Electric City raises $17.88 million from stock sale; DrugMax settles $10 million note issue

By Sheri Kasprzak

New York, July 5 - PIPE action cranked back up Wednesday following the Fourth of July holiday in the United States and after generally sluggish market activity last week.

"It's trickling in," said one market source familiar mostly with tech names. "There are certain [technology companies] that are seeing gains [in stock]. Same with biotech, so those are two areas you should look out for in the coming week or so."

In the tech sector, in fact, Electric City Corp. pocketed $17,875,000 from the sale of 17,875,000 shares.

As of March 31, the company had 51,297,120 outstanding common shares.

Electric City purchased Parke Industries, an energy services provider based in Glendora, Calif., and also converted all of its outstanding series E convertible preferreds into 21,648,346 common shares.

Also, the company retired all of its outstanding debt held by Laurus Master Fund Ltd. and converted $1,343,461 of the debt into common stock at $1.00 each.

"We are extremely pleased to have successfully completed the acquisition of Parke Industries," said David Asplund, Electric City's chief, in a news release. "As we previously announced, this acquisition represents a defining transaction and a pivotal moment in our history, providing us with a solid foundation for our future growth and development. We have re-capitalized our balance sheet and acquired a fast-growing, profitable energy services business led by a management team with extensive industry experience, expertise, contacts, customers and, most importantly, a proven sales methodology and track record that reflects a long history of success."

On Wednesday, the stock remained unchanged at $1.10 (OTCBB: ELCY).

According to the latest earnings statement, Electric City reported a net loss of $1.96 million for the quarter ended March 31, compared with a net loss of $675,257 for the same quarter of 2005.

Based in Elk Grove Village, Ill., Electric City develops technologies to reduce energy consumption.

DrugMax raises $10 million

Heading to the biotech sector, DrugMax, Inc. sealed a $10 million private placement of promissory notes with Deerfield Special Situations Fund, LP and Deerfield Special Situations Fund International, Ltd.

The company's stock ended the day off by 8.74%, or a nickel, to close at $0.57 (Nasdaq: DMAX). On July 3, the stock gained 5 cents to end at $0.62.

The five-year notes are due in September 2010 and bear interest at 2.5% and 5% for the first two years, amortizing to 17.5% in the fifth year.

The investors received warrants for 16.5 million shares. Of the warrants, 3 million are exercisable at $0.61 each, 5.5 million at $0.75 each, 5.5 million at $0.78 each and 2.5 million at $0.92 each.

Some of the proceeds will be used to repay a convertible debenture and to terminate $23 million in outstanding subordinated debt held by AmerisourceBergen Drug Corp.

"One of our primary objectives this year is to continue to improve our capital structure to enable us to focus our resources on growing our core pharmacy business and expanding our platform," said Ed Mercadante, the company's CEO, in a statement. "This transaction helps us improve our balance sheet tremendously by removing the highly dilutive impact of the existing convertible debenture, as well as reducing our overall indebtedness by $13 million."

Based in Farmington, Conn., DrugMax is a specialty pharmaceutical company.

Heritage to raise $3.1 million

Elsewhere in PIPEs Wednesday, Heritage Bankshares, Inc. closed the first tranche of a $3.1 million private placement for $2,146,827.

The company sold 138,505 shares in the first tranche at $15.50 each.

The complete offering, slated to close July 31, will include a total of 200,000 shares.

Proceeds will be used to increase the company's loan limits.

"We are close to beginning construction of two branches in Virginia Beach, one in the Lynnhaven area and one at Hilltop, and to commencing the process of relocating our downtown Norfolk branch to the Trader Building," said Michael Ives, Heritage's CEO, in a statement. "The additional capital also allows the bank to increase our loan limits. We are committed to both retaining our well-capitalized rating and continuing to grow. This offering provides a near-term solution. We continue to assess our capital needs from time to time and will respond accordingly."

The company's stock closed unchanged at $15.50 Wednesday (Pink Sheets: HBKS).

Based in Norfolk, Va., Heritage operates a chain of banks in Norfolk and Virginia Beach.

AMS raises $2 million

In other news, Laurus Master Fund Ltd. bought $2 million in convertible notes from AMS Health Sciences, Inc.

The secured notes are due June 28, 2009 and are interest-only for the first year.

The notes bear interest at Prime rate plus 300 basis points annually with a 10% floor and are convertible into common shares at $0.51 each.

AMS may force conversion of the notes if the average closing price of the company's stock exceeds 115% of the conversion price for more than five consecutive trading days.

Laurus also received warrants for 2,272,727 shares, exercisable at $0.53 each.

Ascendiant Securities LLC was the placement agent.

Proceeds will be used for operations and sales and marketing.

"We are extremely pleased that our new partners, Ascendiant and Laurus, have joined us in our efforts to propel AMS to the forefront of network marketing companies," said Jerry Grizzle, the company's CEO, in a news release. "We have worked very hard in the past few months to stabilize our operations, return ourselves to profitability and position the company to where we can focus 100% of our efforts toward driving sales and traffic in our network. The funds from this financing will be used to introduce sales and marketing promotions aimed at accomplishing those objectives."

AMS' stock closed down 2 cents, or 3.64%, to end at $0.53 (Amex: AMM).

Based in Oklahoma City, AMS produces nutritional supplements and natural skincare products.

Diagem heads up Canadian deals

In Canada, Diagem Inc. led action with a PIPE for up to C$6 million and at least C$4 million.

The offering includes up to 60 million shares and at least 40 million shares.

For the deal to close, shareholders who have made advances to the company totaling $1.9 million are converting the advances to stock at the same price as the price per share of the placement.

The proceeds will be used for diamond exploration in Brazil and for working capital.

Diagem's stock gained half a cent to end at C$0.135 Wednesday (TSX Venture: DGM).

Montreal-based Diagem is a diamond exploration company.

In other Canadian offerings, Brett Resources Inc. priced a C$4 million private placement.

The non-brokered deal includes up to 2,857,142 flow-through shares at C$0.70 each and up to 3,333,333 units at C$0.60 each.

The units consist of one share and one half-share warrant. Each whole warrant is exercisable at C$0.80 for two years.

At the end of the day, Brett's stock closed up 10.34%, or 6 cents, to close at C$0.64 (TSX Venture: BBR).

Proceeds from the flow-through shares will be used for exploration on the company's Hammond Reef gold project in Ontario and the proceeds from the units will be used for the advancement of the company's prospects in Alaska, the acquisition of new assets and for working capital.

Based in Vancouver, B.C., Brett is a mineral exploration, acquisition and development company.

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