 8: LOANS PAYABLE
The Company has a total of $69,647 of loan payable as of March 31, 2006
which is due on demand and is non-interest bearing.
NOTE 9: REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stock were issued prior to 2001. The
shares may be converted to common shares at a rate of one-half common
share for each preferred stock and are redeemable on February 21, 2002 at
$50 per share. The shares are presented at their obligation amount of
$232,400 associated with the redemption feature.
NOTE 10: DEBENTURES AND EMBEDDED DERIVATIVE INSTRUMENTS (2005)
1. On November 18, 2005 the Company signed an agreement with 4 investors
(together, the "Investors") to issue an aggregate of $750,000 as
convertible debentures (the "Notes") due three years after issuance. The
issuance is to be made in three installments, the first, in the amount of
$250,000 was received upon signing the definitive investment agreements,
the second in the amount of $250,000 upon the filing of a registration
statement covering the shares underlying the Notes and the warrants
referred to below, and the third in the amount of $250,000 upon the
effectiveness of the registration statement.
The Notes bear interest at the rate of 8% per annum payable quarterly in
cash. Interest on delay payments shall be 15% annually. No interest shall
be due and payable for any month in which the Trading Price is greater
than $0.1875 for each Trading Day of the month.
The Notes can be immediately convertible into shares of the Company's
common stock. The conversion price will be equal to the lesser of: (i)
$0.15 and (ii) the average of the lowest 3 intra-day trading prices during
the 20 trading days immediately prior to the conversion date discounted by
50%.
In addition, the Company issued to the Investors 333,334 warrants with an
exercise price of $0.30. The Company will issue to the investors an
additional 333,333 warrants while receiving the second amount of $250,000
and 333,334 warrants while receiving the third amount of $250,000 upon the
effectiveness of the registration statement. All the Company assets
secured the debt.
According to the agreement, the Company was obligated to file, on or prior
to thirty days from November 18, 2005, a registration statement, to
register the shares of common stock underlying the Notes and warrants
issued to the Investors. The Company has been delayed in its obligation
and is currently in default. As a result, the Company will have to pay
penalties at a rate of 2% of the outstanding amount of debentures for each
month of delay. The penalties can be paid in cash or at the Company's
option, in shares of Common Stock priced at the Conversion Price (as
defined in the Notes) on such payment date. The Company announced the
Debentures holders of the delay in filing.
At a default event the Holders of a majority of the aggregate principal
amount of the outstanding Notes issued have the option to ask for
immediate due and payable and the Company shall pay to the Holders, an
amount equal to the greater of (i) 130% times the sum of the outstanding
principal amount, plus accrued and unpaid interest on the unpaid principal
amount, plus Default Interest, if any, and/or any other amounts owed to
the Holders under the Registration Rights Agreement or (ii) the highest
number of shares of Common Stock issuable upon conversion of or otherwise
pursuant to such Default Sum in accordance with the Trading Day
immediately preceding the Mandatory Prepayment Date as the "Conversion
Date" for purposes of determining the lowest applicable Conversion Price,
unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the
Conversion Date), multiplied by (b) the highest Closing Price for the
Common Stock during the period beginning on the date of first occurrence
of the Event of Default and ending one day prior to the Mandatory
Prepayment Date. Because of the delay in filing the registration statement
the Company is also in a delay in declaration of effectiveness by the
Securities and Exchange Commission. The Company filed the registration
statement at the on May 9, 2006.
F-9
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
2. The Company applied the provisions of APB 14 and allocated the proceeds to
the detachable warrants and the convertible notes based on their
respective fair values. The Company further evaluated the convertible
notes to determine if they contain derivatives that warrant bifurcation.
The Company concluded that in accordance with EITF 05-2 the convertible
debentures do not meet the definition of conventional convertible debt
instruments for purposes of evaluating the existence of embedded
derivatives under EITF 00-19. The Company further concluded that as a
freestanding derivative, the embedded feature would not be classified as
equity under EITF 00-19, and as such, determined that the embedded feature
needs to be bifurcated from the host contract.
In addition, the Company determined that the liquidated damages clause
contained in the registration rights agreement needs to be bifurcated as
well. The clause requires the Company to pay 2% per month of the
outstanding principal amount of the debentures, in cash, to the debenture
holders in the event that a registration statement covering the shares
underlying the convertible debentures is not declared effective within 120
days of the date the debentures were issued. The probability that the
holders will announce a default event is remote due to the economic
motivation to receive registered shares.
The Company also determined that a contingent interest payment feature
exists and needs to be bifurcated from the host instrument. That feature
exempts the Company from having to pay the stated interest on the
debentures if the stock price reaches a price of $0.1875. In order to
evaluate the embedded derivatives, the Company estimated the fair market
values using the Binomial model and the Black - Scholes model. Since the
Company is in default and since the fair value of the embedded feature
exceeded the value of the debt, the Company presented the excess
derivative liability separate from the debentures.
Because there is a possibility that the Company will be required to issue
more shares then are authorized, the Company recorded the warrants as a
derivative liability.
The Company remeasured the embedded features in the debentures as of March
31, 2006 to reflect their updated fair value. The Company also updated the
allowance it made for possible penalties it should pay because of not
filing on time the registration statement as disclosed above, and
remeasured the derivative liability for the fair value of the detachable
warrants detachable.
The fair value of the derivative liability relating to the convertible
debentures at March 31, 2006 is $875,225. The Company charged $103,901 as
an adjustment to the fair value. The fair value of the detachable warrants
detachable is $73,800. The Company charged $14,153 as an adjustment to the
fair value. The updated allowance for the possible penalties is $39,597,
after the Company made additional charge of $10,000. The Derivative
Liability - convertible debentures and warrants detachable are presented
together in amount of $988,621.
The following assumptions were used for purposes of determining the fair
value of the features at March 31, 2006:
March 31, 2006
-------------------------
Exercise price The lower of $0.15 or 50%
of the market price
Expected dividend yield 0%
Expected volatility 285%
Risk free interest rate 5%
Expected life of warrant 3 years
The following weighted average assumptions were used for
determining the fair value of the freestanding warrants at March
31, 2006:
March 31, 2006
--------------
Exercise price $0.3
Expected dividend yield 0%
Expected volatility 285%
Risk free interest rate 5%
Expected life of warrant 5 years
F-10
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
The Company remeasured the class A and class B warrants that it issued
during 2005. As a result of the remeasurment, the Company recorded the
Class A warrants at March 31, 2006 at $1,300,613 and the class B at
$1,385,939. As a result, the Company charged a derivative liabilities
expense of $429,725.
NOTE 11: STOCKHOLDERS' EQUITY
A. Capital Stock
During the three months ended March 31, 2006, the Company did not issue
shares.
B. Warrants
A summary of the warrant activity for the three months ended March 2006 is
as follows (there were no warrants outstanding in 2004):
Weighted
Shares Average
Underlying Exercise
Warrants Price
---------- ----------
$
Outstanding at January 1, 2006 14,233,332 1.23
Granted -- --
Forfeited -- --
---------- ----------
Outstanding at March 31, 2006 14,233,332 1.23
========== ==========
Warrants exercisable at March 31, 2006 14,233,332 1.23
========== ==========
The following table summarizes information concerning warrants outstanding
at March 31, 2005:
Number Out Weighted Average
standing Exercise Price
$
6,950,000 1
6,950,000 1.5
333,332 0.3
----------
14,233,332 1.23
==========
As described in note 8 warrants as of November 18, 2005 and as of December
31, 2005, the Company presented the warrants as derivative liabilities
according to EITF 00-19.
The following assumptions were used in calculating the fair value at March
31, 2006:
o Dividend yield - 0%,
o Expected volatility - 285%,
o Risk free interest rate - 5%.
As a result of the remeasurment, the Company recorded the Class A warrants
at March 31, 2006 at $1,300,613 and the class B at $1,385,939. The Company
charged a derivative liabilities expense of $429,725.
C. Stock Options to Employees
The company follows fair value accounting and the related provisions of
SFAS No. 123R for all share based payment awards. The fair value of each
option or warrant granted is estimated on the date of grant using the
Black-Scholes option-pricing model. The following is a summary of all
stock options granted to employees. All options
F-11
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
grant have been recorded as deferred compensation in stockholders equity
due to the fact that they are not yet vested with an offsetting credit to
additional paid in capital:
Weighted
Shares Average
Underlying Exercise
Options Price
$
Outstanding at January 1, 2006 5,318,893 0.1
Granted 3,029,638 0.226
Forfeited - -
-----------------------
Outstanding at March 31, 2006 8,348,531 0.146
=======================
Options exercisable at March 31, 2006 -
=======================
On January 10, 2006 the board of directors resolved to grant an aggregate
of 370,192 stock options to its directors for future services exercisable
at a price per share equal to 90% of the last transaction price quoted for
such date by the NASDAQ system on the NASDAQ National Market as of the
stock Option Agreement date, according to the plan. These options vest
over the three year period commencing the first anniversary of the grant
date as follows:
Gilad Yoeli - Director - 185,096
Jean-Pierre Elisha Martinez - Director - 185,096
The options grant was valued pursuant to SFAS 123R at $63,387.
On March 31, 2006 the board of directors resolved to grant an aggregate of
2,659,449 stock options Amnon Presler, CEO for future services exercisable
at a price per share equal to 90% of the last transaction price quoted for
such date by the NASDAQ system on the NASDAQ National Market as of the
stock Option Agreement date, according to the plan. These options vest
over the three year period commencing December 1, 2006.
The options grant was valued pursuant to SFAS 123R at $581,283.
