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Published on July 3, 2008
ACCESS
PHARMACEUTICALS, INC.
2600
Stemmons Freeway
Suite
176
Dallas,
TX 75207
Via
Federal Express
July 2,
2008
Office of
the Chief Counsel
Division
of Corporation Finance
100 F
Street, NE
Washington,
DC 20549
Attn: Ms.
Rose Zukin
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Re:
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Access
Pharmaceuticals, Inc. – File No.
333-149633
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Statement
of Reasons for Eligibility of Registration
Pursuant to Rule
415(a)(1)(i)
Dear Ms.
Zukin:
On behalf of our client, Access
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), set forth
below is the Company's response to the comments of the staff (the "Staff") of the
Securities and Exchange Commission (the "Commission")
contained in your letter dated March 19, 2008. For ease of reference,
the comments are printed below in bold print, followed by the Company's
responses.
1. Please
provide us, with a view toward disclosure in the prospectus, with the total
dollar value of the securities underlying the preferred shares and convertible
warrants that you have registered for resale (using the number of underlying
securities that you have registered for resale and the market price per share
for those securities on the date of the sale of the preferred shares and
convertible warrants).
Please
see the attached Table 1 in response to this Comment 1.
2. Please
provide us, with a view toward disclosure in the prospectus, with tabular
disclosure of the dollar amount of each payment (including the value of any
payments to be made in common stock) in connection with the transaction that you
have made or may be required to make to any selling shareholder, any affiliate
of a selling shareholder, or any person with whom any selling shareholder has a
contractual relationship regarding the transaction (including any interest
payments, liquidated damages, payments made to “finders” or “placement agents,”
and any other payments or potential payments). Please provide
footnote disclosure of the terms of each such payment. Please do not
include any shares to be issued upon the conversion of the preferred stock and
convertible warrants in this disclosure.
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
2
As noted
in Table 2 in response to this Comment 2 above, we paid certain placement agents
in the form of cash and warrants to purchase shares of our common
stock. The warrants have an exercise price of $3.50, and at the time
of issuance the underlying common stock was trading at $3.11 and $2.80 for
warrants granted on November 9, 2007 and February 4, 2008,
respectively.
Pursuant
to the terms of the Investor Rights Agreement, as amended, between the Company
and the holders of its Series A Preferred Stock, the Company was required to
file a Registration Statement on Form S-1 with the Securities and Exchange
Commission on or before March 20, 2008 with such registration statement to
become effective on or before June 18, 2008. Since the Company’s
Registration Statement was not declared effective by June 18, 2008, the Company
may incur additional liquidated damages of 1% of the total Series A Preferred
Stock proceeds for each 30 day period that the Registration Statement is not
declared effective. Potential liquidated damages are capped at 10% of
the total subscription amount.
Pursuant
to the rights and preferences of the Series A Preferred Stock, the Company is
required to pay semi-annually a dividend of 6% per annum on each outstanding
share of Series A Preferred Stock. In certain circumstances, or with
the approval of the holders owning a majority of the shares of Company’s Series
A Preferred Stock, the Company may pay these dividends in shares of the
Company’s common stock. In order for the Company to pay these
dividends in shares of the Company’s common stock, certain conditions must be
met. These conditions include the requirement that the shares to be issued as
dividends are covered by an effective Registration Statement.
3. Please provide us, with a view toward
disclosure in the prospectus, with tabular disclosure of:
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·
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the
total possible profit the selling shareholders could realize as a result
of the conversion discount for the securities underlying the preferred
stock and convertible warrants, presented in a table with the following
information disclosed separately:
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·
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As
noted in Table 1 in response to Comment 1 above, only the Series A
Preferred Stock issued November 9, 2007 was issued at a discount to the
then market price. All of the warrants issued in connection
with the Series A Preferred Stock financing, have an exercise price
greater than the fair market value of the Company’s common stock on the
date of grant. The exercise price of the warrants is $3.50 per
share and the fair market value of the common stock on the date of
issuance was $3.11 for the warrants issued on November 9, 2007 and $2.80
for the warrants issued on February 4,
2008.
