telkonet_s3-062708.htm
As filed
with the Securities and Exchange Commission on July 1, 2008
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)
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Utah
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87-0627421
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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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)
Jason
L. Tienor
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
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Title
of each Class of Securities To Be Registered
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Amount
To
Be
Registered
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Proposed
Maximum
Offering
Price
Per
Share
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Proposed
Maximum
Aggregate
Offering
Price
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Amount
Of
Registration
Fee
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Common
Stock, $0.001 par value
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19,351,000(1)
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$0.61(2)
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$11,298,580(2)
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$444.03
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(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) The
proposed maximum offering price per share with respect to 16,851,000 shares was
$0.58 per share, and the proposed maximum offering price with respect to
2,500,000 shares was $0.61 per share and both were 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
stockholder 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.
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Subject
to completion, dated July 1, 2008
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PROSPECTUS
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TELKONET,
INC.
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19,351,000
Shares
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Common
Stock
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This
prospectus covers 19,351,000 shares of our common stock that may be offered
and sold from time to time by the selling stockholder named in this prospectus.
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
$15,444.
The
selling stockholder 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 stockholder 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 June 27, 2008, the last reported sale price of our common stock was
$0.57.
Investing
in shares of our common stock involves risks. See “RISK FACTORS” beginning on
page 2 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 stockholder named in this prospectus is 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 _______, 2008.
TABLE OF
CONTENTS
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THE
COMPANY
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1
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RISK
FACTORS
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2
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FORWARD-LOOKING
STATEMENTS
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8
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USE
OF PROCEEDS
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8
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SELLING
STOCKHOLDER
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PLAN
OF DISTRIBUTION
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9
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EXPERTS
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10
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LEGAL
MATTERS
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11
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INFORMATION
INCORPORATED BY REFERENCE
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12
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WHERE
YOU CAN FIND MORE INFORMATION
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12
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DISCLOSURE
OF SEC POSITION ON INDEMNIFICATION OF SECURITIES ACT
LIABILITIES
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13
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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
Telkonet,
Inc., formed in 1999 and incorporated under the laws of the State of Utah, is a
leading provider of innovative, centrally managed solutions for integrated
energy management, networking, building automation and proactive support
services.
The
Company’s offices are located at 20374 Seneca Meadows Parkway, Germantown,
Maryland 20876. The reports that the Company files pursuant to the Securities
Exchange Act of 1934 can be found at the Company’s web site at
www.telkonet.com.
Business
We
classify our operations in two reportable segments: the Telkonet Segment and the
MSTI Segment.
Telkonet
Segment
The
Telkonet Segment consists of the Telkonet iWire System™ and Series 5 platform,
energy management products, and centrally managed high-speed internet network
platforms integrated to form a complete SAAS technology platform. This segment
employs both direct and indirect sales models to distribute and support its
products on a worldwide basis and serves five major markets: hospitality,
commercial, industrial, government (including defense and education) and
retail.
The
Telkonet iWire System™ and Series 5 platform offer a viable and cost-effective
alternative to the challenges of hardwiring and wireless local area networks
(LANs). Telkonet’s products are designed for use in residential, commercial and
industrial applications, including multi-dwelling, hospitality, government and
utility markets. Applications supported by the Telkonet “platform”
include, but are not limited to, VoIP telephones, internet connectivity, local
area networking, video conferencing, closed circuit security surveillance, point
of sale, digital signage and a host of other information services.
Telkonet
has been shipping PLC products since 2003, initially targeting the hospitality
market followed by the multi-dwelling unit (MDU) market as well as the
government and other commercial markets.
The
Company released its Series 5 product on March 1, 2008. The Series 5
product provides enhancements to the Telkonet iWire System™ which include, but
are not limited to, the following:
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more
than 14 times faster than the legacy
product,
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more
robust security and data
encryption,
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enhanced
quality of service, or QOS,
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uses
both alternating current and direct current which makes it highly
compatible within utility and industrial
space,
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increased
survivability in harsh environments,
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additional
physical interfaces.