Weighted average assumptions used by management were as follows:
------------------------------- -------------------- --------------
January 10, 2006 March 29, 2006
------------------------------- -------------------- --------------
Dividend yield 0% 0%
------------------------------- -------------------- --------------
Expected volatility 303% 286%
------------------------------- -------------------- --------------
Risk free interest rate 5% 5%
------------------------------- -------------------- --------------
Expected life of option 7 years 7 years
------------------------------- -------------------- --------------
NOTE 12: BUSINESS DEVELOPMENT COSTS
Business development costs primarily consist of $60,000 payment to Matrix
as a consideration to an option to an Exclusive Patent and Know How
License to Thrombin Inhibitor compounds.
F-12
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006 (Unaudited)
NOTE 13: SUBSEQUENT EVENTS
On April 25, 2006, the Company entered into a term sheet with Interactive
Health Pharmacy Services, Inc. ("IHPS"). The term sheet sets forth the
principal terms of a proposed agreement between the Company and IHPS,
pursuant to which the Company will acquire IHPS at the closing, after the
parties agree to a mutually acceptable definitive acquisition agreement.
In consideration therefore at the closing of the acquisition, the Company
will issue to IHPS shares of common stock in an amount equal to 50.01% of
the issued and outstanding shares of common stock. In addition, at the
closing of the acquisition the Company is obligated to have no less than
$1,500,000 in cash and working capital. Anticipate date for the execution
of a definitive agreement is June 25, 2006. IHPS is engaged in preparing
and distributing HIV and AIDS drugs in the New York area.
On May 9, 2006, the Company filed registration statement for the
convertible debentures that it issued on November 18, 2005. By filing the
registration statement the Company intends to receive another amount of
$250,000.
The Company is negotiating with Matrix to extend the period to exercise
the option it purchased on January 4, 2006, to an exclusive, world-wide
license in all of Matrix's intellectual property rights in its Thrombin
inhibition compounds. The last date to exercise the option is May 15,
2006.
F-13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF DIRECTORS
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheet of Safetek
International, Inc. and Subsidiary as of December 31, 2005 and 2004 and the
related consolidated statements of operations, changes in stockholders' deficit,
and cash flows for the years ended December 31, 2005 and for the period from
April 16, 2005 through December 31, 2005 (development stage). These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Safetek
International, Inc. and Subsidiary as of December 31, 2005 and the results of
their operations and their cash flows for the years ended December 31, 2005 and
2004 and for the period from April 16, 2005 through December 31, 2005
(development stage) in conformity with accounting principles generally accepted
in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has experienced recurring net
operating losses. At December 31, 2005, the Company continues to experience a
working capital deficit and also has a stockholder deficit of $3,103,260. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
/s/ Sherb & Co., LLP
Boca Raton, Florida
April 14, 2006
F-14
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
2005
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents $ 294,348
Trading Securities 122,162
Other Receivable 16,094
Prepaid Expenses 24,253
Other Current Assets 54,906
------------
TOTAL CURRENT ASSETS 511,763
AVAILABLE-FOR-SALE SECURITIES 5,490
PROPERTY AND EQUIPMENT, NET 15,247
Other 4,744
Debt Financing Cost, Net of Amortization 57,717
------------
TOTAL ASSETS $ 594,961
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts Payable $ 89,918
Accrued Expenses 131,067
Accrued Payroll and Related Expenses 50,259
Loans Payable 69,647
Convertible Debentures, Net 6,911
Warrants, net 624
Derivative Liability - Convertible Debentures and
Warrants 860,567
Derivative Liability - Warrants, Current Portion 1,096,059
------------
TOTAL CURRENT LIABILITIES 2,305,052
OTHER
Derivative Liability - Warrants 1,160,769
Redeemable Convertible Preferred Shares (4,648 shares,
par value $ .0001, redeemable prior to February 21, 2002
at $50 per share)
50,000,000 shares authorized at December 31, 2005 232,400
------------
TOTAL OTHER LIABILITIES 1,393,169
------------
TOTAL LIABILITIES 3,698,221
============
STOCKHOLDERS' DEFICIT:
Common Stock, $.0001 Par Value Authorized
500,000,000 Shares, Issued and Outstanding
60,138,923 at December 31, 2005 6,014
Additional Paid in Capital 5,435,726
Accumulated Deficit Through April 15, 2005** (4,250,580)
Deficit Accumulated During the Development Stage (2,910,309)
Deferred Compensation (1,384,111)
------------
TOTAL STOCKHOLDERS' DEFICIT (3,103,260)
------------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT $ 594,961
============
*Commencement of development stage
F-15
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Cumulative
for the Period
From April 16,
2005*
Year Ended Year Ended Through
December 31, December 31, December 31,
2004 2005 2005
------------ ------------ --------------
OPERATING EXPENSES
Payroll and Related Expenses $ -- $ 144,600 $ 144,600
Office & General Expenses 37,400 75,092 71,282
Professional Fees -- 304,984 292,984
Business Development Cost -- 40,324 40,324
------------ ------------ --------------
TOTAL OPERAING EXPENSES (37,400) (565,000) (549,190)
------------ ------------ --------------
LOSS FROM OPERATION (37,400) (565,000) (549,190)
------------ ------------ --------------
OTHER INCOME (EXPENSES)
Income from Cancellation of
Indebedtness -- 212,432 212,432
Gain from Securities 9,001 9,001
Exchange Rate Loss -- (11,734) (11,734)
Interest Expenses Convertible
Debentures 87,427 (5,001) (2,301)
Interest Income 1,616 1,616
Amortization of Convertible Debentures and
Warrants Discount (9,817) (9,817)
Derivative Liability Expenses (2,560,316) (2,560,316)
------------ ------------ --------------
TOTAL OTHER INCOME (EXPENSES) -- (2,363,819) (2,361,119)
NET (LOSS) $ (124,828) $ (2,928,819) $ (2,910,309)
============ ============ ==============
NET(LOSS) PER SHARE
Basic & Diluted Per
Common Shares $ -- $ (0.06) $ (0.053)
------------ ------------ --------------
WEIGHTED AVERAGE NUMBER OF
Shares Outstanding -
Basic and Diluted* 659,518 48,222,817 54,734,819
------------ ------------ --------------
*Commencement of development stage
F-16
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
COMMON STOCK ACCUMULATED
----------------------------------------- -------------------------------
ADDITIONAL DEFICIT
NUMBER OF PAR PAID-IN DEFERRED THROUGH APRIL
SHARES VALUE CAPITAL COMPENSATION 15, 2005
----------- ----------- ----------- ------------ -----------
BALANCE AT DECEMBER 31, 2003 382,472 $ 38 $ 3,382,520* $ -- $(4,107,242)
============= =========== ============= ============ ===========
Shares Issued for Services 17,000 2 20,398 -- --
Shares Issued on Reverse Stock Split 240,069 24 (24) -- --
Shares Issued for Repayment of Loan
Due to Stockholder 100,000 10 119,990 -- --
Net Loss for the Year -- -- -- -- (124,828)
------------- ----------- ------------- ------------ -----------
BALANCE AS OF DECEMBER 31, 2004 739,541 74 3,522,884* -- (4,232,070)
============= =========== ============= ============ ===========
Shares Issued on January 21, 2005 37,369,500 3,737 33,633 -- --
Shares Converted from Subordinated --
Convertible Redeemable Debentures
on March 10, 2005 1,800,000 180 14,220 -- --
Shares Converted from Subordinated --
Convertible Redeemable Debentures on
April 8, 2005 13,100,00 1,310 103,490 -- --
Shares Issued for Services 0n
April 14, 2005 179,000 18 161 -- --
Shares Issued on Reverse Stock Split
April 27,2005 882 -- -- -- --
Shares and Warrants Issued on
August 10, 2005 1,850,000 185 184,815 -- --
Shares Issued As Issuance Fee 100,000 10 9,990 -- --
Issuance Fee -- -- (10,000) --
Warrants Fair Value -- -- (307,078) --
Shares and Warrants Issued on
December 1, 2005 2,500,000 250 249,750 -- --
Shares and warrants issued on
December 13,2005 2,500,000 250 249,750 -- --
Deferred Compensation -- -- 1,384,111 (1,384,111) --
Net Loss for the Period -- -- -- -- (18,510)
------------- ----------- ------------- ------------ -----------
BALANCE AS OF DECEMBER 31, 2005 60,138,92 $ 6,014 $ 5,435,726 (1,384,111) (4,250,580)
============= =========== ============= ============ ===========
* Adjusted (see note 2)
DEFICIT
ACCUMULATED
-------------------------------
DURING THE
DEVELOPMENT STOCKHOLDERS'
STAGE DEFICI
----------- -------------
BALANCE AT DECEMBER 31, 2003 $ $ (724,684)*
=========== ============
Shares Issued for Services -- 20,400
Shares Issued on Reverse Stock Split -- --
Shares Issued for Repayment of Loan
Due to Stockholder -- 120,000
Net Loss for the Year -- (124,827)
----------- ------------
BALANCE AS OF DECEMBER 31, 2004 -- (709,112)*
=========== ============
Shares Issued on January 21, 2005 -- 37,370
Shares Converted from Subordinated
Convertible Redeemable Debentures
on March 10, 2005 -- 14,400
Shares Converted from Subordinated
Convertible Redeemable Debentures on
April 8, 2005 -- 104,800
Shares Issued for Services 0n
April 14, 2005 -- 179
Shares Issued on Reverse Stock Split
April 27,2005 -- --
Shares and Warrants Issued on
August 10, 2005 -- 185,000
Shares Issued As Issuance Fee -- 10,000
Issuance Fee -- (10,000)
------------
Warrants Fair Value -- (307,078)
Shares and Warrants Issued on
December 1, 2005 -- 250,000
Shares and warrants issued on
December 13,2005 -- 250,000
Deferred Compensation -- --
Net Loss for the Period (2,910,309) (2,928,819)
----------- ------------
BALANCE AS OF DECEMBER 31, 2005 $(2,910,309) $(3103,260)
=========== ============
* Adjusted (see note 2)
F-17
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
APRIL 16,
FOR THE YEAR FOR THE YEAR 2005*
ENDED ENDED THROUGH
DECEMBER DECEMBER DECEMBER 31,
31,2004 31,2005 2005
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the period $ (124,827) $ (2,928,819) $ (2,910,309)
ADJUSTMENT REQUIRED TO REFLECT THE CASH FLOWS
USED IN OPERATING ACTIVITIES
Depreciation -- 1,228 1,228
Stock Issued for Services 20,400 179 179
Income from Cancellation of Indebtedness -- (212,432) (212,432)
Amortization of Prepaid D&O Insurance -- 30,581 30,581
Non Cash Interest Expenses 87,427 5,001 5,001
Debentures Derivative Liability Expenses -- 2,560,316 2,560,316
Amortization of Debentures and
Warrants Discount -- 9,817 9,817
Other -- (4,256) (4,256)
CHANGES IN ASSETS AND LIABILITIES
Increase in Trading Securities -- (117,906) (117,906)
(Increase) in Prepaid Expenses -- (54,834) (54,834)
(increase)in Account Receivable -- (16,094) (16,094)
Increase in Account Payable 10,000 42,342 36,342
Increase in Accrued Expenses -- 128,767 126,067
Increase in Accrued Payroll and Related Expenses -- 50,263 50,263
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (7,000) (505,847) (496,037)
--------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment -- (16,475) (16,475)
Advance payment to Matrix -- (25,000) (25,000)
Loan to Serapis -- (29,906) (29,906)
Other Long Term Assets -- (4,744) (4,744)
Available-For-Sale Securities -- (5,490) (5,490)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES -- (81,615) (81,615)
--------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceed from Issuance of Shares
and Warrants, Net of Issuance Expenses 722,370 685,001
Proceeds from Issuance of Debentures,
Net of Issuance Expenses 190,000 190,000
Payments on Debentures (15,827) --
Proceeds from Loans Payable 7,000 -- --
Payments on Loan Payable (14,733) (3,001)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,000 881,810 872,000
--------------------------------------------
INCREASE IN CASH AND CASH EQUVALENTS -- 294,348 294,348
BALANCE OF CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF YEAR -- -- --
------------ ------------ ------------
BALANCE OF CASH AND CASH EQUIVALENTS --
--------------------------------------------
AT THE END OF YEAR -- 294,348 294,348
--------------------------------------------
F-18
SAFETEK INTERNATIONAL, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
Safetek International, Inc. (the "Company") was incorporated in April
1988 under the name Theoretics, Inc. The Company reorganized in May
2001 for the purpose of providing embryonic companies with good
concepts and promising patented ideas. During the years 2002-2004 the
Company did not have any business activity.
