Telkonet, Inc.
As
filed
with the Securities and Exchange Commission on March 5, 2007
Registration
No. 333-
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
Under
The
Securities Act of 1933
TELKONET,
INC.
(Exact
Name of Registrant as Specified in Its Charter)
|
|
|
|
Utah
|
87-0627421
|
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
20374
Seneca Meadows Parkway, Germantown, Maryland 20876
(240) 912-1800
(Address,
Including Zip Code, and Telephone Number, Including Area Code
of
Registrant’s Principal Executive Offices)
Ronald
W. Pickett
Chief
Executive Officer
20374
Seneca Meadows Parkway
Germantown,
Maryland 20876
(Name
and
Address, Including Zip Code, of Agent for Service)
(240) 912-1800
(Telephone
Number, Including Area Code, of Agent for Service)
copy
to:
William
J. Conti, Esq.
Baker
& Hostetler LLP
1050
Connecticut Avenue, NW
Suite 1100
Washington,
D.C. 20036
202-861-1726
202-861-1783
(fax)
APPROXIMATE
DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon effectiveness of
this
registration statement.
If
the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box.
o
If
any of
the securities being registered on this form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. þ
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. o
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. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. o
CALCULATION
OF REGISTRATION FEE
|
|
|
|
Title
of each Class of Securities To Be Registered
|
|
|
Amount
To
Be
Registered
|
|
|
|
Proposed
Maximum
Offering
Price
Per
Share
|
|
|
|
Proposed
Maximum
Aggregate
Offering
Price
|
|
|
|
Amount
Of
Registration
Fee
|
|
|
|
|
Common
Stock, $0.001 par value
|
|
|
6,600,000(1)
|
|
|
|
|
$2.77(2)
|
|
|
|
$18,282,000(2)
|
|
|
|
$1,956.00
|
|
|
|
|
(1)
Pursuant to Rule 416(a), this Registration Statement shall also cover any
additional shares of the registrant’s common stock that become issuable by
reason of any stock splits, stock dividends or similar
transactions.
(2)
Estimated in accordance with Rule 457 solely for the purpose of determining
the registration fee.
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, as amended, or until the registration statement shall
become effective on such date as the Securities and Exchange Commission (SEC),
acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. The selling
stockholders named in this prospectus may not sell these securities until the
Securities and Exchange Commission declares our registration statement
effective. This prospectus is not an offer to sell the securities and is not
soliciting an offer to buy these securities in any jurisdiction where the offer
or sale is not permitted.
|
Subject
to completion, dated March 5, 2007
|
| |
|
PROSPECTUS
|
| |
|
TELKONET,
INC.
|
| |
|
6,600,000 Shares
|
| |
|
Common
Stock
|
This
prospectus covers 6,600,000 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 the shares of our common stock pursuant to this
prospectus. We will bear the costs relating to the registration of the shares
of
our common stock, which we estimate to be approximately $24,956.
The
selling stockholders may sell the shares of our common stock through ordinary
brokerage transactions or through any other means described in this prospectus
under “PLAN OF DISTRIBUTION.” The price at which the selling stockholders may
sell the shares will be determined by the prevailing market price for the shares
or in negotiated transactions.
Our
common stock is listed on the American Stock Exchange (“AMEX”) under the symbol
“TKO.” On February 27, 2007, the last reported sale price of our common stock
was $2.77.
Investing
in shares of our common stock involves risks. See “RISK FACTORS” beginning on
page 4 of this prospectus.
Neither
the SEC 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.
No
dealer, salesperson or other person has been authorized to give any information
or to make any representations other than those contained in or incorporated
by
reference into this prospectus in connection with the offer contained in this
prospectus and, if given or made, such information or representations must
not
be relied upon as having been authorized by us. Neither the delivery of this
prospectus nor any sale made hereunder shall under any circumstances create
an
implication that there has been no change in our affairs since the date hereof.
The selling stockholders named in this prospectus are offering to sell, and
seeking offers to buy, shares of our common stock only in jurisdictions where
such offers and sales are permitted. The information contained in, and
incorporated by reference into, this prospectus speaks only as of the date
of
this prospectus unless the information specifically indicates that another
date
applies.
The
date
of this prospectus is ________, 2007.
TABLE
OF CONTENTS
|
|
|
|
|
|
THE
COMPANY
|
|
|
1
|
|
RISK
FACTORS
|
|
|
4
|
|
FORWARD-LOOKING
STATEMENTS
|
|
|
7
|
|
USE
OF PROCEEDS
|
|
|
7
|
|
SELLING
STOCKHOLDERS
|
|
|
8
|
|
PLAN
OF DISTRIBUTION
|
|
|
9
|
|
EXPERTS
|
|
|
11
|
|
LEGAL
MATTERS
|
|
|
11
|
|
INFORMATION
INCORPORATED BY REFERENCE
|
|
|
11
|
|
WHERE
YOU CAN FIND MORE INFORMATION
|
|
|
12
|
|
DISCLOSURE
OF SEC POSITION ON INDEMNIFICATION OF SECURITIES ACT
LIABILITIES
|
|
|
12
|
THE
COMPANY
This
summary highlights selected information contained elsewhere in this prospectus
and incorporated into this prospectus by reference. This summary may not contain
all of the information that may be important to you in considering an investment
in our common stock. You should carefully read the entire prospectus, including
the documents that are incorporated by reference into this prospectus, before
making an investment decision. Unless the context requires otherwise, references
in this prospectus to “Telkonet,” the “company,” “we,” “us,” and “our” refer to
Telkonet, Inc.
Overview
The
Company was formed in 1999 to develop products for use in the powerline
communications (PLC) industry. PLC products use existing electrical wiring
in
commercial and residential buildings to carry high speed data communications
signals, including the Internet. Since its formation, the Company has focused
on
development and marketing of its PLC technology. Following the acquisition
of Microwave Satellite Technologies (MST) in January 2006, the Company began
offering complete sales, installation, and service of VSAT and business
television networks, and became a full-service national Internet Service
Provider (ISP). The acquisition of the MST business enabled the Company to
begin
offering a complete "triple-play" solution to subscribers of HDTV, VolP
telephony and NuVision Broadband Internet access, in commercial multi-dwelling
units and hotels.
Our
powerline communications technology, the “Telkonet iWire SystemTM”
product
suite (formerly referred to as the PlugPlus™ product suite), consists of four
primary components, the Gateway, the eXtender, the Coupler and the iBridge.
The
Gateway, the hub of the Telkonet iWire SystemTM,
is a
modular, self-contained unit that accepts data from an existing network on
one
port and distributes it via a second port. The Gateway integrates a
communications processor that runs a series of proprietary applications under
Linux. The signal generated by the Gateway can be directly coupled into low
voltage wiring via the Coupler, which interfaces directly between the Gateway
and the building’s electrical panel. Multi-panel buildings typically require
multiple Couplers, which are connected to the Gateway via inexpensive coaxial
cable and concentrated using standard radio frequency splitters. A suite of
software applications running on the Gateway can perform communications
functions or system management functions. The iBridge serves as the user’s
network access device and connects to a user’s personal computer through a
standard Ethernet cable. The iBridge’s AC line cord serves as its power source
as well as its network interface. The eXtenderTM
is used
to extend the reach of the Gateway in larger buildings or campus environments.