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As
noted in Table 1 in response to Comment 1 above, the Company also seeks to
register 772,728 shares of Company common stock underlying previously
issued convertible warrants. Of the warrants to purchase
772,728 shares of the Company’s common stock, 386,364 were issued on
October 24, 2006 and 386,364 were issued on December 6,
2006. Both of these warrants have an exercise price of $1.32
per share. On the date of issuance the fair market value of the
Company’s common stock was $1.10 per share on October 24, 2006 and $1.80
per share on December 6, 2006. As a result, the warrant issued
on December 6, 2006 was issued at a discount of $0.48 per share, for an
aggregate discount of $185,455.
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Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
3
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the
market price per share of the securities underlying the preferred stock
and convertible warrants;
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Please
see Table 1 in response to Comment 1
above.
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the
conversion price per share of the underlying securities on the date of the
sale of the preferred stock and convertible warrants, calculated as
follows:
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§
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if
the conversion price is set at a fixed price, use the price per share
established in the purchase and sale agreement;
and
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§
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Please
see Table 1 in response to Comment 1 above. Please note that
except as stated below in response to this Comment 3, the conversion price
per share is fixed for the Series A Convertible Preferred Stock and
warrants. The dividends being registered do not have a
conversion price.
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§
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if
the conversion price per share is not set at a fixed price and, instead,
is set at a floating rate in relationship to the market price of the
underlying security, use the conversion discount rate and the market rate
per share on the date of the sale of the preferred stock and convertible
warrants and determine the conversion price per share as of that
date;
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§
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Except
as noted below in response to this Comment 3, the conversion price of the
Series A Preferred Stock and warrants is
fixed.
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the
total possible shares underlying the preferred stock and convertible
warrants (assuming no cash dividend payments, complete conversion of the
shares of preferred stock and convertible
warrants);
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As
noted in Table 1 in response to Comment 1 above (but subject to the
disclosure below), the total possible shares underlying the Series A
Preferred Stock and associated convertible warrants is
15,815,659. In addition, the Company may at its option and
under certain circumstances issue common stock dividends in lieu of cash
dividends on the Series A Preferred
Stock.
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Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
4
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the
combined market price of the total number of shares underlying the
preferred stock and convertible warrants, calculated by using the market
price per share on the date of the sale of the preferred stock and
convertible warrants and the total possible shares underlying the
preferred stock and convertible
warrants;
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Please
see Table 1 in response to Comment 1
above.
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the
total possible shares the selling shareholders may receive and the
combined conversion price of the total number of shares underlying the
preferred stock and convertible warrants calculated by using the
conversion price on the date of the sale of the preferred stock and
convertible warrants and the total possible number of shares selling
shareholders may receive; and
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Please
see Table 1 in response to Comment 1
above.
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the
total possible discount to the market price as of the date of the sale of
the preferred stock and convertible warrants, calculated by subtracting
the total conversion price on the date of the sale of the preferred stock
and convertible warrants from the combined market price of the total
number of shares underlying the preferred stock and convertible warrants
on that date.
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Please
see Table 1 in response to Comment 1
above.
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If
there are any provisions in the certificate of designation of preferences,
rights and limitations of Series A that could result in a change in the price
per share upon the occurrence of certain events, please provide additional
tabular disclosure as appropriate. For example, if the conversion
price per share is fixed unless and until the market price falls below a stated
price, at which point the conversion price per share drops to a lower price,
please provide additional disclosure.
