As filed with the Securities and Exchange Commission on December 29, 1997
Registration No. 333-______
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------------------
NOISE CANCELLATION TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-2501025
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1025 West Nursery Road, Linthicum, Maryland 21090 (410) 636-8700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------------------------------------
JOHN B. HORTON, Esq.
Senior Vice President, General Counsel and Secretary
Noise Cancellation Technologies, Inc.
One Dock Street
Stamford, Connecticut 06902
(203) 961-0500, Extension 388
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
Copies of all communications and notices to:
WILLIAM P. O'NEILL, Esq.
CROWELL & MORING
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2595
(202) 624-2500
---------------------------------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date 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. |_|
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: |X|
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. |_| __________
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. |_| __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_| __________
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed Proposed
Title of Shares Amount to be Maximum Maximum Amount of
to be Registered Registered(1) Aggregate Aggregate Registration
Price Offering Fee(1)
Per Unit (2) Price (2)
- --------------------------------------------------------------------------------
Common Stock 33,273,393 $1.0625 $35,352,980 $10,429.13
shares
- -------------------------------------------------------------------------------
(1)Pursuant to Rule 429, promulgated under the Securities Act of 1933, as
amended, 11,708,971 shares of registrant's Common Stock initially included in
registrant's registration statements (File Nos. 33-19926, 33-38584, 33-44790,
33-47611, 33-51468, 33-7442, 33-84694 and 333-10545) that remain unsold as of
the date hereof are being carried forward in this registration statement. The
fees associated with such shares of Common Stock that were previously paid
with such earlier registration statement aggregated $8,293.82.
(2)Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act of 1933,
based on the average of the high and low prices for the Common Stock on the
NASDAQ National Market System on December 19, 1997.
- -------------------------------------------------------------------------------
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 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 29, 1997
PROSPECTUS
45,361,257 SHARES
NOISE CANCELLATION TECHNOLOGIES, INC.
COMMON STOCK
------------
This offering consists of 378,894 shares of Common Stock of Noise
Cancellation Technologies, Inc. (the "Company") which are issuable upon the
exercise of outstanding warrants and options to purchase shares of Common Stock
by persons not deemed "affiliates" of the Company, as that term is defined under
the Securities Act of 1933 (the "Securities Act").
This offering also consists of the resale of 26,000,000 shares of Common
Stock which may be issued upon the conversion of issued and outstanding shares
of the Company's Series C Convertible Preferred Stock by persons not deemed
"affiliates" of the Company, as that term is defined under the Securities Act.
In addition, this offering consists of the resale of 6,857,143 shares of
Common Stock which were issued by the Company in private placements exempt from
registration under the Securities Act and were issued and outstanding on
December 19, 1997, as well as the resale of 4,092,555 shares of Common Stock
which may be issued upon the exercise of outstanding warrants and options to
purchase shares of Common Stock to persons who may be deemed "affiliates" of the
Company and the resale of 8,032,665 shares of Common Stock to persons not deemed
"affiliates" of the Company, as that term is defined under the Securities Act.
All of the foregoing shares of Common Stock may be offered for sale by the
holders thereof (the "Selling Stockholders"). The Company will not receive any
of the proceeds from the sale of such shares although the Company will receive
the aggregate proceeds from the exercise, from time to time, of the foregoing
warrants and options to purchase shares of Common Stock (see "Use of Proceeds").
SEE "RISK FACTORS" ON PAGES 15 THROUGH 32 FOR CERTAIN INFORMATION
RELATING TO THE COMPANY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company's Common Stock is quoted on the NASDAQ National Market System
under the symbol "NCTI". The last sale price reported for such Common Stock on
December 19, 1997, as quoted by NASDAQ, was $1.0938.
THE DATE OF THIS PROSPECTUS IS DECEMBER 29, 1997
<PAGE>
TABLE OF CONTENTS
Page
Available Information............................................. 5
Incorporation of Certain Documents by Reference................... 6
The Company....................................................... 7
Summary Consolidated Financial Data............................... 11
Recent Developments............................................... 13
The Offering...................................................... 14
Risk Factors...................................................... 15
Use of Proceeds................................................... 33
Selling Stockholders.............................................. 34
Plan of Distribution.............................................. 38
Legal Matters..................................................... 39
Experts........................................................... 39
<PAGE>
AVAILABLE INFORMATION
The Company is subject to certain of the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, NW, Washington, DC 20549 and at the following
regional offices of the Commission: Seven World Trade Center, Suite 1300, New
York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60611. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, NW, Washington, DC
20549 at prescribed rates. The Company is an electronic filer on EDGAR pursuant
to Rules 100 and 101 of Registration S-T. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The address of such site is (http://www.sec.gov).
The Company has filed with the Commission certain Registration Statements
under the Securities Act with respect to the securities being offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statements, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statements.
----------------
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE COMMON STOCK TO
WHICH IT RELATES OR A SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 0-18267) and are incorporated herein by
reference and made a part hereof:
(1)the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, (including Amendment No. 1 thereto filed on April
21, 1997, and Amendment No. 2 thereto filed on April 30, 1997);
(2)the Company's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 1997, June 30, 1997, and September 30, 1997 (including Amendment
No. 1 thereto filed on November 17, 1997);
(3)the Company's Current Reports on Form 8-K filed on January 27, 1997,
February 7, 1997, February 25, 1997, March 25, 1997, April 15, 1997 and
November 17, 1997; and
(4)the description of capital stock found in Item 1 of the Company's
Registration Statement on Form 8-A filed with the Commission on January 30,
1990.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of filing of this Prospectus
and prior to the termination of the offering of the Common Stock covered by this
Prospectus are deemed to be incorporated by reference and shall be a part hereof
from their respective dates of filing.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any and
all of the information that has been incorporated by reference in this
Prospectus, but not including exhibits to such information unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates. Requests for copies of such information should be
directed to Krystyna Marushak, Investor Relations, Noise Cancellation
Technologies, Inc., One Dock Street, Stamford, Connecticut 06902, telephone
number (203) 961-0500, extension 391.
<PAGE>
THE COMPANY
Noise Cancellation Technologies, Inc. ("NCT" or the "Company") believes it is
the industry leader in the design, development, licensing, production and
distribution of electronic systems for Active Wave ManagementTM including
systems that electronically reduce noise and vibration. The Company's systems
are designed for integration into a wide range of products serving major markets
in the transportation, manufacturing, commercial, consumer products and
communications industries. The Company has begun commercial application of its
technology, with 16 product lines sold or currently being sold, including the
NoiseBuster(TM) and other consumer headsets, ClearSpeech(TM)-Mic ("CSM"),
adaptive speech filter ("ASF(TM)"), the ProActive(TM) line of
industrial/commercial active noise reduction ("ANR") headsets, an aviation
headset for pilots, an industrial muffler or "silencer" for use with large
vacuums and blowers, quieting headsets for patient use in magnetic resonance
imaging ("MRI") machines, an aircraft cabin quieting system and quieting systems
for heating, ventilation and air conditioning ("HVAC") ducts ("NoiseEater(TM)").
In keeping with the direction established in late 1994, during 1997 the
Company continued the active practice of marketing its technology through
licensing to third parties for up-front fees and, in many cases, future
royalties.
In 1997, the Company introduced additional products for the communications
marketplace, and additional industrial headset products. In 1998, the Company
plans to introduce further additional products for the headset, communications
and audio marketplaces. The Company is also refining its NoiseEater(TM) product
for introduction into international markets. The Company has entered into a
joint venture with Applied Acoustic Research, L.L.C. ("AAR") and Hoover
Universal, Inc. ("Hoover"), a wholly owned subsidiary of Johnson Controls, Inc.
("JCI"), called OnActive Technologies, L.L.C. ("OAT") which is developing Flat
Panel Transducer(TM) ("FPT(TM)") systems utilizing Top Down Surround
Sound(TM)(TDSS(TM)) for automotive applications. The Company has also entered
into a cross license agreement with Verity Group plc ("Verity") and its wholly
owned subsidiary, New Transducers, Limited ("NXT"), for the cross licensing of
the parties' respective FPT(TM) technologies in various markets.
In late 1995 the Company redefined its corporate mission to be the worldwide
leader in the advancement and commercialization of Active Wave ManagementTM
technology. Active Wave ManagementTM is the electronic and/or mechanical
manipulation of sound or signal waves to reduce noise, improve signal-to-noise
ratios and/or enhance sound quality. This redefinition is the result of the
development of new technologies, as previously noted, such as ASF(TM), TDSSTM,
FPTTM, and the silicon micromachined microphone ("SMM"), which can be used for
products that the Company believes will be utilized in areas beyond noise
attenuation and control. These technologies and products are consistent with the
shift of the Company's focus to technology licensing fees, royalties and
products that represent near term revenue generation.
As distribution channels are established and as product sales and market
acceptance and awareness of the commercial applications of Active Wave
ManagementTM build, revenues from technology licensing fees, royalties and
product sales are forecasted to fund an increasing share of the Company's
requirements. The funding from these sources, if realized, will reduce the
Company's dependence on engineering and development funding.
Active Wave ManagementTM is an evolving industry. The proportion of the
Company's operating revenues, including technology licensing fees, derived from
engineering and development services, is reflective of this fact. From the
Company's inception in April 1986, through September 30, 1997, approximately 22%
of its operating revenues have come from the sale of products and 31% of its
operating revenues have come from licensing of the Company's technology, while
approximately 47% of its operating revenues have come from engineering and
development services.
Active noise control offers many advantages over traditional passive methods
of noise control such as conventional mufflers, ear protectors and acoustical
padding. Active noise control systems: (i) generally reduce only unwanted noise
and permit desired sounds such as the human voice, music or warning tones to
pass freely, (ii) are more successful in attenuating low frequency noise, (iii)
contribute to energy savings and provide other economic benefits in various
applications, and (iv) generally are smaller and lighter.
Active Wave ManagementTM is the utilization of active noise attenuation
technology and certain other technologies which results in the electronic and
mechanical manipulation of sound or signal waves to reduce noise, improve
signal-to-noise ratio and/or enhance sound quality.
NCT believes that it has the leading position in Active Wave ManagementTM
technology, holding more patents and intellectual property than any other firm
in the field. The Company also has an exclusive license to advanced technology
for attenuating noise in a large space, such as the interior of an aircraft or
the passenger compartment of an automobile, using multiple interactive sensors,
such as microphones, and actuators, such as speakers. Additionally the Company
has expanded its portfolio by the acquisition of various patents.
