As filed with the Securities and Exchange Commission on May 8,1998
Registration No. 333-43387
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------------------
NOISE CANCELLATION TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 59-2501025
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
1025 West Nursery Road, Linthicum, Maryland 21090 (410) 636-8700
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------------------------------------
JOHN B. HORTON, Esq.
Senior Vice President, General Counsel and Secretary
Noise Cancellation Technologies, Inc.
One Dock Street
Stamford, Connecticut 06902
(203) 961-0500, Extension 388
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service) Copies of all
communications and notices to:
WILLIAM P. O'NEILL, Esq.
CROWELL & MORING 1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2595
(202) 624-2500
---------------------------------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| __________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. |_| __________
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed
Maximum Proposed
Title of Aggregate Maximum Amount of
Shares To be Amount to be Price Aggregate Registration
Registered Registered(1) Per Unit Offering Price Fee (1)
- --------------------------------------------------------------------------------
Common Stock 33,273,393 shares $1.0625 (2) $35,352,980 (2) $10,429.13 (2)
- --------------------------------------------------------------------------------
Common Stock 779,250 shares $0.7815 (3) $ 608,984 (3) $ 179.65 (2)
- --------------------------------------------------------------------------------
(1)Pursuant to Rule 429, promulgated under the Securities Act of 1933, as
amended, 12,087,864 shares of registrant's Common Stock initially included in
registrant's registration statements (File Nos. 33-19926, 33-38584, 33-44790,
33-47611, 33-51468, 33-7442, 33-84694 and 333-10545) that remain unsold as of
the date hereof are being carried forward in this registration statement. The
fees associated with such shares of Common Stock that were previously paid
with such earlier registration statement aggregated $8,293.82.
(2)Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457(c) promulgated under the Securities Act of 1933, based on the
average of the high and low prices for the Common Stock on the NASDAQ
National Market System on December 19, 1997. $10,429.13 was paid by the
registrant in connection with the filing of this registration statement on
December 29, 1997.
(3)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 of the Common Stock on the National Market
System on May 5, 1998.
- --------------------------------------------------------------------------------
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 8, 1998
PROSPECTUS
46,140,507 SHARES
NOISE CANCELLATION TECHNOLOGIES, INC.
COMMON STOCK
------------
This offering consists of 378,894 shares of Common Stock of Noise
Cancellation Technologies, Inc. (the "Company") which are issuable upon the
exercise of outstanding warrants and options to purchase shares of Common Stock
by persons not deemed "affiliates" of the Company, as that term is defined under
the Securities Act of 1933 (the "Securities Act").
This offering also consists of the resale of 26,000,000 shares of Common
Stock which may be issued upon the conversion of issued and outstanding shares
of the Company's Series C Convertible Preferred Stock which were issued by the
Company in private placements exempt from registration under the Securities Act
pursuant to Regulation D thereunder by persons not deemed "affiliates" of the
Company, as that term is defined under the Securities Act.
In addition, this offering consists of the resale of 6,857,1436,872,143
shares of Common Stock which were issued by the Company in private placements
exempt from registration under the Securities Act and were issued and
outstanding on May 5, 1998, as well as the resale of 4,092,555 shares of Common
Stock which are issuable upon the exercise of outstanding warrants and options
to purchase shares of Common Stock to persons who may be deemed "affiliates" of
the Company and the resale of 8,032,6658,796,915 shares of Common Stock which
are issuable upon the exercise of such warrants and options to persons not
deemed "affiliates" of the Company, as that term is defined under the Securities
Act.
All of the foregoing shares of Common Stock may be offered for sale by the
holders thereof (the "Selling Stockholders"). The Company will not receive any
of the proceeds from the sale of such shares although the Company will receive
the aggregate proceeds from the exercise, from time to time, of the foregoing
warrants and options to purchase shares of Common Stock (see "Use of Proceeds").
SEE "RISK FACTORS" ON PAGES 21 THROUGH 43 FOR CERTAIN
INFORMATION RELATING TO THE COMPANY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Company's Common Stock is quoted on the NASDAQ National Market System
under the symbol "NCTI". The last sale price reported for such Common Stock on
May 5, 1998, as quoted by NASDAQ, was 0.781.
THE DATE OF THIS PROSPECTUS IS MAY 8, 1998
<PAGE>
TABLE OF CONTENTS
Page
Available Information (Item 2.).................................. 8
Incorporation of Certain Documents by Reference (Item 12.)....... 9
The Company (Item 3.)............................................10
Summary Consolidated Financial Data (Item 3.)....................16
Recent Developments (Item 11.)...................................19
The Offering (Item 1.)...........................................20
Risk Factors (Item 3.)...........................................21
Use of Proceeds (Item 4.)........................................44
Selling Stockholders (Item 7.)...................................45
Plan of Distribution (Item 8.)...................................50
Legal Matters (Item 10.).........................................51
Experts (Item 10.)...............................................51
<PAGE>
AVAILABLE INFORMATION
The Company is subject to certain of the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy and
information statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, NW, Washington, DC 20549 and at the following
regional offices of the Commission: Seven World Trade Center, Suite 1300, New
York, New York 10048 and Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60611. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, NW, Washington, DC
20549 at prescribed rates. The Company is an electronic filer on EDGAR pursuant
to Rules 100 and 101 of Registration S-T. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The address of such site is (http://www.sec.gov).
The Company has filed with the Commission certain Registration Statements
under the Securities Act with respect to the securities being offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statements, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is hereby made to the Registration Statements.
----------------
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE COMMON STOCK TO
WHICH IT RELATES OR A SOLICITATION TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 0-18267) and are incorporated herein by
reference and made a part hereof:
(1)the Company's Annual Report on Form 10-K for the year ended December 31,
1997(including Amendment No. 1 thereto filed on April 30, 1998, and Amendment
No. 2 thereto filed on May 4, 1998); and
(2)the description of capital stock found in Item 1 of the Company's
Registration Statement on Form 8-A filed with the Commission on January 30,
1990.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of filing of this Prospectus
and prior to the termination of the offering of the Common Stock covered by this
Prospectus are deemed to be incorporated by reference and shall be a part hereof
from their respective dates of filing.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in this Prospectus or in any other
subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon written or oral request, a copy of any and
all of the information that has been incorporated by reference in this
Prospectus, but not including exhibits to such information unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates. Requests for copies of such information should be
directed to Krystyna Marushak, Investor Relations, Noise Cancellation
Technologies, Inc., One Dock Street, Stamford, Connecticut 06902, telephone
number (203) 961-0500, extension 391.