The
Series A Preferred Stock is subject to adjustment in the event the Company
issues or sells any shares of Company common stock for a price below the current
Series A Preferred Stock conversion price; provided, however, that no such
adjustment will be made in connection with (i) shares of common stock issued
upon conversion of Series A Preferred Stock or the exercise of warrants issued
in connection with the issuance of Series A Preferred Stock, (ii) the exercise
of options, warrants or the conversion of convertible notes that were
outstanding on the date of issuance of the Series A Preferred Stock, (iii)
common stock issued pursuant to any stock-based compensation plans, (iv) common
stock issued pursuant to a stock split, combination or subdivision of the
outstanding common stock, and (v) shares of common stock issued in connection
with a bona-fide strategic transaction. As noted in Table 1, the
conversion price of the Series A Preferred Stock at the time of issuance was
$3.00 per share. As of the date hereof, the Company has not issued or
sold, and does not currently have any plans to issue or sell, any shares of
Company common stock for a price below $3.00 per share.
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
5
4. Please
provide us, with a view toward disclosure in the prospectus, with tabular
disclosure of:
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the
total possible profit to be realized as a result of any conversation
discounts for securities underlying any other warrants, options notes or
other securities of the issuers that are held by the selling shareholders
or any affiliates of the selling shareholders, presented in a table with
the following information disclosed
separately:
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market
price per share of the underlying securities on the date of the sale of
that security;
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the
conversion/exercise price per share as of the date of the sale of that
other security, calculated as
follows:
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§
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if
the conversion/exercise price per share is set at a fixed price, use the
price per share on the date of the sale of that other security;
and
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§
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if
the conversion/exercise price per share is not set at a fixed price and,
instead, is set at a floating rate in relationship to the market price of
the underlying security, use the conversion/exercise discount rate and the
market rate per share on the date of the sale of that other security and
determine the conversion price per share as of that
date;
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the
total possible shares to be received under the particular securities
(assuming complete
conversion/exercise);
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the
combined market price of the total number of underlying shares, calculated
by using the market price per share on the date of the sale of that other
security and the total possible shares to be
received;
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Please
see the attached Table 3 in response to Comment 4.
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
6
5. Please
provide us, with a view toward disclosure in the prospectus, with tabular
disclosure of:
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the
gross proceeds paid or payable to the issuer in the private placement
transaction;
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As
noted in Table 1 prepared in response to Comment 1 above, the Company
received gross proceeds of $33,733,928 from its issuance of Series A
Preferred Stock and warrants. These proceeds include proceeds
from convertible notes with an outstanding principal and accrued interest
balance of $21,468,927 which were exchanged for shares of Series A
Preferred Stock and warrants, but do not include any proceeds relating to
possible exercise of warrants.
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all
payments that have been made or that may he required to be made by the
issuer that are disclosed in response to comment
2;
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Please
see the response to comment 2
above.
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the
resulting net proceeds to the issuer;
and
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As
noted in Table 1 in response to comment 1 above, the net proceeds (net of
placement agent fees) received by the
Company
were
$11,351,457.
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the
combined total possible profit to be realized as a result of any
conversion discounts regarding the securities underlying the preferred
stock and convertible warrants issued in the private placement and any
other warrants, options, notes, or other securities of the issuer that are
held by the selling shareholders or any affiliates of the selling
shareholders that is disclosed in response to comments 3 and
4.
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Please
see the response to Comment 1
above.
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Further,
please provide us, with a view toward disclosure in the prospectus, with
disclosure — as a percentage — of the total amount of all possible payments as
disclosed in response to comment 2 and the total possible discount to the market
price of the shares underlying the preferred stock and convertible warrants as
disclosed in response to comment 3 divided by the net proceeds to the issuer
from the sale of the preferred stock and convertible warrants.
Office
of the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100
F Street, NE
Washington,
DC 20549
July
2, 2008
Page
7
The total
amount of payments as disclosed in Comment 2 above and discounts as a percent of
net proceeds is 8%.