The Company has entered into a number of strategic supply, manufacturing and
marketing alliances with leading global companies to commercialize its
technology. These strategic alliances historically have funded a majority of the
Company's research and development, and provided the Company with reliable
sources of components, manufacturing expertise and capacity, as well as
extensive marketing and distribution capabilities. In exchange for this funding,
the other party generally received a preference in the distribution of cash
and/or profits or royalties from these alliances until such time as the support
funding, plus an "interest" factor in some instances, is recovered. NCT has
established continuing relationships with Walker Manufacturing Company
("Walker") (a division of Tennessee Gas Pipeline Company, a wholly owned
subsidiary of Tenneco, Inc.), AB Electrolux ("Electrolux"), Foster Electric
Company, Ltd. ("Foster"), Analog Devices, Inc. ("ADI"), Ultra Electronics Ltd.
("Ultra"), The Charles Stark Draper Laboratory, Inc. ("Draper"), Coherent
Technologies, Inc. ("Coherent"), AAR, Hoover, NXT, OKI Electric Industry Co.,
Ltd. ("OKI") and Siemens AG ("Siemens"), among others, in order to penetrate
major markets more rapidly and efficiently, while minimizing the Company's own
capital expenditures. There have been substantial changes to the terms governing
certain of the foregoing relationships as described below.
In February 1995 the Company purchased from Foster the exclusive right to
manufacture headsets in the Far East. Due to the acquisition by the Company in
1994 of the sole ownership of Chaplin Patents Holding Co., Inc. ("CPH"), neither
the Company nor Foster believed there was any necessity to continue their supply
joint venture, Foster/NCT Supply Ltd. ("FNS"). The Company and Foster
accordingly dissolved FNS. The Company and Foster remain active in the Far East
through the Foster/NCT Headsets International ("FNH") and NCT Far East, Inc.
("NCTFE") marketing and distribution alliances between the Company and Foster.
Foster continued to produce products for NCT in 1996 and 1997.
In March 1995, the Company and Ultra amended their teaming agreement and
concluded a licensing and royalty agreement for $2.6 million and a future
royalty of 1 1/2% of sales commencing in 1998. Under the agreement, Ultra
acquired the Company's active aircraft quieting business based in Cambridge,
England, leased a portion of the Company's Cambridge facility and employed
certain of the Company's employees.
On November 15, 1995, the Company and Walker executed a series of related
agreements (the "Restructuring Agreements") regarding the Company's commitment
to help fund $4.0 million of product and technology development work and the
transfer of the Company's 50% interest in WNCT (an equally owned partnership
between Walker and the Company) to Walker. The Restructuring Agreements provided
for the transfer of the Company's interest in WNCT to Walker, the elimination of
the Company's previously expensed obligation to fund the remaining $2.4 million
of product and technology development work, the transfer to Walker of certain
Company owned tangible assets related to the business of WNCT, the expansion of
certain existing technology licenses and the Company's performance of certain
research and development activities for Walker at Walker's expense as to future
activities.
An important factor for the Company's continuing development is its ability
to recruit and retain key personnel. As of September 30, 1997, the Company had
71 employees, including 41 engineers and related technical staff. Among its
engineering staff and consultants are several scientists and inventors that the
Company believes are preeminent in Active Wave Management(TM) and the active
noise and vibration control field worldwide.
The Company was incorporated in Nevada on May 24, 1983. In April 1985, the
Company moved its corporate domicile to Florida and assumed its present name,
and in January 1987, following the assumption of control of the Company by the
present management, it changed its state of incorporation to Delaware. The
Company's principal executive offices, research and product development facility
are located at 1025 West Nursery Road, Linthicum, Maryland 21090; telephone
number (410) 636-8700. NCT maintains sales and marketing offices at One Dock
Street, Suite 300, Stamford, Connecticut 06902; telephone number (203) 961-0500.
The Company's European operations are conducted through its product development
and marketing facility in Cambridge, England. NCT also maintains a marketing
facility in Tokyo, Japan.
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations", incorporated by
reference into this Prospectus. See "Incorporation of Certain Documents by
Reference" Items (1) and (2). Operating results for the nine month period ended
September 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. The summary consolidated
financial data set forth below does not reflect the Company's private placement
of shares of its Series C Convertible Preferred Stock (the "Preferred Stock") or
its subsidiary's private placement of shares of the subsidiary's common stock or
the proceeds derived therefrom. See "Recent Developments" below.
<TABLE>
<CAPTION>
(In Thousands Except per Share Amounts)
Years Ended December 31,
---------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
REVENUES
Product sales $ 740 $1,728 $2,337 $ 1,589 $1,379
Engineering and 3,779 3,598 4,335 2,297 547
development services
Technology licensing fees 62 60 452 6,580 1,238
and other
------- -------- ------- ------- -------
Total revenues $4,581 $5,386 $7,124 $10,466 $3,164
------- -------- ------- ------- -------
COSTS AND EXPENSES:
Cost of sales $ 608 $1,309 $4,073 $ 1,579 $1,586
Cost of engineering 2,748 2,803 4,193 2,340 250
and development services
Selling, general and 5,151 7,231 9,281 5,416 4,890
administrative
Research and development 4,214 7,963 9,522 4,776 6,974
Interest (income) expense, net (169) (311) (580) (49) 17
Compensation expense-removal 7,442 -- (1) -- -- --
of vesting condition
Equity in net (income) loss 117 3,582 (2) 1,824 (80) 80
of unconsolidated affiliates
Other expense, net 89 -- 718 552 192
-------- -------- -------- ------- --------
Total costs and expenses $ 20,200 $ 22,577 $ 29,031 $14,534 $ 13,989
-------- -------- -------- ------- --------
Net (loss) $(15,619)(1) $(17,191)(2) $(21,907) $(4,068) $(10,825)
======== ======== ======== ======= ========
Weighted average number of
common shares outstanding(3) 61,712 70,416 82,906 87,921 101,191
======== ======== ======== ======= ========
Net (loss) per share $ (0.25)(1) $ (0.24)(2) $ (0.26) $ (0.05) $ (0.11)
======== ======== ======== ======= ========
</TABLE>
<PAGE>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1996 1997
--------- ---------
STATEMENTS OF OPERATIONS
DATA:
REVENUES
Product sales $ 1,049 $ 1,069
Engineering and 225 341
development services
Technology licensing fees 1,229 3,430
and royalties
--------- ---------
Total revenues $2,503 $4,840
--------- ---------
COSTS AND EXPENSES:
Cost of sales 850 1,401
Cost of engineering and 175 295
development services
Selling, general and 4,105 3,734
administrative
Research and development 4,790 4,513
Interest (income) 26 75
expense, net
Equity in net loss of 80 --
unconsolidated affiliates
--------- ---------
Total costs and $10,026 $10,018
expenses
--------- ---------
Net (loss) $ (7,523) $ (5,178)
========= =========
Weighted average number
of common shares
outstanding(3) 98,060 121,490
========= =========
Net (loss) per common $ (.08) $ (.04)
share
========= =========
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $15,771 $29,541 $12,371 $9,583 $5,881 $6,254
Total liabilities 2,069 6,301 6,903 2,699 3,271 3,878
Long-term debt -- -- -- 105 -- --
Accumulated deficit (29,682) (46,873) (68,780) (72,848) (83,673) (88,851)
Stockholders equity(4) 13,702 23,239 5,468 6,884 2,610 2,376
Working capital 11,038 19,990 923 1,734 (1,312) (711)
(deficiency)
</TABLE>
(1)Includes a one-time non-cash charge of $7,441,875 or $.12 per share for the
year ended December 31, 1992, related to the removal of the vesting
conditions to certain warrants. This charge removed any potential future
charge to earnings related to such warrants.
(2)In connection with the sale of Common Stock to Tenneco Automotive in
December 1993, the Company recognized its share of cumulative losses not
previously recorded with respect to its joint venture with Walker amounting
to $3,581,682.
(3)Does not include shares issuable upon the exercise of outstanding stock
options and warrants, since their effect would be antidilutive.
(4) The Company has never declared nor paid cash dividends on its Common Stock.
<PAGE>
RECENT DEVELOPMENTS
Between October 10, 1997 and December 4, 1997, the Company's subsidiary, NCT
Audio Products, Inc. ("NCT Audio") issued 2,145 shares of its common stock for
an aggregate purchase price of $4.0 million in the NCT Audio Financing. See
"Risk Factors - Current Financial Condition; Cash Position; Conditional Adequacy
of Currently Available Funds to Sustain Company" below.
Between October 28, 1997 and December 11, 1997, the Company entered into the
Subscription Agreements to sell an aggregate amount of $13.3 million of the
Company's Preferred Stock in the 1997 Preferred Stock Private Placement. See
"Risk Factors - Current Financial Condition; Cash Position; Conditional Adequacy
of Currently Available Funds to Sustain Company" below. Subscription Agreements
totalling $11.3 million were received and accepted by the Company through
November 13, 1997. Of the total Preferred Stock Offering, sales of Preferred
Stock in the aggregate amount of $6.1 million were completed as of November 13,
1997, with the balance of the sales in the aggregate amount of $7.2 million
scheduled to be completed by November 18, 1997. Such $7.2 million balance of
sales was completed on December 11, 1997.
<PAGE>
THE OFFERING
This offering consists of 378,894 shares of Common Stock of the Company which
are issuable upon the exercise of outstanding warrants and options to purchase
shares of Common Stock by persons not deemed "affiliates" of the Company, as
that term is defined under the Securities Act of 1933 the Securities Act.
This offering also consists of the resale of 26,000,000 shares of Common
Stock which may be issued upon the conversion of issued and outstanding shares
of the Preferred Stock by persons not deemed "affiliates" of the Company, as
that term is defined under the Securities Act.
In addition, this offering consists of the resale of 6,857,143 shares of
Common Stock which were issued by the Company in private placements exempt from
registration under the Securities Act and were issued and outstanding on
December 19, 1997, as well as the resale of 4,092,555 shares of Common Stock
which may be issued upon the exercise of outstanding warrants and options to
purchase shares of Common Stock to persons who may be deemed "affiliates" of the
Company and the resale of 8,032,665 shares of Common Stock to persons not deemed
"affiliates" of the Company, as that term is defined under the Securities Act.