<PAGE>
THE COMPANY
Noise Cancellation Technologies, Inc. ("NCT" or the "Company") 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 NoiseBuster(R) communications headsets
and NoiseBuster Extreme!(TM) consumer headsets, Gekko(TM) flat speakers, flat
panel transducers ("FPT(TM)"), ClearSpeech(TM), microphones, speakers and other
products, adaptive speech filters ("ASF"), the ProActive(TM) line of
industrial/commercial active noise reduction ("ANR") headsets, an aviation
headset for pilots, an industrial muffler or "silencer" for use with large
vacuums and blowers, quieting headsets for patient use in magnetic resonance
imaging ("MRI") machines, 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 plans to
introduce over 25 new products and associated accessories during the first six
months of 1998.
In keeping with the direction established in late 1994, during 1997 the
Company continued the practice of marketing its technology through licensing to
third parties for fees and subsequent royalties. During 1997, the Company
entered into ten new technology license agreements.
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 December 31, 1997, approximately 23% 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 46% 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, holding 256 patents 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 February 28, 1998 the Company had 85
employees, including 47 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 1 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" Item (1).
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<TABLE>
<CAPTION>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In Thousands of Dollars and Shares)
Years Ended December 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
REVENUES
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)
--------- --------- -------- --------- ---------
December 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
---------------------------------------------------------
BALANCE SHEET DATA:
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>
(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.
<PAGE>
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<PAGE>
On April 30, 1998, the Company completed the sale of 5.0 million ordinary shares
of Verity acquired upon the Company's exercise on April 7, 1998 of the option it
held to purchase such shares at a price of 50 pence per share. This option was
acquired by the Company in connection with the cross license agreement entered
into by the Company, Verity and NXT. The Company realized $3.2 million net
proceeds from the exercise of such option and the sale of the Verity ordinary
shares received therefrom.
<PAGE>
THE OFFERING
This offering consists of 378,894 shares of Common Stock of the Company which
are issuable upon the exercise of outstanding warrants and options to purchase
shares of Common Stock by persons not deemed "affiliates" of the Company, as
that term is defined under the Securities Act of 1933 the Securities Act.
This offering also consists of the resale of 26,000,000 shares of Common
Stock which may be issued upon the conversion of issued and outstanding shares
of the Preferred Stock which were issued by the Company in private placements
exempt from registration under the Securities Act pursuant to Regulation D
thereunder by persons not deemed "affiliates" of the Company, as that term is
defined under the Securities Act.
In addition, this offering consists of the resale of 6,857,1436,872,143
shares of Common Stock which were issued by the Company in private placements
exempt from registration under the Securities Act and were issued and
outstanding on May 5, 1998, as well as the resale of 4,092,555 shares of Common
Stock which are issuable upon the exercise of outstanding warrants and options
to purchase shares of Common Stock to persons who may be deemed "affiliates" of
the Company and the resale of 8,032,6658,796,915 shares of Common Stock which
are issuable upon the exercise of such warrants and options to persons not
deemed "affiliates" of the Company, as that term is defined under the Securities
Act.
All of the foregoing shares of Common Stock may be offered for sale by the
holders thereof (see "Selling Stockholders"). The Company will not receive any
of the proceeds from the sale of such shares although the Company will receive
the aggregate proceeds from the exercise, from time to time, of the foregoing
warrants and options to purchase shares of Common Stock (see "Use of Proceeds").
<PAGE>
RISK FACTORS
The shares of Common Stock offered hereby represent a speculative investment
and entail elements of risk. The following factors, in addition to the other
information included or incorporated by reference herein, should be carefully
considered before any decision is made to purchase any of the shares of Common
Stock offered hereby.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS.
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;
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.
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 $12.6 million at December 31, 1997. 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.
Reducing operating expenses and capital expenditure alone may not be sufficient
and 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, royalties and 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.
<PAGE>
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 OPINIONREPORT 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.
On February 27, 1998, the Company's independent auditors issued its 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
emphasizesdiscloses 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. pProspective 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 $10.8 million for the year ended December 31, 1996, and a loss of
$9.8 million for the year ended December 31, 1997. The Company's accumulated
deficit at December 31, 1997 was $93.5 million, attributable in substantial part
to the costs of developing its proprietary technology. To achieve profitability,
NCT must, independently and with strategic allies, successfully develop,
manufacture, introduce and market its products in commercial quantities and
receive fees and royalties from licensing its proprietary technology.
LIMITED REVENUES. Although the Company has engaged in marketing activities
with regard to the sale or licensing of electronic systems for Active Wave
Managementincluding systems that electronically reduce noise and vibration based
upon prototypes of such systems, its operating revenues from inception in April
1986 through 30December 31, 1997, have been limited, aggregating $10.8 million
from the sale of such systems, $14.6 million from the licensing of technology
relating to such systems and $21.3 million from the performance of engineering
and development services, respectively. Although the Company has begun
commercial sales of active noise attenuation and other products in a limited
number of applications, significant further development will be necessary before
many of the Company's potential products will achieve expected commercial
end-use applications.