6. Please
provide us, with a view toward disclosure in the prospectus, with tabular
disclosure of all prior securities transactions between the issuer (or any of
its predecessors) and the selling shareholders, any affiliates of the selling
shareholders, or any person with whom any selling shareholder has a contractual
relationship regarding the transaction (or any predecessors of those persons),
with the table including the following information disclosed separately for each
transaction:
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the
date of the transaction;
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the
number of shares of the class of securities subject to the transaction
that were outstanding prior to the
transaction;
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the
number of shares of the class of securities subject to the transaction
that were outstanding prior to the transaction and held by persons other
than the selling shareholder, affiliates of the company, or affiliates of
the selling shareholder;
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the
number of shares of the class of securities subject to the transaction
that were issued or issuable in connection with the
transaction;
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the
percentage of total issued and outstanding securities that were issued or
issuable in the transaction (assuming full issuance), with the percentage
calculated by taking the number of shares issued and outstanding prior to
the applicable transaction and held by persons other than the selling
shareholders, affiliates of the company, or affiliates of the selling
shareholders, and dividing that number by the number of shares issued or
issuable in connection with the applicable
transaction;
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the
market price per share of the class of securities subject to the
transaction immediately prior to the transaction (reverse split adjusted,
if necessary); and
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the
current market price per share of the class of securities subject to the
transaction (reverse split adjusted, if
necessary).
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Please
see the attached Table 4 in response to Comment 6.
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
8
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7. Please
provide us, with a view toward disclosure in the prospectus, with tabular
disclosure comparing:
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the
number of shares outstanding prior to the private placement transaction
that are held by persons other than the selling shareholders, affiliates
of the company, and affiliates of the selling
shareholders;
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3,228,199
shares of common stock
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the
number of shares registered for resale by the selling shareholders or
affiliates of the selling shareholders in prior registration
statements;
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830,000
shares of common stock for Oracle Partners, LP (“Oracle”) and affiliates
convertible notes on Form S-1 Registration Statement No.
333-135734.
730,000
shares of common stock for Oracle and affiliates convertible notes on Form S-3
Registration Statement No. 333-92210.
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the
number of shares registered for resale by the selling shareholders or
affiliates of the selling shareholders that continue to be held by the
selling shareholders or affiliates of the selling
shareholders;
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16,588,387
shares
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the
number of shares that have been sold in registered resale transactions by
the selling shareholders or affiliates of the selling shareholders;
and
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No shares
have been sold in any registered resale transactions by the selling shareholders
or affiliates of the selling shareholders.
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the
number of shares registered for resale on behalf of the selling
shareholders or affiliates of the selling shareholders in the current
transaction.
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16,588,387
shares
In
this analysis, the calculation of the number of outstanding shares should not
include any securities underlying any outstanding convertible securities,
options, or warrants.
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
9
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8. Please
provide us, with a view toward disclosure in the prospectus, with the
following information:
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whether the
issuer has the intention, and a reasonable basis to believe that it will
have the financial ability, to make all payments and dividends on the
overlying securities;
and
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The Company
has received adequate financing to pay all required cash dividends over
the next twelve months. However, in an effort to maximize the
amount of funds available for working capital the Company anticipates
issuing shares of Common Stock in lieu of cash dividends over the near
term.
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whether –
based on information obtained from the selling shareholders – any of the
selling shareholders have an existing short position in the company's
common stock and, if any of the selling shareholders have an existing
short position in the company's stock, the following additional
information:
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The Company
has submitted investor questionnaires to its Selling
Stockholders. Upon receipt of the questionnaires, the Company
will be able to respond to questions regarding short sales of the
Company’s common stock by Selling Stockholders. To date no Selling
Stockholder has indicated that it has a short position in the Company’s
common stock.
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the
date on which each such selling shareholder entered into that short
position; and
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the
relationship of the date on which each such selling shareholder entered
into that short position to the date of the announcement of the private
placement transaction and the filing of the registration statement (e.g., before or after
the announcement of the private placement transaction, before the filing
or after the filing of the registration statement,
etc.).
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9. Please
provide us, with a view toward disclosure in the prospectus,
with:
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a
materially complete description of the relationships and arrangements that
have existed in the past three years or are to be performed in the future
between the issuer (or any of its predecessors) and the selling
shareholders, any affiliates of the selling shareholders, or any person
with whom any selling shareholder has a contractual relationship regarding
the transaction (or any predecessors of those persons) – the information
provided should include, in reasonable detail, a complete description of
the rights and obligations of the parties in connection with the sale of
the preferred stock and convertible notes;
and
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Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
10
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Relationships
between the Company and Selling Stockholders are described in the sections
titled “Transactions With Related Persons, Promoters and Certain Control
Persons” and “Selling Stockholders” on pages 76 and 21, respectively, of
the Registration Statement filed on Form S-1. For your
convenience a copy of these sections is attached as Exhibit A
hereto.
