As filed with the Securities and Exchange Commission on September 30,1998
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 3503
(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, LLP
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 Maximum Amount of
Maximum Aggregate Registration
Title of Shares Amount to be Aggregate Offering Fee
to be Registered Registered Price Per Unit (1) Price (1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Stock 1,786,991 $0.5469 $977,305 $288.31
shares
- --------------------------------------------------------------------------------
(1) 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 September 23, 1998.
_______________________________________________________________________________
<PAGE>
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.
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 SEPTEMBER 30, 1998
PROSPECTUS
1,786,991 SHARES
NOISE CANCELLATION TECHNOLOGIES, INC.
COMMON STOCK
------------
This offering consists of the resale of 1,786,991 shares of Common
Stock which were issued by the Company in a private placement exempt
from registration under the Securities Act pursuant to Regulation D
thereunder on September 4, 1998.
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 of Common
Stock.
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 September 29,1998, as quoted by NASDAQ, was $0.5313 per
share.
SEE "RISK FACTORS" ON PAGES 14 THROUGH 27 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 DATE OF THIS PROSPECTUS IS SEPTEMBER 30, 1998
<PAGE>
TABLE OF CONTENTS
Page
Available Information (Item 2.).................................. 3
Incorporation of Certain Documents by Reference (Item 12.)....... 4
The Company (Item 3.)............................................ 5
Summary Consolidated Financial Data (Item 3.).................... 8
Recent Developments (Item 11.)....................................10
The Offering (Item 1.)............................................13
Risk Factors (Item 3.)............................................14
Use of Proceeds (Item 4.).........................................28
Selling Stockholders (Item 7.)....................................29
Plan of Distribution (Item 8.)....................................30
Legal Matters (Item 10.)..........................................31
Experts (Item 10.)................................................31
<PAGE>
AVAILABLE INFORMATION
The Company is subject to 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).
________________
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,
1997 (including Amendment No. 1 thereto filed on April 30, 1998, and
Amendment No. 2 thereto filed on May 4, 1998);
(2) the Company's Quarterly Report on Form 10-Q for the period ended March 31,
1998 (including Amendment No. 1 thereto filed on July 1, 1998);
(3) the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1998;
(4) the Company's Current Report on Form 8-K filed on June 3, 1998;
(5) the Company's Current Report on Form 8-K filed on June 10, 1998;
(6) the Company's Current Report on Form 8-K filed on July 16, 1998;
(7) the Company's Current Report on Form 8-K filed on July 29, 1998;
(8) the Company's Current Report on Form 8-K filed on August 21, 1998; and
(9) 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 3507.
<PAGE>
THE COMPANY
Noise Cancellation Technologies, Inc. ("NCT" or the "Company")
designs, develops, licenses, produces and distributes electronic
systems for Active Wave Management 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 through a number of product
lines, with 70 products currently being sold, including NoiseBusterR
communications headsets and NoiseBuster Extreme!TM consumer headsets,
GekkoTMflat speakers, flat panel transducers ("FPTTM"), ClearSpeechTM,
microphones, speakers and other products, adaptive speech filters
("ASF"), the ProActiveTM 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, and an aircraft cabin quieting system.
In early 1998, the Company introduced the GekkoTM flat speakers and
the ClearSpeechTM corporate intranet telephone software (the "I-Phone")
which the Company believes will have wide application in the audio and
communications industries. As part of its product line expansion
plans, the Company has introduced over 25 new products and associated
accessories during 1998.
In keeping with the direction established in late 1994, during 1998
the Company continued the practice of marketing its technology through
licensing to third parties for fees and subsequent royalties. During
1998, the Company has entered into four new technology license
agreements. Also during 1998, the Company will receive royalties in
connection with the cross license agreement entered into by the
Company, Verity Group plc ("Verity") and New Transducers Ltd. ("NXT"),
which will include sublicensing of technology to various sublicensees.
In late 1995, the Company redefined its corporate mission to be a
worldwide leader in the advancement and commercialization of Active
Wave Management technology. Active Wave Management is the electronic
and/or mechanical manipulation of sound or signal waves to reduce
noise, improve signal-to-noise ratio and/or enhance sound quality. The
Company also revised its strategy, expanding its technology development
into areas outside of traditional active noise and vibration control in
order to address markets having greater opportunities such as
communications and audio. The acquisition of certain assets and all of
the intellectual property of Active Noise and Vibration Technologies,
Inc. ("ANVT") broadened the Company's portfolio of intellectual
property and removed restrictions on the Company regarding licensing of
certain jointly held patents (the "Chaplin Patents") to unaffiliated
third parties. The Company can now license the Chaplin Patents
directly to unaffiliated third parties, which provides the Company with
a greater ability to earn technology licensing fees and royalties from
such patents. Thus, while the Company continues to focus on products,
which the Company believes will generate near term revenue, it is
increasing its emphasis on technology licensing fees and royalties.
Further, the Company is working continuously to lower the cost of its
products and improve their technological performance.
As distribution channels are established and as product sales and
market acceptance and awareness of the commercial applications of the
Company's technologies build, revenues from technology licensing fees,
royalties and product sales are anticipated to fund an increasing share
of the Company's requirements. The revenues from these sources, if
realized, will reduce the Company's dependence on engineering and
development revenues.
From the Company's inception through June 30, 1998, approximately
25% 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 44% 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 Management is the utilization of active noise control
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 a significant position in Active Wave
Management technology, currently holding 345 patents worldwide and an
extensive library of know-how and other unpatented technology.
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 substantial portion 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. NCT has continuing
relationships with Walker Manufacturing Company ("Walker") (a division
of Tennessee Gas Pipeline Company, a wholly owned subsidiary of
Tenneco, Inc.), AB Electrolux ("Electrolux"), Analog Devices, Inc.
("ADI"), Ultra Electronics Ltd. ("Ultra"), The Charles Stark Draper
Laboratory, Inc. ("Draper"), Applied Acoustic Research, L.L.C. ("AAR"),
Hoover Universal, Inc. ("Hoover") and New Transducers, Ltd. ("NXT"),
among others, in order to penetrate major markets more rapidly and
efficiently, while minimizing the Company's own capital expenditures.