All of the foregoing shares of Common Stock may be offered for sale by the
holders thereof (see "Selling Stockholders"). The Company will not receive any
of the proceeds from the sale of such shares although the Company will receive
the aggregate proceeds from the exercise, from time to time, of the foregoing
warrants and options to purchase shares of Common Stock (see "Use of Proceeds").
<PAGE>
RISK FACTORS
The shares of Common Stock offered hereby represent a speculative investment
and entail elements of risk. The following factors, in addition to the other
information included or incorporated by reference herein, should be carefully
considered before any decision is made to purchase any of the shares of Common
Stock offered hereby.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS.
This Prospectus and the documents incorporated herein by reference contain
certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 regarding, among other items, the Company's
ability to sustain its anticipated future level of operations. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, future product sales, market
penetration and customer acceptance of the Company's products and future
business decisions by parties with whom the Company has alliances and other
business relationships, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that its assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the forward-looking statements included in this
Prospectus and the documents incorporated herein by reference will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein and in the documents incorporated
herein by reference, the inclusion of such information should not be regarded as
a representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
CURRENT FINANCIAL CONDITION; CASH POSITION; CONDITIONAL ADEQUACY OF CURRENTLY
AVAILABLE FUNDS TO SUSTAIN COMPANY. Cash, cash equivalents and short-term
investments amounted to $1.0 million at September 30, 1997, increasing from $0.4
million at December 31, 1996. Management believes that available cash and cash
anticipated from the exercise of warrants and options, the funding derived from
forecasted technology licensing fees, royalties and product sales and
engineering and development revenue along with reduced operating expenses and
capital expenditures and the "First Quarter 1997 Financing", the "July 30, 1997
Private Placement", the "1997 Preferred Stock Private Placement" and the "NCT
Audio Financing" discussed below should be sufficient to sustain the Company's
anticipated future level of operations into 1999. However, the period during
1999 through which it can be sustained, is dependent upon the level of
realization of funding from technology licensing fees and royalties and product
sales and engineering and development revenue, all of which are presently
uncertain. In the event that forecasted technology licensing fees, royalties and
product sales, and engineering and development revenue are not realized as
planned, additional working capital financing could be required in 1999. There
is no assurance any such financing is or would become available. In the event
that additional funding is not provided by the Company's efforts to raise
additional capital or by technology licensing fees, royalties and product sales
and engineering and development revenue, the Company would have to further and
substantially cut back its level of operations in order to conserve cash. These
reductions could have an adverse effect on the Company's relations with its
strategic partners and customers. Uncertainty exists with respect to the
adequacy of current funds to support the Company's activities until positive
cash flow from operations can be achieved, and with respect to the availability
of financing from other sources to fund any cash deficiencies.
Between January 15, 1997 and March 25, 1997, the Company issued and sold an
aggregate amount of $3.4 million of non-voting subordinated convertible
debentures (the "Debentures") in a private placement pursuant to Regulation S of
the Securities Act to five unrelated investors (the "Investors") through
multiple dealers (the "First Quarter 1997 Financing") from which the Company
realized $3.2 million of net proceeds. The Debentures mature between January 15,
2000 and March 25, 2000 and earn 8% interest per annum, payable quarterly in
either cash or the Company's Common Stock at the Company's sole option. Subject
to certain Common Stock resale restrictions, the Investors, at their discretion,
have the right to convert the principal due on the Debentures into the Company's
Common Stock at any time after the 45th day following the date of the sale of
the Debentures to the Investors. In the event of such a conversion, the
conversion price is the lesser of 85% of the closing bid price of the Company's
Common Stock on the closing date of the Debentures' sale or between 75% to 60%
(depending on the Investor and other conditions) of the average closing bid
price for the five trading days immediately preceding the conversion. To provide
for the above noted conversion and interest payment options, the Company
reserved 15 million shares of the Company's Common Stock for issuance upon such
conversion. Subject to certain conditions, the Company also has the right to
require the Investors to convert all or part of the Debentures under the above
noted conversion price conditions after February 15, 1998. As of June 6, 1997,
the Investors had converted all $3.4 million of the Debentures into 16.3 million
shares of the Company's Common Stock. At the Company's election, interest due
through the conversion dates of the Debentures was paid through the issuance of
an additional 0.2 million shares of the Company's Common Stock.
On March 28, 1997, the Company, Verity and NXT executed a cross licensing
agreement (the "Cross License"). Under terms of the Cross License, the Company
licensed patents and patents pending which relate to FPT(TM) technology to NXT,
and NXT licensed patents and patents pending which relate to parallel technology
to the Company. In consideration of the license, the Company recorded a $3.0
million license fee receivable from NXT as well as royalties on future licensing
and product revenue. The Company also executed a security deed (the "Security
Deed") in favor of NXT granting NXT a conditional assignment in the patents and
patents pending licensed to NXT under the Cross License in the event a default
in a certain payment to be made by the Company under the Cross License continued
beyond fifteen days. Concurrent with the Cross License, the Company and Verity
executed agreements granting each an option for a four year period commencing on
March 28, 1998, to acquire a specified amount of the common stock of the other
subject to certain conditions and restrictions. With respect to the Company's
option to Verity (the "Verity Option"), 3.8 million shares of Common Stock
(approximately 3.4% of the then issued and outstanding Common Stock) of the
Company are covered by such option and the Company executed a registration
rights agreement (the "Registration Rights Agreement") covering such shares. 5.0
million ordinary shares (approximately 2.0% of the then issued and outstanding
ordinary shares) of Verity are covered by the option granted by Verity to the
Company. The exercise price under each option is the fair value of a share of
the applicable stock on March 28, 1997, the date of grant. If the Company did
not obtain stockholder approval of an amendment to its Restated Certificate of
Incorporation increasing its Common Stock capital by an amount sufficient to
provide shares of the Company's Common Stock issuable upon the full exercise of
the option granted to Verity by September 30, 1997, both options would have
expired. On April 15, 1997, Verity, NXT and the Company executed several
agreements and other documents (the "New Agreements") terminating the Cross
License, the Security Deed, the Verity Option and the Registration Rights
Agreement and replacing them with new agreements (respectively the "New Cross
License", the "New Security Deed", the "New Verity Option" and the "New
Registration Rights Agreement"). The material changes effected by the New
Agreements were the inclusion of Verity as a party along with its wholly owned
subsidiary NXT; providing that the license fee payable to NCT could be paid in
ordinary shares of Verity stock; and reducing the exercise price under the
option granted to Verity to purchase shares of the Company's Common Stock to
$0.30 per share. The 3.8 million shares of Common Stock issuable upon the
exercise of the New Verity Option are included in the offering to which this
prospectus relates. At the June 19, 1997 Annual Meeting, the stockholders
approved an amendment to the Company's Restated Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 140 million shares
to 185 million shares, and such amendment became effective when it was filed in
the office of the Secretary of State of Delaware on June 20, 1997. On September
27, 1997, Verity, NXT, NCT Audio Products, Inc. and the Company executed several
agreements and other documents, terminating the New Cross License and the New
Security Deed and replacing them with new agreements (respectively, the "Cross
License Agreement dated September 27, 1997" and the "Master License Agreement").
The material changes effected by the most recent agreements were an expansion of
the fields of use applicable to the exclusive licenses granted to Verity and
NXT, an increase in the royalties payable on future licensing and product
revenues, cancellation of the New Security Deed covering the patents licensed by
the Company, and the acceleration of the date on which the parties can exercise
their respective stock purchase option to September 27, 1997.
On July 30, 1997 the Company sold 2.9 million shares, in the aggregate, of
its Common Stock at a price of $0.175 per share, in a private placement exempt
from the registration requirements of the Securities Act under Section 4(2)
thereof that provided net proceeds to the Company of $0.5 million (the "July 30,
1997 Private Placement").
On September 4, 1997, the Company transferred $5,000 cash and all of the
business and assets of its Audio Products Division as then conducted by the
Company and as reflected on the business books and records of the Company to a
newly incorporated company, NCT Audio, in consideration for 5,867 shares of NCT
Audio common stock whereupon NCT Audio became a wholly owned subsidiary of the
Company. The Company also granted NCT Audio an exclusive worldwide license with
respect to all of the Company's relevant patented and unpatented technology
relating to FPTs(TM) and FPT(TM) based audio speaker products for all markets
for such products excluding (a) markets licensed to or reserved by Verity and
NXT under the Company's cross licensing agreements with Verity and NXT, (b) the
ground based vehicle market licensed to OAT, (c) all markets for hearing aids
and other hearing enhancing or assisting devices, and (d) all markets for
headsets, headphones and other products performing functions substantially the
same as those performed by such products in consideration for a license fee of
$3.0 million to be paid when proceeds are available from the sale of NCT Audio
common stock and on-going future royalties payable by NCT Audio to the Company
as provided in such license agreement. In addition, the Company agreed to
transfer all of its rights and obligations under its cross licensing agreements
with Verity and NXT to NCT Audio and to transfer the Company's interest in OAT
to NCT Audio. Between October 10, 1997 and December 4, 1997 NCT Audio issued
2,145 shares of its common stock (including the 533 shares issued to Verity) for
an aggregate purchase price of $4.0 million in a private placement pursuant to
Regulation D under the Securities Act (the "NCT Audio Financing").
Between October 28, 1997 and December 11, 1997, the Company entered into a
series of subscription agreements (the "Subscription Agreements") to sell an
aggregate amount of $13.3 million of the Preferred Stock in a private placement,
pursuant to Regulation D of the Securities Act, to 32 unrelated accredited
investors through two dealers (the "1997 Preferred Stock Private Placement").
The total Preferred Stock Offering was completed on December 11, 1997. The
aggregate net proceeds to the Company of the 1997 Preferred Stock Private
Placement were $11.9 million. Each share of the Preferred Stock has a par value
of $.10 per share and a stated value of one thousand dollars ($1,000) with an
accretion rate of four percent (4%) per annum on the stated value. Each share of
Preferred Stock is convertible into fully paid and nonassessable shares of the
Company's Common Stock subject to certain limitations. Under the terms of the
Subscription Agreements the Company is required to file a registration statement
("Registration Statement") on Form S-3 covering the resale of all shares of
Common Stock of the Company issuable upon conversion of the Preferred Stock then
outstanding within sixty (60) days after the first Closing of the 1997 Preferred
Stock Private Placement. The shares of Preferred Stock become convertible into
shares of Common Stock at any time commencing after the earlier of (i) the
effective date of the Registration Statement; or (ii) ninety (90) days after the
date of filing of the Registration Statement. Each share of Preferred Stock is
convertible into a number of shares of Common Stock of the Company as determined
in accordance with the following formula (the "Conversion Formula"):
<PAGE>
[(.04) x (N/365) x (1,000)] + 1,000
-----------------------------------
Conversion Price
where
N = the number of days between (i) the closing date of the
Preferred Stock being converted, and (ii) the conversion
date thereof.