As of April 15, 2005, Dr. Goldstein was appointed as the Company's
Chairman, Chief Executive Officer and Secretary, and since then the
Company has been focusing on screening new technologies in the life
sciences and health care fields. On May 17, 2005, the Company
established an Israeli wholly owned subsidiary under the laws of the
State of Israel, called "Oriens Life Sciences Ltd. (the "Subsidiary") ,
to serve as a platform for the Company to screen the Israeli life
sciences and health care industry and identify, analyze, and acquire or
invest in technologies in this field.
In accordance with Financial Accounting Standards Board (FASB) No. 7,
the Company is considered a development stage company, beginning on
April 16, 2005, the date it commenced with its new business activity.
During the fiscal year ended December 31, 2005, the Company signed 4
term sheets to purchase technologies in the life science field. In due
course, on January 4, 2006, the Company closed on a transaction
contemplated by the Exclusive Patent and Know How License Option
Agreement dated December 28, 2005 with Matrix Pharma Inc., a Delaware
corporation ("Matrix"). Pursuant to the Agreement, the Company acquired
from Matrix an option to purchase an exclusive, world-wide license in
all of Matrix's intellectual property rights in its Thrombin inhibition
compounds. The option will expire on March 31, 2005. After the balance
date the Company signed an extension agreement with Matrix (see also
note 18)
On March 23, 2006, the Company entered into a term sheet with Resdevco
Ltd, a company incorporated under the laws of Israel ("Resdevco"). The
term sheet sets forth the principal terms of a proposed agreement
between the Company and Resdevco, pursuant to which Resdevco will grant
the Company an exclusive, worldwide license in Resdevco's Antioxidant
salicylate compounds. (See also note 18)
The Company currently invests its efforts in exercising at least one or
more term sheet and in negotiations to acquire or invest in other
technologies and in raising funds in order to establish the potential
term sheets/agreements.
As of December 31, 2005, the Company has an accumulated deficit of
$7,160,889. Our prospects must therefore be evaluated in light of the
problems, expenses, delays and complications associated with the
financial situation of the Company. The Company is in the process of
raising funds to finance its activities, including without limitation,
the completion of the above described prospective transactions, and
other potential technology purchases. The Company requires funds in
order to finance its current activities and in order to begin the
development of these technologies if and when the definitive agreements
will be executed.
F-19
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in the United
States of America ("U.S. GAAP").
GOING CONCERN
As of December 31, 2005, we have cash on hand of approximately $294,348
which we received for securities issuance. This amount is inadequate
for us to effectuate our planned activities during the next 12 months.
Accordingly, we may be unable to continue operations in the future as a
going concern. Our plans to deal with this uncertainty include raising
additional capital or entering into a strategic arrangement with a
third party. There can be no assurance that our plans can be realized.
There can be no assurance that we will be able to obtain additional
financing if and when needed or that, if available, financing will be
on acceptable terms. Additional equity financings may be dilutive to
holders of our common stock and debt financing, if available, and may
involve significant payment obligations and covenants that restrict how
we operate our business.
Certain conditions raise substantial doubt about the Company's ability
to continue as a going concern beyond the next twelve (12) month
period. As of December 31, 2005 the Company had stockholders' deficit
of $3,103,260 and an accumulated deficit of $7,160,889. Our balance
sheet as of December 31, 2005 reflects total liabilities of $3,698,221.
The Company needs to obtain additional financing to fund payment of its
obligations and to provide working capital for operations.
USE OF ESTIMATES
The preparation of these financial statements requires our management
to make estimates, judgments and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. We continually
evaluate the accounting policies and estimates we use to prepare the
consolidated financial statements. We base our estimates on historical
experiences and assumptions believed to be reasonable under current
facts and circumstances. Actual amounts and results could differ from
these estimates made by Management. We do not participate in, nor have
we created, any off-balance sheet special purpose entities or other
off-balance sheet financing. In addition, we have not and do not
anticipate entering into any derivative financial instruments for
speculative purposes or use derivative financial instruments primarily
for managing our exposure to changes in interest rates. Significant
estimates include the useful life of property and equipment and the
fair value of derivative liabilities.
ADJUSTMENTS/RESTATEMENT
As part of the quarterly report for the nine months ended September 30,
2005, the financial statements for the year ended December 31, 2004
were adjusted to reflect the proper accounting treatment accorded to
the terms of subordinated convertible redeemable debentures that were
issued in the years 2001 and 2002 (the "debentures") to add to the
accumulated deficit $14,293 as a result of interest expense which
should have been recorded for the fiscal year ended December 31, 2003.
The interest was waived by the debentures holders during the third
quarter of 2005, as a result, the Company recognized additional gain
from cancellation of indebtedness of $14,293. $323,282 was charged to
paid in capital and accumulated deficit in order to reflect a
beneficial conversion feature charge that should have been recorded
when the debentures were initially issued.
The Company concluded that since there was no material effect on the
results of operations and the balance sheet on the annual report for
the fiscal year ended December 31, 2004, a restatement was not
necessary.
To reflect a correction in the number of shares issued and outstanding,
the Company restated the weighted average number of shares outstanding
(basic and diluted) as of the year ended December 31, 2004. The average
number of shares was restated from 557,249 to 659,518. This was not a
material difference and therefore for the year ended December 31, 2004
the restatement did not have a material effect on the net income (loss)
per share.
F-20
DEVELOPMENT STAGE COMPANY
In accordance with Financial Accounting Standards Board (FASB) No. 7,
the Company is considered a development stage company, beginning on
April 16, 2005, the date it commenced with its new business activity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of the Company and its subsidiary. All material inter-company balances
and transactions have been eliminated in consolidation.
FUNCTIONAL CURRENCY
The currency of the primary economic environment in which the
operations of the Company and its subsidiary are conducted is the US
dollar. A significant part of the Company's capital expenditures and
most of its financing is in dollars. Most of the Company's expenses
incurred in dollars and all intercompany balances are denominated in
dollars. In addition, a substantial portion of the subsidiary's
expenses are incurred in dollars. Thus, the functional currency of the
Company and its subsidiary is the US dollar.
Transactions and balances originally denominated in dollars are
presented at their original amounts. Balances in foreign currencies are
translated into dollars using historical and current exchange rates for
non-monetary and monetary balances, respectively. For foreign
transactions and other items reflected in the statements of operations,
the following exchange rates are used: (1) for transactions - exchange
rates at transaction dates or average rates and (2) for other items
(derived from non-monetary balance sheet items such as depreciation) -
historical exchange rates. The resulting transaction gains or losses
are carried to financial income or expenses, as appropriate.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, which include
short-term bank deposits (up to three months from date of deposit) that
are not restricted as to withdrawal or use, to be cash equivalents.
INVESTMENTS IN SECURITIES
The Company and its subsidiary account for securities in accordance
with Statement of Financial Accounting Standard No. 115, "Accounting
for Certain Investments in Debt and Equity Securities"
Securities that are bought and held principally for the purpose of
selling them in the near term shall be classified as trading
securities. Investments not classified as trading securities shall be
classified as available-for-sale securities.
