<PAGE>
As filed with the Securities and Exchange Commission on May 7, 1996
REGISTRATION NO. 33-00364
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
NOVA TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2599 11-2674603
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification Number)
Code Number)
</TABLE>
89 CABOT COURT, UNIT L
HAUPPAUGE, NEW YORK 11788
(516) 434-8811
(Address and telephone number of principal executive offices)
89 CABOT COURT, UNIT L
HAUPPAUGE, NEW YORK 11788
(516) 434-8811
(Address of principal place of business or intended principal place of business)
STEPHEN M. FISHER
SENIOR VICE PRESIDENT
89 CABOT COURT, UNIT L
HAUPPAUGE, NEW YORK 11788
(516) 434-8811
(Name, address, and telephone number of agent for service)
Copy to:
DAVID P. TUTTLE, ESQ.
WHITMAN BREED ABBOTT & MORGAN
100 FIELD POINT ROAD
GREENWICH, CT 06830
(203) 862-2396
Approximate date of proposed sale to the public: AS SOON AS PRACTICABLE AFTER
THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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,
please check the following box. [_]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
TITLE OF EACH AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
CLASS OF REGISTERED MAXIMUM MAXIMUM REGISTRATION FEE
SECURITIES TO BE OFFERING PRICE AGGREGATE
REGISTERED PER SHARE(1) OFFERING PRICE(1)
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<S> <C> <C> <C> <C>
Common Stock, par 900,901 $ $ $1,009.55
value $.01 per share
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the average of the bid and asked prices for the Common Stock on
May __, 1996 on the OTC Bulletin Board pursuant to Rule 457(c).
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
NOVA TECHNOLOGIES, INC.
900,901 Shares of Common Stock
This Prospectus relates to 900,901 shares of Common Stock, $.01 par value
(the "Common Stock") of Nova Technologies, Inc. (the "Company") which may be
offered from time to time by any or all of the Selling Stockholders named
herein (the "Selling Stockholders"). See "Selling Stockholders." The Company
will not receive any proceeds from the sale of shares offered hereby. The
Company estimates that the expenses of this offering will be approximately
$_______, all of which will be paid by the Company.
The Company is not aware of any underwriting arrangements with respect to
the offer and sale by the Selling Stockholders of the Common Stock. The
Company has been advised by the Selling Stockholders that they or their
successors may sell all or a portion of the shares offered hereby from time
to time on the OTC Bulletin Board, in privately negotiated transactions, or
otherwise, including sales through or directly to a broker or brokers. Sales
will be at prices and terms then prevailing or at prices related to the then
current market prices or at negotiated prices. In connection with any sales,
any broker or dealer participating in such sales may be deemed to be
underwriters within the meaning of the Securities Act of 1933. See "Plan of
Distribution."
The Common Stock is traded on the OTC Bulletin Board under the symbol
"NOTL." On May __, 1996, the bid and asked prices of the Common Stock, as
reported by the OTC Bulletin Board, were $2.25 and $3.00, respectively. The
market for the Common Stock must be considered limited and there can be no
assurance that a meaningful trading market will develop. Furthermore, prices
quoted may not represent the true value of the Common Stock.
A Securities and Exchange Commission (the "S.E.C.") rule imposes
additional sales practice requirements on broker-dealers who sell certain low
priced "penny stocks" to persons other than established customers and
institutional accredited investors. For transactions covered by this rule,
the broker-dealer must make a special suitability determination of the
purchaser and have received the purchaser's written consent to the
transaction prior to the sale. Since the Common Stock currently is deemed to
be "penny stock", an investor may find it more difficult to dispose of, or to
obtain accurate quotations as to market value of the securities offered
hereby.
_____________________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" AT PAGE 5.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONER
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May __, 1996
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in or incorporated by reference into this Prospectus.
THE COMPANY
Nova Technologies, Inc. ("Nova" or the "Company"), a publicly traded (NASD,
NOTL) company, was founded in 1984 to create a methodology of providing for the
unassisted transfer of bedridden patients. Nova's objective is to become a
fully integrated design, engineering, manufacturing and marketing company
addressing a niche market in the medical equipment and supply field.
The Company's engineering and technical staff has developed a patient
transfer system (Novabed(R)) to be marketed to the rapidly growing long-term
care market. The Nova patient transfer system, with the push of a button on a
hand held pendant can automatically, comfortably, and safely transfer a
bedridden patient from a lying position in a hospital type bed to a seated
position in a wheel chair or commode and transfer the patient back into the
bed. A wheelchair backrest must be manually inserted in order to separate the
wheelchair from the bed. The system consists of a unique hospital-type bed, a
companion wheelchair, accessories, and is designed to be operated by one
attendant or, under certain circumstances, by the patient unassisted. At
present the Company is not aware of any similar products on the market. The
Company has been issued 18 patents related to the transfer system and bed sore
prevention and has received United States Food and Drug Administration ("FDA")
approval to market the product.