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On March
9, 2007, the Company acquired substantially all of the assets of Smart Systems
International (SSI), a leading provider of energy management products and
solutions to customers in the United States and Canada. Many of the
largest initiatives within Telkonet center on the sale of energy management
products and services. The Telkonet SmartEnergy system uses a combination of
occupancy sensors along with intelligent programmable thermostats or controllers
to adjust and maintain room temperature according to occupancy, time of day, and
environmental factors, for a preset configuration eliminating wasteful heating
and cooling of unoccupied rooms, and limiting the damaging impact of improper
temperature fluctuations. On average, the installation of these
devices can save 30% or more per year on heating and cooling energy
consumption.
Thus far
the hospitality, MDU, educational, and government industries have been highly
interested in energy management devices and Telkonet has increased sales in
these markets consistently during the past three quarters. In
addition, Telkonet continues to recognize increased interest and significant
wins internationally with its SmartEnergy offering. Telkonet intends
to expand these efforts to facilitate growth acceleration in the installation of
our Telkonet SmartEnergy product line. This effort is supported by
the enforcement of new energy conservation legislation such as the Energy
Independence and Security Act signed into law by President Bush on December 19,
2007, which contains provisions to improve energy efficiency in appliances and
commercial products and reduce federal government energy
usage. Telkonet continues to support these initiatives and will
remain at the forefront of green technology solutions throughout 2008 with
upcoming introductions such as our networked Telkonet SmartEnergy product
line.
Additionally,
the integration of the Series Five product line with the energy management
products will allow Telkonet to use the electrical grid of commercial buildings
as a backbone for the networked Telkonet SmartEnergy solution making it easier,
quicker, less intrusive, and less expensive to install and operate the system
within a commercial environment. The benefits of this are
twofold. First, reduced costs provide the possibility of increased
margins on Telkonet’s sales. Second, Telkonet has increased price
flexibility in order to respond to competitive market pressures.
On March 15, 2007, the Company acquired
100% of the outstanding membership units of EthoStream, LLC, a network solutions
integration company that offers installation, sales and service to the
hospitality industry. The EthoStream, LLC acquisition enables Telkonet to
provide installation and support for PLC products and third party applications
to customers across North America. One of Telkonet’s largest recurring
revenue streams is the Milwaukee-based technical support center that was
acquired in the purchase of EthoStream. This support center is one of
the only internally-operated hospitality HSIA support centers and the key driver
in the quality and customer satisfaction that EthoStream is credited
with. Telkonet’s support center is a fully operating 24/7,
365 day full-service customer support center that provides e-mail, phone, and
technical support not only to hospitality internet access customers but to the
third party vendors as well.
This has
been a growth market for the past several years due to business travel demand
for high quality internet access in a hotel room. Additionally, over
the past year, the demands for high speed wireless internet access have extended
beyond the traditional business traveler with a significant number of leisure
travelers also demanding that the service be available. Over the past
few quarters, we partnered with several large hotel chains allowing us to
service more than 2,300 total properties and providing connectivity to more than
a million travelers monthly. We continue these efforts and Telkonet’s
hospitality market expansion by working with additional franchisors through
approved or preferred affiliations and franchise upgrades or
rollouts.
MST
Segment
MSTI
Holdings, Inc. (MSTI), formerly Microwave Satellite Technologies, Inc. (MST) is
a communications service provider offering quadruple play (Quad-Play) services
to multi-tenant unit and MDU residential, hospitality and commercial properties.
These Quad-Play services include video, voice, high-speed internet and wireless
fidelity (Wi-Fi) access. In addition, MSTI currently offers or plans to offer a
variety of next-generation telecommunications solutions and services, including
satellite installation, video conferencing, surveillance/security and energy
management, and other complementary professional services.
NuVisions™
MSTI
currently offers digital television service through DISH Network, a national
satellite television provider, under its private label NuVisions™ brand of
services. The NuVisions TV offering currently includes over 500 channels of
video and audio programming, with a large high definition (more than 40
channels) and ethnic offering (over 100 channels from 17 countries) available in
the market today. MSTI also offers its NuVisions Broadband high speed internet
service and NuVisions Digital Voice telephone service to multi-family residences
and commercial properties. MSTI delivers its broadband based services using
terrestrial fiber optic links and in February 2005, began deployment in New York
City of a proprietary wireless gigabit network that connects properties served
in a redundant gigabit ring - a virtual fiber optic network in the
air.