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In
addition to the relationships described in the Form S-1 (as referred to
above), the Company is a party to a management consulting agreement with
SCO Financial Group LLC (“SCO”) pursuant to which SCO provides certain
consulting services to the Company in exchange for a monthly fee of
$12,500. The Company also agrees to pay SCO a success fee of 7% (plus
warrant coverage of 10% with exercise price equal to purchaser’s warrants)
of the aggregate value of the proceeds received by the Company pursuant to
its issuance Preferred Stock. SCO agreed to waive its right to
this 7% fee with respect to any proceeds received by the Company as a
result of the efforts of other placement
agents.
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copies
of all agreements between the issuer (or any of its predecessors) and the
selling shareholders, any affiliates of the selling shareholders, or any
person with whom the any selling shareholder has a contractual
relationship regarding the transaction (or any predecessors of those
persons) in connection with the sale of the preferred stock and
convertible warrants.
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Except
as noted below, all agreements with Selling Stockholders (as referred to
above) have been previously provided to the Securities and Exchange
Commission as exhibits to the Company’s periodic filings with the
Securities and Exchange Commission. For the conveyance of the staff each
of these agreements is included at Exhibit C
attached hereto.
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Agreements as noted in the
Company’s Form 10K for the fiscal year ended
December 31,
2007
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10.17
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Form
of Warrant, dated February 16, 2006, issued by us to certain Purchasers
(1)
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10.18
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Form
of Warrant, dated October 24, 2006, issued by us to certain Purchasers
(2)
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10.19
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Form
of Warrant, December 6, 2006, issued by us to certain Purchasers
(2)
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10.22
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Preferred
Stock and Warrant Purchase Agreement, dated November 7, 2007, between us
and certain Purchasers (3)
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10.23
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Investor
Rights Agreement, dated November 10, 2007, between us and certain
Purchasers (3)
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10.24
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Form
of Warrant Agreement dated November 10, 2007, between us and certain
Purchasers (3)
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10.25
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Board
Designation Agreement, dated November 15, 2007, between us and SCO Capital
Partners LLC (3)
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10.26
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Amendment
and Restated Purchase Agreement, dated February 4, 2008 between us and
certain Purchasers (3)
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10.27
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Amended
and Restated Investor Rights Agreement, dated February 4, 2008 between us
and certain Purchasers (3)
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Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
11
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(1)
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Incorporated
by reference to our Form 10-Q for the quarter ended March 31,
2006.
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(2)
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Incorporated
by reference to our Form 10-K for the year ended December 31,
2006.
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(3)
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Incorporated
by reference to our Form S-1,
333-149633.
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In
addition to the agreements previously disclosed above, the Company is a
party to a Consulting Services Agreement, dated February 15, 2006 by and
between the Company and SCO Financial Group LLC. For the
conveyance of the staff a copy of the agreement is included at Exhibit C
attached hereto.
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If
it is your view that such a description of the relationships and arrangements
between and among those parties already is presented in the prospectus and that
all agreements between and/or among those parties are included as exhibits to
the registration statement, please provide us with confirmation of your view in
this regard.
10. Please
provide us, with a view toward disclosure in the prospectus, with a description
of the method by which the company determined the number of shares it seeks to
register in connection with this registration statement. In this regard, please
ensure that the number of shares registered in the fee table is consistent with
the shares listed in the "Selling Shareholder" section of the
prospectus.