Conversion
Price = the lesser of (x) 120% of the five (5) day
average closing bid price of Common Stock immediately
prior to the closing date of the Preferred Stock being
converted or (y) 20% below the five (5) day average
closing bid price of Common Stock immediately prior
to the conversion date thereof.
Closing
Date = the date of the closing as set forth in the
subscription agreement pertaining to the Preferred
Stock being converted.
The conversion terms of the Preferred Stock also provide that in no event
shall the average closing bid price referred to in the Conversion Formula be
less than $0.625 per share and in no event shall the Company be obligated to
issue more than 26.0 million shares of its Common Stock in the aggregate in
connection with the conversion of the Preferred Stock. Accordingly, 26.0 million
shares of Common Stock which could be issuable upon conversion of the Preferred
Stock are included in the offering to which this prospectus relates. Under the
terms of the Subscription Agreements the Company may be subject to a penalty if
the Registration Statement is not declared effective within one hundred twenty
(120) days after the first closing of any incremental portion of the offering of
Preferred Stock, such penalty to be in an amount equal to one and one half
percent (1.5%) per month of the aggregate amount of Preferred Stock sold in the
offering up to a maximum of ten percent (10%) of such aggregate amount. The
Subscription Agreements also provide that for a period commencing on the date of
the signing of the Subscription Agreements and ending ninety (90) days after the
closing of the offering the Company will be prohibited from issuing any debt or
equity securities other than Preferred Stock, and that the Corporation will be
required to make certain payments in the event of its failure to effect
conversion in a timely manner or in the event it fails to reserve sufficient
authorized but unissued Common Stock for issuance upon conversion of the
Preferred Stock.
NO DIVIDENDS. The Company has never declared nor paid dividends on
its common stock and has no present intention to do so.
GOING CONCERN EMPHASIS PARAGRAPH IN ACCOUNTANTS' OPINION. The Company expects
to continue as a going concern, which contemplates continuity of operations,
realization of assets and satisfaction of liabilities in the ordinary course of
business and its financial statements have been prepared on that basis. However,
this going concern basis is dependent upon, among other things, the achievement
of future profitable operations and the ability to generate sufficient cash from
operations, public and private financings and other funding sources to meet its
obligations as described in "Current Financial Condition; Cash Position;
Conditional Adequacy of Currently Available Funds to Sustain Company" above.
On February 28, 1997, Richard A. Eisner & Company, LLP issued its report on
the Company's consolidated financial statements as of and for the year ended
December 31, 1996. With respect to Note 15 to those financial statements, such
report was dated March 28, 1997; with respect to Note 8 thereto, such report was
dated April 10, 1997; and with respect to Note 7 thereto, such report was dated
April 18, 1997. The report of Richard A. Eisner & Company, LLP contains a
paragraph which emphasizes certain factors which are described in Note 1 to the
financial statements covered by the report. This paragraph notes that such
factors raise substantial doubt as to the Company's ability to continue as a
going concern. See "Experts-Report of Independent Auditors" below. Such report
predated the July 30, 1997 Private Placement, the 1997 Preferred Stock Private
Placement and the NCT Audio Financing referenced above. As noted above,
Management believes that available cash and cash anticipated from the exercise
of warrants and options, the funding derived from forecasted technology
licensing fees, royalties and product sales and engineering and development
revenue along with reduced operating expenses and capital expenditures and the
First Quarter 1997 Financing discussed above and such Private Placements and
Financing should be sufficient to sustain the Company's anticipated future level
of operations in 1999, although the period during 1999 through which it can be
sustained, is dependent upon the level of realization of funding from technology
licensing fees and royalties and product sales and engineering and development
revenue, all of which are presently uncertain. Nevertheless, prospective
investors are urged to read carefully the report of Richard A. Eisner & Company,
LLP as well as the consolidated financial statements of the Company and the
notes thereto, which are incorporated herein by reference to Amendment No. 1 to
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
filed on April 21, 1997.
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT. The Company incurred a
net loss of $10.8 million for the year ended December 31, 1996, and a loss of
$5.2 million for the nine months ended September 30, 1997. The Company's
accumulated deficit at September 30, 1997 was $88.9 million, attributable in
substantial part to the costs of developing its proprietary technology. To
achieve profitability, NCT must, independently and with strategic allies,
successfully develop, manufacture, introduce and market its products in
commercial quantities and receive fees and royalties from licensing its
proprietary technology.
LIMITED REVENUES. Although the Company has engaged in marketing activities
with regard to the sale or licensing of electronic systems for Active Wave
Management(TM) including systems that electronically reduce noise and vibration
based upon prototypes of such systems, its operating revenues from inception in
April 1986 through September 30, 1997, have been limited, aggregating $10.2
million from the sale of such systems, $14.3 million from the licensing of
technology relating to such systems and $21.3 million from the performance of
engineering and development services, respectively. Although the Company has
begun commercial sales of active noise attenuation and other products in a
limited number of applications, significant further development will be
necessary before many of the Company's potential products will achieve expected
commercial end-use applications.
POSSIBLE FUTURE DILUTION FROM EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS
AND CONVERSION OF CONVERTIBLE SECURITIES. On October 6, 1992, the Company
adopted a stock option plan (the "1992 Plan") covering 6.0 million shares of the
Company's Common Stock and providing for the grant of options to purchase Common
Stock of the Company and awards of restricted common stock to employees,
officers and directors of the Company. The 1992 Plan was approved by the
stockholders at the 1993 Annual Meeting of Stockholders following which said 6.0
million shares were registered under the Securities Act. An amendment to the
1992 Plan adopted by the Option Committee on November 8, 1995, and approved by
the stockholders at the 1996 Annual Meeting of Stockholders (the "1996 Annual
Meeting"), increased the number of shares of Common Stock covered by the 1992
Plan to 10.0 million shares and added active consultants to the Company as
persons who are eligible to participate under the 1992 Plan. The Company has
reserved 10.0 million shares of Common Stock for issuance upon the exercise of
options granted under the 1992 Plan and for issuance upon the grant of
restricted stock awards under the 1992 Plan. All of such shares are registered
under the Securities Act. As of September 30, 1997, the Company has granted
options to purchase 6,847,436 shares of Common Stock which are currently
exercisable and 85,000 shares of restricted stock under the 1992 Plan.
On November 15, 1994, the Company adopted and on May 8, 1995 and November 8,
1995 amended the Noise Cancellation Technologies, Inc. Option Plan for Certain
Directors (the "Directors Plan"), pursuant to which options to purchase in the
aggregate 821,000 shares of Common Stock were granted to two directors of the
Company. The Directors Plan was approved by the stockholders at the Company's
1995 Annual Meeting of Stockholders as to options to purchase in the aggregate
725,000 shares of Common Stock. An amendment to the Directors Plan adopted by
the Board of Directors on November 8, 1995, and approved by the stockholders at
the 1996 Annual Meeting, increased the number of shares of Common Stock covered
by the Plan to 821,000 shares and made certain minor changes concerning the
Plan's administration. The Company has reserved 821,000 shares of Common Stock
for issuance upon the exercise of the options granted under the Directors Plan
and has registered such 821,000 shares under the Securities Act. As of September
30, 1997, the Company has granted options to purchase 821,000 shares of Common
Stock which are currently exercisable under the Directors Plan.
On April 15, 1997, in connection with the cross license agreement described
above entered into by the Company, Verity and NXT, the Company granted Verity
the New Verity Option to purchase 3.8 million shares of the Company's Common
Stock for a four year period commencing on the first anniversary of the option
agreement. By mutual agreement the New Verity Option became exercisable on
September 27, 1997. The Company has reserved 3.8 million shares of Common Stock
for issuance upon the exercise of the Verity Option. The Company also agreed, if
requested by Verity, to file a registration statement with the Commission
covering the shares of Common Stock issuable upon the exercise of the New Verity
Option and to use its diligent best efforts to effect the registration of such
shares. All of such shares are included in the offering to which this prospectus
relates.
As of September 30, 1997, the Company has reserved 378,894 shares of Common
Stock for issuance upon the exercise of warrants and options granted outside the
1992 Plan and the Directors Plan which the Company has registered under the
Securities Act and has reserved 75,000 shares of Common Stock for issuance upon
the exercise of the Investor Warrant. The Company has also reserved 466,250
shares for issuance upon the exercise of warrants granted in partial
consideration for services rendered by two placement agents in connection with
the 1997 Preferred Stock Private Placement and by one financial consultant in
connection with another financing completed by the Company and 100,000 shares
for issuance upon the exercise of options granted to two non-employee directors
of the Company, subject to the approval of the Company's stockholders. All of
such shares are included in the offering to which this prospectus relates except
the 75,000 shares issuable upon the exercise of the Investor Warrant.
At December 19, 1997, the weighted average exercise price for all currently
exercisable and outstanding warrants and options was $0.6293.
Between October 10, 1997 and December 4, 1997, a subsidiary of the Company,
NCT Audio, raised $4.0 million of equity capital by means of the NCT Audio
Financing. Under the terms of the subscription agreements for the sale and
purchase of NCT Audio common stock entered into in connection with this private
placement, the purchasers are granted the right commencing 90 days after their
purchase of NCT Audio common stock to exchange such common stock for the
Company's Common Stock at an exchange ratio which will provide the purchasers a
value in the Company's Common Stock equal to the amount paid by the purchasers
for NCT Audio common stock in accordance with an agreement between such
purchasers and the Company. However, the purchasers may not exercise this
exchange right if a registration statement of NCT Audio for an initial public
offering of NCT Audio common stock is filed with the SEC within 90 days of the
delivery of the purchase price for the NCT Audio common stock by the purchasers
thereof, but such exchange right is renewed if such registration statement does
not become effective within 180 days after such purchase price delivery. The
Company is under no obligation to register any of the shares of the Company's
Common Stock which may be issued in connection with the exercise of the
foregoing exchange right although such Common Stock of the Company may be sold
pursuant to an applicable exemption from registration. Because the exchange
ratio will be determined by using 80% of the average closing bid price of the
Company's Common Stock over the five day trading period immediately preceding
such date the exchange right is exercised, it is not possible to accurately
determine the maximum number of shares of the Company's Common Stock that would
be issued if all of the purchasers of NCT Audio common stock elected to fully
exercise their exchange rights. If all of the purchasers of the $4.0 million in
the aggregate of NCT Audio common stock purchased pursuant to the foregoing
private placements, become entitled to exercise such exchange right and do so at
a time when the average closing bid price of the Company's Common Stock for the
five trading days immediately preceding the date on which the exchange right was
exercised was the same as it was on September 30, 1997 ($0.625 per share) the
Company would be required to issue 8.0 million shares of its Common Stock. No
assurance can be made that the price of the Company's Common Stock will not be
significantly lower than $0.625 per share in which event a significant number of
additional shares of the Company's Common Stock would be issued in connection
with such exchange.