Wi-Fi
Network
MSTI has
constructed a large NuVisions Wi-Fi footprint in New York City intended to
create a ubiquitous citywide Wi-Fi network. NuVisions Wi-Fi offers Internet
access in the southern-half of Central Park, Riverside Park from 60th to 79th
Streets, Dag Hammarskjold Plaza, and the United Nations Plaza. In addition, MSTI
provides NuVisions Wi-Fi service in and around Trump Tower on Fifth Avenue,
Trump World Tower on First Avenue, the Trump Place properties located on
Riverside Boulevard, Trump Palace, Trump Parc, Trump Parc East as well as
portions of Roosevelt Island surrounding the Octagon residential community. MSTI
currently has plans to deploy additional Wi-Fi “Hot Zones” throughout New York
City and continue to enlarge its Wi-Fi footprint as new properties are
served.
Internet
Protocol Television (IPTV)
In fourth
quarter of 2006, MSTI invested in an IPTV platform to deploy in 2008. IPTV is a
method of distributing television content over IP that enables a more
user-defined, on-demand and interactive experience than traditional cable or
satellite television. The IPTV service delivers traditional cable TV programming
and enables subscribers to surf the Internet, receive on-demand content, and
perform a host of Internet-based functions via their TV sets.
On May
29, 2007, MST closed a $9.1 million private placement. Upon completion of the
closing, MST executed a reverse merger to become a publicly-traded company,
under the name “MSTI Holdings, Inc.” The private placement was comprised of
approximately $3.1 million of equity financing through the sale of common stock
and warrants and approximately $6 million of debt financing through the sale of
debentures and warrants. Following the MST private placement and
subsequent reverse merger, the Company continued to own 63% of the issued and
outstanding common stock of MSTI.
Recent
Developments
On May
30, 2008, the Company entered into a Securities Purchase Agreement with YA
Global Investments, L.P. pursuant to which the Company agreed to issue and sell
to YA Global up to $3,500,000 of secured convertible debentures and warrants to
purchase up to 2,500,000 shares of the Company’s common stock. The
sale of the convertible debentures and warrants will be effectuated in three
separate closings, the first of which occurred on May 30, 2008, and the
remainder of which shall occur after the satisfaction of certain conditions,
including, but not limited to, the approval by the Company’s stockholders of an
amendment to the Company’s certificate of incorporation authorizing additional
shares of common stock for issuance. At the May 30, 2008 closing, the
Company sold convertible debentures having an aggregate principal value of
$1,500,000 and warrants to purchase 2,100,000 shares of common
stock.
The
convertible debentures accrue interest at a rate of 13% per annum and mature on
May 29, 2011. The convertible debentures may be redeemed at any time,
in whole or in part, by the Company upon payment by the Company of a redemption
premium equal to 15% of the principal amount of convertible debentures being
redeemed, provided that an Equity Conditions Failure (as defined in the
convertible debentures) is not occurring at the time of such
redemption. YA Global may also convert all or a portion of the
convertible debentures at any time at a price equal to the lesser of (i) $0.58,
or (ii) ninety percent (90%) of the lowest volume weighted average price of the
Company’s common stock during the ten (10) trading days immediately preceding
the conversion date. The warrants expire five years from the date of
issuance and entitle YA Global to purchase shares of the Company’s common stock
at a price per share of $0.61. The convertible debentures are
secured by substantially all of the Company’s assets. The shares of
common stock underlying each of the convertible debentures and warrants are
being registered on the registration statement of which this prospectus forms a
part.
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 March 31, 2008, the Company has incurred cumulative losses of
$95,936,810 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.
Our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern, which may hinder our ability to obtain future
financing.
In their
report dated March 31, 2008, our independent auditors stated that our financial
statements for the year ended December 31, 2007 were prepared assuming that we
would continue as a going concern, and that they have substantial doubt about
our ability to continue as a going concern. Our auditors’ doubts are
based on our incurring net losses and deficits in cash flows from
operations. We continue to experience net operating
losses. Our ability to continue as a going concern is subject to our
ability to generate a profit and/or obtain necessary funding from outside
sources, including by the sale of our securities, or obtaining loans from
financial institutions, where possible. Our continued net operating
losses and our auditors’ doubts increase the difficulty of our meeting such
goals and our efforts to continue as a going concern may not prove
successful.