Unrealized holding gains and losses for trading securities shall be
included in earnings. Unrealized holding gains and losses for
available-for-sale securities shall be excluded from earnings and
reported in other comprehensive income until realized except in hedge
transactions.
PREPAID EXPENSES
Prepaid expenses included are amortized over the service and contract
period.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated by the
straight-line method over the estimated useful lives of the assets.
F-21
The useful lives of property and equipment for purposes of computing
depreciation are:
YEARS
-----
Computers and peripheral equipment 3
Leashold Improvements 2
Office furniture and equipment 7
Website 2
OTHER LONG TERM ASSETS
Other long term assets include deposits on leased property that will be
applied toward the last three months of the three year leasing period.
DEBENTURES
The Company accounts for debentures that were issued in accordance with
APB 14, SFAS 133 and EITF 00-19. Per APB 14, when Warrants are
detachable from the debt instrument, and the warrants are used as
security for the debt instrument, the proceeds from the sale of the
debt instrument and the detachable warrants should be allocated between
the warrants and the debt instrument.
Paragraph 12 of Statement of Financial Accounting Standard No. 133
provides that in the case of contracts that do not in their entirety
meet the definition of a derivative instrument such as bonds, insurance
policies, and leases, any embedded derivative instruments shall be
separated from the host contract and Accounted for as a derivative
instrument.
Paragraph 11(a) of Statement of Financial Accounting Standard No. 133
provides that contracts issued or held by a reporting entity that are
both (1) indexed to its own stock and (2) classified in stockholders'
equity in its statement of financial position, shall not be considered
derivative instruments for purposes of this statement.
EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock,"
provides guidance in determining whether an embedded derivative which
is indexed to its own stock would be classified in stockholders' equity
in accordance with paragraph 11(a) of Statement of Financial Accounting
Standard No. 133 or if it was freestanding. EITF Issue No. 00-19
excludes from its classification requirements "conventional
instruments". Such instruments are defined in EITF 05-2 as: instruments
that provide the holder with an option to convert into a fixed number
of shares (or equivalent amount of cash at the discretion of the
issuer) for which the ability to exercise the option is based on the
passage of time or a contingent event should be considered
"conventional" for purposes of applying Issue 00-19. Instruments that
contain "standard" antidilution provisions would not preclude a
conclusion that the instrument is convertible into a fixed number of
shares. Standard antidilution provisions are those that result in
adjustments to the conversion ratio in the event of an equity
restructuring transaction (as defined in the glossary of Statement
123(R) 2 ) that are designed to maintain the value of the conversion
option.
WARRANTS
The Warrants that the Company issued are presented at their fair value
and classified as liabilities, according to paragraphs 20 and 24 of
EITF 00-19 "Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Company's Own Stock".
As a result of the terms of the debentures that the Company issued and
since theoretically the debentures can be converted into a number of
shares that will exceed the company's authorized shares if the
Company's market price falls below 0.000569. (As of March 23, 2006 as
reported on http://Bloomberg.com, the average bid and ask price was
0.25). All convertible instruments of the Company including warrants
(but excluding employee stock options) are accounted as derivative
liabilities.
F-22
INCOME TAX
The Company and its subsidiary account for income taxes in accordance
with Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes". This Statement requires the use of the liability
method of accounting for income taxes, whereby deferred tax asset and
liability account balances are determined based on the differences
between financial reporting and tax bases of assets and liabilities and
are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. The Company and
its subsidiary provide a valuation allowance, if necessary, to reduce
deferred tax assets to their estimated realizable value.
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net losses per common share are presented in
accordance with FAS No. 128 "Earning per share" ("FAS 128"), for all
periods presented. Outstanding warrants have been excluded from the
calculation of the diluted loss per share because such securities have
an anti-dilutive effect for all periods presented. The total number of
shares of common stock outstanding excluded 19,922,417 warrants and
options. In addition, 3,333,333, shares to be exercise into the Company
Common stock by converting debentures that were issued and 1,000,000
shares upon a default event (calculated according the market price as
of December 31 2005) for the year 2005. After the balance date the
company also issued 370,192 options to employees.
STOCK BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board ("FASB")
issued the revised Statement of Financial Accounting Standards ("FAS")
No. 123, "Share-Based Payment" (FAS 123R), which addresses the
accounting for share-based payment transactions in which the Company
obtains employee services in exchange for (a) equity instruments of the
Company or (b) liabilities that are based on the fair value of the
Company's equity instruments or that may be settled by the issuance of
such equity instruments. The Statement will be effective as of the
beginning of the first interim or annual reporting period that begins
after December 15, 2005, for small business issuers.
The Company decided to adopt FAS 123R and to reflect the fair value of
the options granted to employees during the year 2005.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
1. In December 2004, the Financial Accounting Standards Board
("FASB") issued the revised Statement of Financial Accounting
Standards ("FAS") No. 123, Share-Based Payment (FAS 123R),
which addresses the accounting for share-based payment
transactions in which the Company obtains employee services in
exchange for (a) equity instruments of the Company or (b)
liabilities that are based on the fair value of the Company's
equity instruments or that may be settled by the issuance of
such equity instruments. This Statement eliminates the ability
to account for employee share-based payment transactions using
APB Opinion No. 25, Accounting for Stock Issued to Employees,
and requires instead that such transactions be accounted for
using the grant-date fair value based method. This Statement
will be effective as of the beginning of the first annual
reporting period that begins after December 15, 2005, for
small business issuers (October 1, 2006 for the Company).
Early adoption of FAS 123R is encouraged.
On June 7, 2005, FASB issued Statement No. 154, "Accounting
Changes and Error Corrections, a replacement of APB Opinion
No. 20, Accounting Changes, and Statement No. 3, Reporting
Accounting Changes in Interim Financial Statements" ("SFAS No.
154"). SFAS No. 154 changes the requirements for the
accounting for, and reporting of, a change in accounting
principle. Previously, most voluntary changes in accounting
principles were required to be recognized by way of a
cumulative effect adjustment within net income during the
period of the change. SFAS No. 154 requires retrospective
application to prior periods' financial statements, unless it
is impracticable to determine either the period-specific
effects or the cumulative effect of the change. SFAS No. 154
is effective for accounting changes made in fiscal years
beginning after December 15, 2005; however, SFAS No. 154 does
not change the transition provisions of any existing
accounting pronouncements. The Company does not believe
adoption of SFAS No. 154 will have a material effect on its
consolidated financial position, results of operations or cash
flows.
F-23
2. In June, 2005 the Emergency Issue Task Force (EITF), issued
EITF 05-2 "The Meaning of "Conventional Convertible Debt
Instrument" in Issue No. 00-19".
The Task Force concluded that that the exception to the
requirements of paragraphs 12-33 of Issue 00-19 for
"conventional convertible debt instruments" should be retained
and, instruments that provide the holder with an option to
convert into a fixed number of shares (or equivalent amount of
cash at the discretion of the issuer) for which the ability to
exercise the option is based on the passage of time or a
contingent event should be considered "conventional" for
purposes of applying Issue 00-19. The task force also reached
the conclusion that convertible preferred stock with a
mandatory redemption date may qualify for the exception
included in paragraph 4 of Issue 00-19 if the economic
characteristics indicate that the instrument is more akin to
debt than equity.
3. On September 15, 2005 Emergency Issue Task Force (EITF),
issued EITF 05-4: " The Effect of a Liquidated Damages Clause
on a Freestanding Financial Instrument Subject to Issue No.
00-19".The Task Force discussed (a) whether a registration
rights penalty meets the definition of a derivative and (b)
whether the registration rights agreement and the financial
instrument to which it pertains should be considered as a
combined freestanding instrument or as separate freestanding
instruments. Additionally, some Task Force members expressed a
preference for evaluating a liquidated damages provision based
on the probable amount that the issuer would pay rather than
the maximum amount. The Task Force was not asked to reach a
consensus on this Issue. The Task Force asked the FASB staff
to obtain additional information about how entities currently
evaluate and account for registration rights agreements in
practice. Additionally, the Task Force asked the FASB staff to
analyze registration rights penalties in comparison with other
penalties that do not meet the definition of a derivative.
NOTE 3: TRADING SECURITIES
Consist of mutual funds that primarily hold securities indexed
to fluctuations in the U.S. dollar.
NOTE 4: PREPAID EXPENSES AND OTHER CURRENT ASSETS
2005
PREPAID EXPENSES
D&O insurance $ 23,919
Other Prepaid Insurance 334
---------
TOTAL $ 24,253
=========
OTHER CURRENT ASSETS
Loan to Matrix (1) $ 25,000
Loan to Serapis (2) 29,906
---------
TOTAL $ 54,906
=========
1. Other current assets consist of $25,000 advance payment to
Matrix Pharma Inc. and Matrix Advanced Solutions Ltd. (Matrix)
with whom the Company signed a term sheet. Said advance
enabled the Company to obtain an option to an exclusive patent
and know how license to Thrombin Inhibitor compounds (as
described below). It was also agreed that Matrix shall return
to the Company the advance in the event that a definitive
agreement will not be signed before October 31, 2006. On
January 4, 2006 a definitive agreement was signed as disclosed
in details in note 18.
F-24
2. On November 30, the Company signed an extension to the term
sheet with Serapis Technologies Inc. and Serapis Biotech Ltd (
"Serapis"). The extension expires on May 31, 2006. As part of
the extension, the Company was obligated to give Serapis a
bridge loan of $29,906. According to the extension letter, if
a definitive agreement is not signed within the extension
period, the loan will be refunded to the Company, within two
business days following the Company's written request. In
order to secure the bridge loan, Serapis granted the Company a
first priority charge on biological materials.( see also note
18).