The Novabed(R) provides elderly and disabled persons and their care givers
with an alternative to manual lifting or conventional hydraulic lifting
devices. Such devices are difficult to use and often require special safety
precautions. The Company believes its system can significantly help the
bedridden to be comfortably and safely cared for in their own homes. The
patient transfer system has demonstrated how it may also partially reduce or
eliminate transfer related injuries to both staff and patients. Use of Nova's
system by institutions can improve patient care and mobility, provide
therapeutic benefits, and reduce costs associated with transfer-related labor
requirements and injuries. In addition, Novabed(R) can provide a means for many
non-ambulatory patients to be cared for in the home, thereby enabling early
release from the hospital. In the private home setting, Nova's unique transfer
system can significantly delay institutional care, thus saving the high cost of
nursing home care and enhancing quality of life.
The potential users of the patient transfer system include: the severely
physically handicapped; disease related bedridden persons; trauma and stroke
victims; post surgical and orthopedic rehabilitation patients; and the elderly
disabled. Purchasers of the system can be divided into three segments:
hospitals; nursing homes and related care facilities; and the home care market,
a rapidly growing segment in the industry.
The Company's strategy is to establish, through clinical trials, medical
efficacy conditions for the product, determine and establish cost benefit, and
demonstrate how the patient transfer system greatly improves quality of life.
The Novabed(R) has undergone clinical evaluation in an institutional and home
care setting. The Company is focusing its marketing on hospitals,
rehabilitation units and nursing homes in order to develop a strong referral
base for the large home healthcare market. Concurrent with this effort the
Company is developing a program to seek reimbursement authorization by
Medicare, Medicaid and other third party payors. See "Business - Beta Site and
Field Trials" and "Business - Third Party Reimbursement."
Nova commenced field trials of the Novabed with the installation of a
prototype in a nursing home in November 1992 and a prototype in a private home
in February 1993. In 1993 the Company commenced tooling for and production of
its first lot of 40 units for commercial sale. The first sales of these units
were recorded in June 1994. Since the commencement of production in 1993, the
Company has produced 60 Novabeds(R), of which 44 have been sold and shipped and
8 have been used for field trials and testing. The remaining 8 units in
inventory have been sold and will be shipped in May 1996. An additional 30
units are currently being assembled for commercial sale.
Nova is initially using distributors who have industry experience with
specialty beds to sell product to the institutional as well as the home
healthcare markets. The Company has entered into eight exclusive distribution
agreements to date covering eight regional territories in the United States.
The regions combined cover approximately 30% of the U.S. population. The
distribution agreements require such distributors to purchase approximately
$5.8 million of products from the Company over a period of up to 36 months
commencing January 1, 1996. In the future the Company plans to establish its
own sales force for distribution to the institutional markets and will work
with Home Medical Equipment dealers ("HME"), Durable Medical Equipment dealers
("DME"), distributors, and home healthcare agencies in selling to the home
healthcare market. See "Business - Marketing and Distribution."
-2-
<PAGE>
In September 1995, pursuant to a series of inter-related transactions (the
"1995 Financing"), the Company (i) sold 900,901 shares of Common Stock for an
aggregate of $1,000,000, (ii) entered into a Grant Agreement with the City of
Bristol, Connecticut providing, under certain conditions, for a grant in the
amount of $100,000, (iii) entered into a Financing Agreement with Connecticut
Innovations Incorporated ("CII"), a State of Connecticut agency to borrow
$750,000 in four staged installments, (iv) entered into a Loan Agreement with
People's Bank ("People's Bank"), providing for a $1,000,000 revolving credit
facility (v) entered into a Loan Agreement with Connecticut Development
Authority ("CDA"), a State of Connecticut agency providing for advances up to
$100,000 for the purchase of new or used equipment and (vi) entered into an
Assistance Agreement with the Department of Economic and Community Development
("DECD"), a State of Connecticut agency providing for a loan in an amount not
to exceed $200,000 for the purchase of capital equipment. In September 1995,
the Company also sold 126,667 shares of restricted Common Stock for $190,000 to
two of its distributors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital
Resources."
The Company was incorporated in Delaware in January 1984. Its principal
executive offices are located at 89 Cabot Court, Unit L, Hauppauge, New York
11788, telephone number (516) 434-8811.
THE OFFERING
COMMON STOCK OFFERED ................... 900,901 shares to be sold by
certain Selling Stockholders.
COMMON STOCK OUTSTANDING(1) ............. 5,801,183 shares as of
May __, 1996.
OTC BULLETIN BOARD SYMBOL ............... NOTL
USE OF PROCEEDS ........................ The Company will not receive
any proceeds from the sale of
shares offered hereby.
RISK FACTORS ............................ An investment in the Common Stock
involves a high degree of risk.