Obligations
to the convertible debenture holders are secured by substantially all of the
Company’s assets.
The
holder of the convertible debentures has a security interest in substantially
all of our assets. As a result, if we default under our obligations to the
convertible debenture holder, the convertible debenture holder could foreclose
its security interest and liquidate some or all of these assets, which may cause
the Company to cease operations.
The
restrictive covenants contained in the Securities Purchase Agreement pursuant to
which the convertible debentures were sold contain restrictions on the Company
that could limit the Company’s financing options.
The
Securities Purchase Agreement pursuant to which the convertible debentures were
sold contains limitations on the Company’s ability to engage in certain
financing activities without the prior consent of the holders of the convertible
debentures. As a result of these restrictions, the Company may be
unable to obtain the financing necessary to fund working capital, operating
losses, capital expenditures or acquisitions. The failure to obtain such
financing could have a material adverse effect on the Company’s business and
results of operations.
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:
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the
level of use of the Internet;
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the
demand for high-tech goods;
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the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company’s
operations;
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price
competition or pricing changes in the
industry;
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technical
difficulties or system downtime;
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economic
conditions specific to the internet and communications industry;
and
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general
economic conditions.
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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.
Further
issuances of equity securities may be dilutive to current
stockholders.
Although
the funds that were 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
March 31, 2008, the Company had outstanding employee options to purchase a total
of 7,946,429 shares of common stock at exercise prices ranging from $1.00 to
$5.97 per share, with a weighted average exercise price of $1.92. As of March
31, 2008, 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 March 31, 2008, the Company had warrants outstanding to purchase a total of
4,677,409 shares of common stock at exercise prices ranging from $0.60 to $4.39
per share, with a weighted average exercise price of $3.35. 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:
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loss
of or delay in revenue and loss of market
share;
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negative
publicity and damage to the Company’s reputation and brand;
and
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decline
in the average selling price of the Company’s
products.
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The
communication industry is intensely competitive and rapidly
evolving.
The
Company operates in a highly competitive, quickly changing environment, and our
future success will depend on our ability to develop and introduce new services
and service enhancements that achieve broad market acceptance in MDU and
commercial sectors. The Company will also need to respond effectively to new
product announcements by our competitors by quickly introducing competitive
products.
Delays in
product development and introduction could result in:
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loss
of or delay in revenue and loss of market
share;
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negative
publicity and damage to our reputation and brand;
and
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decline
in the selling price of our products and
services.
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Additionally,
new companies are constantly entering the market, thus increasing the
competition. This could also have a negative impact on our ability to obtain
additional capital from investors. Larger companies who have been engaged in our
business for substantially longer periods of time may have access to greater
resources. These companies may have greater success in the recruitment and
retention of qualified employees, as well as in conducting their operations,
which may give them a competitive advantage. In addition, actual or potential
competitors may be strengthened through the acquisition of additional assets and
interests. If the Company is unable to compete effectively or adequately respond
to competitive pressures, this may materially adversely affect our results of
operation and financial condition. Large companies including Direct TV,
EchoStar, Time Warner, Cablevision and Verizon are active in our markets in the
provision and distribution of communications services and we will have to
compete with such companies.
The
Company is not large enough to negotiate cable television programming contracts
as favorable as some of our larger competitors.
Programming
costs are generally directly related to the number of subscribers to which the
programming is provided, with discounts available to large traditional cable
operators and direct broadcast satellite (DBS) providers based on their high
subscriber levels. As a result, larger cable and DBS systems generally pay lower
per subscriber programming costs. The Company has attempted to obtain volume
discounts from our suppliers. Despite these efforts, we believe that our per
subscriber programming costs are significantly higher than large cable operators
and DBS providers with which we compete in some of our markets. This may put us
at a competitive disadvantage in terms of maintaining our operating results
while remaining competitive with prices offered by these providers. In addition,
as programming agreements come up for renewal, the Company cannot assure you
that we will be able to renew these agreements on comparable or favorable terms.