NOTE 5: PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING AT DECEMBER 31, 2005:
USEFUL LIFE 2005
----------- -----
Computer Equipment & Hardware 3 $ 4,475
Office Furniture and Equipment 7 4,715
Leasehold Improvement 2 2,854
Website 2 4,431
=======
TOTAL 16,475
ACCUMULATED DEPRECIATION: (1,228)
-------
PROPERTY AND EQUIPMENT, NET $15,247
=======
Depreciation expense totaled $1,228 in 2005.
NOTE 6: AVAILABLE FOR SALE SECURITIES
Available for sale securities consist of Israeli's government bonds.
This securities account is used as a security for the Subsidiary two
year rent agreement (see note 14).
NOTE 7: DEBT FINANCING COSTS, NET
Debt financing costs of $60,000 related to the debentures that The
Company issued on November 18, 2005 are being amortized over the three
years debentures term. During 2005, the Company expensed $2,283.
NOTE 8: ACCOUNTS PAYABLE
As of December 31, 2005, accounts payable includes $37,397 that was
incurred in the years 2001 and 2002. To the Company's knowledge no
claims have been made against the Company with respect with those
debts.
In July 2005, the Company was informed by one of its vendors that it
does not owe the vendor any monies. Accordingly, the Company wrote- off
$100,000 of said account payable balance.
The Company was also informed by another vendor that it does not owe
the vendor any monies. Accordingly, the Company wrote- off $31,000 of
said account payable balance.
NOTE 9: ACCRUED EXPENSES
Accrued expenses are primarily comprised of $70,000 of accounting fees,
$34,371 other advisory and vendors' expenses and $26,696 legal fees.
F-25
NOTE 10: LOANS PAYABLE
The Company has a total of $69,647 and $84,379 of loan payable as of
December 31, 2005 and 2004 respectively, which is due on demand and is
non-interest bearing. In October 2005, the Company offered the lender
the right to convert its loan into units according the terms the
Company offered to investors under the terms of the last private
placement. The conversion was not performed.
As of March 2006, the rights in the loan were endorsed to another
holder under the same terms.
NOTE 11: SUBORDINATED CONVERTIBLE REDEEMABLE DEBENTURES (2001 AND 2002)
The subordinated convertible redeemable debentures were issued in the
years 2001 and 2002, with a due date in May 2003. The original terms of
the debentures included; 8% annual interest payments and entitlement to
convert the interest and the principal amount to shares of common stock
at a price equal to 70% of the lowest closing bid price.
As of August, 2004, the rights in an aggregate amount of $119,200 of
principal were endorsed by the prior debenture holder to a group of 9
investors in consideration for $30,000. None of the investors are
affiliated with the Company; although one of the new investors is a
company under the control of the prior debenture holder. When the
debentures holders could convert the debentures according to its
original terms, they had the right to convert the debentures to
approximately 26% of the issued and outstanding shares of the Company.
According to the terms of the modification executed between the Company
and each of the 9 debenture holders in February and March 2005, the
conversion price of the outstanding principal and accrued interest due
under the debentures was modified to $0.008 per share.
This modification was done in order to maintain the debentures holders'
rights in the Company's capital that were significantly diluted as a
result of a 1 for 1000 reverse stock split in August 2004 (and the
market price of the Company's stock was not proportionately adjusted)
and the issuances of shares in January 2005.
During the three month period ended March 31, 2005, $30,227 was paid on
the debentures in cash and the issuance of 1,800,000 shares of common
stock. The balance of $104,800 was paid on April 8, 2005 with the
issuance of 13,100,000 shares of common stock. As of said date, the
debentures were fully paid.
As detailed in note 2, the Company adjusted its financial reports in
order to present a Beneficial Conversion Feature (BCF) charge regarding
the issuance of the debentures in 2001 and 2002, according to generally
accepted accounting principles in the U.S.
As of December 31, 2005, these debentures were paid in full and are not
reflected in the Company's balance sheet.
NOTE 12: DEBENTURES AND EMBEDDED DERIVATIVE INSTRUMENTS (2005)
1. On November 18, 2005 the Company signed an agreement with 4
investors (together, the "Investors") to issue an aggregate of
$750,000 as convertible debentures (the "Notes") due three
years after issuance. The issuance is to be made in three
installments, the first, in the amount of $250,000 was
received upon signing the definitive investment agreements,
the second in the amount of $250,000 upon the filing of a
registration statement covering the shares underlying the
Notes and the warrants referred to below, and the third in the
amount of $250,000 upon the effectiveness of the registration
statement.
The Notes bear interest at the rate of 8% per annum payable
quarterly in cash. Interest on delay payments shall be 15%
annually. No interest shall be due and payable for any month
in which the Trading Price is greater than $0.1875 for each
Trading Day of the month.
F-26
The Notes can be immediately convertible into shares of the
Company's common stock. The conversion price will be equal to
the lesser of: (i) $0.15 and (ii) the average of the lowest 3
intra-day trading prices during the 20 trading days
immediately prior to the conversion date discounted by 50%.
In addition, the Company issued to the Investors 333,334
warrants with an exercise price of $0.3 per share. The Company
will issue to the investors an additional 333,333 warrants
while receiving the second amount of $250,000 and 333,334
warrants while receiving the third amount of $250,000 upon the
effectiveness of the registration statement. All the Company
assets secured the debt.
According to the agreement, the Company was obligated to file,
on or prior to thirty days from November 18, 2005, a
registration statement, to register the shares of common stock
underlying the Notes and warrants issued to the Investors. The
Company has been delayed in its obligation and is currently in
default. As a result, the Company will have to pay penalties
at a rate of 2% of the outstanding amount of debentures for
each month of delay. The penalties can be paid in cash or at
the Company's option, in shares of Common Stock priced at the
Conversion Price (as defined in the Notes) on such payment
date. The Company announced the Debentures holders of the
delay in filing.
At a default event the Holders of a majority of the aggregate
principal amount of the outstanding Notes issued have got the
option to ask for immediate due and payable and the Company
shall pay to the Holders, an amount equal to the greater of
(i) 130% times the sum of the outstanding principal amount,
plus accrued and unpaid interest on the unpaid principal
amount, plus Default Interest, if any, and/or any other
amounts owed to the Holders under the Registration Rights
Agreement or (ii) the highest number of shares of Common Stock
issuable upon conversion of or otherwise pursuant to such
Default Sum in accordance with the Trading Day immediately
preceding the Mandatory Prepayment Date as the "Conversion
Date" for purposes of determining the lowest applicable
Conversion Price, unless the Default Event arises as a result
of a breach in respect of a specific Conversion Date in which
case such Conversion Date shall be the Conversion Date),
multiplied by (b) the highest Closing Price for the Common
Stock during the period beginning on the date of first
occurrence of. Because of the delay in filing the registration
statement the Company is also in a delay in declaration of
effectiveness by the Securities and Exchange Commission. The
Company intends to file the registration statement at the
beginning of April, 2006.
The Company applied the provisions of APB 14 and allocated the
proceeds to the detachable warrants and the convertible notes
based on their respective fair values. The Company further
evaluated the convertible notes to determine if they contain
derivatives that warrant bifurcation. The Company concluded
that in accordance with EITF 05-2 the convertible debentures
do not meet the definition of conventional convertible debt
instruments for purposes of evaluating the existence of
embedded derivatives under EITF 00-19. The Company further
concluded that as a freestanding derivative, the embedded
feature would not be classified as equity under EITF 00-19,
and as such, determined that the embedded feature needs to be
bifurcated from the host contract.
In addition, the Company determined that the liquidated
damages clause contained in the registration rights agreement
needs to be bifurcated as well. The clause requires the
Company to pay 2% per month of the outstanding principal
amount of the debentures, in cash, to the debenture holders in
the event that a registration statement covering the shares
underlying the convertible debentures is not declared
effective within 120 days of the date the debentures were
issued. The probability that in such occur the holders will
announce on a default event is remote since the economical
motivation to receive registrant shares.
F-27
The Company also determined that a contingent interest payment
feature exists and needs to be bifurcated from the host
instrument. That feature exempts the Company from having to
pay the stated interest on the debentures if the stock price
reaches a price of $0.1875.
In order to evaluate the embedded derivatives, the Company
estimated the fair market values using the Binomial model and
the Black - Scholes model.
Since the fair value of the embedded featured exceeded the
value of the debt and because the Company is in default, the
Company presented the excess derivative liability separate
from the debentures. The Company also made an allowance of
$29,597, to reflect the penalties it should pay because of not
filing on time the registration statement as disclosed above.
The Company recorded the initial value of the detachable
warrants at $20,691. Pursuant to EITF No. 00-19 and EITF No.
05-2, on the issuance date. The Company recorded a derivative
liability for the fair value of those warrants since there is
a possibility that the Company will be required to issue more
shares then are authorized. The Company remeasured the
warrants at December 31, 2005, and recorded the warrants as a
derivative liability totaling $59,647 with the resulting
increase of $38,956 recorded as a change in fair value of
derivative instruments.
The following weighted average assumptions were used on the
issuance date of the convertible debt instruments for purposes
of determining the fair value of the freestanding warrants
during 2005:
November 18, 2005 December 31, 2005
Exercise price $0.3 $0.3
Expected dividend yield 0% 0%
Expected volatility 317% 307%
Risk free interest rate 5% 5%
Expected life of warrant 3 years 3 years
The Company concluded that the conversion option in the debt
instrument embedded needs to be bifurcated from the host
contract. Since the value of the features exceed the value of
the debt instrument, and the Company is in a default, the
Company decided to present the convertible instrument at its
fair value. The Company remeasured the convertible debentures
at December 31, 2005 and charged $542,015 as an adjustment to
the fair value.