POSSIBLE FUTURE DILUTION FROM EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS
AND CONVERSION OF CONVERTIBLE SECURITIES. On October 6, 1992, the Company
adopted a stock option plan (the "1992 Plan") covering 6.0 million shares of the
Company's Common Stock and providing for the grant of options to purchase Common
Stock of the Company and awards of restricted common stock to employees,
officers and directors of the Company. The 1992 Plan was approved by the
stockholders at the 1993 Annual Meeting of Stockholders following which said 6.0
million shares were registered under the Securities Act. An amendment to the
1992 Plan adopted by the Option Committee on November 8, 1995, and approved by
the stockholders at the 1996 Annual Meeting of Stockholders (the "1996 Annual
Meeting"), increased the number of shares of Common Stock covered by the 1992
Plan to 10.0 million shares and added active consultants to the Company as
persons who are eligible to participate under the 1992 Plan. The Company has
reserved 10.0 million shares of Common Stock for issuance upon the exercise of
options granted under the 1992 Plan and for issuance upon the grant of
restricted stock awards under the 1992 Plan. All of such shares are registered
under the Securities Act. As of March 31, 1998, the Company has granted options
to purchase 19,835,375 shares of Common Stock of which 6,615,875 are currently
exercisable and 85,000 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 March 31, 1998, the
Company has granted options to purchase 6,119,000 shares of Common Stock which
will become exercisable upon stockholder approval of the 1998 Amendment and
options to purchase an additional 6,511,000 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 March 31,
1998 , the Company has granted options to purchase 746,000 shares of Common
Stock which are currently exercisable under the Directors Plan.
On April 15, 1997, in connection with a cross license agreement entered into
by the Company, the Verity Group plc ("Verity") and its wholly owned subsidiary,
New Transducers Limited ("NXT"), the Company granted Verity an option to
purchase 3.8 million shares of the Company's Common Stock for a four year period
commencing on the first anniversary of the option agreement (the "Verity
Option"). By mutual agreement the Verity Option became exercisable on September
27, 1997. The Company has reserved 3.8 million shares of Common Stock for
issuance upon the exercise of the Verity Option. The Company also agreed, if
requested by Verity, to file a registration statement with the Commission
covering the shares of Common Stock issuable upon the exercise of the Verity
Option and to use its diligent best efforts to effect the registration of such
shares. All of such shares are included in the offering to which this prospectus
relates.
As of March 31, 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
Company's efforts to complete development and licensing agreements with a large
European company, and 100,000 shares for issuance upon the exercise of options
granted to two non-employee directors of the Company, subject to the approval of
the Company's stockholders. All of such shares are included in the offering to
which this prospectus relates except the 75,000 shares issuable upon the
exercise of the Investor Warrant.
On May 5, 1998, the weighted average exercise price for all currently
exercisable and outstanding warrants and options was $0.652.
Between October 10, 1997 and December 4, 1997, a subsidiary of the Company,
NCT Audio, raised $4.0 million of equity capital by means of 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. The Company is under no obligation to register any of
the shares of the Company's Common Stock which may be issued in connection with
the exercise of the foregoing exchange right although such Common Stock of the
Company may be sold pursuant to an applicable exemption from registration.
Because the exchange ratio will be determined by using 80% of the average
closing bid price of the Company's Common Stock over the five day trading period
immediately preceding such date the exchange right is exercised, it is not
possible to accurately determine the maximum number of shares of the Company's
Common Stock that would be issued if all of the purchasers of NCT Audio common
stock elected to fully exercise their exchange rights. If all of the purchasers
of the $4.0 million in the aggregate of NCT Audio common stock purchased
pursuant to the foregoing private placements, become entitled to exercise such
exchange right and do so at a time when the average closing bid price of the
Company's Common Stock for the five trading days immediately preceding the date
on which the exchange right was exercised was the same as it was on September
30, 1997 ($0.625 per share) the Company would be required to issue 8.0 million
shares of its Common Stock. No assurance can be made that the price of the
Company's Common Stock will not be significantly lower than $0.625 per share in
which event a significant number of additional shares of the Company's Common
Stock would be issued in connection with such exchange.
Between November 3, 1997 and December 11, 1997 the Company issued and sold
13,250 shares of 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 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, in no event is the Company obligated to issue more than 26.0 million
shares of its Common Stock in the aggregate in connection with the conversion of
the Preferred Stock. Accordingly, 26.0 million shares of Common Stock which
could be issuable upon conversion of the Preferred Stock are included in the
offering to which this prospectus relates.
The possibility of the sale of the shares of Common Stock described in the
preceding paragraphs of this "risk factor", all of which (except the shares
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.
An interference proceeding has been initiated with respect to one of the
Company's patent applications. There has also been an inquiry regarding the
product design configuration of one of the Company's products as it relates to a
patent held by another company. Another competitor has implied that a possible
conflict exists between the Company's application of certain of its technology
and a patent recently allowed to the competitor and that the Company's use of
what the Company believes is a generic phrase conflicts with a trademark which
the competitor has applied for. The Company believes that such claims and
inquiry are without merit and intends to oppose them vigorously. Moreover, if
such inquiry proves to have any merit, the Company believes it could, without
significant cost, modify its product design configuration so as to avoid
infringement. The Company does not believe that any damages or costs it may
incur as a result of such claims or inquiry would have a material adverse effect
on the financial condition of the Company.
The Company's policy is to enter into confidentiality agreements with all of
its executive officers, key technical personnel and advisors, but no assurances
can be made that Company know-how, inventions and other secret or unprotected
intellectual property will not be disclosed to third parties by such persons.
RAPID TECHNOLOGICAL CHANGE. Active Wave Management 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 December 31, 1997, there were no preferred
distributions due to joint venture partners from future profits of the joint
ventures.
The Company conducts its marketing efforts primarily by identifying specific
market segments for active noise and vibration attenuation and other Active Wave
Management 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.
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
December 31, 1997. The Company will not be able to record any equity in income
with respect to an entity until its share of future profits is sufficient to
recover any cumulative losses that have not previously been recorded.
DEPENDENCE UPON EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL. The Company's
operations are, and for the proximate future will be, materially dependent upon
the efforts of its executive officers and key technical employees, all of whom
serve the Company on a full-time basis but none of whom are contractually
obligated to remain in the Company's employ for any material term. Moreover, the
Company's growth and expansion into new product applications could require
additional expertise in areas such as manufacturing, marketing and distribution,
which would place increased demands on the Company's resources and would require
the addition of new personnel and the development of additional expertise by
existing personnel. Certain academic consultants serve the Company on a
part-time basis, and could terminate their relationship with the Company at any
time.