The
Company wishes to register all of the shares of common stock underlying its
Series A Preferred Stock and convertible warrants which were issued in
connection with its sale of Series A Preferred Stock. In addition,
the Company wishes to register a certain number of shares of common stock which
the Company may issue, at its option, to holders of Series A Preferred Stock as
a stock dividend, in lieu of the required cash dividend. The Company
also seeks to register an aggregate 772,728 shares of Company common stock
underlying warrants previously issued to SCO Capital Partners LLC, Lake End
Capital LLC, Mark Alvino and Howard Fischer on October 24, 2006 and December 6,
2006 in connection with their purchase of Company notes.
11. With
respect to the shares to be offered for resale by each selling security holder
that is a legal entity, please disclose the natural person or persons who
exercise the sole or shared voting and/or dispositive powers with respect to the
shares to be offered by that shareholder.
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
12
Please see Exhibit B attached
hereto in response to this Comment 11.
Eligibility for Shelf
Registration Pursuant to Rule 415(a)(1)(i)
12. We
note that you are registering the sale of 18,170,747 shares. Given
the size relative to the number of shares outstanding held by non-affiliates,
the nature of the offering and the selling security holders, the transaction
appears to be a primary offering. Because you are not eligible to
conduct a primary offering on Form S-3 you are not eligible to conduct a primary
at-the-market offering under Rule 415(a)(4).
The Company respectfully submits that
the transaction being registered under Form S-1, filed with the Commission on
March 11, 2008, is eligible to be made on a shelf basis under Rule 415(a)(1)(i),
as such securities are currently held by, or are issuable to, entities other
than the Company, none or which are subsidiaries of the Company, and to none of
which the Company is a subsidiary.
The Company wishes to register
18,170,747 shares of common stock. These shares consist of shares
underlying convertible Series A Preferred Stock, shares issuable upon the
exercise of certain Company warrants and shares issuable by the Company as
dividends on the Series A Preferred Stock, with such dividends to be issued at
the Company’s option in lieu of cash dividends. Of the total number of shares
being registered, 9,428,749 relate to shares issued to three separate entities
(and their affiliates) in exchange for previously issued convertible notes, none
of these entities are either a subsidiary, or the parent of the
Company:
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1.
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Oracle
Partners and affiliates,
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2.
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Lake
End Capital LLC and affiliates, and
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3.
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SCO
Capital Partners and affiliates.
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Oracle Partners and
affiliates
Of the 18,170,747 shares being
registered, 2,186,549 of such shares relate to shares of common stock underlying
Series A Preferred Stock and common stock warrants which were issued to Oracle
and affiliates on November 13, 2007 in exchange for the cancellation of
$4,015,000 of principal amount of convertible promissory notes plus interest, as
amended, originally issued to Oracle on September 13, 2000. The Company had
previously registered the 803,000 shares of common stock underlying such
convertible notes on a registration statement on Form S-1 Registration Statement
No. 333-135734 which was declared effective on August 7, 2006 and 730,000 shares
of common stock underlying such convertible notes on a registration statement on
Form S-3 Registration Statement No. 333-92210 which was declared effective on
February 10 7, 2004. The Company sold such convertible promissory notes to
Oracle over seven years ago, received payment for the notes, registered the
common stock underlying those notes, and now wishes to register the securities
underlying the preferred stock exchanged for those notes. Although
Oracle had the right to retain its notes or convert them into shares of the
Company’ common stock, Oracle and the Company agreed to exchange the notes for
shares of the Company’s Series A Preferred Stock. As we cannot ascertain whether
the preferred stock held by Oracle will ever be converted into shares of common
stock, the Company submits that the registration of such shares is in compliance
with Rule 415(a)(1)(i).