The Derivative Liability - convertible debentures and warrants
detachable are presented together in amount of $ 860,567. As
disclosed in Note 15B, The Company remeasured the class A and
class B warrants that it issued during the year. As a result
of the remeasurment, the Company recorded the Class A warrants
at December 2005 at $1,096,059 and the class B at $1,160,769.
As a result, the Company charged a derivative liabilities
expense a $1,949,748.
The Company estimated the fair market value using the Binomial
model and the Black-Scholes model. The following assumptions
were used on the issuance dates of the convertible debt
instruments for purposes of determining the fair value of the
features:
November 18, 2005 December 31, 2005
Exercise price The lower of $0.15-50% The lower of $0.15- 50%
of the market price of the market price
Expected dividend yield 0% 0%
Expected volatility 317% 307%
Risk free interest rate 5% 5%
Expected life of warrant 3 years 3 years
F-28
NOTE 13: REDEEMABLE CONVERTIBLE PREFERRED STOCK
The redeemable convertible preferred stocks were issued prior to 2001.
The shares may be converted to common shares at a rate of one-half
common share for each preferred stock and are redeemable on February
21, 2002 at $50 per share. The shares are presented at their obligation
amount of $232,400 associated with the redemption feature.
NOTE 14: COMMITMENTS AND CONTINGENCIES
o RENT- the Subsidiary rents offices under a two year rent
agreement. The monthly rent is $1,000 adjusted to the changes
in the Israeli CPI. For executing the rent agreement the
Subsidiary obtained a bank guarantee in amount of $5,431.
Rental expenses for the year 2005 were $5,826.
o The Subsidiary vehicles are rented under operating leases
agreements for three year periods. The monthly rent is $1,386.
The following chart shows lease obligations for the coming 5 years
including rental and vehicle leases:
YEAR AMOUNT
2006 $ 28,632
2007 23,632
2008 16,632
2009 --
2010 --
--------
Total $ 68,896
========
NOTE 15: STOCKHOLDERS' EQUITY
A. CAPITAL STOCK
1. On May 13, 2004 by written consent from the Board of Directors
and certain principal stockholders of the Company holding
approximately 50.2% of the total issued and outstanding shares
of Common Stock, adopting a resolution to amend the Company's
Articles of Incorporation up to 50,000,000 shares of a new
class of undesignated Preferred Stock ("Preferred Stock")
which would allow the Board of Directors of the Company to
issue, without further shareholder action, one or more series
of Preferred Stock.
Also Resolved to authorize a one-for-thousand reverse stock
split of the issued and outstanding shares of our Common Stock
by changing each one-thousand shares into one share. No
fractional share certificates or scrip were issued evidencing
shares of Common Stock in connection with the reverse stock
split. The Company issued 100 shares to stockholders who would
otherwise be entitled to less than 100 shares as a result of
the split. The reverse stock split was effective on September
7, 2004. All share and per share amounts in the accompanying
financial statements have been restated to give effect to the
stock split.
On January 21, 2005, the Company received in cash a gross
amount equal in the aggregate to $ 37,370 and executed
subscription agreements from 48 persons relating to the
purchase of an aggregate of 37,369,500 shares of common stock
at a per share purchase price of $0.001 per share.
As part of the effort the Company invests in raising funds to
finance its business activity, the Company issued 1,850,000
units to investors through an ongoing private placement of
units (the "Units") for $0.10 per Unit. Each Unit consists of
one share of common stock, one Class A warrant giving the
holder the right to purchase one share of stock at $1.00,
which is exercisable for one year from the date of issuance,
and one Class B warrant giving the holder the right to
purchase one share of stock for $1.50, which is exercisable
F-29
for 2 years from the date of issuance. The Company also issued
100,000 units as an issuance fee. The total consideration from
the private placement was $685,000.
2. In December 2005, the Company issued 5,000,000 units to
investors through an ongoing private placement of units (the
"Units") for $0.10 per Unit. Each Unit consists of one share
of common stock, one Class A warrant giving the holder the
right to purchase one share of stock at $1.00, which is
exercisable for one year from the date of issuance, and one
Class B warrant giving the holder the right to purchase one
share of stock for $1.50, which is exercisable for 2 years
from the Date of issuance. The total proceeds from this
private placement were $500,000.
B. WARRANTS
A summary of the warrant activity for 2005 is as follows (there
were no warrants outstanding in 2004):
Weighted
Shares Average
Underlying Exercise
Warrants Price
---------- ----------
$
Outstanding at January 1, 2005 -- --
Granted 14,233,332 1.23
Forfeited -- --
---------- ----------
Outstanding at December 31, 2005 14,233,332 1.23
========== ==========
Warrants exercisable at December 31, 2005 14,233,332 1.23
========== ==========
The weighted average grant date fair value of warrants
class A Granted equal to: *0.143
The weighted average grant date fair value of warrants
class B Granted equal to: *0.180
The weighted average grant date fair value of warrants
detachable the debentures : *0.277
*The warrants were valued using the Black-Scholes model
We used the following assumptions as for the grant date.
o Warranted issued on August 2005 - dividend yield - 0%,
interest rate - 3.5% and volatility - 111%.
o Warrant issued on December 2005 - dividend yield - 0%,
interest rate 5% and volatility - 317% and 314%.
The following table summarizes information concerning warrants
outstanding at December 31, 2005:
NUMBER OUT WEIGHTED
STANDING AVERAGE
EXERCISE PRICE
$
6,950,000 1
6,950,000 1.5
333,332 0.3
14,233,332 1.23
As describe in note warrants as of November 18, 2005 and as of December
31, 2005, the Company presented the warrants as a derivative
liabilities according to EITF 00-19.
The following assumptions were used in calculating the fair value.
o As of November 18, 2005 - dividend yield - 0%, expected
volatility - 317%, risk free interest rate - 5%.
F-30
o As of December 31, 2005 - Dividend yield - 0%, expected
volatility - 307%, risk
o Free interest rate - 5%.
As a result of the remeasurment, the Company recorded the
Class A warrants at December 2005 at $1,096,059 and the class
B at $1,160,769. As a result, the Company charge a derivative
liabilities expense a $1,949,748.
C. STOCK OPTIONS TO EMPLOYEES
The company follows fair value accounting and the related
provisions of SFAS No. 123R for all share based payment awards.
The fair value of each option or warrant granted is estimated on
the date of grant using the Black-Scholes option-pricing model.
The following is a summary of all stock options granted to
employees. All option grants have been recorded as deferred
compensation in stockholders equity due to the fact that they are
not yet vested with an offsetting credit to additional paid in
capital:
On September 15, 2005, the board of directors resolved to adopt
the 2005 Employees/Consultants/Directors Stock Compensation Plan
(the "Plan"). In connection with the adoption of the Plan, the
Company reserved 10,600,000 shares of common stock of the Company
for the future exercise of options granted pursuant to the Plan.
The Company decided to grant an aggregate of 5,318,893 stock
options to its directors for future services.
WEIGHTED
SHARES AVERAGE
UNDERLYING EXERCISE
OPTIONS PRICE
$
Outstanding at January 1, 2005 --
Granted 5,318,893 0.1
Forfeited --
-----------------------
Outstanding at December 31, 2005 5,318,893 0.1
=======================
Options exercisable at December 31, 2005 --
=======================
The weighted average grant date fair
value of warrants
class A Granted equal to: 0.26
=======================
Pursuant to the provisions of the Plan, the board of directors
resolved on September 15, 2005 to grant options to purchase an
aggregate of 5,318,893 shares of common stock of the Company,
exercisable at a price of $0.10 per share. These options vest
over the three year period commencing the first anniversary of
the grant date as follows:
Shay Goldstein Chairman and the Chief Medical Officer -
2,659,446 Tamar Tzaban - Director and CFO - 2,127,557 Gilad
Yoeli - Director - 265,945
Jean-Pierre Elisha Martinez - Director -265,945
The options grant was valued pursuant to SFAS 123R and totaled
$1,384,111. Weighted average assumptions used by management
were as follows:
Dividend yield 0%
Expected volatility 111%
Risk free interest rate 3.5%
Expected life of opti 7 years
F-31
On January 10, 2006 the board of directors resolved to grant
an aggregate of 370,192 stock options to its directors for
future services exercisable at a price per share equal to 90%
of the last transaction price quoted for such date by the
NASDAQ system on the NASDAQ National Market as of the stock
Option Agreement date, according to the plan . These options
vest over the three year period commencing the first
anniversary of the grant date as follows:
Gilad Yoeli - Director - 185,096
Jean-Pierre Elisha Martinez - Director -185,196
The total stock options granted to employees are 5,689,085.
The total stock options outstanding at December 31, 2005 are
5,318,893.
NOTE 16: OTHER INCOME AND EXPENSES
1. Debt forgiveness income contains $81,132 from Cancellation of
Indebtness. $131,300 of old debt that acquired in 2001 and
2002 were written off after receiving announcements from the
vendors that the Company does not owe them any monies.
2. Gain from Securities consist of unrealized gain of $4,041 and
realize gain from trading securities of $4,960.
The following table presents the Company's other expenses:
2005
Exchange rate loss $ 11,734
Interest expenses convertible debentures 5,001
Amortization of debentures discount 9,817
DERIVATIVE CONVERTIBLE LIABILITY EXPENSES
----------
Derivative liability expenses (warrants) 1,949,748
Derivative liability expenses (convertible debentures) 542,015
Derivative liability expenses (warrants debentures) 38,956
Penalties 29,597
----------
Total derivative liability expenses $2,560,316
==========
1. Interest expenses includes, $5,001 interest related to the
debentures.