In March 1995, the Company and Ultra amended their teaming agreement
and executed a licensing and royalty agreement for $2.6 million and a
future royalty of 1 1/2% of sales commencing in 1998.
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 Walker Noise Cancellation Technologies ("WNCT") to Walker.
The Restructuring Agreements provided for the transfer of the Company's
interest in WNCT (an equally owned partnership between Walker and the
Company) 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.
An important factor for the Company's continuing development is its
ability to recruit and retain key personnel. As of August 31, 1998 the
Company had 90 employees, including 51 engineers and technical staff.
Among its engineering staff and consultants are several scientists and
inventors that the Company believes are preeminent in 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. NCT's executive offices, research and
product development facility are located at 1025 West Nursery Road,
Suite 120, 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), (2) and (3). Operating results for the period ended June
30, 1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
<TABLE>
<CAPTION>
(In Thousands of Dollars and Shares)
Years Ended December 31,
----------------------------------------------------------------------
1993 1994 1995 1996 1997
----------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA:
REVENUES
<S> <C> <C> <C> <C> <C>
Product Sales $ 1,728 $ 2,337 $ 1,589 $ 1,379 $ 1,720
Engineering and
development services 3,598 4,335 2,297 547 368
Technology licensing
fees and other 60 452 6,580 1,238 3,630
-------- -------- -------- -------- --------
Total revenues $ 5,386 $ 7,124 $ 10,466 $ 3,164 $ 5,718
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of sales $ 1,309 $ 4,073 $ 1,579 $ 1,586 $ 2,271
Cost of engineering and
development services 2,803 4,193 2,340 250 316
Selling, general and
administrative 7,231 9,281 5,416 4,890 5,217
Research and development 7,963 9,522 4,776 6,974 6,235
Interest (income)
expense, net (311) (580) (49) 17 1,397 (4)
Equity in net (income)
loss of unconsolidated
affiliates 3,582 (1 ) 1,824 (80) 80 -
Other expense, net - 718 552 192 130
-------- -------- -------- -------- --------
Total costs and
expenses $ 22,577 $ 29,031 $ 14,534 $ 13,989 $ 15,566
-------- -------- -------- -------- --------
Net loss $(17,191) (1) $(21,907) $ (4,068) $(10,825) $ (9,848)
Less:
Preferred stock
dividend requirement - - - - 1,623
Accretion of difference
between carrying amount
and redemption amount of
redeemable preferred stock - - - - 285
-------- -------- -------- -------- --------
Net (loss) attributable
to common stockholders $(17,191) (1) $(21,907) $ (4,068) $(10,825) $(11,756)
======== ======== ======== ======== ========
Weighted average number
of common shares
outstanding (2) -- basic
and diluted 70,416 82,906 87,921 101,191 124,101
======== ======== ======== ======== ========
Basic and diluted net
loss per share $ (0.24) (1) $ (0.26) $ (0.05) $ (0.11) $ (.09)
======== ======== ======== ======== ========
</TABLE>
<PAGE>
(In Thousands of Dollars and Shares)
Six Months Ended June 30,
(Unaudited)
------------------------------------
1997 (4) 1998
------------------------------------
STATEMENTS OF OPERATIONS DATA:
REVENUES
Product Sales $ 581 $ 1,065
Engineering and
development services 213 149
Technology licensing
fees and other 3,210 346
-------- --------
Total revenues $ 4,004 $ 1,560
-------- --------
COSTS AND EXPENSES:
Cost of sales $ 505 $ 869
Cost of engineering and
development services 200 128
Selling, general and
administrative 2,251 4,454
Research and development 3,012 3,297
Interest (income) expense, net 1,467 (4) (212)
Other (income) / expense, net - (3,382)
--------- --------
Total costs and expenses $ 7,435 $ 5,154
--------- --------
Net (loss) $ (3,431) $ (3,594)
Less:
Preferred stock
dividend requirement - 1,690
Accretion of difference
between carrying amount and
redemption amount of
redeemable preferred stock - 483
Net loss) attributable
to common stockholders $ (3,431) $ (5,767)
========= ========
Weighted average number
of common shares outstanding --
basic and diluted 117,332 135,968
========= ========
Basic and diluted net
(loss) per share $ (0.03) $ (0.04)
========= ========
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1993 1994 1995 1996 1997
------------------------------------------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Total assets $ 29,541 $ 12,371 $ 9,583 $ 5,881 $ 17,361
Total liabilities 6,301 6,903 2,699 3,271 2,984
Long-term debt - - 105 - -
Accumulated deficit (46,873) (68,780) (72,848) (83,673) (93,521)
Stockholders' equity (3) 23,239 5,468 6,884 2,610 14,377
Working capital
(deficiency) 19,990 923 1,734 (1,312) 11,696
</TABLE>
June 30, 1998
(unaudited)
-------------
BALANCE SHEET DATA:
Total assets $ 14,776
Total liabilities 2,382
Long-term debt 280
Accumulated deficit (97,115)
Stockholders' equity(3) 12,114
Working capital 6,712
<PAGE>
(1) 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 approximately $3.6 million.
(2) Does not include shares issuable upon the exercise of outstanding stock
options, warrants and convertible Preferred Stock, since their effect would
be antidilutive.
(3) The Company has never declared nor paid cash dividends on its Common Stock.