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
13
Lake End Capital and SCO
Capital Partners and affiliates
Of the 18,170,747 shares being
registered, 7,242,200 of such shares relate to shares of common stock underlying
Series A Preferred Stock and common stock warrants which were issued to Lake End
Capital LLC (“Lake End”) and SCO Capital Partners LLC and its affiliates (“SCO”)
on November 13, 2007 in exchange for the cancellation of $6,000,000 of principal
amount of convertible promissory notes plus interest originally issued to Lake
End Capital LLC and SCO and affiliates on February 16, 2006 ($5,000,000),
October 24, 2006 ($500,000) and December 6, 2006, ($500,000). The Company had
previously registered the common stock underlying the convertible notes issued
on February 16, 2006 on a registration statement on Form S-1 Registration
Statement No. 333-135734 which was declared effective on August 7, 2006. The
Company sold such convertible promissory notes to Lake End and SCO in 2006,
received payment for the notes, registered the common stock underlying those
notes, and now wishes to register the securities underlying the preferred stock
exchanged for those notes. Although Lake End and SCO had the right to
retain such notes or convert them into shares of the Company’s common stock,
Lake End Capital, SCO and the Company agreed to exchange the notes for Series A
Preferred Stock. As we cannot ascertain whether the preferred stock held by Lake
End and SCO will ever be converted into shares of common stock, the Company
submits that the registration of such shares is in compliance with Rule
415(a)(1)(i).
As a result of the entities listed
above exchanging their notes for Series A Preferred Stock and warrants,
approximately 50% of the shares the Company now wishes to register for resale
relate to the original investment by such Selling Stockholders in convertible
notes, some of which were issued over seven years ago. Therefore, the
Company respectfully submits that its registration of these 9,121,179 shares on
Form S-1 is in compliance with Rule 415(a)(1)(i).
Of the 18,170,747 shares the Company
wishes to register, 16,303,706 shares are being registered for the benefit of a
total of 17 institutional investors. These shares represent shares of
common stock underlying shares of Series A Preferred Stock and warrants sold to
these investors (as more fully described in Table 1 prepared in response to
Comment 1 of this letter) on November 9, 2007 and February 4,
2007. The Company is also seeking to register shares of common stock
issuable upon the exercise of placement agent warrants and previously issued and
outstanding warrants issued to each of SCO Capital Partners, LLC, Lake End
Capital, LLC, Mark Alvino and Howard Fisher. Recipients of placement agent
warrants and previously issued warrants are listed and described more fully in
the Table 1 attached in response to Comment 1 listed above. In addition, the
Company also seeks to register 1,582,360 shares of common stock to be issued by
the Company, at its option, in lieu of cash dividends on the Series A Preferred
Stock. The Series A Preferred Stock accrues dividends at a rate of 6%
per annum and, subject to the happening of certain events, may be paid at the
Company’s option in shares of the Company’s common stock. The Company
has chosen to register those shares it reasonably anticipates paying as
dividends to the holders of Series A Preferred Stock over the first two years in
which the shares of Series A Preferred Stock are issued and
outstanding. None of the entities owning shares of Series A Preferred
Stock or warrants are either subsidiaries of the Company or a parent of the
Company. Therefore, the Company respectfully submits that its registration of
these additional 8,741,998 shares on Form S-1 is in compliance with Rule
415(a)(1)(i).
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
14
Furthermore, in response to your
inquiry requesting whether the transaction being registered is proper under Rule
415(a)(1)(i), the Company respectfully submits that:
|
·
|
The
number of selling shareholders and the percentage of overall offering made
by each shareholder.
|
|
●
|
The
total number of selling shareholders is 25. Please see attached
Table 5 in response to the percentage of overall offering made by each
shareholder.
|
|
·
|
The
date on which and the manner in which each selling shareholder received
the shares and/or the overlying
securities;
|
|
●
|
See
response to Comment 1 above for date and manner in which each selling
stockholder received shares and/or the underlying
securities.
|
|
·
|
The
relationship of each selling shareholder with the company, including an
analysis of whether the selling shareholder is an affiliate of the
company;
|
|
●
|
See
response to Comment 9 above for a description of selling stockholder
relationships with the Company.
|
|
·
|
Any
relationship among the selling
shareholders;
|
|
●
|
The
Company understands that there is a relationship between Lake End Capital
LLC and SCO Securities LLC. This relationship is more fully
described in “Transactions With Related Persons, Promoters and Certain
Control Persons” of our Registration Statement filed on Form
S-1. The Company is not currently aware of any other
relationships between the Selling
Stockholders.
