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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of report (Date of earliest event reported) December 5, 2005
ELECTRONIC SENSOR TECHNOLOGY, INC.
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(Exact Name of the Registrant as Specified in Charter)
NEVADA 333-87224 98-0372780
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1077 Business Center Circle, Newbury Park, California 91320
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code (805) 480-1994
NOT APPLICABLE.
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On December 7, 2005 (the "Closing Date"), Electronic Sensor Technology, Inc.
(the "Registrant") issued $7,000,000 aggregate principal amount of convertible
debentures and warrants to Midsummer Investment, Ltd. and Islandia, L.P. (the
"Purchasers"), pursuant to a Securities Purchase Agreement (the "Agreement")
entered into on the Closing Date among the Registrant and the Purchasers, a form
of which is attached hereto as Exhibit 10.1 and incorporated herein by reference
(the "Transaction"). Neither of the Purchasers has any material relationship
with the Registrant or its affiliates, other than in respect of the Agreement.
Pursuant to the terms of the Agreement, each Purchaser purchased an 8% unsecured
convertible debenture due, subject to the terms therein, four years from the
Closing Date (the "Debentures"), a form of which is attached hereto as Exhibit
4.1 and incorporated herein by reference, and a warrant to purchase up to a
number of shares of common stock of the Registrant, par value $.001 per share
(the "Common Stock"), equal to 75% of such Purchaser's subscription amount under
the Agreement, exercisable immediately and having a term of exercise equal to
five years (the "Warrants"), a form of which is attached hereto as Exhibit 4.2
and incorporated herein by reference. The Debentures are convertible into Common
Stock at a price of $0.4544 per share (this price was calculated based upon 105%
of the volume weighted average price over the 20 trading days preceding the
Closing Date ("VWAP")). The Debentures contain a redemption schedule that
requires equal quarterly redemptions commencing on January 1, 2008. Under
certain circumstances the Registrant may redeem the Debentures with Common
Stock. The Warrants allow the Purchasers to purchase $5,250,000 worth of Common
Stock at an exercise price equal to $0.4761 per share (this price was calculated
based upon 110% of the VWAP preceding the Closing Date).
In connection with the Agreement, the Registrant also entered into a
Registration Rights Agreement with the Purchasers, dated as of the Closing Date,
pursuant to which the Registrant agreed to file a shelf registration statement
on Form S-3 or Form SB-2 with the Securities and Exchange Commission within 30
days of the Closing Date, in order to register (i) 110% of the Common Stock
issuable upon conversion in full of the Debentures and (ii) all shares issuable
as interest on the Debentures. The Registrant has also agreed to file a second
shelf registration statement on Form S-3 or Form SB-2 with the Securities and
Exchange Commission and cause it to be effective by June 7, 2006, in order to
register (i) 20% of the Common Stock issuable upon conversion in full of the
Debentures and (ii) 130% of the Common Stock issuable upon exercise of the
Warrants. In the event that certain timelines are not met with respect to the
filing or effectiveness of a registration statement, the Purchasers are entitled
under the Registration Rights Agreement to liquidated damages in an amount equal
to 2% of the $7,000,000 purchase price paid by the Purchasers. A form of the
Registration Rights Agreement is attached hereto as Exhibit 10.2 and
incorporated herein by reference.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER
AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
The disclosures in Item 1.01 are incorporated into this Item 2.03 by reference.
Upon the occurrence of certain circumstances, such as default in payment, change
in control of the Registrant or bankruptcy of the Registrant or its
subsidiaries, the Purchasers, pursuant to the terms of the Debentures, have the
option to accelerate the Registrant's obligation to pay and declare that the
full amount of the Debenture, together with interest and any other amounts in
respect thereof, immediately due and payable in cash.
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES.
UNREGISTERED SALES OF EQUITY SECURITIES IN CONNECTION WITH THE TRANSACTION
The disclosures in Item 1.01 are incorporated into this Item 3.02 by reference.
The principal amount of the Debentures are convertible into 15,404,930 shares of
Common Stock and the Warrants allow the Purchasers to purchase 11,027,096 shares
of Common Stock. The Registrant relied upon Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act"), and Rule 506 promulgated thereunder
in claiming exemption
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from registration of the securities sold to the Purchasers. Each of the
Purchasers is either an "accredited investor", as defined in Rule 501(a)(1),
(2), (3), (7) or (8) under the Securities Act, or a "qualified institutional
buyer", as defined in Rule 144A(a) under the Securities Act, and is not required
to be registered as a broker-dealer under Section 15 of the Securities Exchange
Act of 1934, as amended.
In connection with the Transaction, the Registrant has agreed to issue to
Montgomery & Co., LLC ("Montgomery") warrants valued at $210,000, with similar
terms to those of the Warrants, to purchase 485,213 shares of Common Stock, in
partial consideration for financial advisory services performed by Montgomery in
connection with the Transaction. The issuance of warrants to Montgomery was
approved by the Board of Directors of the Registrant (the "Board") on December
5, 2005. The Registrant relied upon Section 4(2) of the Securities Act in
claiming exemption from registration of the securities to be issued to
Montgomery due to Montgomery's knowledge and experience in financial and
business matters, and the issuance otherwise meets the requirements for
exemption from registration.
OTHER UNREGISTERED SALES OF EQUITY SECURITIES
On December 5, 2005, the Board approved the issuance of 130,000 shares of Common
Stock to CEOcast, Inc. ("CEOcast") in consideration of investor relations
services provided to the Registrant by CEOcast. The Registrant relied upon
Section 4(2) of the Securities Act in claiming exemption from registration of
the securities to be issued to CEOcast due to CEOcast's knowledge and experience
in financial and business matters, and the issuance otherwise meets the
requirements for exemption from registration.
On December 5, 2005, the Board approved the issuance of a five-year warrant to
acquire 350,000 shares of Common Stock, at an exercise price of $2.40 per share,
to HomelandSecurityStocks.com, a division of Protect-A-Life, Inc. ("HSS"), in
partial settlement of litigation between the Registrant and HSS. The Registrant
relied upon Section 4(2) of the Securities Act in claiming exemption from
registration of the securities to be issued to HSS due to HSS's knowledge and
experience in financial and business matters, and the issuance otherwise meets
the requirements for exemption from registration.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
Exhibit No. Description
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4.1 Form of 8% Convertible Debenture of the Registrant.
4.2 Form of Warrant to purchase Common Stock.
10.1 Form of Securities Purchase Agreement dated as of December 7,
2005, among the Registrant and the Purchasers.
10.2 Form of Registration Rights Agreement dated as of December 7,
2005, among the Registrant and the Purchasers.
99.1 Press Release dated December 7, 2005.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ELECTRONIC SENSOR TECHNOLOGY, INC.
Date: December 8, 2005 By: /s/ Matthew S. Collier
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Name: Matthew S. Collier
Title: President and Chief Executive
Officer