To the extent that we are unable to reach agreement with a programmer on terms
that we believe are reasonable, we may be forced to remove programming from our
line-up, which could result in a loss of customers.
Programming
costs have risen in past years and are expected to continue to rise, which may
adversely affect our financial results.
The cost
of acquiring programming is a significant portion of the operating costs for our
cable television business. These costs have increased each year and we expect
them to continue to increase, especially the costs associated with sports
programming. Many of our programming contracts cover multiple years and provide
for future increases in the fees we must pay. Historically, we have absorbed
increased programming costs in large part through increased prices to our
customers. However, competitive and other marketplace factors may not permit us
to continue to pass these costs through to customers. In order to minimize the
negative impact that increased programming costs may have on our margins, we may
pursue a variety of strategies, including offering some programming at premium
prices or moving some programming from our analog service to our premium digital
services. Despite our efforts to manage programming expenses and pricing, the
rising cost of programming may adversely affect our results of
operations.
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 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 modification 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, without substantial costs, delays or other operational or
financial difficulties. In addition, acquisitions involve a number of other
risks, including:
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failure
of the acquired businesses to achieve expected
results;
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diversion
of management’s attention and resources to
acquisitions;
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failure
to retain key customers or personnel of the acquired
businesses;
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disappointing
quality or functionality of acquired equipment and people:
and
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risks
associated with unanticipated events, liabilities or
contingencies.
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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 our business, results of operations, or
financial condition.
A
significant portion of our total assets consists of goodwill, which is subject
to a periodic impairment analysis and a significant impairment determination in
any future period could have an adverse effect on our results of operations even
without a significant loss of revenue or increase in cash expenses attributable
to such period.
We have
goodwill totaling approximately $14.7 million at March 31, 2008 resulting from
recent and past acquisitions. We evaluate this goodwill for impairment based on
the fair value of the operating business units to which this goodwill relates at
least once a year. This estimated fair value could change if we are unable to
achieve operating results at the levels that have been forecasted, the market
valuation of those business units decreases based on transactions involving
similar companies, or there is a permanent, negative change in the market demand
for the services offered by the business units. These changes could result in an
impairment of the existing goodwill balance that could require a material
non-cash charge to our results of operations.
Obligations
to the holders of MSTI’s debentures are secured by all of MSTI’s assets, so if
we default on those obligations, the debenture holders could foreclose on MSTI’s
assets.
The
holders of MSTI’s debentures have a security interest in all of MSTI’s assets
and those of its subsidiary. As a result, if we default under our obligations to
the debenture holders, the debenture holders could foreclose their security
interests and liquidate some or all of these assets, which may cause MSTI to
cease operations.
MSTI’s indebtedness
and restrictive debt covenants could limit MSTI’s financing options
and liquidity position, which would limit MSTI’s ability to grow our
business.
The terms
of MSTI’s outstanding debentures could have negative consequences, such
as:
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MSTI
may be unable to obtain additional financing to fund working capital,
operating losses, capital expenditures or acquisitions on terms acceptable
to MSTI, or at all;
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MSTI
may be unable to refinance its indebtedness on terms acceptable to MSTI,
or at all; and
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MSTI
may be more vulnerable to economic downturns and limit MSTI’s ability to
withstand competitive
pressures.
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Additionally,
covenants in the securities purchase agreement pursuant to which the debentures
were sold impose operating and financial restrictions on MSTI. These
restrictions prohibit or limit MSTI’s ability, and the ability of its
subsidiaries, to, among other things:
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pay
cash dividends to our stockholders;
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incur
additional indebtedness;
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permit
liens on assets or conduct sales of assets;
and
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engage
in transactions with affiliates.
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These
restrictions may limit MSTI’s ability to obtain additional financing, withstand
downturns in MSTI’s business or take advantage of business opportunities.
Moreover, additional debt financing MSTI may seek may contain terms that include
more restrictive covenants, may require repayment on an accelerated schedule or
may impose other obligations that limit the ability to grow MSTI’s business,
acquire needed assets, or take other actions MSTI might otherwise consider
appropriate or desirable.
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 stockholder
selling common stock under this prospectus. We will not receive any proceeds
from the sale of the common stock sold by the selling stockholder.