The
Telkonet iWire SystemTM
product
suite delivers data to the user at speeds in excess of 7 Mega bits per second
(Mbps), with burst speeds of 12.6 Mbps. The Telkonet iWire SystemTM
product
suite is installed by connecting an incoming broadband signal (DSL, TL,
satellite or cable modem) into the Gateway and connecting the Gateway to the
building’s electrical panel using one or more Couplers. Once installed, the
Gateway distributes the high-speed Internet signal throughout the entire
existing network of electrical wires within the building. The user may access
a
high-speed Internet signal by plugging the iBridge into any electrical outlet
and connecting a personal computer to the iBridge using the computer’s built-in
Ethernet port. Multiple personal computers connected to the iBridgeTM
can
communicate with one another and can share a single broadband resource via
the
Gateway.
We
are a
member of the HomePlug™ Powerline Alliance, an industry trade group that engages
in marketing and educational initiatives, and sets standards and specifications
for products in the powerline communications industry.
We
are a
Utah corporation and our principal executive offices are located at 20374 Seneca
Meadows Parkway, Germantown, Maryland 20876.
Business
History
In
January 2002, we announced that we had shifted our management emphasis from
research and development to product sales and marketing in order to move our
initial proprietary products into the commercial market. In January 2002, the
Board of Directors, Founders and executive management of the Company also
reassessed the Company’s capital structure. In order to attract additional
management and marketing expertise, and to raise the necessary capital for
manufacturing, sales, and marketing, the Board of Directors approved a plan
authorizing the repurchase of certain shares of, and options to purchase,
Telkonet common stock held by each of David Grimes, L. Peter Larson and Stephen
Sadle who, at the time of the stock repurchase, each owned in excess of five
percent of the issued and outstanding capital stock and were directors and
executive officers of Telkonet. The net effect of the recapitalization was
to
reduce the number of shares of issued and outstanding common stock from
approximately 22,100,000 shares to 13,900,000 shares.
In
May
2002, we concluded an offering of Series A convertible debentures pursuant
to
which we raised approximately $1.7 million dollars for working capital purposes.
In the fourth quarter of 2002, we announced the successful installation of
our
Telkonet iWire SystemTM
product
suite at a historic inn in Augusta, Georgia and installation of a product field
trial in Wilmington, North Carolina.
In
the
first quarter of 2003, we concluded an offering of Series B convertible
debentures pursuant to which we raised approximately $2.5 million dollars for
working capital purposes. We also executed a strategic alliance agreement with
Choice Hotels International (NYSE: CHH), one of the largest hotel franchise
companies in the world, pursuant to which we agreed to become a Choice
Hotels-endorsed vendor.
In
the
second quarter of 2003, we concluded an offering of Senior Notes pursuant to
which we raised approximately $5,000,000, exclusive of placement costs and
fees.
The proceeds of the Senior Note offering were designated for working capital
purposes.
In
January 2004, the Board of Directors determined to permit the Senior
Noteholders, for a limited period of time, to convert their Senior Notes into
the Company's common stock at a conversion price of $2.10 per share. In
connection with this transaction, Senior Noteholders converted Senior Notes
having an aggregate principal value of $2,539,000. As of June 30, 2006, the
Senior Notes have been paid in full.
In
February 2004, we completed a private offering of our common stock resulting
in
net proceeds of $12.8 million. We sold 6,387,600 shares of our common stock
in
the private offering. The proceeds of the private placement were designated
for
working capital purposes.
In
October 2005, we announced that we completed a convertible senior debt
financing of $20 million. The proceeds of this financing were reserved for
general working capital needs. The convertible senior notes were purchased
by two institutional investors in the face amount of $10 million each. In
connection with this financing, the Company agreed to certain financial
covenants in the Note evidencing such indebtedness which required the Company
to
achieve minimum revenue of $2 million for each fiscal quarter during the term
of
the Note. The Company failed to meet this financial covenant for the period
ended June 30, 2006 and, therefore, was required to pay the noteholders an
aggregate accelerated principal payment of $1,000,000 on or before September
1,
2006. Although the Company believes that the failure to meet this covenant
did
not constitute an event of default under the Senior Convertible Note, one of
the
noteholders informed the Company that it believed an event of default had
occurred. As a result of this dispute, on August 14, 2006, the Company
executed separate settlement agreements with the noteholders. Pursuant to the
settlement agreements the Company paid to the noteholders on August 15, 2006
$9,910,392, in the aggregate, plus accrued but unpaid interest of $23,951 and
certain premiums specified in the Notes in satisfaction of the amounts then
outstanding under the Notes. The Company also issued 862,452 warrants to
purchase shares of the Company’s common stock at the exercise price of $2.58 per
share. Registration statements covering the shares underlying the warrants,
were
filed with the Securities and Exchange Commission on Form S-3 on September
29, 2006 and October 13, 2006 and were declared effective on October 16, 2006
and October 24, 2006, respectively. As a result of the execution of the
settlement agreements and the payments required thereby, the Company fully
believes it repaid and satisfied all of its obligations under the
Notes.
Each
settlement agreement provides that the number of shares issued to the
noteholders shall be adjusted based upon the arithmetic average of the weighted
average price of the Company’s common stock on the American Stock Exchange for
the twenty trading days immediately following the settlement date. The
Company has concluded that, based upon the weighted average of the Company's
common stock between August 16, 2006 and September 13, 2006, the Company is
entitled to a refund from the two noteholders. One of the noteholders has
informed the Company that it does not believe such a refund is required.
As a result, the Company has declined to deliver to the noteholders certain
stock purchase warrants issued to them pursuant to the settlement agreement
pending resolution of this disagreement. One noteholder has alleged that the
Company has failed to satisfy its obligations under the settlement agreement
by
failing to deliver the warrants. In addition, the noteholder maintains that
the
Company has breached certain provisions of the Registration Rights Agreement
(executed simultaneously with the settlement agreement) and, as a result of
such
breach, such noteholder claims that it is entitled to receive liquidated damages
from the Company. As of February 23, 2007, no legal claim has been filed by
the
Noteholder.
In
January 2006, the Company acquired, for $9 million, a 90% interest in Microwave
Satellite Technologies (MST), a communications technology company that offers
complete sales, installation, and service of Very Small Aperture Terminal
(VSAT) and business television networks, and is a full-service national
Internet Service Provider (ISP). Following this acquisition the Company
began providing a “triple-play” solution to HDTV, VoIP telephony and
Internet subscribers. The $9 million purchase price is payable $1.8 million
in
cash and 1.6 million unregistered shares of the Company’s common stock. With
respect to the cash portion of the purchase price, $900,000 was paid at the
closing and the remaining $900,000 was paid in February 2007. With
respect to the stock portion of the purchase price, 600,000 shares of Telkonet
common stock were paid at the closing and in the second quarter 2006 and the
remaining 1,000,000 shares are currently held in escrow and shall be released
upon the achievement of 3,300 “triple play” subscribers over a three year
period. The Company plans to expand MST's existing operations,
which currently are concentrated in Manhattan, throughout New York
and increase its presence in other major metropolitan cities using the New
York system as a template.