(4) Includes interest expenses of approximately $1.4 million relating to the
beneficial conversion feature on convertible debt issued in 1997. If the
$1.4 million non-cash charge had been allocated and recorded during each
quarter of 1997 instead of allocated and recorded entirely in the fourth
quarter, the 1997 quarterly results would have been reported as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Nine Months Ended
March 31, 1997 June 30, 1997 September 30, 1997
-------------------- ---------------------- --------------------
(in thousands, except As As As
per share amounts) Reported Adjusted Reported Adjusted Reported Adjusted
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest (income) expense $ - $ 179 $ 47 $ 1,467 $ 75 $ 1,495
Net profit (loss) 599 420 (2,011) (3,431) (5,178) (6,598)
Weighted average number of
common shares outstanding -
basic income per share 111,978 111,978 117,332 117,332 121,490 121,490
Net profit (loss) per
common share $ 0.01 $ 0.00 $ (0.02) $ (0.03) $ (0.04) $ (0.05)
</TABLE>
<PAGE>
RECENT DEVELOPMENTS
On June 16, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq") notified
the Company that the Company's Common Stock had failed to maintain a
closing bid price of $1.00 or more for the previous thirty (30)
consecutive trade dates in accordance with Nasdaq's Marketplace Rule
4450(a)(5). Nasdaq also notified the Company that no delisting action
would be initiated at that time and that the Company would be provided
ninety (90) calendar days in which to regain compliance with
Marketplace Rule 4450(a)(5) which would be achieved if the closing bid
price of the shares of the Company's Common Stock equaled or exceeded
$1.00 for ten (10) consecutive days before the end of trading on
September 14, 1998. In this regard, Nasdaq advised the Company that in
the event the Company was unable to achieve compliance, it may seek
further procedural remedies. The Company was unable to achieve
compliance by September 14, 1998, and on that date delivered its
request for a hearing on the matter together with the requested fee to
Nasdaq's Hearings Department. Under Nasdaq's procedures delisting is
stayed pending the outcome of the hearing.
Between July 27, 1998 and August 4, 1998, the Company issued and
sold 6,000 shares of its Series D Convertible Preferred Stock (the
"Series D Preferred Stock") in a private placement pursuant to
Regulation D of the Securities Act (the "1998 Preferred Stock Private
Placement"). The Company received net proceeds of $5.2 million from
the 1998 Preferred Stock Private Placement. Provided the Company's
stockholders have approved an increase in the authorized Common Stock
of the Company from 185,000,000 shares to 255,000,000 shares, which
approval is being sought by the Company at its next Annual Meeting of
Stockholders to be held on October 20, 1998, the Series D Preferred
Stock is convertible into shares of the Company's Common Stock in
accordance with the conversion formula (the "Series D Conversion
Formula") and other terms and conditions set forth in the subscription
agreements relating to the 1998 Preferred Stock Private Placement (the
"Series D Subscription Agreements") and the Certificate of
Designations, Preferences and Rights of the Series D Preferred Stock
(the "Series D Certificate of Designations") establishing the Series D
Convertible Preferred Stock in accordance with the provisions of the
General Corporation Law of the State of Delaware. The conversion terms
of the Series D Preferred Stock also provide that in no event shall the
conversion price as defined and used in the Series D Conversion Formula
(the "Conversion Price") be less than $0.50 per share and in no event
shall the Company be obligated to issue more than 12,000,000 shares of
its Common Stock in the aggregate in connection with the conversion of
the 6,000 shares of Series D Preferred Stock issued in the 1998
Preferred Stock Private Placement. The Series D 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 the Series D
Subscription Agreements and the Series D Certificate of Designations.
Between July 27, 1998 and August 4, 1998, NCT Audio issued and sold
60 shares of NCT Audio's Series A Convertible Preferred Stock (the "NCT
Audio Series A Preferred Stock") in a private placement pursuant to
Regulation D of the Securities Act (the "1998 NCT Audio Series A
Preferred Stock Private Placement"). NCT Audio received net proceeds
of $5.2 million from the NCT Audio Series A Preferred Stock Private
Placement. Under the terms of the NCT Audio subscription agreements
(the "Subscription Agreements") , NCT Audio is required to file a
registration statement (the "NCT Audio
Registration Statement") covering the resale of all shares of common
stock of NCT Audio issuable, upon conversion of the NCT Audio Series A
Preferred Stock then outstanding by a date (the "Filing Deadline")
which is not later than thirty (30) days after NCT Audio becomes a
"reporting company" under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The shares of NCT Audio Series A
Preferred Stock become convertible into shares of NCT Audio common
stock at any time after the date NCT Audio becomes a "reporting
company" under the Exchange Act. The conversion terms of the NCT Audio
Series A Preferred Stock also provide that in the event that NCT Audio
has not become a "reporting company" under the Exchange Act by December
31, 1998, or the NCT Audio Registration Statement has not been declared
effective by the Commission by December 31, 1998, the holders shall be
entitled to exchange each share of NCT Audio Series A Preferred Stock
for 100 shares of the Company's Series D Preferred Stock and thereafter
shall be entitled to all rights and privileges of a holder of the
Company's Series D Preferred Stock. Accordingly, if all 60 shares of
the NCT Audio Series A Preferred Stock were exchanged for 6,000 shares
of the Company's Series D Preferred Stock up to an additional
12,000,000 shares of the Company's Common Stock would become issuable
upon the conversion or redemption of such shares of Series D Preferred
Stock as described above.
<PAGE>
On July 29, 1998, the Company initiated a plan to repurchase from
time to time up to 10 million shares of the Company's Common Stock in
the open market pursuant to Rule 10b-18 under the Exchange Act or
through block trades. As of September 23, 1998, the Company had
repurchased 5,069,000 shares of the Company's Common Stock at per share
prices ranging from $0.5313 to $0.5938.
On August 17, 1998, NCT Audio agreed to acquire substantially all of
the business assets of Top Source Automotive, Inc. ("TSA"), a tier one
automotive original equipment audio system supplier. On June 11, 1998,
NCT Audio paid a non-refundable deposit of $1,450,000 towards the
purchase price, which is recorded as an investment in unconsolidated
subsidiaries. The total purchase price is $10,000,000, of which at
least $4.0 million must be in cash and the balance may be in the form
of a 12% secured promissory note due March 31, 1999, and up to
$6,000,000 in possible future contingent payments to be paid in either
NCT Audio common stock or cash, at the seller's election. The
transaction is subject to approval of the shareholders of Top Source
Technologies, Inc. ("TST"), TSA's parent company. On July 31,1998, NCT
Audio paid TST $2,050,000, to be held in escrow with securities and
documentation necessary to represent beneficial ownership of 35% of the
total equity rights and interests in TSA, until such time as TST's
stockholders approve the sale of the business assets of TSA. Upon such
TST stockholder approval, such $2,050,000 will be delivered to TSA and
such securities and documentation will be delivered to NCT Audio. If
such approval is not obtained, the $2,050,000 will be returned to NCT
Audio and the securities and documentation will be returned to TSA.