Between November 3, 1997 and December 11, 1997 the Company issued and sold
13,250 shares of the Preferred Stock in the 1997 Preferred Stock Private
Placement. The Preferred Stock is convertible into shares of the Company's
Common Stock in accordance with the Conversion Formula and other terms and
conditions set forth in the subscription agreements relating to the 1997
Preferred Stock Private Placement. The Preferred Stock is also redeemable by the
Company in cash or in the Company's Common Stock in accordance with other terms
and conditions set forth in such subscription agreements. Because the
calculations required to determine the number of shares of the Company's Common
Stock to be issued upon conversion or redemption of the Preferred Stock will be
based upon the length of time the Preferred Stock is held as well as the lesser
of (x) 120% of the five (5) day average closing bid price of Common Stock
immediately prior to the closing date of the Preferred Stock being converted or
(y) 20% below the five (5) day average closing bid price of Common Stock
immediately prior to the conversion date thereof, it is not possible to
accurately determine the maximum number of shares of the Company's Common Stock
that would be issued upon any such conversion or redemption. All 13,250 shares
of the Preferred Stock were issued when the average closing bid price of the
Company's Common Stock for the five trading days immediately preceding issuance
was higher than its price on September 30, 1997 ($0.625). Therefore under the
Conversion Formula if all 13,250 shares of the Preferred Stock were converted or
redeemed one year following the issuance thereof and the average closing bid
price of the Company's Common Stock for the five trading days immediately
preceding the conversion or redemption date was the same as on September 30,
1997 ($0.625), the Company would be required to issue 27.6 million shares of its
Common Stock except that under the terms of conversion as set forth in the
subscription agreements and in the Certificate of Designations Preferences and
Rights of the Preferred Stock establishing the Preferred Stock in accordance
with the provisions of the General Corporation Law of the State of Delaware, in
no event is the Company obligated to issue more than 26.0 million shares of its
Common Stock in the aggregate in connection with the conversion of the Preferred
Stock. Accordingly, 26.0 million shares of Common Stock which could be issuable
upon conversion of the Preferred Stock are included in the offering to which
this prospectus relates.
The possibility of the sale of the shares of Common Stock described in the
preceding paragraphs of this "risk factor", all of which (except the shares
described in the paragraph relating to the NCT Audio Financing) the Company
plans to register under the Securities Act to the extent they are not now so
registered or exempt from the registration requirements of the Securities Act,
may adversely affect the market price of the Company's Common Stock.
MATERIAL DEPENDENCE UPON CERTAIN PATENT RIGHTS; UNCERTAIN PROPRIETARY
PROTECTION. No assurance can be given as to the range or degree of protection
any patent issued to, or licensed by, the Company will afford or that such
patents or licenses will provide protection that has commercial significance or
will provide competitive advantages for the Company's products. No assurance can
be given that the Company's owned or licensed patents will afford protection
against competitors with similar technology, or that others will not obtain
patents claiming aspects similar to those covered by the Company's owned or
licensed patents or patent applications. No assurance exists that the Company's
owned or licensed patents will not be challenged by third parties, invalidated,
rendered unenforceable or designed around. Furthermore, there can be no
assurance that any pending patent applications or applications filed in the
future will result in the issuance of a patent. The invalidation or expiration
of patents owned or licensed by the Company and believed by the Company to be
commercially significant could permit increased competition, with potential
adverse effects on the Company and its business prospects. Although the Company
intends to file for extensions to certain patents, the Company can make no
assurances that the U.S. or foreign government patent authorities will grant
such extensions.
The Company has conducted only limited patent searches and no assurances can
be given that patents do not exist or will not be issued in the future that
would have an adverse effect on the Company's ability to market its products or
maintain its competitive position with respect to its products. Substantial
resources may be required to obtain and defend patent rights to protect present
and future technology of the Company.
An interference proceeding has been initiated with respect to one of the
Company's patent applications. There has also been an inquiry regarding the
product design configuration of one of the Company's products as it relates to a
patent held by another company. Another competitor has implied that a possible
conflict exists between the Company's application of certain of its technology
and a patent recently allowed to the competitor and that the Company's use of
what the Company believes is a generic phrase conflicts with a trademark which
the competitor has applied for. The Company believes that such claims and
inquiry are without merit and intends to oppose them vigorously. Moreover, if
such inquiry proves to have any merit, the Company believes it could, without
significant cost, modify its product design configuration so as to avoid
infringement. The Company does not believe that any damages or costs it may
incur as a result of such claims or inquiry would have a material adverse effect
on the financial condition of the Company.
The Company's policy is to enter into confidentiality agreements with all of
its executive officers, key technical personnel and advisors, but no assurances
can be made that Company know-how, inventions and other secret or unprotected
intellectual property will not be disclosed to third parties by such persons.
RAPID TECHNOLOGICAL CHANGE. Active Wave Management(TM) is an evolving
industry, characterized by rapid technological change. The Company intends to
engage continually in research and development activities, including the
improvement of current products and development of new products. There can be no
assurance, however, that active noise and vibration attenuation or other
applications of Active Wave Management(TM) will be accepted by the commercial
marketplace, that the introduction of new products or the development of new
technologies by others will not render the Company's products obsolete or
unmarketable, or that the Company will be able to hire and retain adequate
research personnel or be able to finance research activities in this regard.
RELIANCE UPON STRATEGIC ALLIANCES; COMMERCIAL ACCEPTANCE OF END-PRODUCTS. The
Company and certain of its wholly owned subsidiaries have entered into
agreements to establish strategic alliances related to the design, development,
manufacture, marketing and distribution of its electronic systems and products
containing such systems. These agreements generally provide that the Company
license its technology and contribute a nominal amount of initial capital and
that the other party provide substantially all of the funding to support the
alliance. In exchange for this funding, the other party generally receives a
preference in the distribution of cash and/or profits or royalties from these
alliances until such time as the support funding, plus an "interest" factor in
some instances, is recovered. At September 30, 1997, there were no preferred
distributions due to joint venture partners from future profits of the joint
ventures.
The Company conducts its marketing efforts primarily by identifying specific
market segments for active noise and vibration attenuation and other Active Wave
Management(TM) products and, thereafter, seeking to establish strategic
alliances with major domestic and international business concerns to support
product development, and to manufacture and distribute products for such market
segments. The Company's ability to enter into new markets is materially
dependent upon determinations by such concerns that the Company's products are
suitable for use in their respective end-products, and on the ability and
willingness of those concerns to market such products successfully. During 1995,
1996 and the nine month period ended September 30, 1997, active headset product
sales did not increase at the rate previously anticipated and orders for active
vehicular mufflers, kitchen exhaust and HVAC fan quieting systems and industrial
headsets were not received at volumes or within time frames that had been
anticipated by the Company.
The Company arranges for the supply of actuators, integrated circuits and
other electronic components for its active control systems through alliances
with manufacturers the Company believes will serve as dependable sources of
supply. The Company makes no assurances that these concerns will meet the
Company's and its customers' needs for quality components in sufficient
quantities at commercially reasonable prices.
CUMULATIVE LOSSES IN JOINT VENTURES. When the Company's share of cumulative
losses in a strategic alliance exceeds its investment and the Company has no
obligation to fund such additional losses, the Company suspends applying the
equity method of accounting for its investment in such alliance. The estimated
aggregate amount of losses in the Company's strategic alliances in excess of the
Company's investments which has not been recorded was not considered material at
September 30, 1997. The Company will not be able to record any equity in income
with respect to an entity until its share of future profits is sufficient to
recover any cumulative losses that have not previously been recorded.
DEPENDENCE UPON EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL. The Company's
operations are, and for the proximate future will be, materially dependent upon
the efforts of its executive officers and key technical employees, all of whom
serve the Company on a full-time basis but none of whom are contractually
obligated to remain in the Company's employ for any material term. Moreover, the
Company's growth and expansion into new product applications could require
additional expertise in areas such as manufacturing, marketing and distribution,
which would place increased demands on the Company's resources and would require
the addition of new personnel and the development of additional expertise by
existing personnel. Certain academic consultants serve the Company on a
part-time basis, and could terminate their relationship with the Company at any
time.
Certain employees and consultants of the Company have been approached by the
Company's competitors, and no assurances can be given that the competition will
not successfully recruit such personnel. The loss of key personnel or the
failure to recruit necessary additional personnel could impede the achievement
of the Company's development, commercialization and marketing objectives.
POSSIBLE RISKS ASSOCIATED WITH AGREEMENTS WITH RELATED PARTIES; COMMISSIONS
AND EXCLUSIVE DISTRIBUTORSHIPS. In 1993 the Company entered into four agreements
with QuietPower Systems, Inc. ("QSI") (formerly Active Acoustical Solutions,
Inc.) and in 1994 entered into a fifth agreement with QSI. QSI is 33% owned by
Environmental Research Information, Inc. ("ERI") and 2% owned by Jay M. Haft,
Chairman of the Board of Directors of the Company. Michael J. Parrella,
President of the Company owns approximately 12% of the outstanding capital of
ERI and Mr. Haft shares investment control over an additional 24% of the
outstanding capital of ERI. Under these agreements, QSI is given rights to
market certain of the Company's products and technologies to electric and/or
natural gas utilities and for use in or with feeder bowls. In one of these
agreements, QSI's rights are on an exclusive basis so long as QSI meets certain
performance criteria relating to marketing efforts and sales performance. Under
one of these agreements, QSI is entitled to receive a sales commission equal to
129% of QSI's marketing expenses attributable to the marketing of the products
in question, which expenses are to be deemed to be the lesser of QSI's actual
expenses or 35% of the revenues received by the Company from the sale of such
products. Commissions and fees payable under all of the other agreements are in
accordance with the Company's standard terms and conditions and do not exceed
6%. As of the date of this Prospectus, the Company has not been required to pay
any commissions to QSI under these agreements.