On
August
31, 2006, the Company completed a private placement of 2.4 million shares of
its
common stock to Enable Capital Management for gross proceeds of $6.0 million.
No
underwriting commissions were paid in connection with this transaction. The
proceeds of this offering are being used for general working capital needs.
In
connection with this offering, the Company also issued to this investor warrants
to purchase 1.56 million shares of common stock at an exercise price of $4.17
per share. These warrants expire five years from the date of issuance.
Technology
We
have
applied for patents that cover the unique technology integrated into the
Telkonet iWire SystemTM
product
suite. We also continue to identify, design and develop enhancements to our
core
technologies that will provide additional functionality, diversification of
application and desirability for current and future users of the Telkonet iWire
SystemTM
product
suite.
In
January 2003, we received Federal Communications Commission
(FCC) approval to market the Telkonet iWire SystemTM
product
suite. FCC rules permit the operation of unlicensed digital devices that radiate
radio frequency emissions if the manufacturer complies with certain equipment
authorization procedures, technical requirements, marketing restrictions and
product labeling requirements. An independent, FCC-certified testing lab has
verified that our Gateway complies with the FCC technical requirements for
Class A digital devices. No further testing of this device is required and
the device may be manufactured and marketed for commercial use.
In
March 2005, we received final certification of our Telkonet iWire
SystemTM
product
suite from European Union (EU) authorities, which certification was
required before we could sell and permanently install our products in EU
countries. As a result of the certification, Telkonet products that will be
sold
and installed in EU countries will bear the Conformite Europeene (CE) mark,
a
symbol that demonstrates that the product has met the EU’s regulatory standards
and is approved for sale within the EU. We now have satisfied the governmental
requirements for product safety and certification in the EU and are free to
sell
and install the Telkonet iWire SystemTM
product
suite in the EU.
In
June 2005, we received the National Institute of Standards and Technology
(NIST) Federal Information Processing Standard (FIPS) 140-2 validation
for the Gateway. In July 2005, we received FIPS 140-2 validation for the
eXtender and iBridge. The U.S. federal government requires, as a condition
to
purchasing certain information processing applications, that such applications
receive FIPS 140-2 validation. U.S. federal agencies use FIPS 140-2 compliant
products for the protection of sensitive information. As a result of the
foregoing validations, as of July 2005, all of Telkonet’s powerline carrier
products have satisfied all governmental requirements for security certification
and are eligible for purchase by the U.S. federal government. In addition to
the
foregoing, Canadian provincial authorities use FIPS 140-2 compliant products
for
the protection of sensitive designate information. The
Communications-Electronics Security Group (CESG) also has stated that FIPS
140-2 compliant products meet its security criteria for use in data traffic
categorized as “Private.” CESG is part of the United Kingdom’s National
Technical Authority for Information Assurance, which is a government agency
responsible for validating the security of information processing applications
for the government of the United Kingdom, financial institutions, healthcare
organizations, and international governments, among others.
In
December 2005, the United States Patent and Trademark Office issued patent
number 6,975,212 titled “Method and Apparatus for Attaching Power Line
Communications to Customer Premises” (U.S. Pat. App. No. 10/219, 811). The
patent application covers our proprietary Coupler technology, which enables
the
conversion of electrical outlets into high-speed data ports without costly
installation, additional wiring, or significant disruption of business activity.
The Coupler is an integral component of the Telkonet iWire SystemTM
product
suite.
In
November 2005, we received the Norma Official Mexicana
(NOM) certification, enabling our Telkonet iWire SystemTM
product
suite to be sold in Mexico. NOM certification is required for our products
to be
sold in Mexico, and no further certifications are required for us to sell the
Telkonet iWire SystemTM
product
suite in Mexico.
In
September 2006, the United States Patent and Trademark Office issued patent
number 7,091,831, titled "Method and Apparatus for Attaching Power Line
Communications to Customer Premises". The patented technology incorporates
a
safety disconnect circuit breaker into the Telkonet Coupler, creating a single
streamlined unit. In doing so, installation of the Telkonet iWire System(TM)
is
faster, more efficient, and more economical than with separate disconnect
switches, delivering optimal signal quality. The Telkonet Integrated Coupler
Breaker patent covers the unique technique used for interfacing and coupling
its
communication devices onto the three-phase electrical systems that are
predominant in commercial buildings.
Private
Placement of Common Stock and Warrants to Purchase Common Stock
On
February 2, 2007, we completed a private placement of 4.0 million shares of
our
common stock to Enable Capital Management and Hudson Bay Capital Management,
whose affiliates are selling stockholders under this prospectus, for gross
proceeds of $10 million. The Company incurred $390,000 in private placement
fees in connection with this transaction. The proceeds of this offering
will be used for general working capital needs and to assist in funding the
Company's strategic initiatives. Telkonet also has issued to the purchasers
in the private placement warrants to purchase 2.6 million shares of common
stock at an exercise price of $4.17 per share. Additionally, the Company agreed
to issue to the placement agent warrants to purchase 79,000 shares of its common
stock at an exercise price of $4.17 per share. These
warrants expire five years from the date of issuance.
The
shares of our common stock sold in the private placement and those issuable
pursuant to the warrants are included in the shares being registered for resale
by the selling stockholders pursuant to this prospectus. See “SELLING
STOCKHOLDERS” beginning on page 9 of this prospectus.
The
common stock and warrants issued in the offering were sold pursuant to the
exemption provided by Section 4(2) of the Securities Act of 1933 and/or Rule
506
of Regulation D promulgated thereunder on the basis that the purchaser is an
"accredited investor" as such term is defined in Rule 501 of Regulation D.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors and other information contained
in
or incorporated by reference into this prospectus and any accompanying
prospectus supplement before deciding to purchase any shares of our common
stock.
The
Company has a history of operating losses and an accumulated deficit and expects
to continue to incur losses for the foreseeable future.
Since
inception through September 30, 2006, the Company has incurred cumulative losses
of $65,290,482 and has never generated enough funds through operations to
support its business. Additional capital may be required in order to provide
working capital requirements for the next twelve months. The Company’s losses to
date have resulted principally from:
|
·
|
research
and development costs relating to the development of the Telkonet
iWire
SystemTM
product suite;
|
|
·
|
costs
and expenses associated with manufacturing, distribution and marketing
of
the Company’s products;
|
|
·
|
general
and administrative costs relating to the Company’s operations;
and
|
|
·
|
interest
expense related to the Company’s
indebtedness.
|
The
Company is currently unprofitable and may never become profitable. Since
inception, the Company has funded its research and development activities
primarily from private placements of equity and debt securities, a bank loan
and
short term loans from certain of its executive officers. As a result of its
substantial research and development expenditures and limited product revenues,
the Company has incurred substantial net losses. The Company’s ability to
achieve profitability will depend primarily on its ability to successfully
commercialize the Telkonet iWire SystemTM product suite. If the Company is
not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources on terms acceptable to the Company, this could
have
a material adverse effect on the Company’s business, results of operations,
liquidity and financial condition.