TST's next stockholder meeting is scheduled for November 5, 1998.
On August 17, 1998, NCT Audio agreed to acquire all of the members'
interest in Phase Audio LLC dba Precision Power, Inc. ("PPI"), a
supplier of custom automotive audio systems. In consideration, the
members of PPI shall receive registered shares of NCT Audio's common
stock having an aggregate value of $2,000,000 as calculated using the
offering price of such stock in an initial public offering being
considered by NCT Audio as a means of raising acquisition funding. NCT
Audio also agreed to retire $8.5 million of PPI debt. This acquisition
is subject to NCT Audio's receipt of the necessary financing to close
the transaction. In addition to the above, on June 17, 1998, NCT Audio
provided a working capital loan in the amount of $500,000 to PPI, which
is evidenced by a demand promissory note. On August 18,1998, NCT Audio
provided an additional working capital loan in the amount of $1,000,000
to PPI, which is also evidenced by a demand promissory note. The
unpaid principal balance of these notes bear interest at a rate equal
to the prime lending rate plus one percent (1.00%).
On September 4, 1998, the Company acquired approximately ninety
percent (90%) of the issued and outstanding common stock of Advancel
Logic Corporation ("Advancel") pursuant to a stock purchase agreement
dated as of August 21, 1998 (the "Stock Purchase Agreement") among the
Company, Advancel and certain shareholders of Advancel (the "Advancel
Shareholders"). The consideration for the acquisition of the Advancel
common stock consisted of an initial payment of $1.0 million payable by
the delivery of 1,786,991 shares of the Company's authorized and
unissued Common Stock which shares are to be registered under the
registration statement containing this Prospectus together with future
payments, payable in cash or in Common Stock of the Company at the
election of the Advancel Shareholders (individually, an "earnout
payment" and collectively, the "earnout payments") based on Advancel's
earnings before interest, taxes, depreciation and amortization (as
defined in the Stock Purchase Agreement) for each of the calendar years
1999, 2000, 2001 and 2002 (individually, an "earnout year" and
collectively, the "earnout years"). While each earnout payment may not
be less than $250,000 in any earnout year, there is no maximum earnout
payment for any earnout year or for all earnout years in the
aggregate. To determine the number of shares of the Company's Common
Stock issuable in connection with an earnout payment, each earnout
payment is to be calculated using the average of the closing prices of
the Company's Common Stock for each of the twenty (20) business days
following the 21st day after the release of Advancel's audited year-end
financials for an earnout year. At that time, Advancel Shareholders
will elect to receive payment in cash or Common Stock of the Company.
In the event that the Company is unable to cause a registration
statement covering the resale of such 1,786,991 shares of the Company's
Common Stock to be declared effective by March 15, 1999, and to
maintain such registration statement effective for at least thirty (30)
days, each Advancel Shareholder shall have the right, until April 15,
1999, to have the Company redeem up to one-third of the initial payment
shares acquired by such Advancel Shareholder by paying in cash therefor
a sum calculated by using the formula used to determine the number of
shares of the Company's Common Stock to be delivered in payment of the
initial payment of $1.0 million.
<PAGE>
THE OFFERING
This offering consists of the resale of 1,786,991 shares of Common
Stock which were issued by the Company in a private placement exempt
from registration under the Securities Act pursuant to Regulation D
thereunder on September 4, 1998.
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 of Common
Stock.
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. Statements in this Prospectus and the documents
incorporated herein by reference which are not historical facts are
forward-looking statements under provisions of the Private Securities
Litigation Reform Act of 1995. All forward-looking statements involve
risks and uncertainties. The Company wishes to caution readers that
the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results
and could cause its actual results in fiscal 1998 and beyond to differ
materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company.
Important factors that could cause actual results to differ
materially include but are not limited to the Company's ability to:
achieve profitability; maintain the listing of the Company's Common
Stock on the NASDAQ National Market System; achieve a competitive
position in design, development, licensing, production and distribution
of electronic systems for Active Wave Management; produce a cost
effective product that will gain acceptance in relevant consumer and
other product markets; increase revenues from products; realize funding
from technology licensing fees, royalties, product sales, and
engineering and development revenues to sustain the Company's current
level of operation; timely introduce new products; continue its current
level of operations to support the fees associated with the Company's
patent portfolio; maintain satisfactory relations with its five
customers that accounted for 71% of the Company's revenues in 1997;
attract and retain key personnel; prevent invalidation, abandonment or
expiration of patents owned or licensed by the Company and expand its
patent holdings to diminish reliance on core patents; have its products
utilized beyond noise attenuation and control; maintain and expand its
strategic alliances; and protect Company know-how, inventions and other
secret or unprotected intellectual property.
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.
<PAGE>
CURRENT FINANCIAL CONDITION; CASH POSITION; CONDITIONAL ADEQUACY OF
CURRENTLY AVAILABLE FUNDS TO SUSTAIN COMPANY; POSSIBLE NEED FOR
ADDITIONAL FINANCING. Cash and cash equivalents amounted to $5.2
million at June 30, 1998. Management believes that currently available
funds may not be sufficient to sustain the Company for the next 12
months. Such funds consist of available cash and cash from the
exercise of warrants and options, the funding derived from technology
licensing fees, royalties and product sales, and engineering
development revenue. As noted in "Subsequent Events" in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1998, and
under "Recent Developments" above, the Company received $5.2 million
net proceeds from the 1998 Series D Preferred Stock Private Placement.
The Company's subsidiary, NCT Audio, also received $5.2 million net
proceeds from the 1998 NCT Audio Series A Preferred Stock Private
Placement. Continuation as a going concern 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 technology licensing fees
and royalties, product sales, and engineering and development revenue
are not realized as planned, then management believes additional
working capital financing must be obtained. There is no assurance any
such financing is or would become available.