SELLING
STOCKHOLDER
The
shares of common stock being offered by the selling stockholder are issuable
upon conversion of the convertible debentures and upon exercise of the warrants
owned by the selling stockholder. For additional information
regarding the issuance of those convertible debentures and warrants, see “Recent
Developments” above. We are registering the shares of common stock in
order to permit the selling stockholder to offer the shares for resale from time
to time. Except as otherwise noted and except for the ownership of
the convertible debentures and the warrants, the selling stockholder has not had
any material relationship with us within the past three years.
The table
below lists the selling stockholder and other information regarding the
beneficial ownership of the shares of common stock by the selling
stockholder. The second column lists the number of shares of common
stock beneficially owned by the selling stockholder, based on its ownership of
the convertible debentures and warrants, as of June 27, 2008, assuming
conversion of all convertible debentures and exercise of the warrants held by
the selling stockholder on that date, without regard to any limitations on
conversions or exercise.
The third
column lists the shares of common stock being offered by this prospectus by the
selling stockholder. In accordance with the terms of a registration rights
agreement with the selling stockholder, this prospectus generally covers the
resale of at least (i) 300% of the number of shares of common stock issued and
issuable pursuant to the convertible debentures as of the trading day
immediately preceding the date the registration statement is initially filed
with the SEC, and (ii) 100% of the number of shares of common stock issued and
issuable pursuant to the warrants as of the trading day immediately preceding
the date the registration statement is initially filed with the
SEC. Because the conversion price of the convertible debentures and
the exercise price of the warrants may be adjusted, the number of shares that
will actually be issued may be more or less than the number of shares being
offered by this prospectus. The fourth column assumes the sale of all
of the shares offered by the selling stockholder pursuant to this
prospectus.
Under the
terms of the convertible debentures and the warrants, the selling stockholder
may not convert the convertible debentures or exercise the warrants to the
extent such conversion or exercise would cause such selling stockholder,
together with its affiliates, to beneficially own a number of shares of common
stock which would exceed 4.99% of our then outstanding shares of common stock
following such conversion or exercise, excluding for purposes of such
determination shares of common stock issuable upon conversion of the convertible
debentures which have not been converted and upon exercise of the warrants which
have not been exercised. The number of shares in the second column
does not reflect this limitation. The selling stockholder may sell
all, some or none of its shares in this offering.
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Name of Selling Stockholder
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Number of Shares Owned
Prior to Offering
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Maximum Number of Shares to be
Sold Pursuant to this
Prospectus
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Number of Shares
Owned After Offering
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YA
Global Investments, L.P. (1)
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19,351,000
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19,351,000
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0
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(1)
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YA
Global Investments, L.P. is a Cayman Island exempt limited
partnership. YA Global is managed by Yorkville Advisors,
LLC. Investment decisions for Yorkville Advisors are made by
Mark Angelo, its portfolio manager.
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PLAN OF
DISTRIBUTION
The
selling stockholder and any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of its shares of
common stock on the American Stock Exchange or any other 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 stockholder may use any one or more of the
following methods when selling shares:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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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;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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broker-dealers
may agree with the selling stockholder to sell a specified number of such
shares at a stipulated price per
share;
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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a
combination of any such methods of sale;
or
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any
other method permitted pursuant to applicable
law.
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The
selling stockholder may also sell shares under Rule 144 under the Securities Act
of 1933, as amended (the “Securities Act”), if
available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholder may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the selling stockholder (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in
compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
stockholder may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholder may also enter into option or other transactions with broker-dealers
or other financial institutions or the creation of one or more derivative
securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholder 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. The selling
stockholder has informed the Company that it does not have any written or oral
agreement or understanding, directly or indirectly, with any person to
distribute the common stock. In no event shall any broker-dealer receive fees,
commissions and markups which, in the aggregate, would exceed eight percent
(8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to
indemnify the selling stockholder against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
the selling stockholder may be deemed to be an “underwriter” within the meaning
of the Securities Act, it will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 thereunder. In
addition, any securities covered by this prospectus that qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than under this prospectus. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the shares by the selling
stockholder.