Potential
fluctuations in operating results could have a negative effect on the price
of
the Company’s common stock.
The
Company’s operating results may fluctuate significantly in the future as a
result of a variety of factors, most of which are outside the Company’s control,
including:
|
·
|
the
level of use of the Internet;
|
|
·
|
the
demand for high-tech goods;
|
|
·
|
the
amount and timing of capital expenditures and other costs relating
to the
expansion of the Company’s
operations;
|
|
·
|
price
competition or pricing changes in the
industry;
|
|
·
|
technical
difficulties or system downtime;
|
|
·
|
economic
conditions specific to the internet and communications industry;
and
|
|
·
|
general
economic conditions.
|
The
Company’s quarterly results may also be significantly impacted by certain
accounting treatment of acquisitions, financing transactions or other matters.
Such accounting treatment could have a material impact on the Company’s results
of operations and have a negative impact on the price of the Company’s common
stock.
The
Company’s directors and executive officers own a substantial percentage of the
Company’s issued and outstanding common stock. Their ownership could allow them
to exercise significant control over corporate decisions.
As
of
December 31, 2006, the Company’s officers and directors owned 18.8% of the
Company’s issued and outstanding common stock. This means that the Company’s
officers and directors, as a group, exercise significant control over matters
upon which the Company’s stockholders may vote, including the selection of the
Board of Directors, mergers, acquisitions and other significant corporate
transactions.
Further
issuances of equity securities may be dilutive to current
stockholders.
Although
the funds raised in the Company’s debenture offerings, the note offerings and
the private placement of common stock are being used for general working capital
purposes, it is likely that the Company will be required to seek additional
capital in the future. This capital funding could involve one or more types
of
equity securities, including convertible debt, common or convertible preferred
stock and warrants to acquire common or preferred stock. Such equity securities
could be issued at or below the then-prevailing market price for the Company’s
common stock. Any issuance of additional shares of the Company’s common stock
will be dilutive to existing stockholders and could adversely affect the market
price of the Company’s common stock.
The
exercise of options and warrants outstanding and available for issuance may
adversely affect the market price of the Company’s common
stock.
As
of
December 31, 2006, the Company had outstanding employee options to purchase
a
total of 8,520,929 shares of common stock at exercise prices ranging from $1.00
to $5.97 per share, with a weighted average exercise price of $2.06. As of
December 31, 2006, the Company had outstanding non-employee options to purchase
a total of 1,815,937 shares of common stock at an exercise price of $1.00 per
share. As of December 31, 2006, the Company had warrants outstanding to purchase
a total of 4,557,850 shares of common stock at exercise prices ranging from
$2.59 to $4.87 per share, with a weighted average exercise price of $4.20.
The
exercise of outstanding options and warrants and the sale in the public market
of the shares purchased upon such exercise will be dilutive to existing
stockholders and could adversely affect the market price of the Company’s common
stock.
The
powerline communications industry is intensely competitive and rapidly
evolving.
The
Company operates in a highly competitive, quickly changing environment, and
the
Company’s future success will depend on its ability to develop and introduce new
products and product enhancements that achieve broad market acceptance in
commercial and governmental sectors. The Company will also need to respond
effectively to new product announcements by its competitors by quickly
introducing competitive products.
Delays
in
product development and introduction could result in:
|
·
|
loss
of or delay in revenue and loss of market
share;
|
|
·
|
negative
publicity and damage to the Company’s reputation and brand;
and
|
|
·
|
decline
in the average selling price of the Company’s
products.
|
Government
regulation of the Company’s products could impair the Company’s ability to sell
such products in certain markets.
FCC
rules
permit the operation of unlicensed digital devices that radiate radio frequency
emissions if the manufacturer complies with certain equipment authorization
procedures, technical requirements, marketing restrictions and product labeling
requirements. Differing technical requirements apply to “Class A” devices
intended for use in commercial settings, and “Class B” devices intended for
residential use to which more stringent standards apply. An independent,
FCC-certified testing lab has verified that the Company’s Telkonet’s iWire
SystemTM
product
suite complies with the FCC technical requirements for Class A and Class B
digital devices. No further testing of these devices is required and the devices
may be manufactured and marketed for commercial and residential use. Additional
devices designed by the Company for commercial and residential use will be
subject to the FCC rules for unlicensed digital devices. Moreover, if in the
future, the FCC changes its technical requirements for unlicensed digital
devices, further testing and/or modifications of devices may be necessary.
Failure to comply with any FCC technical requirements could impair the Company’s
ability to sell its products in certain markets and could have a negative impact
on its business and results of operations.
Products
sold by the Company’s competitors could become more popular than the Company’s
products or render the Company’s products obsolete.
The
market for powerline communications products is highly competitive. The
HomePlug(TM) Powerline Alliance has grown over the past year and now includes
many well recognized brands in the networking and communications industries.
These include Linksys (a Cisco company), Intel, GE, Motorola, Netgear, Sony
and
Samsung. With the exception of Motorola, who recently introduced a commercial
product, these companies do not presently represent a direct competitive threat
to the Company since they only market and sell their products in the residential
sector. There can be no assurance that other companies will not develop PLC
products that compete with the Company’s products in the future. Some of these
potential competitors have longer operating histories, greater name recognition
and substantially greater financial, technical, sales, marketing and other
resources. These potential competitors may, among other things, undertake more
extensive marketing campaigns, adopt more aggressive pricing policies, obtain
more favorable pricing from suppliers and manufacturers and exert more influence
on the sales channel than the Company can. As a result, the Company may not
be
able to compete successfully with these potential competitors and these
potential competitors may develop or market technologies and products that
are
more widely accepted than those being developed by the Company or that would
render the Company’s products obsolete or noncompetitive. The Company
anticipates that potential competitors will also intensify their efforts to
penetrate the Company’s target markets. These potential competitors may have
more advanced technology, more extensive distribution channels, stronger brand
names, bigger promotional budgets and larger customer bases than the Company
does. These companies could devote more capital resources to develop,
manufacture and market competing products than the Company could. If any of
these companies are successful in competing against the Company, its sales
could
decline, its margins could be negatively impacted, and the Company could lose
market share, any of which could seriously harm the Company’s business and
results of operations.
The
failure of the internet to continue as an accepted medium for business commerce
could have a negative impact on the Company’s results of
operations.