In March 1995, the Company entered into a Master Agreement with QSI under
which QSI was granted an exclusive worldwide license under certain NCT patents
and technical information to market, sell and distribute transformer quieting
products, turbine quieting products and certain other products in the utility
industry. Under the Master Agreement, QSI is to fund development of the products
by the Company and the Company is to manufacture the products. However, QSI may
obtain the right to manufacture the products under certain circumstances
including NCT's failure to develop the products or the failure of the parties to
agree on certain development matters. In consideration of the rights granted
under the Master Agreement, QSI is to pay the Company a royalty of 6% of the
gross revenues received from the sale of the products and 50% of the gross
revenues received from sublicensing the rights granted to QSI under the Master
Agreement after QSI has recouped 150% of the costs incurred by QSI in the
development of the products in question. The Company is obligated to pay similar
royalties to QSI on its sale of the products and the licensing of rights covered
under the Master Agreement outside the utility industry and from sales and
licensing within the utility industry in the Far East. In addition to the
foregoing royalties, QSI is to pay an exclusivity fee to the Company of
$750,000; $250,000 of which QSI paid to the Company in June 1994. The balance is
payable in equal monthly installments of $16,667 beginning in April 1995. QSI's
exclusive rights become non-exclusive with respect to all products if it fails
to pay any installment of the exclusivity fee when due and QSI loses such rights
with respect to any given product in the event it fails to make any development
funding payment applicable to that product. The Master Agreement supersedes all
other agreements relating to the products covered under the Master Agreement,
including those agreements between the Company and QSI described above.
Immediately following the execution to the Master Agreement, the Company and
QSI entered into a letter agreement providing for the termination of the Master
Agreement at the Company's election if QSI did not pay approximately $500,000 in
payables then owed to the Company by May 15, 1995.
In April 1995, the Company and QSI entered into another letter agreement
under which QSI agreed to forfeit and surrender the five year warrant to
purchase 750,000 shares of the Company's Common Stock issued to QSI under the
first Marketing Agreement described above. In addition, the $500,000 balance of
the exclusivity fee provided for under the Master Agreement was reduced to
$250,000 to be paid in 30 monthly installments of $8,333 each and the payment of
the indebtedness to be paid under the letter agreement described in the
proceeding paragraph was revised to be the earlier of May 15, 1996, or the date
of closing of a financing of QSI in an amount exceeding $1.5 million, whichever
first occurs. Such indebtedness was to be evidenced by a promissory note,
non-payment of which would constitute an event of termination under the Master
Agreement.
In May, 1996, the Company and QSI entered into another letter agreement
extending the time by which the payments from QSI to the Company under the April
1995 letter agreement described above were to be made. Under the letter the
payment of certain arrearages in the payment of the exclusivity fee was to be
made not later than June 15, 1996, with the balance continuing to be payable by
monthly payments of $8,333 and as provided in the May 1995 letter agreement. In
addition the payment of the other indebtedness owed by QSI to the Company was to
be paid by a payment of $25,000 at the time QSI obtained certain anticipated
financing with the balance paid by monthly payments of $15,000 each. Default in
QSI's timely payment of any of the amounts specified in the May 21, 1996 letter
agreement was to cause the immediate termination of the Master Agreement and all
rights granted to QSI thereunder.
On April 9, 1997, the Company and QSI entered into another letter agreement
revising the payment schedule set forth in the May 21, 1996 letter agreement
applicable to the payment of the indebtedness owed to the Company by QSI other
than the unpaid portion of the exclusivity fee. Under the revised schedule, the
full amount of such indebtedness is to be paid by an initial payment of $125,000
on or before April 21, 1997, and a second payment of $200,000 upon the closing
of a proposed financing in June 1997 or on January 1, 1998, whichever first
occurs. The Company is also entitled to receive 15% of any other financing
obtained by QSI in the interim as well as interest at the rate of 10% per annum
on the unpaid amount of such indebtedness from July 1, 1997. The letter
agreement also provides for the continuation of QSI's payment of $11,108 by
April 21, 1997, for headset products sold by the Company to QSI in 1996. In the
event of a default in QSI's timely payment of any of the amounts specified in
the April 9, 1997 letter agreement, the Company has the right to cause the
termination of the Master Agreement and all rights granted by QSI thereunder
upon 10 days notice of termination to QSI.
As of September 30, 1997, QSI has paid all installments due and payable for
the exclusivity fee and, other than as described above, as of the date of this
Prospectus, owes no other amounts to the Company.
The Company believes that the terms of its agreements with QSI are comparable
to those that it could have negotiated with other persons or entities.
COMPETITION. The Company is aware of a number of direct competitors in the
field of Active Wave Management(TM). Indirect competition also exists in the
field of passive sound and vibration attenuation. The primary bases of
competition for each product or potential product of the Company are the cost of
an active system and its system performance measured by the level of noise,
vibration, wave or signal attenuation compared to the cost and performance of an
alternative active or passive solution for the problem in question. At the
present time passive solutions generally are less expensive than active
solutions, although passive solutions do not provide as great a level of sound
attenuation at the more harmful lower frequencies. The Company's principal known
competitors in active control systems are Andrea Electronics Corporation, Bose
Corporation, Digisonix (a division of Nelson Industries, Inc.), Hitachi, Ltd.,
Group Lotus PLC and Lotus Cars Limited, Lord Corporation, Matsushita Electric
Industrial Co., Ltd., Sennheiser Electronic Corp., Sony Corporation, Toshiba
Corp., Koss Corporation and Recoton, Inc. among others. To the Company's
knowledge, each of such entities is pursuing its own technology in active
control systems, either on its own or in collaboration with others, and has
recently commenced attempts to exploit commercially such technology. The Company
also believes that a number of other large companies, such as the major domestic
and foreign electronics, automobile and appliance manufacturers, aircraft parts
suppliers and manufacturers and communications companies, have research and
development efforts underway in Active Wave Management(TM) and active noise and
vibration control. Many of these companies, as well as the Company's potential
competitors in the passive sound attenuation field and other entities that could
enter the Active Wave Management(TM) and active noise and vibration attenuation
fields as the industry develops, are well established and have substantially
greater management, technical, financial, marketing and product development
resources than the Company. In addition, the Company is aware that Andrea
Electronics Corporation is proceeding with the commercialization of in-wire
noise cancellation with one or more major providers of telephone services. The
Company also believes that a number of major telecommunications and other
electronics companies such as AT&T Corporation, Texas Instruments Inc. and
Motorola Inc. are or may be developing in wire noise cancellation and electronic
speech filtering technologies similar to those being developed and
commercialized by the Company. The Company is unable to determine at the present
time what impact such efforts might have on the Company's ability to
successfully commercialize its in-wire technology for use in telephones and
other communications applications.
POSSIBLE NEED FOR ADDITIONAL FINANCING. Historically, the Company financed
its operations through public and private placements of equity and through the
exercise of options and warrants granted to directors, employees and others, as
well as with license fees and research and development funding from its
strategic allies. Management believes that available cash and cash anticipated
from the exercise of warrants and options, the funding derived from forecasted
technology licensing fees, royalties and product sales, and engineering and
development revenue, along with reduced operating expenses and capital
expenditures and the First Quarter 1997 Financing, the July 30, 1997 Private
Placement, the 1997 Preferred Stock Private Placement and the NCT Audio
Financing should be sufficient to sustain the Company's anticipated future level
of operations into 1999. However, the period during 1999 through which it can be
sustained is dependent upon the level of realization of funding from technology
licensing fees and royalties and product sales and engineering and development
revenue and the achievement of the operating cost savings from the events
described above, all of which are presently uncertain. In the event that
forecasted technology licensing fees, royalties and product sales, and
engineering and development revenue are not realized as planned, additional
working capital financing could be required in 1999. There is no assurance any
such financing is or would become available. In the event that additional
funding is not provided by the Company's efforts to raise additional capital, or
by technology licensing fees, royalties, product sales, engineering and
development revenue, the Company would have to further cut back its level of
operations substantially in order to conserve cash. These reductions could have
an adverse effect on the Company's relations with its strategic partners and
customers.
NASDAQ/NMS LISTING REQUIREMENTS; DISCLOSURE RELATING TO LOW-PRICED STOCKS.
The Company's Common Stock currently is quoted on the National Association of
Securities Dealers, Inc. Automated Quotation National Market System
("NASDAQ/NMS"). The NASDAQ/NMS has adopted quantitative maintenance criteria for
continued listing by the NASDAQ/NMS under which a company is required, among
other things, to maintain net tangible assets of at least (i) $2.0 million if it
has sustained losses from continuing operations and/or net losses in two of its
three most recent fiscal years or (ii) $4.0 million if it has sustained losses
from continuing operations and/or net losses in three of its four most recent
fiscal years, and from and after February 22, 1998, the Company's Common Stock
must have a minimum bid price of $1.00. Failure of the Company to continue to
meet the maintenance requirements could result in the Common Stock losing its
NASDAQ/NMS designation. The NASDAQ/NMS provides brokers and others with
immediate access to the best bid and asked prices and other information about
the Common Stock during each trading day. If the Company were to lose its
NASDAQ/NMS designation, real-time price information for the Common Stock might
cease to be available. As a result, a stockholder might find it more difficult
to dispose of, or to obtain accurate quotations as to the price of, the Common
Stock. In addition, if the Company were to lose the NASDAQ/NMS designation, the
Common Stock might no longer qualify as a "margin security" as defined by the
Federal Reserve Board.