Certain employees and consultants of the Company have been approached by the
Company's competitors, and no assurances can be given that the competition will
not successfully recruit such personnel. The loss of key personnel or the
failure to recruit necessary additional personnel could impede the achievement
of the Company's development, commercialization and marketing objectives.
POSSIBLE RISKS ASSOCIATED WITH AGREEMENTS WITH RELATED PARTIES; COMMISSIONS
AND EXCLUSIVE DISTRIBUTORSHIPS. In 1993 the Company entered into four agreements
with QuietPower Systems, Inc. ("QSI") (formerly Active Acoustical Solutions,
Inc.) and in 1994 entered into a fifth agreement with QSI. QSI is 33% owned by
Environmental Research Information, Inc. ("ERI") and 2% owned by Jay M. Haft,
Chairman of the Board of Directors of the Company. Michael J. Parrella,
President of the Company owns approximately 12% of the outstanding capital of
ERI and Mr. Haft shares investment control over an additional 24% of the
outstanding capital of ERI. Under these agreements, QSI is given rights to
market certain of the Company's products and technologies to electric and/or
natural gas utilities and for use in or with feeder bowls. In one of these
agreements, QSI's rights are on an exclusive basis so long as QSI meets certain
performance criteria relating to marketing efforts and sales performance. Under
one of these agreements, QSI is entitled to receive a sales commission equal to
129% of QSI's marketing expenses attributable to the marketing of the products
in question, which expenses are to be deemed to be the lesser of QSI's actual
expenses or 35% of the revenues received by the Company from the sale of such
products. Commissions and fees payable under all of the other agreements are in
accordance with the Company's standard terms and conditions and do not exceed
6%. As of the date of this Prospectus, the Company has not been required to pay
any commissions to QSI under these agreements.
In March 1995, the Company entered into a Master Agreement with QSI under
which QSI was granted an exclusive worldwide license under certain NCT patents
and technical information to market, sell and distribute transformer quieting
products, turbine quieting products and certain other products in the utility
industry. Under the Master Agreement, QSI is to fund development of the products
by the Company and the Company is to manufacture the products. However, QSI may
obtain the right to manufacture the products under certain circumstances
including NCT's failure to develop the products or the failure of the parties to
agree on certain development matters. In consideration of the rights granted
under the Master Agreement, QSI is to pay the Company a royalty of 6% of the
gross revenues received from the sale of the products and 50% of the gross
revenues received from sublicensing the rights granted to QSI under the Master
Agreement after QSI has recouped 150% of the costs incurred by QSI in the
development of the products in question. The Company is obligated to pay similar
royalties to QSI on its sale of the products and the licensing of rights covered
under the Master Agreement outside the utility industry and from sales and
licensing within the utility industry in the Far East. In addition to the
foregoing royalties, QSI is to pay an exclusivity fee to the Company of
$750,000; $250,000 of which QSI paid to the Company in June 1994. The balance is
payable in equal monthly installments of $16,667 beginning in April 1995. QSI's
exclusive rights become non-exclusive with respect to all products if it fails
to pay any installment of the exclusivity fee when due and QSI loses such rights
with respect to any given product in the event it fails to make any development
funding payment applicable to that product. The Master Agreement supersedes all
other agreements relating to the products covered under the Master Agreement,
including those agreements between the Company and QSI described above.
Immediately following the execution to the Master Agreement, the Company and
QSI entered into a letter agreement providing for the termination of the Master
Agreement at the Company's election if QSI did not pay approximately $500,000 in
payables then owed to the Company by May 15, 1995.
In April 1995, the Company and QSI entered into another letter agreement
under which QSI agreed to forfeit and surrender the five year warrant to
purchase 750,000 shares of the Company's Common Stock issued to QSI under the
first Marketing Agreement described above. In addition, the $500,000 balance of
the exclusivity fee provided for under the Master Agreement was reduced to
$250,000 to be paid in 30 monthly installments of $8,333 each and the payment of
the indebtedness to be paid under the letter agreement described in the
proceeding paragraph was revised to be the earlier of May 15, 1996, or the date
of closing of a financing of QSI in an amount exceeding $1.5 million, whichever
first occurs. Such indebtedness was to be evidenced by a promissory note,
non-payment of which would constitute an event of termination under the Master
Agreement.
In May, 1996, the Company and QSI entered into another letter agreement
extending the time by which the payments from QSI to the Company under the April
1995 letter agreement described above were to be made. Under the letter the
payment of certain arrearages in the payment of the exclusivity fee was to be
made not later than June 15, 1996, with the balance continuing to be payable by
monthly payments of $8,333 and as provided in the May 1995 letter agreement. In
addition the payment of the other indebtedness owed by QSI to the Company was to
be paid by a payment of $25,000 at the time QSI obtained certain anticipated
financing with the balance paid by monthly payments of $15,000 each. Default in
QSI's timely payment of any of the amounts specified in the May 21, 1996 letter
agreement was to cause the immediate termination of the Master Agreement and all
rights granted to QSI thereunder.
On April 9, 1997, the Company and QSI entered into another letter agreement
revising the payment schedule set forth in the May 21, 1996 letter agreement
applicable to the payment of the indebtedness owed to the Company by QSI other
than the unpaid portion of the exclusivity fee. Under the revised schedule, the
full amount of such indebtedness is to be paid by an initial payment of $125,000
on or before April 21, 1997, and a second payment of $200,000 upon the closing
of a proposed financing in June 1997 or on January 1, 1998, whichever first
occurs. The Company is also entitled to receive 15% of any other financing
obtained by QSI in the interim as well as interest at the rate of 10% per annum
on the unpaid amount of such indebtedness from July 1, 1997. The letter
agreement also provides for the continuation of QSI's payment of $11,108 by
April 21, 1997, for headset products sold by the Company to QSI in 1996. In the
event of a default in QSI's timely payment of any of the amounts specified in
the April 9, 1997 letter agreement, the Company has the right to cause the
termination of the Master Agreement and all rights granted by QSI thereunder
upon 10 days notice of termination to QSI.