The
Company’s long-term viability is substantially dependent upon the continued
widespread acceptance and use of the Internet as a medium for business commerce.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users. There can be no assurance that the
Internet infrastructure will continue to be able to support the demands placed
on it by this continued growth. In addition, delays in the development or
adoption of new standards and protocols to handle increased levels of Internet
activity or increased governmental regulation could slow or stop the growth
of
the Internet as a viable medium for business commerce. Moreover, critical issues
concerning the commercial use of the Internet (including security, reliability,
accessibility and quality of service) remain unresolved and may adversely affect
the growth of Internet use or the attractiveness of its use for business
commerce. The failure of the necessary infrastructure to further develop in
a
timely manner or the failure of the Internet to continue to develop rapidly
as a
valid medium for business would have a negative impact on the Company’s results
of operations.
The
Company may not be able to obtain patents, which could have a material adverse
effect on its business.
The
Company’s ability to compete effectively in the powerline technology industry
will depend on its success in acquiring suitable patent protection. The Company
currently has several patents pending. The Company also intends to file
additional patent applications that it deems to be economically beneficial.
If
the Company is not successful in obtaining patents, it will have limited
protection against those who might copy its technology. As a result, the failure
to obtain patents could negatively impact the Company’s business and results of
operations.
Infringement
by third parties on the Company’s proprietary technology and development of
substantially equivalent proprietary technology by the Company’s competitors
could negatively impact the Company’s business.
The
Company’s success depends partly on its ability to maintain patent and trade
secret protection, to obtain future patents and licenses, and to operate without
infringing on the proprietary rights of third parties. There can be no assurance
that the measures the Company has taken to protect its intellectual property,
including those integrated to its Telkonet iWire SystemTM
product
suite, will prevent misappropriation or circumvention. In addition, there can
be
no assurance that any patent application, when filed, will result in an issued
patent, or that the Company’s existing patents, or any patents that may be
issued in the future, will provide the Company with significant protection
against competitors. Moreover, there can be no assurance that any patents issued
to, or licensed by, the Company will not be infringed upon or circumvented
by
others. Infringement by third parties on the Company’s proprietary technology
could negatively impact its business. Moreover, litigation to establish the
validity of patents, to assert infringement claims against others, and to defend
against patent infringement claims can be expensive and time-consuming, even
if
the outcome is in the Company’s favor. The Company also relies to a lesser
extent on unpatented proprietary technology, and no assurance can be given
that
others will not independently develop substantially equivalent proprietary
information, techniques or processes or that the Company can meaningfully
protect its rights to such unpatented proprietary technology. Development of
substantially equivalent technology by the Company’s competitors could
negatively impact its business.
The
Company depends on a small team of senior management, and it may have difficulty
attracting and retaining additional personnel.
The
Company’s future success will depend in large part upon the continued services
and performance of senior management and other key personnel. If the Company
loses the services of any member of its senior management team, its overall
operations could be materially and adversely affected. In addition, the
Company’s future success will depend on its ability to identify, attract, hire,
train, retain and motivate other highly skilled technical, managerial,
marketing, purchasing and customer service personnel when they are needed.
Competition for these individuals is intense. The Company cannot ensure that
it
will be able to successfully attract, integrate or retain sufficiently qualified
personnel when the need arises. Any failure to attract and retain the necessary
technical, managerial, marketing, purchasing and customer service personnel
could have a negative effect on the Company’s financial condition and results of
operations.
Any
acquisitions we make could result in difficulties in successfully managing
our
business and consequently harm our financial condition.
We
may
seek to expand by acquiring competing businesses in our current or other
geographic markets, including as a means to acquire spectrum. We cannot
accurately predict the timing, size and success of our acquisition efforts
and
the associated capital commitments that might be required. We expect to face
competition for acquisition candidates, which may limit the number of
acquisition opportunities available to us and may lead to higher acquisition
prices. There can be no assurance that we will be able to identify, acquire
or
profitably manage additional businesses or successfully integrate acquired
businesses, if any, into our company, without substantial costs, delays or
other
operational or financial difficulties. In addition, acquisitions involve a
number of other risks, including:
| · |
failure of the acquired businesses to achieve expected
results;
|
| · |
diversion of management’s attention and resources to
acquisitions;
|
| · |
failure to retain key customers or personnel of the acquired businesses;
|
| · |
disappointing quality or functionality of acquired equipment and
people:
and
|
| · |
risks associated with unanticipated events, liabilities or
contingencies.
|
Client
dissatisfaction or performance problems at a single acquired business could
negatively affect our reputation. The inability to acquire businesses on
reasonable terms or successfully integrate and manage acquired companies, or
the
occurrence of performance problems at acquired companies, could result in
dilution, unfavorable accounting treatment or one-time charges and difficulties
in successfully managing our business.
Our
inability to obtain capital, use internally generated cash or debt, or use
shares of our common stock to finance future acquisitions could impair the
growth and expansion of our business.
Reliance
on internally generated cash or debt to finance our operations or complete
acquisitions could substantially limit our operational and financial
flexibility. The extent to which we will be able or willing to use shares of
our
common stock to consummate acquisitions will depend on our market value which
will vary, and liquidity. Using shares of our common stock for this purpose
also
may result in significant dilution to our then existing stockholders. To the
extent that we are unable to use our common stock to make future acquisitions,
our ability to grow through acquisitions may be limited by the extent to which
we are able to raise capital through debt or additional equity financings.
No
assurance can be given that we will be able to obtain the necessary capital
to
finance any acquisitions or our other cash needs. If we are unable to obtain
additional capital on acceptable terms, we may be required to reduce the scope
of any expansion or redirect resources committed to internal purposes. In
addition to requiring funding for acquisitions, we may need additional funds
to
implement our internal growth and operating strategies or to finance other
aspects of our operations. Our failure to: (i) obtain additional capital on
acceptable terms; (ii) use internally generated cash or debt to complete
acquisitions because it significantly limits our operational or financial
flexibility; or (iii) use shares of our common stock to make future
acquisitions, may hinder our ability to actively pursue our acquisition
program.
We
rely on a limited number of third party suppliers. If these companies fail
to
perform or experience delays, shortages, or increased demand for their products
or services, we may face shortages, increased costs, and may be required to
suspend deployment of our products and services.
We
depend
on a limited number of third party suppliers to provide the components and
the
equipment required to deliver our solutions. If these providers fail to perform
their obligations under our agreements with them or we are unable to renew
these
agreements, we may be forced to suspend the sale and deployment of our products
and services and enrollment of new customers, which would have an adverse effect
on our business, prospects, financial condition and operating
results.
Our
management and operational systems might be inadequate to handle our potential
growth.