We agreed
to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the selling stockholder without registration and without
regard to any volume limitations by reason of Rule 144(k) under the Securities
Act or any other rule of similar effect, or (ii) all of the shares have been
sold pursuant to this prospectus or Rule 144 under the Securities Act or any
other rule of similar effect. The shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the shares may not be sold
unless they have been registered or qualified for sale in the applicable state
or an exemption from the registration or qualification requirement is available
and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the shares may not simultaneously engage in market making
activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling stockholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the selling stockholder or any other
person. We will make copies of this prospectus available to the
selling stockholder and have informed it of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 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, 2007 have
been audited by RBSM 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 stockholder
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.
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Annual
Report on From 10-K for the year ended December 31, 2007, filed on April
1, 2008;
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Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2008, filed
on May 12, 2008;
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Current
Reports on Form 8-K filed on May 12, 2008, May 13, 2008, May 22, 2008 and
June 5, 2008;
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Definitive
Proxy Statement on Schedule 14A, filed on June 3, 2008;
and
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The
description of our common stock contained in our registration statement on
Form 10-SB, filed on September 13,
1999.
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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 ____________, 2008. 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
|
|
$
|
444
|
|
|
Accounting
Fees and Expenses
|
|
$
|
6,000
|
|
|
Legal
Fees and Expenses
|
|
$
|
6,000
|
|
|
Printing
Fees and Expenses
|
|
$
|
2,000
|
|
|
Miscellaneous
|
|
$
|
1,000
|
|
|
|
|
|
|
Total
|
|
$
|
15,444
|
|
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
|
|
|
|
|
|
4.1
|
|
Form
of Convertible Debenture (incorporated by reference to our Current Report
on Form 8-K filed on June 5, 2008)
|
|
|
|
|
|
4.2
|
|
Form
of Common Stock Purchase Warrant (incorporated by reference to our Current
Report on Form 8-K filed on June 5, 2008)
|
|
|
|
|
|
5
|
|
Opinion
of Baker & Hostetler LLP as to the validity of the issuance of
the common stock of Telkonet, Inc. being registered
|
|
|
|
|
|
23.1
|
|
Consent
of RBSM LLP relating to the financial statements of Telkonet,
Inc.
|
|
|
|
|
|
23.2
|
|
Consent
of Baker & Hostetler LLP (included in
Exhibit 5)
|
|
|
|
|
|
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 1st day of
July, 2008.
|
|
TELKONET,
INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jason L. Tienor
|
|
|
|
|
Jason
L. Tienor
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
KNOW ALL
MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jason L. Tienor and Richard J. Leimbach, 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 July 1, 2008 by the following persons in the capacities
indicated below.
|
Signature
|
|
Title
|
|
|
|
|
|
|
|
|
|
/s/
Jason L. Tienor
|
|
Chief
Executive Officer (Principal Executive Officer)
|
|
|
|
Jason
L. Tienor
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard J. Leimbach
|
|
Chief
Financial Officer (Principal Financial and
|
|
|
|
Richard
J. Leimbach
|
|
Principal
Accounting Officer) |
|
|
|
|
|
|
|
|
|
/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/
Seth D. Blumenfeld
|
|
Director
|
|
|
|
Seth
D. Blumenfeld
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Anthony J. Paoni
|
|
Director
|
|
|
|
Anthony
J. Paoni
|
|
|
|
|
|
|
|
|
|
|
EXHIBIT
INDEX
|
|
|
|
|
Exhibit
Number
|
|
Description
of Exhibits
|
|
|
|
|
|
4.1
|
|
Form
of Convertible Debenture (incorporated by reference to our Current Report
on Form 8-K filed on June 5, 2008)
|
|
|
|
|
|
4.2
|
|
Form
of Common Stock Purchase Warrant (incorporated by reference to our Current
Report on Form 8-K filed on June 5, 2008)
|
|
|
|
|
|
5
|
|
Opinion
of Baker & Hostetler LLP as to the validity of the issuance of
the common stock of Telkonet, Inc. being registered
|
|
|
|
|
|
23.1
|
|
Consent
of RBSM LLP relating to the financial statements of Telkonet,
Inc.
|
|
|
|
|
|
23.2
|
|
Consent
of Baker & Hostetler LLP (included in
Exhibit 5)
|
|
|
|
|
|
24
|
|
Power
of Attorney (included on signature
page)
|
21