As of March 31, 1998, QSI has paid all installments due and payable for the
exclusivity fee, and still owes the Company $150,000 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 believes that the terms of its agreements with QSI are comparable
to those that it could have negotiated with other persons or entities.
COMPETITION. The Company is aware of a number of direct competitors in the
field of Active Wave Management. 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 only if the deficiency continues for a period of 30
consecutive business days. Upon such failure, the Company will be notified and
will have a period of 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 10 consecutive business days during the 90
day compliance period. On March 31, 1998, the amount of the Company's net
tangible assets was approximately $13.2 million and the market value of its
publicly held shares was $101.1 million. From March 19, 1998, through April 28,
1998, the minimum bid price for the Company's Common Stock as quoted on the
NASDAQ/NMS was below $1.00. On April 29, 1998, such minimum bid price was $1.00
and from April 30, 1998 through May 5, 1998 such minimum bid price has been
below $1.00. 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 minimum bid 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 minimum
bid price of the Company's Common Stock will continue to meet the NASDAQ/NMS
requirements or, in the event of a failure to do so, the likelihood that
compliance could be achieved within the requisite 90 day period. For the same
reasons 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 May 5, 1998
(111,542,584 shares) and the price per share fell below $0.0448. On May 5, 1998,
the price per share of the Company's Common Stock was $0.781. Failure of the
Company to continue to meet the maintenance requirements could result in the
Common Stock losing its NASDAQ/NMS designation. The NASDAQ/NMS provides brokers
and others with immediate access to the best bid and asked prices and other
information about the Common Stock during each trading day. If the Company were
to lose its NASDAQ/NMS designation, real-time price information for the Common
Stock might cease to be available. As a result, a stockholder might find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the Common Stock. In addition, if the Company were to lose the NASDAQ/NMS
designation, the Common Stock might no longer qualify as a "margin security" as
defined by the Federal Reserve Board.
If the Company were to lose its NASDAQ/NMS designation and, at any time
following the loss of such designation, did not have either (i) net tangible
assets in excess of $2.0 million or (ii) average revenue of at least $6.0
million for the last three years, the Common Stock could become subject to the
Commission's "penny stock" rules. The penny stock rules impose additional sales
practice requirements on broker-dealers who sell securities designated as penny
stocks to persons other than established customers and certain types of
accredited investors. For transactions covered by the penny stock rules, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to the sale. The rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The rules also require disclosure by the broker-dealer of commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. If the broker-dealer is the sole market-maker for
the penny stock, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
customer's account and information on the limited market in penny stocks. The
additional burdens imposed upon broker-dealers by the penny stock rules may
discourage broker-dealers from effecting transactions in penny stocks. Thus, if
the Common Stock were to fall within the definition of a penny stock, the
liquidity of the Common Stock could be reduced and there could be a material
effect on the trading market for the Common Stock.
POSSIBLE VOLATILITY OF COMMON STOCK. The market prices for securities of
emerging and high-technology companies have historically been highly volatile.
Future announcements concerning the Company or its competitors could have a
significant impact on the market price of the Common Stock.
BLANK CHECK PREFERRED STOCK. The Board of Directors has total discretion in
the issuance and the determination of the rights and privileges of any shares of
Preferred Stock which might be issued in the future, which rights and privileges
may be detrimental to the holders of the Common Stock. The Company is authorized
to issue 10.0 million shares of Preferred Stock 13,250 shares of which have been
designated to date. The issuance of Preferred Stock in the future could
discourage or impede a tender offer, proxy contest or other similar transaction
involving a potential change in control of the Company, which transaction might
be viewed favorably by other shareholders. 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.
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.
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", No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures
about Segments of an Enterprise and Related Information". The Company has not
determined whether the above pronouncements will have a significant effect on
the information presented in its financial statements.
LITIGATION. On or about June 15, 1995, Guido Valerio filed suit against the
Company in the Tribunal of Milan, Milan, Italy. The suit requests the Court to
award judgment in favor of Mr. Valerio as follows: (i) establish and declare
that a proposed independent sales representation agreement submitted to Mr.
Valerio by the Company and signed by Mr. Valerio but not executed by the Company
was made and entered into between Mr. Valerio and the Company on June 30, 1992;
(ii) declare that the Company is guilty of breach of contract and that the
purported agreement was terminated by unilateral and illegitimate withdrawal by
the company; (iii) order the Company to pay Mr. Valerio $30,000 for certain
amounts alleged to be owing to Mr. Valerio by the Company; (iv) order the
Company to pay commissions to which Mr. Valerio would have been entitled if the
Company had followed up on certain alleged contacts made by Mr. Valerio for an
amount to be assessed by technicians and accountants from the Court Advisory
Service; (v) order the Company to pay damages for the harm and losses sustained
by Mr. Valerio in terms of loss of earnings and failure to receive due payment
in an amount such as shall be determined following preliminary investigations
and the assessment to be made by experts and accountants from the Court Advisory
Service and in any event no less than 3 billion Lira ($18.9 million); and (vi)
order the Company to pay damages for the harm done to Mr. Valerio's image for an
amount such as the judge shall deem equitable and in case for no less than 500
million Lira ($3.1 million). The Company retained an Italian law firm as special
litigation counsel to the Company in its defense of this suit. On March 6, 1996,
the Company, through its Italian counsel, filed a brief of reply with the
Tribunal of Milan setting forth the Company's position that: (i) the Civil
Tribunal of Milan is not the proper venue for the suit, (ii) Mr. Valerio's claim
is groundless since the parties never entered into an agreement, and (iii)
because Mr. Valerio is not enrolled in the official Register of Agents, under
applicable Italian law Mr. Valerio is not entitled to any compensation for his
alleged activities. A preliminary hearing before the Tribunal was held on May
30, 1996, certain pretrial discovery has been completed and a hearing before a
Discovery Judge was held on October 17, 1996. Submissions of the parties final
pleadings were to be made in connection with the next hearing which was
scheduled for April 3, 1997. On April 3, 1997, the Discovery Judge postponed
this hearing to May 19, 1998, due to a reorganization of all proceedings before
the Tribunal of Milan. Management is of the opinion that the lawsuit is without
merit and will contest it vigorously. In the opinion of management, after
consultation with outside counsel, resolution of this suit should not have a
material adverse effect on the Company's financial position or operations.