We
may
experience
growth
that could place a significant strain upon our management and operational
systems and resources. Failure to manage our growth effectively could have
a
material adverse effect upon our business, results of operations and financial
condition. Our ability to compete effectively as a provider of PLC technology
and a provider of digital satellite television and high-speed Internet
products and services and to manage future growth will require us to continue to
improve our operational systems, organization and financial and management
controls, reporting systems and procedures. We may fail to make these
improvements effectively. Additionally, our efforts to make these improvements
may divert the focus of our personnel. We must integrate our key executives
into
a cohesive management team to expand our business. If new hires perform poorly,
or if we are unsuccessful in hiring, training and integrating these new
employees, or if we are not successful in retaining our existing employees,
our
business may be harmed. To manage the growth we will need to increase our
operational and financial systems, procedures and controls. Our current and
planned personnel, systems, procedures and controls may not be adequate to
support our future operations. We may not be able to effectively manage such
growth, and failure to do so could have a material adverse effect on our
business, financial condition and results of operations
We
may be affected if the United States participates in wars or military or other
action or by international terrorism.
Involvement
in a war or other military action or acts of terrorism may cause significant
disruption to commerce throughout the world. To the extent that such disruptions
result in (i) delays or cancellations of customer orders, (ii) a general
decrease in consumer spending on information technology, (iii) our inability
to
effectively market and distribute our services or products or (iv) our inability
to access capital markets, our business and results of operations could be
materially and adversely affected. We are unable to predict whether the
involvement in a war or other military action will result in any long-term
commercial disruptions or if such involvement or responses will have any
long-term material adverse effect on its business, results of operations, or
financial condition.
FORWARD-LOOKING
STATEMENTS
This
prospectus, any prospectus supplement and the information incorporated by
reference may contain “forward-looking statements,” which represent our
expectations or beliefs, including, but not limited to, statements concerning
industry performance and our results, operations, performance, financial
condition, plans, growth and strategies, which include, without limitation,
statements preceded or followed by or that include the words “may,” “will,”
“expect,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the
negative or other variations thereof or comparable terminology. Any statements
contained in this prospectus, any prospectus supplement or the information
incorporated by reference that are not statements of historical fact may be
deemed to be forward-looking statements. These statements by their nature
involve substantial risks and uncertainties, some of which are beyond our
control, and actual results may differ materially depending on a variety of
important factors, many of which are also beyond our control. You should not
place undue reliance on these forward-looking statements, which speak only
as of
the date of this prospectus. We do not undertake any obligation to update or
release any revisions to these forward-looking statements to reflect events
or
circumstances after the date of this prospectus or to reflect the occurrence
of
unanticipated events, except to the extent such updates and/or revisions are
required to prevent these forward-looking statements from being materially
false
or misleading.
USE
OF PROCEEDS
All
net
proceeds from the sale of our common stock will go to the selling stockholders
selling common stock under this prospectus. We will not receive any proceeds
from the sale of the common stock sold by the selling stockholders.
SELLING
STOCKHOLDERS
The
shares of common stock being offered pursuant to this prospectus by the selling
stockholders include shares of common stock purchased by the selling
stockholders in the private placement and shares issuable to the selling
stockholders upon exercise of the warrants purchased in the private placement.
For additional information regarding the issuance of these shares of common
stock and warrants, see, “Private Placement of Common Stock and Warrants to
Purchase Common Stock” beginning on page 4 of this prospectus. We are
registering the shares of common stock in order to permit the selling
stockholders to offer the shares for resale from time to time. Except for the
ownership of the common stock and warrants issued pursuant to the securities
purchase agreement, the selling stockholders have not had any material
relationship with us within the past three years.
The
table
below lists the selling stockholders and other information regarding the
beneficial ownership of the shares of common stock by each of the selling
stockholders. The second column lists the number of shares of common stock
beneficially owned by each selling stockholder, assuming exercise of the
warrants held by such selling stockholders on that date, without regard to
any
limitations on such exercise. The third column lists the shares of common stock
being offered by this prospectus by the selling stockholders.
Under
the
terms of the warrants, a selling stockholder may not exercise the warrants
to
the extent such exercise would cause such selling stockholder, together with
its
affiliates, to beneficially own a number of shares of common stock which would
exceed 9.999% of our then outstanding shares of common stock following such
exercise. The number of shares in the second column does not reflect this
limitation. The selling stockholders may sell all, some or none of their shares
in this offering. See, “Plan of Distribution” beginning on page 11 of this
prospectus.
|
|
|
|
|
|
|
Maximum
Number of Shares
|
|
|
|
|
|
Number
of Shares Owned
|
|
to
be Sold Pursuant to this
|
|
Number
of Shares Owned
|
|
Name
of Selling Stockholder
|
|
Prior
to Offering
|
|
Prospectus
|
|
After
Offering (1)
|
|
Enable
Growth Partners LP (2)
|
|
|
6,459,036
|
|
|
|
3,927,000
|
|
|
|
2,532,036
|
|
|
Enable
Opportunity Partners LP (3)
|
|
|
948,930
|
|
|
|
462,000
|
|
|
|
486,930
|
|
|
Pierce
Diversified Strategy Master Fund LLC, Ena (4)
|
|
|
458,234
|
|
|
|
231,000
|
|
|
|
227,234
|
|
|
Hudson
Bay Fund LP(5)
|
|
|
930,600
|
|
|
|
930,600
|
|
|
|
0
|
|
|
Hudson
Bay Overseas Fund Ltd. (6)
|
|
|
1,049,400
|
|
|
|
1,049,400
|
|
|
|
0
|
|
|
(1)
|
Assumes
that all of the shares being offered under this prospectus are sold
and
that the selling stockholder acquires no additional shares of common
stock
before the completion of this offering.
|
| |
|
|
(2)
|
Brendan
O’Neil, portfolio manager for Enable Growth, and Mitch Levine, managing
partner of Enable Growth, share voting and dispositive power of the
securities held by Enable Growth. Messrs. O’Neil and Levine disclaim
beneficial ownership of the securities held by Enable
Growth.
|
| |
|
|
(3)
|
Brendan
O’Neil, portfolio manager for Enable Opportunity, and Mitch Levine,
managing partner of Enable Opportunity, share voting and dispositive
power
of the securities held by Enable Opportunity. Messrs. O’Neil and Levine
disclaim beneficial ownership of the securities held by Enable
Opportunity.
|
|
|
|
|
(4)
|
Brendan
O’Neil, portfolio manager for Pierce, and Mitch Levine, managing partner
of Pierce, share voting and dispositive power of the securities held
by
Pierce. Messrs. O’Neil and Levine disclaim beneficial ownership of the
securities held by Pierce.
|
| |
|
|
(5)
|
Yoav
Roth, portfolio manager for Hudson Bay Fund, Sander Gerber and John
Doscas
share voting and dispositive power over the securities held by Hudson
Bay
Fund. Messrs. Roth, Gerber and Doscas disclaim beneficial ownership
of the
securities held by Hudson Bay Fund.
|
| |
|
|
(6)
|
Yoav
Roth, portfolio manager for Hudson Bay Overseas Fund, Sander Gerber
and
John Doscas share voting and dispositive power over the securities
held by
Hudson Bay Overseas Fund. Messrs. Roth, Gerber and Doscas disclaim
beneficial ownership of the securities held by Hudson Bay Overseas
Fund.