There can be no assurance that funding will be provided by
technology license fees, royalties and product sales and engineering
and development revenue. In that event, the Company would have to
substantially cut back its level of operations. 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.
NO DIVIDENDS. The Company has never declared nor paid dividends on
its common stock and has no present intention to do so.
GOING CONCERN UNCERTAINTY PARAGRAPH IN REPORT OF INDEPENDENT
AUDITORS. 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; Possible Need for Additional
Financing" above.
The Company's independent auditors issued their report on the
Company's consolidated financial statements as of and for the year
ended December 31, 1997. Their report contains an explanatory
paragraph, which discloses 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" below.
Prospective investors are urged to read carefully the independent
auditors' report as well as the consolidated financial statements of
the Company and the notes thereto, which are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, (including Amendment No. 1 thereto filed on
April 30, 1998, and Amendment No. 2 thereto filed on May 4, 1998).
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT. The Company
incurred a net loss of $9.8 million for the year ended December 31,
1997, and a loss of $3.6 million for the six months ended June 30,
1998. The Company's accumulated deficit at June 30, 1998 was $97.1
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.
<PAGE>
LIMITED REVENUES. Although the Company has engaged in marketing
activities with regard to the sale or licensing of electronic systems
for Active Wave Management including systems that electronically reduce
noise and vibration based upon prototypes of such systems, its
operating revenues from inception in April 1986 through June 30, 1998,
have been limited, aggregating $11.9 million from the sale of such
systems, $14.9 million from the licensing of technology relating to
such systems and $21.5 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 June 30, 1998, the Company has granted options
to purchase 19,833,375 shares of Common Stock under the 1992 Plan of
which, 6,740,875 are currently exercisable and 962,500 will become
exercisable in increments through October 6, 2001. As of June 30,
1998, the Company has also granted 95,000 shares of restricted stock
under the 1992 Plan. On January 15, 1998, the Board of Directors
further amended the 1992 Plan (the "1998 Amendment"), subject to
stockholder approval, increasing the number of shares of Common Stock
covered by the 1992 Plan to 30.0 million shares, adding outside
directors of the Company's Board of Directors as persons who are
eligible to participate under the 1992 Plan, deleting the formula for
grants of awards of restricted Common Stock and options to purchase
Common Stock to outside directors and providing for the administration
of the 1992 Plan by the Board of Directors of the Company or a
committee appointed by the Board of Directors consisting of at least
two outside directors. The Company plans to register all of such
additional 20.0 million shares under the Securities Act following
stockholder approval of the 1998 Amendment. As of June 30, 1998, the
Company has granted options to purchase 5,226,000 shares of Common
Stock, which will become exercisable upon stockholder approval of the
1998 Amendment, and options to purchase an additional 6,904,000 shares
of Common Stock which will become exercisable in increments on the
later of the date of stockholder approval of the 1998 Amendment and
other dates between such date and February 14, 2002, provided the
optionee is then employed by or rendering services to the Company.
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 June 30, 1998, the
Company has granted options to purchase 746,000 shares of Common Stock
which are currently exercisable under the Directors Plan.
<PAGE>
As of June 30, 1998, 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. The Company has also reserved
1,305,500 shares for issuance upon the exercise of warrants granted (i)
to an investor in an early 1997 private placement pursuant to
Regulation S under the Securities Act (the "Investor Warrant"); and (ii) in
partial consideration for services rendered by three placement agents
in connection with the 1997 Preferred Stock Private Placement,
described below, by one financial consultant in connection with another
financing completed by the Company and by one consultant in connection
with the Companys efforts to complete development and licensing
agreements with a large European company; and has reserved an additional
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
On September 23, 1998, the weighted average exercise price for all
currently exercisable and outstanding warrants and options was $0.64.
Between October 10, 1997 and December 4, 1997, NCT Audio raised $4.0
million of equity capital by means of a private placement of 2,145
shares of its common stock pursuant to Regulation D under the
Securities Act (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. Purchasers of $1.7 million in the aggregate of NCT
Audio common stock have agreed to extend such periods from 90 days to
150 days and from 180 days to 240 days, respectively. No such
registration statement was filed by the Company within said 150 day
period. 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 23, 1998 ($0.5313 per
share) the Company would be required to issue 9.3 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 $0.5313 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 its Series C Convertible Preferred Stock (the
"Preferred Stock") in a private placement pursuant to Regulation D of
the Securities Act (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 (the "Conversion
Formula") and other terms and conditions set forth in the subscription
agreements relating to the 1997 Preferred Stock Private Placement. 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. 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 purchase of the Preferred Stock being converted or
(y) 20% below the five (5) day average closing bid price of Common
<PAGE>
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 the
minimum conversion price ($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 equal
to or below $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, the Company is not 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.
On June 10, 1998, the Board of Directors of the Company approved and
declared advisable an amendment to the Company's Restated Certificate
of Incorporation to increase the number of shares of Common Stock,
which the Company shall be authorized to issue by 70,000,000 shares
from 185,000,000 to 255,000,000 shares subject to the approval of the
Company's stockholders. Such approval will be sought at the Company's
next Annual Meeting of Stockholders on October 20, 1998. Of such
additional shares of Common Stock, 20,000,000 shares will be reserved
for issuance under the 1998 Amendment to the 1992 Plan described above,
stockholder approval for which will also be sought at the October 20,
1998 Annual Meeting. The remaining 50,000,000 of such shares (or all
70,000,000 of such shares if the stockholders do not approve the 1992
Amendment) will be available for acquisitions, public or private
financings involving Common Stock or preferred stock or other
securities convertible into Common Stock, stock splits and dividends,
other present and future employee benefit programs and other corporate
purposes.