However, in the event that the lawsuit does result in a substantial final
judgment against the Company, said judgment could have a severe material effect
on quarterly or annual operating results.
On September 16, 1997, Ally Capital Corporation ("Ally") filed suit against
the Company, John J. McCloy II, Michael J. Parrella, Jay M. Haft and Alistair J.
Keith in the United States District Court for the District of Connecticut (the
"District Court"). The complaint was not served on the Company until January 15,
1998, and has yet to be served on the individual defendants. The individual
defendants are current and former officers and directors of the Company. The
complaint alleges three (3) causes of action arising out of an agreement (the
"Asset Purchase Agreement") which the Company entered into with another entity
known as Active Noise and Vibration Technologies, Inc. ("ANVT") whereby the
Company agreed to acquire ANVT's patented and unpatented intellectual property,
the rights and obligations under a defined list of agreements between ANVT and
twenty-one (21) other parties (the "Listed Parties") relating to existing or
potential joint ventures, licensing and other business relationships, and
certain items of office and laboratory equipment. For these assets, the Company
paid ANVT two hundred thousand ($200,000.00) dollars and issued ANVT two million
(2,000,000) shares of the Company's common stock. The Asset Purchase Agreement
also provided ANVT with the right to certain contingent payments, to the extent
the Company generated certain levels of revenue from joint venture, licensing or
other contractual relationships with any of the Listed Parties. Plaintiff Ally
is an unsecured creditor of ANVT and is not a party to the Asset Purchase
Agreement; however, Ally asserts an interest to part of the consideration paid
ANVT by virtue of an escrow agreement between ANVT and the escrow agent for the
benefit of ANVT's secured and unsecured creditors. Ally purports to allege
claims of fraud, negligent misrepresentation and a claim under the Connecticut
Unfair Trade Practice Act based upon purported representations made to ANVT, not
Ally. Thus, it is alleged that the Company misrepresented to ANVT the Company's
financial condition, the number of shares it could issue and the value of the
contingent payment rights under the Asset Purchase Agreement. In connection with
the claims, Ally seeks compensatory damages in excess of one million two hundred
thousand ($1,200,000.00) dollars, punitive damages and attorney fees. On March
4, 1998, the Company served its motion to dismiss the complaint pursuant to
Federal Rule of Civil Procedure 12. The basis for the motion include: that the
summons and complaint were not served for more than one hundred twenty (120)
days after the complaint was filed, in violation of Federal Rule of Civil
Procedure 4; that Ally lacks standing to bring its claims as they are based on
purported representations made by the Company to ANVT, not Ally; that the claims
are legally insufficient under Connecticut law; and that plaintiff has failed to
join necessary parties, ANVT and the escrow agent. On March 16, 1998, Ally filed
a notice of voluntary dismissal as to the individual defendants, Messrs. McCloy,
Parrella, Haft and Keith. As 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 lawsuit.
However, in the event this lawsuit does result in a substantial final judgment
against the Company, said judgment could have a severe material effect on
quarterly or annual operating results.
<PAGE>
USE OF PROCEEDS
All of the shares of Common Stock offered hereby are being offered by the
Selling Stockholders and the Company will not receive any of the proceeds from
their sale. However, the Company will receive the aggregate proceeds from the
exercise, from time to time, of the warrants and options to purchase Common
Stock described on the cover of this prospectus and under "The Offering". The
exercise price for such options and warrants ranges from $0.50 to $5.36 per
share. The aggregate proceeds, from the exercise of all such warrants or options
would be $5,663,873 and, to the extent realized, will be added to the Company's
working capital. The expenses payable by the Company in connection with this
registration statement are estimated to be $49,109. There are no other material
incremental expenses attributable solely to the issuance and distribution of the
above described shares.
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders. The shares set forth therein have been included in the
Registration Statements of which this Prospectus forms a part pursuant to
registration commitments afforded to the Selling Stockholders by contractual
obligations. The Company will not receive any proceeds from the sale of the
shares by the Selling Stockholders.
<TABLE>
<CAPTION>
SELLING STOCKHOLDERS Beneficial
Beneficial Number of Ownership
Ownership Shares of of Shares of
of Shares Common Common Stock
of Common Stock After Giving
Relationship Stock Offered Effect to
With at May 5, For Proposed
Name of Selling Stockholder The Company 1998 (1) Sale (1) Sale (1)
- --------------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
- ---------------------- ------------ -------- ------- -------
1176697 Ontario Limited 392,453 (20) 392,453 (20) -
Alliance Advisory Partners, LLC 300,000 300,000 -
Alexander Wescott & Co., Inc. 78,750 78,750 -
Co., Inc.
Arab Commerce Bank Ltd. 245,283 (20) 245,283 (20) -
Atlantis Capital Fund, Ltd. 1,412,830 (20) 1,412,830 (20) -
BarAub Corp. 49,057 (20) 49,057 (20) -
Black Sea Investments, Ltd. 588,679 (20) 588,679 (20) -
Canadian Advantage Limited Partnership 1,187,170 (20) 1,187,170 (20) -
J.P. Carey, Inc. 418,125 418,125 -
Michael Dickerson 2,067,698 600,000 1,467,698
Dominion Capital Fund, Ltd. 4,993,962 (20) 4,993,962 (13)(20) -
Excalibur Limited Partnership 981,132 (20) 981,132 (20) -
Faisal Finance (Switzerland) SA 784,906 (20) 784,906 (20) -
Fernhill Holding Ltd. 392,453 (20) 392,453 (20) -
First Atlanta Securities, LLC 83,625 83,625 -
First Empire Corporation 392,453 (20) 392,453 (20) -
Ronald Frisch 215,849 (20) 215,849 (20) -
Graham Eatwell (2) 131,475 75,000 56,475
William W. Gerecke 47,150 35,000 12,150
Tiebing Guan 196,226 (20) 196,226 (20) -
Jay M. Haft Chairman Of The 1,982,000 (5) 468,500 1,513,500 (5)
Board and Director
Cy E. Hammond Senior Vice 644,718 (6) 25,000 619,718 (6)
President, Chief
Financial Officer
John B. Horton Senior Vice 734,417 (7) 20,000 714,417 (7)
President, General
Counsel and
Secretary
The Isosceles Fund Limited 2,060,377 (20) 2,060,377 (12)(20) -
JeFrob Glorich Ltd. 215,849 (20) 215,849 (20) -
Irene Lebovics Senior Vice 2,388,067 (11) 996,767 1,391,300
President
Lenco Consulting Corporation 15,000 15,000 -
John L. Lesher 105,000 20,000 85,000
William A. Marquard 50,000 50,000 -
John J. McCloy Director 3,811,591 (8) 3,661,591 (14) 150,000
National Utility Services 215,849 (20) 215,849 (20) -
(Canada) Ltd.