|
PLAN
OF DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, transferees, assignees
and 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:
|
|
•
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
|
|
|
|
•
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
|
|
|
|
•
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
|
|
|
|
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
|
|
|
|
•
|
privately
negotiated transactions;
|
|
|
|
|
|
|
•
|
short
sales;
|
|
|
|
|
|
|
•
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
|
|
|
|
|
|
|
•
|
a
combination of any such methods of sale; and
|
|
|
|
|
|
|
•
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon
the
Company being notified in writing by a selling stockholder that any material
agreement has been entered into with a broker-dealer for the sale of common
stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to
this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such selling stockholder and
of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such shares of common stock were sold, (iv) the commissions
paid or discounts or concessions allowed to such broker-dealers, where
applicable, (v) that such broker-dealer(s) did not conduct any investigation
to
verify the information set out or incorporated by reference in this prospectus,
and (vi) other facts material to the transaction. In addition, upon the Company
being notified in writing by a selling stockholder that a donee or pledgee
intends to sell more than 500 shares of common stock, a supplement to this
prospectus will be filed if then required in accordance with applicable
securities laws.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, attributable to the sale of shares will be
borne by the selling stockholder. Each selling stockholder has represented
and
warranted to the Company that it acquired the securities subject to this
registration statement in the ordinary course of such selling stockholder’s
business and, at the time of its purchase of such securities such selling
stockholder had no agreements or understandings, directly or indirectly, with
any person to distribute any such securities.
The
Company has advised each selling stockholder that it may not use shares
registered on this registration statement to cover short sales of common stock
made prior to the date on which this registration statement shall have been
declared effective by the SEC. If the selling stockholders use this prospectus
for any sale of the common stock, they will be subject to the prospectus
delivery requirements of the Securities Act. The selling stockholders will
be
responsible to comply with the applicable provisions of the Securities Act
and
Exchange Act, and the rules and regulations thereunder promulgated, including,
without limitation, Regulation M, as applicable to such selling stockholders
in
connection with resales of their respective shares under this registration
statement.
We
are
required to pay all fees and expenses incident to the registration of the
shares, but we will not receive any proceeds from the sale of the common stock.
We have agreed to indemnify the selling stockholders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act.
EXPERTS
The
consolidated financial statements of Telkonet incorporated by reference in
this
prospectus from our Form 10-K for the year ended December 31, 2005 have
been audited by Russell Bedford Stefanou Mirchandani LLP, independent certified
public accountants, and have been incorporated herein by reference in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
LEGAL
MATTERS
An
opinion has been rendered by the law firm of Baker & Hostetler LLP to the
effect that the shares of our common stock offered by the selling stockholders
under this prospectus are legally issued, fully paid and non-assessable.
INFORMATION
INCORPORATED BY REFERENCE
The
SEC
allows us to incorporate by reference the information we file with the SEC,
which means that we can disclose important information to you by referring
to
another document filed separately with the SEC. The information that we file
with the SEC after the date of this prospectus will automatically update and
supersede this information. We incorporate by reference into this prospectus
the
documents listed below and any future filings we make with the SEC under
sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as
amended, until all of the shares of our common stock offered by this prospectus
are sold.
|
|
•
|
Annual
Report on Form 10-K for the year ended December 31, 2005, filed on
March 16, 2006 and the amendment thereto filed on March 29,
2006;
|
|
|
|
|
|
|
•
|
Quarterly
Reports on Form 10-Q for the quarterly period ended March 31, 2006
(filed
on May 10, 2006), June 30, 2006 (filed on August 9, 2006) and September
30, 2006 (filed on November 9, 2006);
|
|
|
|
|
|
|
•
|
Current
Reports on Form 8-K filed on January 24, 2006, February 2, 2006,
April 12,
2006, June 6, 2006, August 16, 2006, September 6, 2006, February
5, 2007,
February 9, 2007, February 21, 2007 and March 2, 2007;
|
|
|
|
|
|
|
•
|
Definitive
Proxy Statement on Schedule 14A, filed on November 3, 2006;
and
|
|
|
|
|
|
|
•
|
The
description of our common stock contained in our registration statement
on
Form 10-SB, filed on September 13,
1999.
|
All
documents we file with the SEC from the date of this prospectus until all of
the
shares offered under this prospectus are sold, shall also be deemed to be
incorporated herein by reference.
Any
statement contained in a document incorporated or considered to be incorporated
by reference into this prospectus shall be considered to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any subsequently filed document that is
or is
considered to be incorporated by reference modifies or supersedes such
statement. Any statement that is modified or superseded shall not, except as
so
modified or superseded, constitute a part of this prospectus.
You
may
request a copy of any of the documents that are incorporated by reference into
this prospectus, other than exhibits that are not specifically incorporated
by
reference into such documents, and our certificate of incorporation and bylaws,
at no cost, by writing or telephoning us at the following address:
Corporate
Secretary
Telkonet,
Inc.
20374
Seneca Meadows Parkway
Germantown,
Maryland 20876
(240) 912-1800
WHERE
YOU CAN FIND MORE INFORMATION
We
are
subject to the informational requirements of the Securities Exchange Act of
1934
pursuant to which we file reports and other information with the SEC. These
reports and other information may be inspected and copied at public reference
facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington,
DC 20549 and at the SEC’s Regional Office at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies may be obtained at
prescribed rates from the Public Reference Section of the SEC at its principal
office in Washington, D.C. The SEC also maintains an internet web site that
contains periodic and other reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the SEC. The address of the SEC’s web site is http://www.sec.gov.
All
information concerning us contained in this prospectus has been furnished by
us.
No person is authorized to make any representation with respect to the matters
described in this prospectus other than those contained in this prospectus
and
if given or made must not be relied upon as having been authorized by us or
any
other person.
We
have
not authorized anyone to give any information or make any representation about
our company that is different from, or in addition to, that contained in this
prospectus. Therefore, if anyone gives you such information, you should not
rely
on it. This prospectus is dated _________, 2007. You should not assume that
the
information contained in this document is accurate as of any other date unless
the information specifically indicates that another date applies.
DISCLOSURE
OF SEC POSITION ON INDEMNIFICATION OF SECURITIES ACT
LIABILITIES
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted for directors, officers or persons controlling the registrant
pursuant to applicable state law, the registrant has been informed that, in
the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 14.
Other Expenses of Issuance and Distribution.
The
following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, all of which
are
being borne by the registrant.
|
|
|
|
|
|
Securities
and Exchange Commission Registration Fee
|
|
$
|
1,956
|
|
|
Accounting
Fees and Expenses
|
|
$
|
10,000
|
|
|
Legal
Fees and Expenses
|
|
$
|
10,000
|
|
|
Printing
Fees and Expenses
|
|
$
|
2,000
|
|
|
Miscellaneous
|
|
$
|
1,000
|
|
|
Total
|
|
$
|
24,956
|
|
Item 15.
Indemnification of Directors and Officers.