If the Company were to lose its NASDAQ/NMS designation and, at any time
following the loss of such designation, did not have either (i) net tangible
assets in excess of $2.0 million or (ii) average revenue of at least $6.0
million for the last three years, the Common Stock could become subject to the
Commission's "penny stock" rules. The penny stock rules impose additional sales
practice requirements on broker-dealers who sell securities designated as penny
stocks to persons other than established customers and certain types of
accredited investors. For transactions covered by the penny stock rules, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to the sale. The rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The rules also require disclosure by the broker-dealer of commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. If the broker-dealer is the sole market-maker for
the penny stock, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
customer's account and information on the limited market in penny stocks. The
additional burdens imposed upon broker-dealers by the penny stock rules may
discourage broker-dealers from effecting transactions in penny stocks. Thus, if
the Common Stock were to fall within the definition of a penny stock, the
liquidity of the Common Stock could be reduced and there could be a material
effect on the trading market for the Common Stock.
POSSIBLE VOLATILITY OF COMMON STOCK. The market prices for securities of
emerging and high-technology companies have historically been highly volatile.
Future announcements concerning the Company or its competitors could have a
significant impact on the market price of the Common Stock.
BLANK CHECK PREFERRED STOCK. The Board of Directors has total discretion in
the issuance and the determination of the rights and privileges of any shares of
Preferred Stock which might be issued in the future, which rights and privileges
may be detrimental to the holders of the Common Stock. The Company is authorized
to issue 10.0 million shares of Preferred Stock 13,250 shares of which have been
designated to date. The issuance of Preferred Stock in the future could
discourage or impede a tender offer, proxy contest or other similar transaction
involving a potential change in control of the Company, which transaction might
be viewed favorably by other shareholders.
RISKS ASSOCIATED WITH YEAR 2000. Management has reviewed the potential risks
associated with the year 2000 as it relates to system-based software, and
management has determined that such risk, if any, will not have a material
impact on operations or the financial condition of the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128 ("FAS 128"), "Earnings per Share". This new standard requires dual
presentation of basic and diluted earnings per shares ("EPS") on the face of the
statements of income and requires reconciliation of the numerators and the
denominators of the basic and diluted EPS calculations. This statement will be
effective for the Company's 1997 year end. The Company has not yet quantified
what effect the adoption of SFAS 128 will have on its loss per share of common
stock.
The Financial Accounting Standards Board has recently issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure", No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The Company has not
determined whether the above pronouncements will have a significant effect on
the information presented in its financial statements.
LITIGATION. On or about June 15, 1995, Guido Valerio filed suit against the
Company in the Tribunal of Milan, Milan, Italy. The suit requests the Court to
award judgment in favor of Mr. Valerio as follows: (i) establish and declare
that a proposed independent sales representation agreement submitted to Mr.
Valerio by the Company and signed by Mr. Valerio but not executed by the Company
was made and entered into between Mr. Valerio and the Company on June 30, 1992;
(ii) declare that the Company is guilty of breach of contract and that the
purported agreement was terminated by unilateral and illegitimate withdrawal by
the company; (iii) order the Company to pay Mr. Valerio $30,000 for certain
amounts alleged to be owing to Mr. Valerio by the Company; (iv) order the
Company to pay commissions to which Mr. Valerio would have been entitled if the
Company had followed up on certain alleged contacts made by Mr. Valerio for an
amount to be assessed by technicians and accountants from the Court Advisory
Service; (v) order the Company to pay damages for the harm and losses sustained
by Mr. Valerio in terms of loss of earnings and failure to receive due payment
in an amount such as shall be determined following preliminary investigations
and the assessment to be made by experts and accountants from the Court Advisory
Service and in any event no less than 3 billion Lira ($18.9 million); and (vi)
order the Company to pay damages for the harm done to Mr. Valerio's image for an
amount such as the judge shall deem equitable and in case for no less than 500
million Lira ($3.1 million). The Company retained an Italian law firm as special
litigation counsel to the Company in its defense of this suit. On March 6, 1996,
the Company, through its Italian counsel, filed a brief of reply with the
Tribunal of Milan setting forth the Company's position that: (i) the Civil
Tribunal of Milan is not the proper venue for the suit, (ii) Mr. Valerio's claim
is groundless since the parties never entered into an agreement, and (iii)
because Mr. Valerio is not enrolled in the official Register of Agents, under
applicable Italian law Mr. Valerio is not entitled to any compensation for his
alleged activities. A preliminary hearing before the Tribunal was held on May
30, 1996, certain pretrial discovery has been completed and a hearing before a
Discovery Judge was held on October 17, 1996. Submissions of the parties final
pleadings were to be made in connection with the next hearing which was
scheduled for April 3, 1997. On April 3, 1997, the Discovery Judge postponed
this hearing to May 19, 1998, due to a reorganization of all proceedings before
the Tribunal of Milan. Management is of the opinion that the lawsuit is without
merit and will contest it vigorously. In the opinion of management, after
consultation with outside counsel, resolution of this suit should not have a
material adverse effect on the Company's financial position or operations.
However, in the event that the lawsuit does result in a substantial final
judgment against the Company, said judgment could have a severe material effect
on quarterly or annual operating results.
<PAGE>
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being offered by the
Selling Stockholders and the Company will not receive any of the proceeds from
their sale. However, the Company will receive the aggregate proceeds from the
exercise, from time to time, of the warrants and options to purchase Common
Stock described on the cover of this prospectus and under "The Offering". The
exercise price for such options and warrants ranges from $0.20 to $5.36 per
share. The aggregate proceeds, from the exercise of all such warrants or options
would be $8,864,194 and, to the extent realized, will be added to the Company's
working capital. The expenses payable by the Company in connection with this
registration statement are estimated to be $37,929. There are no other material
incremental expenses attributable solely to the issuance and distribution of the
above described shares.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders. The shares set forth therein have been included in the
Registration Statements of which this Prospectus forms a part pursuant to
registration commitments afforded to the Selling Stockholders by contractual
obligations. The Company will not receive any proceeds from the sale of the
shares by the Selling Stockholders.
<TABLE>
<CAPTION>
Number Beneficial
of Ownership
Beneficial Shares of Shares
Ownership of of Common
of Shares Common Stock After
of Common Stock Giving
Relationship Stock at Offered Effect to
Name of Selling With December For Proposed
Stockholder The Company 19, 1997 (1) Sale (1) Sale (1)
- --------------- ------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1176697 Ontario 392,453 (19) 392,453 (19) -
Limited
Alexander, Wescott & 78,750 78,750 -
Co., Inc.
Arab Commerce 245,283 (19) 245,283 (19) -
Bank Ltd.
Atlantis Capital 1,412,830 (19) 1,412,830 (19) -
Fund, Ltd.
BarAub Corp. 49,057 (19) 49,057 (19) -
Black Sea 588,679 (19) 588,679 (19) -
Investments, Ltd.
Canadian Advantage 1,187,170 (19) 1,187,170 (19) -
Limited Partnership
CEFEO Investments, 2,060,377 (19) 2,060,377 (11)(19) -
Limited
Michael Dickerson 2,067,698 600,000 1,467,698
Dominion Capital 4,993,962 (19) 4,993,962 (12)(19) -
Fund, Ltd.
Excalibur Limited 981,132 (19) 981,132 (19) -
Partnership
Faisal Finance 784,906 (19) 784,906 (19) -
(Switzerland) SA
Fernhill Holding Ltd. 392,453 (19) 392,453 (19) -
First Atlanta 37,500 37,500 -
Securities, LLC
First Empire 392,453 (19) 392,453 (19) -
Corporation
Ronald Frisch 215,849 (19) 215,849 (19) -
Graham Eatwell (2) 131,475 75,000 56,475
William W. Gerecke 47,150 35,000 12,150
Tiebing Guan 196,226 (19) 196,226 (19) -
Jay M. Haft Chairman 1,532,000 (5) 468,500 1,063,500 (5)
Of The
Board and
Director
Cy E. Hammond Senior 394,718 (6) 25,000 369,718 (6)
Vice
President,
Chief
Financial
Officer
<PAGE>
John B. Horton Senior 634,417 (7) 20,000 614,417 (7)
Vice
President,
General
Counsel And
Secretary
JeFrob Glorich Ltd. 215,849 (19) 215,849 (19) -
Irene Lebovics Senior 1,388,067 996,767 391,300
Vice
President
John L. Lesher 105,000 20,000 85,000
William A. Marquard 50,000 50,000 -
John J. McCloy Director 3,661,591 (8) 3,661,591 (13) -
National Utility 215,849 (19) 215,849 (19) -
Services (Canada)
Ltd.
Aldo Nenzi 392,453 (19) 392,453 (19) -
Marjorie Oolie (3) 200,000 200,000 -
Sam Oolie Director 565,000 (9) 550,000 15,000
Oolie Enterprises (3) 21,280 21,280 -
Oolie Family Support (3) 10,000 10,000 -
Foundation
Optimum Fund 588,679 (19) 588,679 (19) -
Michael J. Parrella President 4,250,333 (10) 1,125,833 3,124,500 (10)
And
Director
Primecap Management 588,679 (19) 588,679 (19) -
Group
Rossmore Enterprises 98,113 (19) 98,113 (19) -
Money Purchase
Sage Capital 98,113 (19) 98,113 (19) -
Investments Limited
Carole Salkind (4) 9,542,143 6,857,143 (14) 2,685,000
Seagrove, Inc. 49,057 (19) 49,057 (19) -
The Second Cup, Ltd. 392,453 (19) 392,453 (19) -
Karen D. Seeman 49,057 (19) 49,057 (19) -
Selday Investments 196,226 (19) 196,226 (19) -
LTD
Silenus Limited 1,962,264 (19) 1,962,264 (15)(19) -
Philip Santo 196,226 (19) 196,226 (19) -
Sirianni, TTEE, The
Sirianni-Jersey Trust
Sovereign Partners, 3,433,962 (19) 3,433,962 (16)(19) -
LP
Jay Smith 392,453 (19) 392,453 (19) -
Thomson Kernaghan & 2,747,170 (19) 2,747,170 (17)(19) -
Co. Ltd.
Rolf Towe 150,000 150,000 -
Tricaster 294,340 (19) 294,340 (19) -
Management, Inc.
Verity Group, plc 3,850,000 3,850,000 (18) -
Luc Verschueren 25,000 25,000 -
Eldon W. Ziegler, Jr. 145,250 125,000 20,250
Zooley Services 196,226 (19) 196,226 (19) -
Limited
---------- ---------- ---------
54,887,371 44,982,363 9,905,008
========== ========== =========
</TABLE>
- -----------------------------
(1) Includes shares issuable upon exercise of non-contingent, currently
outstanding options and warrants. The table does not include any shares
held in Alexander, Wescott & Co., Inc.'s or First Atlanta Securities, LLC's
trading accounts or any customer account over which either of them has
discretion.