|
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
15
|
·
|
The
dollar value of the shares registered in relation to the proceeds that the
company received from the selling shareholders for the securities,
excluding amounts of proceeds that were returned (or will be returned) to
the selling shareholders and/or its affiliates in fees or other
payments;
|
|
●
|
We note that
the Company received a total of $14,254,800 cash proceeds from the sale of
Series A Preferred Stock and warrants. In addition, the Company
canceled debt and accrued interest of $19,479,128 in exchange for Series A
Preferred Stock and warrants. We kindly direct your attention
to Table 1 in response to Comment 1 for a more complete description of
proceeds received. Please also see response to Comment 3
above.
|
|
·
|
The
discount at which the shareholders will purchase the common stock
underlying the preferred stock and warrants (or any related security, such
as an option) upon conversion or exercise;
and
|
|
●
|
Our
shares of Series A Preferred Stock are currently convertible at a price of
$3.00 per share and the warrants issued in conjunction therewith are
exercisable at a price of $3.50 per share. As of July 1, 2008,
the closing price of our common stock was $3.00 per share and therefore
neither the conversion of the Series A Preferred Stock nor the warrants
would be at a discount as of that date. However, the discount,
if any, at which a Selling Stockholder may purchase shares of our common
stock is dependant upon the market price of our common stock on any given
day. In addition, any dividends issued by the Company in lieu of cash
dividends will be at a value equal to the twenty (20) day average closing
market price of the common stock on the date of
grant.
|
|
●
|
As
noted in response to Comment 3 above, we issued a warrant on December 6,
2006. That warrant is exercisable for an aggregate 386,364
shares of our common stock at an exercise price of $1.35 per
share. At the time of issuance our common stock was trading at
$1.80 per share for an aggregate discount of
$173,864.
|
|
·
|
Whether
or not any of the selling stockholders is in the business of buying and
selling securities.
|
|
o
|
We
understand that certain of the stockholders are in the business of buying
and selling securities as indicated by footnote in Table 5 attached
hereto.
|
Office of
the Chief Counsel
Division
of Corporation Finance
Securities
and Exchange Commission
100 F
Street, NE
Washington,
DC 20549
July 2,
2008
Page
16
Directors, Executive
Officers, Promoters and Control Persons
Executive Compensation, page
60
13. Please
revise your filing to provide executive compensation disclosure for the fiscal
year ended December 31, 2007.
|
●
|
We
respectfully submit that as requested, the Executive Compensation section
in the to be filed Form S-1/A will be updated to reflect executive
compensation for the fiscal year ended December 31, 2007, which disclosure
was previously included in the Company’s proxy statement dated April 22,
2008.
|
Financial Statements, page
F-1
14. Please
note that as of February 15, 2008, the financial statements in your filing are
not current and must be updated. Please provide the company’s audited
financial statements for the fiscal year ended December 31, 2007.
|
●
|
We
respectfully submit that as requested the financial statements in the to
be filed Form S-1/A will be updated to include the financial statements
for the fiscal year ended December 31, 2007, which financial statements
were previously included in the Company’s Form 10-K for the period ended
December 31, 2007.
|
Signatures
15. Please
revise your filing to include the signature of you Chief Executive Officer in
his own capacity, and to include the signature of your Principal Accounting
Officer, as required by Form S-1.
|
·
|
We
respectfully submit that as requested, the signatures of our Chief
Executive Officer and Principal Accounting Officer will be included in the
Form S-1/A.
|
[the remainder of this page is left
blank intentionally]
If you
have any questions regarding this matter or require any additional information,
please contact me at (617) 951-8874. If the Staff disagrees with any
of the conclusions set forth above, please contact the undersigned prior to the
issuance of a written response.
| Very truly yours, |
| /s/ John. J Concannon |
| John J. Concannon III, Esq. |
| Bingham McCutchen, LLP |
cc: Mr.
Jeffrey B. Davis
Mr. Stephen B. Thompson