Reference
is made to Section 16-10a-902 of the Utah Business Corporation Act, which
enables a corporation to indemnify an individual made a party to a proceeding
because he is or was a director of Telkonet if (i) his conduct was in good
faith, (ii) he reasonably believed his conduct was in, or not opposed to,
the corporation’s best interests, and (iii) in the case of a criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Notwithstanding the foregoing, a corporation may not indemnify a director
(a) in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation, or (b) in
connection with any other proceeding charging that the director derived an
improper personal benefit, whether or not involving action in his official
capacity, in which proceeding he was adjudged liable on the basis that he
derived an improper personal benefit. The Utah Business Corporation Act also
permits Telkonet to purchase insurance on behalf of any person that is or was
a
director, officer, employee, fiduciary or agent of Telkonet. Telkonet’s amended
and restated articles of incorporation provide in effect for the elimination
of
the personal liability of Telkonet’s directors and for the indemnification by
Telkonet of each director and officer of Telkonet, in each case, to the fullest
extent permitted by applicable law. Telkonet purchases and maintains insurance
on behalf of any person who is or was a director, officer, employee, fiduciary
or agent of Telkonet against any liability asserted against him or her and
incurred by him or her in any such capacity, or arising out of his or her status
as such, whether or not Telkonet would have the power or the obligation to
indemnify him or her against such liability under the provisions of Telkonet’s
amended and restated articles of incorporation.
Item 16.
Exhibits.
|
|
|
|
|
Exhibit
Number
|
|
Description
of Exhibits
|
|
4
|
|
Form
of Warrant to Purchase Common Stock (incorporated by reference to
our
Current Report on Form 8-K filed on February 5,
2007)
|
|
|
|
|
|
5
|
|
Opinion
of Baker & Hostetler LLP as to the validity of the issuance of
the common stock of Telkonet, Inc. being registered
|
|
|
|
|
|
10.1
|
|
Securities
Purchase Agreement, dated February 1, 2007, by and among Telkonet,
Inc.,
Enable Growth Partners LP, Enable Opportunity Partners LP, Pierce
Diversified Strategy Master Fund LLC, Ena, Hudson Bay Fund LP and
Hudson
Bay Overseas Fund, Ltd. (incorporated by reference to our Current
Report
on Form 8-K filed on February 5, 2007)
|
|
|
|
|
|
10.2
|
|
Registration
Rights Agreement, dated February 1, 2007, by and among Telkonet,
Inc.,
Enable Growth Partners LP, Enable Opportunity Partners LP and Pierce
Diversified Strategy Master Fund LLC, Ena, Hudson Bay Fund LP and
Hudson
Bay Overseas Fund, Ltd. (incorporated by reference to our Current
Report
on Form 8-K filed on February 5, 2007)
|
|
|
|
|
|
23.1
|
|
Consent
of Russell Bedford Stefanou Mirchandani LLP relating to the financial
statements of Telkonet, Inc.
|
|
|
|
|
|
23.2
|
|
Consent
of Baker & Hostetler LLP (included in
Exhibit 5.1)
|
|
|
|
|
|
24
|
|
Power
of Attorney (included on signature
page)
|
Item 17.
Undertakings
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
|
(i)
|
|
To
include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
|
|
|
|
|
|
(ii)
|
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and
Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in
volume and price represent no more than a 20 percent change in the
maximum
aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and
|
|
|
|
|
|
(iii)
|
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
|
provided,
however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) shall not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to
the
Securities and Exchange Commission by the registrant pursuant to Section 13
or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by
reference in the registration statement, or that is contained in a form of
prospectus filed pursuant to Rule 424(b) that is part of the registration
statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(b)
The
undersigned registrant hereby undertakes that, for purposes of determining
any
liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be
the initial bona
fide offering
thereof.
(c)
Insofar as indemnification for liabilities arising under the Securities Act
of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, Telkonet, Inc. has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Germantown, State of
Maryland, on the 5th day of March, 2007.
|
|
TELKONET,
INC.
|
|
|
|
By:
|
/s/
Ronald W. Pickett
|
|
|
|
|
Ronald
W. Pickett
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
KNOW
ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Stephen L. Sadle and Ronald W. Pickett, or either
of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead,
in
any and all capacities, to sign any and all post-effective amendments to this
registration statement, and to file the same with all exhibits hereto, and
other
documents in connection herewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all
that said attorneys-in-fact and agents, or any of them, or their or his
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed on March 5, 2007 by the following persons in the capacities
indicated below.
|
Signature
|
|
Title
|
|
|
|
|
|
|
|
|
|
/s/
Stephen L. Sadle
|
|
Senior
Vice President and Director
|
|
|
|
Stephen
L. Sadle
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ronald W. Pickett
|
|
President,
Chief Executive Officer and Director
|
|
|
|
Ronald
W. Pickett
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard J. Leimbach
|
|
Vice
President Finance
|
|
|
|
Richard
J. Leimbach
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Warren V. Musser
|
|
Chairman
of the Board of Directors
|
|
|
|
Warren
V. Musser
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Thomas M. Hall
|
|
Director
|
|
|
|
Thomas
M. Hall
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Thomas C. Lynch
|
|
Director
|
|
|
|
Thomas
C. Lynch
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James L. Peeler
|
|
Director
|
|
|
|
James
L. Peeler
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Seth Blumenfeld
|
|
Director
|
|
|
|
Seth
Blumenfeld
|
|
|
|
|
EXHIBIT
INDEX
|
|
|
|
|
Exhibit
Number
|
|
Description
of Exhibits
|
|
4
|
|
Form
of Warrant to Purchase Common Stock (incorporated by reference to
our
Current Report on Form 8-K filed on February 5,
2007)
|
|
|
|
|
|
5
|
|
Opinion
of Baker & Hostetler LLP as to the validity of the issuance of
the common stock of Telkonet, Inc. being registered
|
|
|
|
|
|
10.1
|
|
Securities
Purchase Agreement, dated February 1, 2007, by and among Telkonet,
Inc.,
Enable Growth Partners LP, Enable Opportunity Partners LP, Pierce
Diversified Strategy Master Fund LLC, Ena, Hudson Bay Fund LP and
Hudson
Bay Overseas Fund, Ltd. (incorporated by reference to our Current
Report
on Form 8-K filed on February 5, 2007)
|
|
|
|
|
|
10.2
|
|
Registration
Rights Agreement, dated February 1, 2007, by and among Telkonet,
Inc.,
Enable Growth Partners LP, Enable Opportunity Partners LP, Pierce
Diversified Strategy Master Fund LLC, Ena, Hudson Bay Fund LP and
Hudson
Bay Overseas Fund, Ltd. (incorporated by reference to our Current
Report
on Form 8-K filed on February 5, 2007)
|
|
|
|
|
|
23.1
|
|
Consent
of Russell Bedford Stefanou Mirchandani LLP relating to the financial
statements of Telkonet, Inc.
|
|
|
|
|
|
23.2
|
|
Consent
of Baker & Hostetler LLP (included in
Exhibit 5.1)
|
|
|
|
|
|
24
|
|
Power
of Attorney (included on signature
page)
|