Between July 27,1998 and August 4, 1998, the Company issued and sold
6,000 shares of its Series D Preferred Stock in the 1998 Preferred
Stock Private Placement. Provided the Company's stockholders have
approved an increase in the authorized Common Stock of the Company from
185,000,000 to 255,000,000 shares, which approval is being sought by
the Company at its next Annual Meeting of Stockholders to be held on
October 20, 1998, the Series D Preferred Stock is convertible into
shares of the Company's Common Stock in accordance with the Series D
Conversion Formula and other terms and conditions set forth in the
Series D Subscription Agreements and the Series D Certificate of
Designations. The conversion terms of the Series D Preferred Stock
also provide that in no event shall the Conversion Price as defined and
used in the Series D Conversion Formula be less than $0.50 per share
and in no event shall the Company be obligated to issue more than
12,000,000 shares of its Common Stock in the aggregate in connection
with the conversion of the 6,000 shares of Series D Preferred Stock
issued in the 1998 Preferred Stock Private Placement nor will the
Company be obligated to issue more than 12,000,000 additional shares of
Common Stock in the aggregate in connection with the conversion of the
6,000,000 shares of Series D Preferred Stock issuable in exchange for
NCT Audio Series A Preferred Stock under the circumstances described in
the paragraph below. The Series D 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 the Series D Subscription
Agreements and the Series D Certificate of Designations. 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 Series D Preferred Stock will be based upon the length of time the
Series D Preferred Stock is held as well as the greater of the
Conversion Price (which is determined by the five consecutive trading
day average closing bid price of Common Stock immediately prior to the
conversion date of the Series D Preferred Stock being converted subject
to adjustment) or $0.50, 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. However, under the
terms of conversion as set forth in the Series D Certificate of
Designations, the Company is not obligated to issue more than
24,000,000 shares of its Common Stock in the aggregate in connection
with the conversion of the Series D Preferred Stock as contemplated
under this and the paragraph below.
<PAGE>
Between July 27, 1998 and August 4, 1998, NCT Audio issued and sold
60 shares of NCT Audio Series A Preferred Stock in the 1998 NCT Audio
Series A Preferred Stock Private Placement. Under the terms of the NCT
Audio Subscription Agreements, NCT Audio is required to file the NCT
Audio Registration Statement covering the resale of all shares of
common stock of NCT Audio issuable, upon conversion of the NCT Audio
Series A Preferred Stock then outstanding by the Filing Deadline which
is not later than thirty (30) days after NCT Audio becomes a "reporting
company" under the Exchange Act. The shares of NCT Audio Series A
Preferred Stock become convertible into shares of NCT Audio common
stock at any time after the date NCT Audio becomes a "reporting
company" under the Exchange Act. The conversion terms of the NCT Audio
Series A Preferred Stock also provide that in the event that NCT Audio
has not become a "reporting company" under the Exchange Act by December
31, 1998, or the NCT Audio Registration Statement has not been declared
effective by the Commission by December 31, 1998, the holders shall be
entitled to exchange each share of NCT Audio Series A Preferred Stock
for 100 shares of the Company's Series D Convertible Preferred Stock
and thereafter shall be entitled to all rights and privileges of a
holder of the Company's Series D Preferred Stock. Accordingly, if all
60 shares of the NCT Audio Series A Preferred Stock were exchanged for
6,000 shares of the Company's Series D Convertible Preferred Stock up
to an additional 12,000,000 shares of the Company's Common Stock would
become issuable upon the conversion or redemption of such shares of
Series D Convertible Preferred Stock as described above.
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 issuable upon the exercise of the Investor Warrant and 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 AND TRADEMARK RIGHTS;
UNCERTAIN PROPRIETARY PROTECTION. No assurance can be given as to the
range or degree of protection any patent or trademark issued to, or
licensed by, the Company will afford or that such patents, trademarks
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 or
trademarks will afford protection against competitors with similar
technology or trademarks, 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 or trademarks will not be
challenged by third parties, invalidated, rendered unenforceable or
designed around. Furthermore, there can be no assurance that any
pending patent or trademark applications or applications filed in the
future will result in the issuance of a patent or trademark. The
invalidation or expiration of patents or trademarks 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 and trademark searches
and no assurances can be given that patents or trademarks 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 and trademark
rights to protect present and future technology and trademarks of the
Company.
<PAGE>
An interference proceeding was initiated with respect to one of the
Company's patent applications, which was dismissed by the Board of
Patent Appeals and Interferences in July 1997. 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 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
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 June 30,
1998, 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 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 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.
<PAGE>
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
June 30, 1998. 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.
<PAGE>
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 June 30, 1998, QSI has paid all installments due and payable
for the exclusivity fee, and still owes the Company $239,000 which was
due on January 1, 1998, and is fully reserved by the Company, and,
other than as described above, as of the date of this Prospectus, owes
no other amounts to the Company. The Company has been informed by QSI
that QSI's failure to pay such $239,000 is attributable to a shortage
of cash and other liquid assets.
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.
<PAGE>
COMPETITION. The Company is aware of a number of direct competitors
in the field of Active Wave Management. Indirect competition also
exists in the field of passive sound and vibration attenuation. The
Company's principal competitors in active control systems include
Andrea Electronics Corporation, Bose Corporation, Digisonix (a division
of Nelson Industries, Inc.), Group Lotus PLC and Lotus Cars Limited,
Lord Corporation, Matsushita Electric Industrial Co., Ltd., Sennheiser
Electronic Corp. and Sony Corporation, among others. The Company's
principal competitors in other fields of Active Wave Management include
IBM Corporation, Lucent Technologies, Inc. and Texas Instruments,
Incorporated. 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 commercially exploit such technology. NCT also believes
that a number of other large companies, such as the major domestic and
foreign communications, computer, automobile and appliance
manufacturers, and aircraft parts suppliers and manufacturers, have
research and development efforts underway in Active Wave Management and
active noise and vibration control. Many of these companies, as well
as the Company's potential competitors in the passive sound and
vibration attenuation field and other entities which could enter the
active noise and vibration attenuation field and other fields of Active
Wave Management as the industry develops, are well established and have
substantially greater management, technical, financial, marketing and
product development resources than the Company.