2. As a result of the terms of debentures the Company issued, and
because theoretically the debentures can be converted into
number of shares that will exceed the company's authorized
shares if the Company's market price will be reduced below
0.000569 (As of March 23, 2006 as reported on
http://Bloomberg.com, the average bid and ask price was 0.25).
The Company recorded a derivative liability expense of
$1,949,748.
3. Expenses related to the debentures issued on November 18, 2005
include $580,971 evaluation of the convertible debt at fair
value.
4. $29,597 penalties allowance. According to the debentures
terms, the Company was obligated to file a registration
statement on or prior to thirty days from November 18, 2005.
To register the shares of common stock underlying the notes
and warrants issued to the investors. The Company has been
delayed in its obligation and is currently in default.
NOTE 17: TAXES ON INCOME
The company accounts for income taxes under SFAS 109, which requires
use of the liability method. SFAS 109 provides that deferred tax assets
and liabilities are recorded based on the differences between assets
and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences.
F-32
Deferred tax assets and liabilities at the end of each period are
determined using the currently enacted tax rates applied to taxable
income in the periods in which the deferred tax assets and liabilities
are expected to be settled or realized.
The income tax expense (benefit) differs from the amount computed by
applying the U.S. federal income tax rate as follows:
2005 2004
Tax expenses (benefit) at the federal statutory rate $(1,025,086) $ (43,689)
Permanent differences 898,808
Foreign taxes, net of credits -- --
Increase (decrease) in valuation allowance 126,278 43,689
----------- -----------
Tax expense (benefit) -- --
=========== ===========
The components of the deferred tax assets
are as follows
DEFERRED TAX ASSET:
Federal net operating loss carry forwards 1,494,354 1,368,076
Valuation allowance (1,494,354) (1,368,076)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
As of December 31, 2005, the Company has net operating loss carry
forwards of approximately $4,200,000, be available to offset future
taxable income. If not used these carryforwards will expire through
2025 for the Company. For the Israeli subsidiary losses carryforwards
have no expiration date. The deferred assets related to operating
losses have been fully reserved at December 31, 2005 and 2004; since
management believes that it is not more likely than not that the
benefit of such losses will be returned. Further, such losses may be
limited under internal revenue code section 382 that limits the use of
losses in the event of certain ownership changes.
The Israeli subsidiary is taxed in accordance with Israeli tax laws.
Under the Income Tax (Inflationary Adjustments) Law, 1985, results for
tax purposes are measured in real terms, in accordance with the changes
in the Israeli consumer price index ("CPI"). The Israeli subsidiary is
taxed under this law. Israeli taxes creditable under the U.S. foreign
tax credit regime at such time that Israeli earninings are includible
in U.S. taxable income. Accordingly, on a world - wide basis the
maximum tax paid by the Company on Israeli subsidiary income is at 35%
of such amounts.
NOTE 18: SUBSEQUENT EVENTS
On January 4, 2006, the Company closed on the transaction contemplated
by the Exclusive Patent and Know How License Option Agreement (the
"Agreement") dated December 28, 2005 with Matrix Pharma Inc., a
Delaware corporation ("Matrix"). Pursuant to the Agreement, the Company
acquired from Matrix an option to purchase an exclusive, world-wide
license in all of Matrix's intellectual property rights in its Thrombin
inhibition compounds. The Registrant may exercise such option at any
time until March 31, 2006 by written notice to Matrix. In consideration
for the option, the Registrant paid Matrix a total of $60,000 which
$25,000 was given as a loan on September 29, 2005. $30,000 of the
Advance shall be returned to the Company if it decides not to exercise
the option on grounds that its due diligence of Matrix reveals that
certain patents relating to the matters subject to the license are
likely to be invalid.
Pursuant to the Agreement, the Company and Matrix agreed to jointly
develop a research and development program for the development of
products based on the Thrombin inhibition compounds and their approval
by the federal Food and Drug and Administration.
F-33
Upon execution of the option, the Company will pay Matrix up to
$105,000 for the completion of the optimization stage of development.
The Company is under no obligation to exercise the option or to
commence the research and development program and may do so in its sole
discretion. However, the Company shall not instruct Matrix to commence
the research and development program unless the Company has first
secured funds sufficient to fund at least the first two of the five
stages contemplated. The Company estimates that it will have to invest
about $3.5 million to complete the five stages of development, bringing
a compound to the end of stage IIa.
On March 30 2006 the Company and Matrix signed an amendment, extending
the exercise date of the option to May 15, 2006. The amendment provides
that until April 15 the Company will pay Matrix $15,000 in
consideration for Matrix's agreement to extend the exercise date. Such
amount will be deducted from the repayment of costs that the Company
shall pay if it exercises the option.
On March 23, 2006, the Company entered into a term sheet with Resdevco
Ltd, a company incorporated under the laws of Israel ("Resdevco"). The
term sheet sets forth the principal terms of a proposed agreement
between the Company and Resdevco, pursuant to which Resdevco will grant
the Company an exclusive, worldwide license in Resdevco's Antioxidant
salicylate compounds.
On March 27, 2006 the Company exercised its right that was given to it
in a Letter Agreement dated December 1, 2005 to purchase certain
biological materials from Serapis for a purchase price of $100,000 plus
value added tax (VAT). The purchase price was paid by the forgiveness
of $29,906 debt owed to the Company, and the balance to be paid by
Serapis in 12 equal monthly payments, with the first payment on the
signing date.
F-34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Certificate of Incorporation, as amended, incorporates certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, including gross negligence,
except in circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. These provisions do not eliminate a
director's duty of care. Moreover, the provisions do not apply to claims against
a director for violations of certain laws, including federal securities laws.
Our Certificate of Incorporation, as amended, also contains provisions
to indemnify the directors, officers, employees or other agents to the fullest
extent permitted by the General Corporation Law of Delaware. These provisions
may have the practical effect in certain cases of eliminating the ability of
stockholders to collect monetary damages from directors. We believe that these
provisions will assist us in attracting or retaining qualified individuals to
serve as directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 1,279.41
Accounting fees and expenses 5,000.00
Legal fees and expenses 50,000.00
Miscellaneous 10,000.00*
-------------------
TOTAL $ 66,279.41
===================
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On January 21, 2005, the Company received subscription agreements from
48 persons relating to the purchase of an aggregate of 36,979,500 shares of
common stock at a per share purchase price of $0.001 per share. The issuance was
done pursuant to Regulation S as an exemption from registration promulgated by
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended.
During the three months period ended September 30, 2005, the Company
issued 1,950,000 units to investors through an ongoing private placement of
units (the "Units") for $0.10 per Unit. Each Unit consists of one share of
common stock, one Class A warrant giving the holder the right to purchase one
share of stock at $1.00, which is exercisable for one year from the date of
issuance, and one Class B warrant giving the holder the right to purchase one
share of stock for $1.50, which is exercisable for 2 years from the date of
issuance. The Company also issued 100,000 units as an issuance fee. The units
are being offered and issued pursuant to Regulation S promulgated by the
Securities and Exchange Commission.
II-1
As described above, on November 18, 2005 the Company issued $250,000 of
convertible debentures (the "Notes") due three years after issuance. The Notes
bear interest at the rate of 8% per annum payable quarterly in cash. The Notes
can be immediately convertible into shares of the Company's common stock. The
conversion price will be equal to the lesser of: (i) $0.15 and (ii) the average
of the lowest 3 intra-day trading prices during the 20 trading days immediately
prior to the conversion date discounted by 50%. In addition, the Company will
issue to the purchasers of the Notes 333,334 warrants with an exercise price of
$0.3 per share. The Notes and Warrants were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
CONVERTIBLE DEBENTURE FINANCING
To obtain funding for our ongoing operations, we entered into a
Securities Purchase Agreement with four accredited investors on November 18,
2005 for the sale of (i) $750,000 in Callable Secured Convertible Notes and (ii)
warrants to buy 1,000,000 shares of our common stock. This prospectus relates to
the resale of the common stock underlying these Callable Secured Convertible
Notes and warrants. The investors are obligated to provide us with an aggregate
of $750,000 as follows:
o $250,000 was disbursed on November 18, 2005;
o $250,000 was disbursed on May 16, 2006; and
o $250,000 will be disbursed within five days of this prospectus being
declared effective.
Accordingly, we have received a total of $500,000 pursuant to the
Securities Purchase Agreement. The funds from the sale of the Callable Secured
Convertible Notes will be and are being used for business development purposes,
business acquisitions, working capital needs, pre-payment of interest, payment
of consulting and legal fees and borrowing repayment.
The Callable Secured Convertible Notes bear interest at 8%, mature
three years from the date of issuance, and are convertible into our common
stock, at the investors' option, at the lower of (i) $0.15 or (ii) 50% of the
average of the three lowest intraday trading prices for the common stock on a
principal market for the 20 trading days before but not including the conversion
date. The full principal amount of the Callable Secured Convertible Notes is due
upon default under the terms of Callable Secured Convertible Notes. The warrants
are exercisable until five years from the date of issuance at a purchase price
of $0.30 per share. In addition, the conversion price of the Callable Secured
Convertible Notes and the exercise price of the warrants will be adjusted in the
event that we issue common stock at a price below the fixed conversion price,
below market price, with the exception of any securities issued in connection
with the Securities Purchase Agreement. The conversion price of the callable
secured convertible notes and the exercise price of the warrants may be adjusted
in certain circumstances such as if we pay a stock dividend, subdivide or
combine outstanding shares of common stock into a greater or lesser number of
shares, or take such other actions as would otherwise result in dilution of the
selling stockholder's position. The selling stockholders have contractually
agreed to restrict their ability to convert or exercise their warrants and
receive shares of our common stock such that the number of shares of common
stock held by them and their affiliates after such conversion or exercise does
not exceed 4.99% of the then issued and outstanding shares of common stock. In
addition, we have granted the investors a security interest in substantially all
of our assets and intellectual property and registration rights.