Aldo Nenzi 392,453 (20) 392,453(20) -
Marjorie Oolie (3) 200,000 200,000 -
Sam Oolie Director 715,000 (9) 550,000 165,000
Oolie Enterprises (3) 21,280 21,280 -
Oolie Family Support Foundation (3) 10,000 10,000 -
Optimum Fund 588,679 (20) 588,679 (20) -
Michael J. Parrella President, Chief 10,250,333 (10) 1,125,833 9,124,500 (10)
Executive Officer
And Director
Primecap Management Group 588,679 (20) 588,679 (20) -
Rossmore Enterprises 98,113 (20) 98,113 (20) -
Money Purchase
Sage Capital 98,113 (20) 98,113 (20) -
Investments Limited
Carole Salkind (4) 9,542,143 6,857,143 (15) 2,685,000
Seagrove, Inc. 49,057 (20) 49,057 (20) -
The Second Cup, Ltd. 392,453 (20) 392,453 (20) -
Karen D. Seeman 49,057 (20) 49,057 (20) -
Selday Investments LTD 196,226 (20) 196,226 (20) -
Silenus Limited 1,962,264 (20) 1,962,264 (16)(20) -
Philip Santo Sirianni, TTEE, 196,226 (20) 196,226 (20) -
The Sirianni-Jersey Trust
Sovereign Partners, LP 3,433,962 (20) 3,433,962 (17)(20) -
Jay Smith 392,453 (19) 392,453 (19) -
Thomson Kernaghan & Co. Ltd. 2,747,170 (19) 2,747,170 (18)(19) -
Rolf Towe 150,000 150,000 -
Tricaster Management, Inc. 294,340 (20) 294,340 (20) -
Verity Group, plc 3,850,000 3,850,000 (19) -
Luc Verschueren 25,000 25,000 -
Eldon W. Ziegler, Jr. 145,250 125,000 20,250
Zooley Services Limited 196,226 (20) 196,226 (20) -
------------ ----------- -----------
63,766,621 45,761,613 18,005,008
============ =========== ===========
</TABLE>
- -----------------------------
(1) Includes shares issuable upon exercise of non-contingent, currently
outstanding options and warrants. The table does not include any shares
held in Alexander, Wescott & Co., Inc.'s, First Atlanta Securities, LLC's
or J.P. Carey, Inc.'s trading accounts or any customer account over which
either of them has discretion.
(2) Represents a person who was either an officer or a director of the Company
within three years of the date hereof or an affiliate thereof.
(3) An affiliate of Sam Oolie, a director of the Company.
(4) The wife of Morton Salkind, a director of the Company.
(5) Includes 750,000 shares issuable upon contingent currently outstanding
options.
(6) Includes 325,000 shares issuable upon contingent currently outstanding
options.
(7) Includes 175,000 shares issuable upon contingent currently outstanding
options.
(8) Includes 200,000 shares issuable upon contingent currently outstanding
options.
(9) Includes 200,000 shares issuable upon contingent currently outstanding
options.
(10) Includes 7,500,000 shares issuable upon contingent currently outstanding
options.
(11) Includes 1,000,000 shares issuable upon contingent currently outstanding
options.
(12) Upon completion of the offering the Selling Stockholder will own 1.2% of
the Company's issued and outstanding Common Stock.
(13) Upon completion of the offering the Selling Stockholder will own 2.8% of
the Company's issued and outstanding Common Stock.
(14) Upon completion of the offering the Selling Stockholder will own 2.0% of
the Company's issued and outstanding Common Stock.
(15) Upon completion of the offering the Selling Stockholder will own 3.8% of
the Company's issued and outstanding Common Stock.
(16) Upon completion of the offering the Selling Stockholder will own 1.1% of
the Company's issued and outstanding Common Stock.
(17) Upon completion of the offering the Selling Stockholder will own 1.9% of
the Company's issued and outstanding Common Stock.
(18) Upon completion of the offering the Selling Stockholder will own 1.5% of
the Company's issued and outstanding Common Stock.
(19) Upon completion of the offering the Selling Stockholder will own 2.2% of
the Company's issued and outstanding Common Stock.
(20) Based on each Selling Stockholder's pro rata share of the maximum number of
shares of Common Stock which the Company is obligated to issue upon
conversion of the Preferred Stock under the Subscription Agreements. Such
pro rata share has been determined for each Selling Stockholder by dividing
the number of shares of Preferred Stock acquired by such Selling
Stockholder by the total number of shares of Preferred Stock issued in the
1997 Preferred Stock Private Placement. The number of shares of Preferred
Stock issued upon conversion to any particular Selling Stockholder may be
more or less than the amount shown depending on (i) the length of time the
Preferred Stock is held, (ii) the conversion price as determined under the
Conversion Formula, and (iii) the application of the 26,000,000 share limit
on the Company's obligation to issue shares of Common Stock upon conversion
of the Preferred Stock.