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 the Company is required, among other things, to maintain: (i)
net tangible assets of $4.0 million; and (ii) a market value of
publicly held shares of $5.0 million. In addition, for continued
listing the Company's Common Stock must have a minimum bid price of
$1.00. A failure to meet the continued inclusion requirements for
minimum bid price is determined to exist if the deficiency continues
for a period of thirty (30) consecutive business days. From April 30, 1998,
through June 15, 1998, the minimum bid price for the Company's Common
Stock as quoted on the NASDAQ/NMS was below $1.00. On June 16, 1998,
the Company was notified by Nasdaq of such a thirty (30) day deficiency
and that the Company would have a period of ninety (90) calendar days
from such notification to achieve compliance with the continued inclusion
standard. Compliance can be achieved by meeting the standard for a
minimum of ten (10) consecutive business days during the 90 day compliance
period. On June 30, 1998, the amount of the Company's net tangible
assets was approximately $12.2 million and the market value of its
publicly held shares was $80.7 million. Management believes the
Company will be able to maintain net tangible assets of at least $4.0
million at least through the year 1998 although no assurance can be
given that circumstances will not occur which will cause the Company's
net tangible assets to fall below $4.0 million before that time. See
"Current Financial Condition; Cash Position; Conditional Adequacy of
Currently Available Funds to Sustain Company; Possible Need for
Additional Financing", "Going Concern Emphasis Paragraph in
Accountants' Opinion", and "Limited Revenues" above. Because the price
of the Company's Common Stock is dependent on numerous market factors
not within the Company's control, management is unable to express an
opinion of the likelihood that the market value of publicly held shares
of the Company's Common Stock will fall below $5.0 million which would
occur if the number of publicly held shares of the Company's Common
Stock was the same number as existed on September 23, 1998 (141,786,118
shares) and the price per share fell below $0.0353. On September 23,
1998, the price per share of the Company's Common Stock was $0.5313.
On June 16, 1998, Nasdaq notified the Company that the Company's common
stock had failed to maintain a closing bid price of $1.00 or more for
the previous thirty (30) consecutive trade dates in accordance with
Nasdaq's Marketplace Rule 4450(a)(5). Nasdaq also notified the Company
that no delisting action would be initiated at that time and that the
Company would be provided ninety (90) calendar days in which to regain
compliance with Marketplace Rule 4450(a)(5) which would be achieved if
the closing bid price of the shares of the Company's common stock
equaled or exceeded $1.00 for ten (10) consecutive days before the end
of trading on September 14, 1998. In this regard Nasdaq advised the
Company that in the event the Company was unable to achieve compliance,
it may seek further procedural remedies. The Company was unable to
achieve compliance by September 14, 1998, and on that date delivered
its request for a hearing on the matter together with the requested fee
to Nasdaq's Hearings Department. Under Nasdaq's procedures delisting
is stayed pending the outcome of the hearing.
<PAGE>
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 25,250 shares of which have been
designated to date. At September 23, 1998 there were 8,400 shares
issued and outstanding. 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. Management is not aware of any efforts to acquire
control of or take over the Company.
RISKS ASSOCIATED WITH YEAR 2000. The Company believes the cost of
administrating its Year 2000 Compliance program will not have a
material adverse impact on future earnings. However, the potential
costs and uncertainties associated with any Year 2000 Compliance
program will depend on a number of factors, including software,
hardware and the nature of the industry in which the Company, its
subsidiaries, suppliers and customers operate. In addition, companies
must coordinate with other entities with which they electronically
interact, such as customers, suppliers, financial institutions, etc.
The Company estimates that potential costs will not exceed $0.1
million.
Although the Company's evaluation of its systems is still in process,
there has been no indication that the Year 2000 Compliance issue, as it
relates to internal systems, will have a material impact on future
earnings. While the Company is not aware of any material Year 2000
Compliance issues at its customers and suppliers, such potential
problems remain a possibility and could have a material adverse impact
on the Company's future results. The Company estimates completion of
the evaluation process by June 30, 1999.
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS. The Financial Accounting
Standards Board has recently issued Statements of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
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. At the
hearing on May 19, 1998, the Discovery Judge established dates for the
parties to submit final pleadings and set September 22, 1998 as the
date to send the case before the Tribunal of Milan sitting in full
bench. As of September 29, 1998, the Company had not been informed of
any decision by the Tribunal. 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>
On June 10, 1998, Schwebel Capital Investments, Inc. ("SCI") filed
suit against the Company and Michael J. Parrella, President, Chief
Executive Officer and a Director of the Company, in the Circuit Court
for Anne Arundel County, Maryland. The summons and complaint in the
suit were served on the Company and Mr. Parrella on June 24, 1998. The
complaint alleges the Company breached, and Mr. Parrella interfered
with, a purported contract entered into "in 1996" between the Company
and SCI under which SCI was to be paid commissions by the Company when
the Company received capital from investors who purchased debentures or
convertible preferred stock of the Company during a period presumably
commencing on the date of the alleged contract and allegedly extending
at least to May 1, 1998. In this regard, the complaint alleges that
SCI by virtue of a purported right of first refusal that the Company
did not honor, is entitled to commissions totaling $1,500,000 in
connection with the Company's sale of $13,300,000 of preferred stock
and a subsidiary of the Company's sale of $4,000,000 of stock
convertible into stock of the Company. In the complaint SCI demands
judgment against the Company for compensatory damages of $1,673,000,
punitive damages of $50,000 and attorneys' fees of $50,000 and demands
judgment against Mr. Parrella for compensatory damages of $150,000,
punitive damages of $500,000 and attorneys' fees of $50,000 as well as
unspecified other appropriate relief. The Company has filed two
motions seeking to strike or dismiss certain claims contained in
plaintiff's complaint and amended complaint and is awaiting the Court's
decision. For this reason and because no discovery has taken place,
the Company is unable to assess the likelihood of an adverse result.
Management, however, believes it has meritorious defenses and intends a
vigorous defense of this suit. However, in the event this suit 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. The expenses payable by the Company in
connection with this registration statement are estimated to be
$30,788. There are no other material incremental expenses attributable
solely to the issuance and distribution of the above described shares.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
the Selling Stockholders. The shares of Common Stock set forth therein
have been included in the Registration Statement 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.