The warrants are exercisable until five years from the date of issuance
at a purchase price of $0.30 per share. The selling stockholders will be
entitled to exercise the warrants on a cashless basis if the shares of common
stock underlying the warrants are not then registered pursuant to an effective
registration statement. In the event that the selling stockholder exercises the
warrants on a cashless basis, then we will not receive any proceeds. In
addition, the exercise price of the warrants will be adjusted in the event we
issue common stock at a price below market, with the exception of any securities
issued as of the date of this warrant or issued in connection with the Callable
Secured Convertible Notes issued pursuant to the Securities Purchase Agreement,
dated November 18, 2005.
II-2
* All of the above offerings and sales were deemed to be exempt under
rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as
amended. No advertising or general solicitation was employed in offering the
securities. The offerings and sales were made to a limited number of persons,
all of whom were accredited investors, business associates of our company or
executive officers of our company, and transfer was restricted by our company in
accordance with the requirements of the Securities Act of 1933. In addition to
representations by the above-referenced persons, we have made independent
determinations that all of the above-referenced persons were accredited or
sophisticated investors, and that they were capable of analyzing the merits and
risks of their investment, and that they understood the speculative nature of
their investment. Furthermore, all of the above-referenced persons were provided
with access to our Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to
whom we issued securities as indicated in this section of the registration
statement are unaffiliated with us.
ITEM 27. EXHIBITS.
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation (incorporated by reference to
Registrant's Form 10-KSB for the fiscal year ending December 31,
2001, filed on April 17, 2002).
3.2 Certificate of Amendment of Certificate of Incorporation, dated
January 1989 (incorporated by reference to Registrant's Form 10-KSB
for the fiscal year ending December 31, 2001, filed on April 17,
2002).
3.3 Certificate of Amendment of Certificate of Incorporation, dated June
24, 1991 (incorporated by reference to Registrant's Form 10-KSB for
the fiscal year ending December 31, 2001, filed on April 17, 2002).
3.4 Certificate of Amendment of Certificate of Incorporation, dated June
8, 2001 (incorporated by reference to Registrant's Form 10-KSB for
the fiscal year ending December 31, 2001, filed on April 17, 2002).
3.5 Bylaws (incorporated by reference to Registrant's Form 10-KSB for
the fiscal year ending December 31, 2001, filed on April 17, 2002).
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (filed
herewith).
10.1 2005 Employees/Consultants/Directors Stock Compensation Plan
10.2 Form of Regulation S Subscription Agreement and Investment
Representation (incorporated by reference to Exhibit 10.2 to the
Registrant's current report on Form 8-K filed with the SEC on
January 25, 2005).
10.3 Form of Subscription Agreement (incorporated by reference to Exhibit
10.8 to the Registrant's current report on Form 8-K filed with the
SEC on July 8, 2005).
10.4 Form of Class A Warrant Agreement (incorporated by reference to
Exhibit 10.9 to the Registrant's current report on Form 8-K filed
with the SEC on July 8, 2005).
10.5 Form of Class B Warrant Agreement (incorporated by reference to
Exhibit 10.10 to the Registrant's current report on Form 8-K filed
with the SEC on July 8, 2005).
10.6 Term Sheet, dated July 5, 2005, among Safetek International, Inc.,
NanoDiagnostics, Inc., and Judith Seligman (incorporated by
reference to Exhibit 10.11 to the Registrant's current report on
Form 8-K filed with the SEC on July 8, 2005).
10.7 Securities Purchase Agreement dated November 18, 2005 by and among
the Company and New Millennium Capital Partners II, LLC, AJW
Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(incorporated by reference to Exhibit 10.1 to the Registrant's
current report on Form 8-K filed with the SEC on November 28, 2005).
10.8 Form of Callable Secured Convertible Note dated November 18, 2005
(incorporated by reference to Exhibit 10.2 to the Registrant's
current report on Form 8-K filed with the SEC on November 28, 2005).
10.9 Form of Stock Purchase Warrant dated November 18, 2005 (incorporated
by reference to Exhibit 10.3 to the Registrant's current report on
Form 8-K filed with the SEC on November 28, 2005).
10.10 Registration Rights Agreement dated November 18, 2005 by and among
the Company and New Millennium Capital Partners II, LLC, AJW
Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(incorporated by reference to Exhibit 10.4 to the Registrant's
current report on Form 8-K filed with the SEC on November 28, 2005).
II-3
10.11 Security Agreement dated November 18, 2005by and among the Company
and New Millennium Capital Partners II, LLC, AJW Qualified Partners,
LLC, AJW Offshore, Ltd. and AJW Partners, LLC (incorporated by
reference to Exhibit 10.5 to the Registrant's current report on Form
8-K filed with the SEC on November 28, 2005).
10.12 Intellectual Property Security Agreement dated November 18, 2005 by
and among the Company and New Millennium Capital Partners II, LLC,
AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners,
LLC (incorporated by reference to Exhibit 10.6 to the Registrant's
current report on Form 8-K filed with the SEC on November 28, 2005).
10.13 Employment Agreement, dated May 31, 2005, between Dr. Shay Goldstein
and Oriens Life Sciences (Israel), Ltd. (incorporated by reference
to Exhibit 10.3 to the Registrant's current report on Form 8-K filed
with the SEC on June 10, 2005).
10.14 Amendment to Employment Agreement, dated December 7, 2005, between
Dr. Shay Goldstein and Oriens Life Sciences (Israel), Ltd.
(incorporated by reference to Exhibit 10.7 to the Registrant's
current report on Form 8-K filed with the SEC on December 14, 2005).
10.15 Consulting Agreement, dated June 7, 2005, between Tamar
Tzaban-Nahomov and Oriens Life Sciences (Israel), Ltd. (incorporated
by reference to Exhibit 10.4 to the Registrant's current report on
Form 8-K filed with the SEC on June 10, 2005).
10.16 Employment Agreement, dated October 30, 2005, between Tamar
Tzaban-Nahomov and Oriens Life Sciences (Israel), Ltd. (incorporated
by reference to Exhibit 10.12 to the Registrant's current report on
Form 8-K filed with the SEC on November 3, 2005).
10.17 Amendment to Employment Agreement, dated December 7, 2005, between
Tamar Tzaban-Nahomov and Oriens Life Sciences (Israel), Ltd.
(incorporated by reference to Exhibit 10.8 to the Registrant's
current report on Form 8-K filed with the SEC on December 14, 2005).
(incorporated by reference to Exhibit 10.10 to the Registrant's
current report on Form 8-K filed with the SEC on January 5, 2006).
10.18 Employment Agreement, dated December 7, 2005, between Amnon Presler
and Oriens Life Sciences (Israel), Ltd. (incorporated by reference
to Exhibit 10.9 to the Registrant's current report on Form 8-K filed
with the SEC on December 14, 2005).
10.19 Indemnity Agreement, dated June 7, 2005, between Dr. Shay Goldstein
and Safetek International, Inc. (incorporated by reference to
Exhibit 10.5 to the Registrant's current report on Form 8-K filed
with the SEC on June 10, 2005).
10.20 Indemnity Agreement, dated June 7, 2005, between Tamar
Tzaban-Nahomov and Safetek International, Inc. (incorporated by
reference to Exhibit 10.6 to the Registrant's current report on Form
8-K filed with the SEC on June 10, 2005).
10.21 Indemnity Agreement, dated June 7, 2005, between Jean Pierre Elisha
Martinez and Safetek International, Inc. (incorporated by reference
to Exhibit 10.7 to the Registrant's current report on Form 8-K filed
with the SEC on June 10, 2005).
10.22 Exclusive Patent and Know How License Option Agreement, dated
December 28, 2005, between the Registrant and Matrix Pharma Inc.
(incorporated by reference to Exhibit 10.10 to the Registrant's
current report on Form 8-K filed with the SEC on January 5, 2006).
10.23 Research & Development Agreement, dated January 4, 2006, between the
Registrant and Matrix Pharma Inc. (incorporated by reference to
Exhibit 10.11 to the Registrant's current report on Form 8-K filed
with the SEC on January 5, 2006).
10.24 Form of Callable Secured Convertible Note dated May 16, 2006
(incorporated by reference to Exhibit 10.7 to the Registrant's
current report on Form 8-K filed with the SEC on May 19, 2006).
10.25 Form of Stock Purchase Warrant dated May 16, 2006 (incorporated by
reference to Exhibit 10.8 to the Registrant's current report on Form
8-K filed with the SEC on May 19, 2006).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Sherb & Co., LLP (filed herewith).
23.2 Consent of Sichenzia Ross Friedman Ference LLP (contained in Exhibit
5.1)
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
II-4
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned undertakes that in a primary offering of securities of the
undersigned small business issuer pursuant to this registration statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned small business issuer will
be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned small business issuer or used or referred to by the
undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business issuer or
its securities provided by or on behalf of the undersigned small business
issuer; and
(iv) Any other communication that is an offer in the offering made by the
undersigned small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in Tel Aviv, Israel, on
July 3, 2006.
SAFETEK INTERNATIONAL, INC.
By: /s/ Amnon Presler
-----------------------------------
Amnon Presler
Chief Executive Officer (Principal
Executive Officer)
By: /s/ Tamar Tzaban-Nahomov
Tamar Tzaban-Nahomov
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ---------------------------------- -------------------------------------------- -----------------------
/s/ Amnon Presler Chief Executive Officer and Director
- --------------------------
Amnon Presler July 3, 2006
/s/ Tamar Tzaban-Nahomov Chief Financial Officer and Director
- --------------------------
Tamar Tzaban-Nahomov July 3, 2006
II-7