<PAGE>
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that there are no
underwriting arrangements with respect to the sale of the shares, that such
shares will be sold from time to time in public sales in the over-the-counter
market at then prevailing prices or at prices related to the then current market
price or in private transactions at negotiated prices. The shares offered hereby
may be sold by one or more of the following methods, without limitation: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face transactions between sellers and
purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Stockholders may arrange for other brokers or dealers to
participate. Such broker or dealers may receive commissions or discounts from
Selling Stockholders in amounts to be negotiated. Such brokers and dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Act, in connection with such sales. Shares of Common
Stock offered hereby may be used to cover short sales or other hedging
transactions. From time to time, one or more of the Selling Stockholders named
herein may pledge, hypothecate or grant a security interest in some or all of
the Shares owned by them, and the pledgees, secured parties or persons to whom
such securities have been hypothecated shall, upon foreclosure in the event of
default, be deemed to be Selling Stockholders for purposes hereof.
<PAGE>
LEGAL MATTERS
Matters relating to the legality of 41,249,786 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
May 5, 1998, Mr. Horton owned 20,000 shares of Common Stock, subject to
acquisition upon the exercise of currently exercisable warrants, 20,000 shares
of which are being offered by this Prospectus. In addition, Mr. Horton owns
539,417 shares subject to acquisition upon the exercise of currently exercisable
options granted to him under the 1992 Plan none of which are being offered by
this Prospectus. Matters relating to the legality of the remaining 4,890,721
shares of Common Stock offered by this Prospectus have been passed upon for the
Company by Parker Duryee Rosoff & Haft, a professional corporation, New York,
New York. Jay M. Haft, a former member of and presently of counsel to Parker
Duryee Rosoff & Haft, is Chairman of the Board of Directors and a director of
the Company and as of May 5, 1998 was the beneficial owner of 1,532,000 shares
of Common Stock, including 1,282,000 shares subject to acquisition upon the
exercise of currently exercisable warrants and options, 468,500 shares of which
are being offered by this Prospectus.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996 and
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
inability to continue as a going concern) and have been so incorporated in
reliance upon such reports given upon the authority of such firm as experts in
auditing and accounting.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses payable by the
registrant with respect to the offering described in this Amendment No. 1 to
Registration Statement:
Securities and Exchange Commission registration fee $10,609
Legal Fees and expenses 18,000 *
Accounting fees and expenses 20,000 *
Miscellaneous expenses 500 *
------------ ------------
Total $49,109 *
============ ============
- -------------
* Estimated
<PAGE>
Item 16. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K)
The following exhibits are included as a part of this Amendment No. 1
to Registration Statement:
Exhibit No. Description
5 Opinion of John B. Horton, Esquire, Senior Vice President and
General Counsel of the registrant, as to the legality of the
Common Stock to which this Amendment No. 1 to 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)
24 Powers of Attorney*
- -------------
* Previously filed
<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 Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Linthicum, Maryland, on this 8th day of May, 1998.
NOISE CANCELLATION TECHNOLOGIES, INC.
By: /s/ MICHAEL J. PARRELLA
-------------------------------
Michael J. Parrella, President
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to 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 May 8, 1998
- ----------------------- Officer) and Director
Michael J. Parrella
/s/ CY E. HAMMOND Senior Vice President and May 8, 1998
- ----------------------- Chief Financial Officer
Cy E. Hammond (Principal Financial and
Accounting Officer
/s/ JAY M. HAFT Chairman of the Board of Directors May 8, 1998
- ----------------------- and Director
Jay M. Haft
/s/ JOHN J. McCLOY Director May 8, 1998
- -----------------------
John J. McCloy
/s/ SAM OOLIE Director May 8, 1998
- -----------------------
Sam Oolie
/s/ STEPHAN CARLQUIST Director May 8, 1998
- -----------------------
Stephan Carlquist
/s/ MORTON SALKIND Director May 8, 1998
- -----------------------
Morton Salkind
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description Page Number
5 Opinion of John B. Horton, Esquire, 60
Senior Vice President and General Counsel
of the registrant, as to the legality of the
Common Stock to which this Amendment No. 1
to Registration Statement relates
23(a) Consent of Richard A. Eisner & Company, LLP 61
23(b) Consent of Peters Elworthy & Moore 62
23(c) Consent of John B. Horton, Esquire
(contained in Exhibit 5)
24 Powers of Attorney*
- -----------
* Previously filed
Exhibit 5
May 8, 1998
Noise Cancellation Technologies, Inc.
1025 West Nursery Road, Suite 120
Linthicum, Maryland 21090
Re: Amendment No. 1 to Registration Statement on Form S-3
Gentlemen:
Referring to Amendment No. 1 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 shares of
Common Stock of the Company (the "Resale Shares") and the sale to certain
persons not deemed "affiliates" of the Company, as that term is defined under
the Securities Act of 1933, as amended, of 378,894 shares of Common Stock of the
Company upon the exercise of outstanding warrants and options to purchase Common
Stock (the "Warrant and Option Shares"), I am of the opinion that:
1. The Resale Shares have been duly authorized by the Company, have been validly
issued and are fully paid and nonassessable.
2. The Warrant and Option Shares have been duly authorized by the Company and,
when issued and delivered in accordance with the terms of the respective warrant
or option agreements governing such warrants or options, will be validly issued,
fully paid and nonassessable.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as Exhibit No. 5 to the Amendment No. 1 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)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference to the Registration Statement on
Form S-3 Amendment No. 1 of our report dated February 27, 1998, on the
consolidated financial statements and schedule of Noise Cancellation
Technologies, Inc. (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.
/s/ RICHARD A. EISNER & COMPANY, LLP
Richard A. Eisner & Company, LLP
New York, New York
May 5, 1998
Exhibit 23(b)
April 29, 1998
Noise Cancellation Technologies, Inc.
1025 West Nursery Road, Suite 120
Linthicum, MD 21090
Dear Sirs:
We consent to the incorporation in Registration Statement on form S-3, Amendment
No. 1 of our opinion on the financial statements of Noise Cancellation
Technologies (UK) Limited as of December 31, 1997 and December 31, 1996 and for
each of the three years ended December 31, 1997, included in the Annual Report
on Form 10-K/A.
Yours faithfully,
/s/ PETERS ELWORTHY & MOORE
Peters Elworthy & Moore