Beneficial
Ownership
Beneficial of Shares
Ownership of Common
of Number Stock
Shares of of Shares After
Common of Common Giving
Relationship Stock at Stock Effect to
Name of Selling With September Offered Proposed
Stockholder The Company 23, 1998 For Sale Sale
- ------------------ ------------ ---------- --------- ----------
Alliance Advisory 389,348 89,348 300,000
Partners, LLC
Prakash Bhalerao 40,939 40,939
Chuck Cheng 5,117 5,117
Vijay Chougule 40,939 40,939
Amy Dasso 171 171
Sanjay Dave 13,860 13,860
Cynthia Hughes 3,412 3,412
Srini Krishnaswami 255,870 255,870
Derek Lentz 10,235 10,235
Nina Luu 171 171
Robert Maffit 5,117 5,117
Haresh Makhijani 5,117 5,117
Rajesh Parekh 34,116 34,116
Soma Pullela 3,412 3,412
Vaidyanathan Raghunathan 74,629 74,629
Vishnu Reddy 68,232 68,232
Balaji A. Sampath 3,483 3,483
Lee Scantlin 170,580 170,580
Anand Sheel 562,914 562,914
Shiraj Shivji 85,290 85,290
Mark Snesrud 255,870 255,870
Patricia Steele 171 171
Karen Vahtra 3,412 3,412
Stephen Voorhees 54,586 54,586
========= ========= =======
2,086,991 1,786,991 300,000
========= ========= =======
<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.
LEGAL MATTERS
Matters relating to the legality of 1,786,991 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 September 30, 1998, Mr. Horton owned 20,000
shares of Common Stock. In addition, Mr. Horton owns 20,000 shares
subject to acquisition upon the exercise of currently exercisable
warrants and 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.
EXPERTS
The consolidated financial statements of the Company at December 31,
1996 and 1997 and for the years ended December 31, 1995, 1996 and 1997
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, 1997 (including Amendment No. 1
thereto filed on April 30, 1998, and Amendment No. 2 thereto filed on
May 4, 1998), have been audited by Richard A. Eisner & Company, LLP,
Independent Auditors, as set forth in their report included therein
(which contains an explanatory paragraph relating to the Company's
ability 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.
The financial statements of the Company's subsidiary, Noise
Cancellation Technologies (UK) Limited, at December 31, 1996 and 1997
and for the years ended December 31, 1995, 1996 and 1997 incorporated
into this prospectus by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 (including
Amendment No. 1 thereto filed on April 30, 1998, and Amendment No. 2
thereto filed on May 4, 1998), have been audited by Peters Elworthy &
Moore, Chartered Accountants, as set forth in their report included
therein (which contains an explanatory paragraph relating to the
Company's ability 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 $ 288
Legal Fees and expenses 15,000 *
Accounting fees and expenses 15,000 *
Miscellaneous expenses 500 *
---------- ----------
Total $ 30,788 *
========== ==========
_____________
* 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.
<PAGE>
"(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."
Item 16. Exhibits (listed according to the number assigned in the
table in Item 601 of Regulation S-K)
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 Peters Elworthy & Moore
23(c) Consent of John B. Horton, Esquire (contained in
Exhibit 5)
<PAGE>
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
30th day of September, 1998.
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ MICHAEL J. PARRELLA
-----------------------
Michael J. Parrella, President
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 September 30, 1998
- ------------------------ Officer) and Director
Michael J. Parrella
/s/ CY E. HAMMOND Senior Vice President and September 30, 1998
- ------------------------ Chief Financial Officer
Cy E. Hammond (Principal Financial and
Accounting Officer)
/s/ JAY M. HAFT Chairman of the Board September 30, 1998
- ------------------------ of Directors and Director
Jay M. Haft
/s/ JOHN J. McCLOY Director September 30, 1998
- ------------------------
John J. McCloy
/s/ SAM OOLIE Director September 30, 1998
- ------------------------
Sam Oolie
/s/ STEPHAN CARLQUIST Director September 30, 1998
- ------------------------
Stephan Carlquist
/s/ MORTON SALKIND Director September 30, 1998
- ------------------------
Morton Salkind
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page Number
- ----------- ----------- -----------
5 Opinion of John B. Horton, Esquire, 39
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 40
23(b) Consent of Peters Elworthy & Moore 41
23(c) Consent of John B. Horton, Esquire
(contained in Exhibit 5)
Exhibit 5
September 30, 1998
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 1,786,991 shares of Common Stock of the Company (the "Resale
Shares"), I am of the opinion that the Resale Shares have been duly
authorized by the Company, have been validly issued and are 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
Exhibit 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference to the Registration
Statement on Form S-3 of our report dated February 27, 1998, on the
consolidated financial statements and schedule of Noise Cancellation
Technologies, Inc. (the "Company") as of December 31, 1997 and 1996 and
for each of the years in the three-year period ended December 31, 1997,
included in the Company's Annual Report on Form 10-K (as amended) for
the year ended December 31, 1997, and to the reference to the firm
under the caption "Experts" included in the Prospectus.
/s/ RICHARD A. EISNER & COMPANY, LLP
Richard A. Eisner & Company, LLP
New York, New York
September 28, 1998
Exhibit 23(b)
September 29, 1998
Noise Cancellation Technologies, Inc.
1025 West Nursery Road, Suite 120
Linthicum, MD 21090 USA
Dear Sirs:
Noise Cancellation Technologies (UK) Limited
We consent to the incorporation by reference to the Registration
Statement on Form S-3 of our report dated May 13, 1998, on the
financial statements and schedule of Noise Cancellation Technologies
(UK) Limited (the "Company") as at December 31, 1997 and December 31,
1996 and for each of the years in the three year period ended December
31, 1997, included in the Company's Annual Report on Form 10-K (as
amended) for the year ended December 31, 1997, and to the reference to
the firm under the caption "Experts" included in the Prospectus.
Yours faithfully,
/s/ PETERS ELWORTHY & MOORE
Peters Elworthy & Moore