(2) Represents a person who was either an officer or a director of the Company
within three years of the date hereof or an affiliate thereof.
(3) An affiliate of Sam Oolie, a director of the Company.
(4) The wife of Morton Salkind, a director of the Company.
(5) Includes 250,000 shares issuable upon contingent currently outstanding
options.
(6) Includes 75,000 shares issuable upon contingent currently outstanding
options.
(7) Includes 75,000 shares issuable upon contingent currently outstanding
options.
(8) Includes 50,000 shares issuable upon contingent currently outstanding
options.
(9) Includes 50,000 shares issuable upon contingent currently outstanding
options.
(10) Includes 1,500,000 shares issuable upon contingent currently outstanding
options.
(11) Upon completion of the offering the Selling Stockholder will own 1.2% of
the Company's issued and outstanding Common Stock.
(12) Upon completion of the offering the Selling Stockholder will own 2.8% of
the Company's issued and outstanding Common Stock.
(13) Upon completion of the offering the Selling Stockholder will own 2.1% of
the Company's issued and outstanding Common Stock.
(14) Upon completion of the offering the Selling Stockholder will own 3.9% of
the Company's issued and outstanding Common Stock.
(15) Upon completion of the offering the Selling Stockholder will own 1.1% of
the Company's issued and outstanding Common Stock.
(16) Upon completion of the offering the Selling Stockholder will own 1.9% of
the Company's issued and outstanding Common Stock.
(17) Upon completion of the offering the Selling Stockholder will own 1.5% of
the Company's issued and outstanding Common Stock.
(18) Upon completion of the offering the Selling Stockholder will own 2.2% of
the Company's issued and outstanding Common Stock.
(19) Based on each Selling Stockholder's pro rata share of the maximum number of
shares of Common Stock which the Company is obligated to issue upon
conversion of the Preferred Stock under the Subscription Agreements. Such
pro rata share has been determined for each Selling Stockholder by dividing
the number of shares of Preferred Stock acquired by such Selling
Stockholder by the total number of shares of Preferred Stock issued in the
1997 Preferred Stock Private Placement. The number of shares of Preferred
Stock issued upon conversion to any particular Selling Stockholder may be
more or less than the amount shown depending on (i) the length of time the
Preferred Stock is held, (ii) the conversion price as determined under the
Conversion Formula, and (iii) the application of the 26,000,000 share limit
on the Company's obligation to issue shares of Common Stock upon conversion
of the Preferred Stock.
<PAGE>
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that there are no
underwriting arrangements with respect to the sale of the shares, that such
shares will be sold from time to time in public sales in the over-the-counter
market at then prevailing prices or at prices related to the then current market
price or in private transactions at negotiated prices. The shares offered hereby
may be sold by one or more of the following methods, without limitation: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Stockholders may arrange for other brokers or dealers to
participate. Such broker or dealers may receive commissions or discounts from
Selling Stockholders in amounts to be negotiated. Such brokers and dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Act, in connection with such sales. Shares of Common
Stock offered hereby may be used to cover short sales or other hedging
transactions. From time to time, one or more of the Selling Stockholders named
herein may pledge, hypothecate or grant a security interest in some or all of
the Shares owned by them, and the pledgees, secured parties or persons to whom
such securities have been hypothecated shall, upon foreclosure in the event of
default, be deemed to be Selling Stockholders for purposes hereof.
<PAGE>
LEGAL MATTERS
Matters relating to the legality of 40,470,536 shares of Common Stock being
offered by this Prospectus have been passed upon for the Company by John B.
Horton, Esquire, Senior Vice President and General Counsel of the Company. As of
December 19, 1997, Mr. Horton owned 20,000 shares of Common Stock, subject to
acquisition upon the exercise of currently exercisable warrants, 20,000 shares
of which are being offered by this Prospectus. In addition, Mr. Horton owns
539,417 shares subject to acquisition upon the exercise of currently exercisable
options granted to him under the 1992 Plan none of which are being offered by
this Prospectus. Matters relating to the legality of the remaining 4,890,721
shares of Common Stock offered by this Prospectus have been passed upon for the
Company by Parker Duryee Rosoff & Haft, a professional corporation, New York,
New York. Jay M. Haft, a former member of and presently of counsel to Parker
Duryee Rosoff & Haft, is Chairman of the Board of Directors and a director of
the Company and is the beneficial owner of 1,532,000 shares of Common Stock,
including 1,282,000 shares subject to acquisition upon the exercise of currently
exercisable warrants and options, 468,500 shares of which are being offered by
this Prospectus.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996 and
1995 and for the years ended December 31, 1994, 1995 and 1996 the related
financial statement schedule incorporated into this prospectus by reference to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, as amended by Amendment Nos. 1 and 2 thereto on the Company's two Form
10K/A's filed respectively on April 21, 1997 and April 30, 1997 have been
audited by Richard A. Eisner & Company, LLP, Independent Auditors, as set forth
in their reports included therein (which contains an explanatory paragraph
relating to the Company's possible inability to continue as a going concern) and
have been so incorporated in reliance upon such reports given upon the authority
of such firm as experts in auditing and accounting.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by the
registrant with respect to the offering described in this Registration
Statement:
Securities and Exchange Commission registration fee $10,429
Legal Fees and expenses 12,000 *
Accounting fees and expenses 15,000 *
Miscellaneous expenses 500 *
------------
Total $37,929 *
============
- -------------
* Estimated
Item 15. Indemnification of Directors and Officers
Article IX of the Registrant's Certificate of Incorporation provides as follows:
"(a) Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person of whom
he or she is the legal representative, is or was a director or officer, of
the Corporation or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid
or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in paragraph
(b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and
shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General Corporation
Law requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall
be made only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not
entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and
officers.
"(b) If a claim under paragraph (a) of this Section is not paid in
full by the Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall be entitled to
be paid also the expense of prosecuting such claim. It shall be a defense
to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards
of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he
or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable
standard or conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of
conduct.
"(c) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Section shall not be exclusive of any right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
"(d) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation
Law."
<PAGE>
Item 16. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K)
The following exhibits are included as a part of this Registration
Statement:
Exhibit No. Description
5 Opinion of John B. Horton, Esquire, Senior Vice President and
General Counsel of the registrant, as to the legality of the
Common Stock to which this Registration Statement relates.
23(a) Consent of Richard A. Eisner & Company, LLP.
23(b) Consent of John B. Horton, Esquire (contained in
Exhibit 5).
24 Powers of Attorney (see signature pages).
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) (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 event 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 and of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(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 the undertakings set forth in paragraphs (1)(i) and
(1)(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this 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) 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 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in this 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.
(h) 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 Act 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 Act and will
be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Linthicum, Maryland, on this 29th day of December 1997.
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ MICHAEL J. PARRELLA
------------------------------
Michael J. Parrella, President
<PAGE>
Each of the undersigned hereby appoints Michael J. Parrella, Cy E. Hammond
and John B. Horton, and each of them severally, his true and lawful attorneys to
execute (in the name and on behalf of and as attorneys for the undersigned) this
Registration Statement and any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signatures Capacity Date
/s/ MICHAEL J. PARRELLA President (Principal Executive December 29, 1997
- ----------------------- Officer) and Director
Michael J. Parrella
/s/ CY E. HAMMOND Senior Vice President and December 29, 1997
- ----------------------- Chief Financial Officer
Cy E. Hammond (Principal Financial and
Accounting Officer)
/s/ JAY M. HAFT Chairman of the Board December 29, 1997
- ----------------------- of Directors and Director
Jay M. Haft
/s/ JOHN J. McCLOY Director December 29, 1997
- -----------------------
John J. McCloy
/s/ SAM OOLIE Director December 29, 1997
- -----------------------
Sam Oolie
/s/ STEPHAN CARLQUIST Director December 29, 1997
- -----------------------
Stephan Carlquist
/s/ MORTON SALKIND Director December 29, 1997
- -----------------------
Morton Salkind
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page Number
5 Opinion of John B. Horton, Esquire, 48
Senior Vice President and General
Counsel of the registrant, as to
the legality of the Common Stock
to which this Registration
Statement relates.
23(a) Consent of Richard A. Eisner & Company, LLP. 49
23(b) Consent of John B. Horton, Esquire
(contained in Exhibit 5).
24 Powers of Attorney (see signature pages).
<PAGE>
Exhibit 5
December 29, 1997
Noise Cancellation Technologies, Inc.
1025 West Nursery Road, Suite 120
Linthicum, Maryland 21090
Re: Registration Statement on Form S-3
Gentlemen:
Referring to the Registration Statement on Form S-3 that Noise
Cancellation Technologies, Inc. (the "Company") is filing today with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to the sale by certain Selling Stockholders of 44,982,363 shares of
Common Stock of the Company (the "Resale Shares") and the sale to certain
persons not deemed "affiliates" of the Company, as that term is defined under
the Securities Act of 1933, as amended, of 378,894 shares of Common Stock of the
Company upon the exercise of outstanding warrants and options to purchase Common
Stock (the "Warrant and Option Shares"), I am of the opinion that:
1. The Resale Shares have been duly authorized by the Company, have been validly
issued and are fully paid and nonassessable.
2. The Warrant and Option Shares have been duly authorized by the Company and,
when issued and delivered in accordance with the terms of the respective warrant
or option agreements governing such warrants or options, will be validly issued,
fully paid and nonassessable.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit No. 5 to the Registration Statement referred to
above and to the reference to me under the caption "Legal Matters" in the
Prospectus.
Very truly yours,
/s/ JOHN B. HORTON
------------------
John B. Horton
Senior Vice President and
General Counsel
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference to the Registration Statement on
Form S-3 of our report dated February 28, 1997 (with respect to Note 15, March
28, 1997, with respect to Note 8, April 10, 1997, with respect to Note 7, April
18, 1997), on the consolidated financial statements and schedule of Noise
Cancellation Technologies, Inc. (the "Company") as at December 31, 1996 and
December 31, 1995 and for the three years ended December 31, 1996, included in
the Company's Annual Report on Form 10-K (including Amendment Nos. 1 and 2
thereto) for the year ended December 31, 1996, and to the reference to us under
the captions "Going concern emphasis paragraph in accountants' opinion" and
"Experts" included in the Prospectus.
Richard A. Eisner & Company, LLP
New York, New York
December 22, 1997