Prospective investors should
review carefully and consider the
factors described in "Risk
Factors."
_________________
(1) Unless otherwise indicated, all references in this Prospectus to per share
data and number of shares outstanding exclude 427,017 shares of Common Stock
issuable upon the exercise of outstanding options and 1,778,654 shares of
Common Stock issuable upon exercise of outstanding warrants.
-3-
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following tables set forth for the periods indicated selected financial
information for the Company.
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net Sales.................................................. $ 220,368 $ 233,278
----------- -----------
Costs and expenses:
Cost of sales............................................. 697,901 558,262
Research and development expenses......................... 297,780 400,202
General, administrative and consulting expenses........... 506,124 421,573
----------- -----------
Total costs and expenses................................. 1,501,805 1,380,037
----------- -----------
(Loss) from operations before other income and (expenses).. (1,281,437) (1,146,759)
Other income and (expenses):
Interest and other income................................. 13,201 5,197
Interest expense and other................................ (33,972) (69,575)
----------- -----------
Net Loss................................................... $(1,302,208) $(1,211,137)
=========== ===========
Net loss per share (1)..................................... $(.27) $(.31)
=========== ===========
Weighted average number of common shares outstanding (1)... 4,783,050 3,964,598
=========== ===========
- --------------------------------------
</TABLE>
(1) Net loss per share has been computed based on the weighted average number
of shares outstanding during each year. No effect has been given to
outstanding options and warrants as the effect would be antidilutive.
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
DECEMBER 31,
1995 1994
---------- ----------
<S> <C> <C>
Current Assets..................... $ 935,154 $ 372,737
Working Capital.................... 552,048 160,515
Total Assets....................... 1,396,193 542,119
Total Liabilities.................. 811,987 1,244,121
Stockholders' Equity (deficiency) 584,206 (702,002)
</TABLE>
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<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In analyzing such an investment, the following factors, among others,
should be read and considered carefully in conjunction with the detailed
information set forth elsewhere herein, furnished as an exhibit hereto or
incorporated by reference.
Untested Nature of Business. The Company, which began operations in July 1984,
is subject to all the risks inherent in the creation of a new business
enterprise. The Company has limited experience in commercial exploitation with
respect to its patient transfer system, having heretofore concentrated its
efforts primarily upon research and development, patent applications, FDA
approval and field trials of prototypes. Commencing in the Fall of 1993, the
Company shifted its focus to marketing and production. Since that time the
Company has entered into eight exclusive distribution agreements, produced an
initial lot of 40 units, commenced sale of such 40 systems in June 1994 and
commenced production of an additional 50 systems in 1995. However, there can be
no assurance that the Company's efforts will ever result in the development of a
commercially viable product, cost-effective manufacturing of such product, or a
profitable business. See "The Company."
Accumulated Losses Since Inception; Financial Condition; Anticipated Future
Losses. From January 23, 1984 (inception) through December 31, 1995, the Company
has experienced losses in each fiscal period, aggregating $9,321,592. The
Company's working capital requirements have been met from funds provided by
management and other investors, the proceeds of a 1992 public offering and the
proceeds of the 1995 Financing. The Company expects to incur additional future
losses of approximately $2.0 million prior to achieving operating profitability,
if ever, as it undertakes continuing development of its patient transfer system
and the start-up of marketing and production operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources."
Auditor's "Going Concern" Explanatory Paragraph. The Company has received
reports on its financial statements from its independent auditors which include
an explanatory paragraph indicating that substantial doubt exists about the
ability of the Company to continue as a going concern. The factors referenced
by the auditors include the Company's recurring operating losses and the need
for additional financing for commercial exploitation of its product. The
Company believes it has sufficient working capital and borrowing availability to
finance operations until June 1996. The Company estimates that it will need to
obtain an additional equity contribution of at least $1,000,000 on or before
June 30, 1996 and that it will need approximately $1,000,000 in additional
financing prior to December 31, 1996 beyond the $1,000,000 required by June 30,
1996 to finance its operations over the 12 month period following June, 1996.
These estimates are generated from an internally prepared business plan. The
Company has begun to seek additional capital and has retained TimeCapital
Securities Corporation ("TimeCapital") as its exclusive agent to assist the
Company in raising $500,000 by May 21, 1996 and an additional $500,000 by June
30, 1996 through the sale of Common Stock at a price of $2.00 per share in a
private placement. The Company has also entered into an agreement with
TimeCapital for it to act as the Company's exclusive agent to assist in
arranging for one or more qualified broker-dealers to serve as the
underwriter(s) on behalf of the Company in connection with a public offering of
Common Stock. See "Certain Transactions." The Company also has verbal
agreements with three finders, one of whom is Arlindo Jorge a director of the
Company, pursuant to which it will pay a commission of 10% of the proceeds of
private placement sales obtained by the finders. There can be no assurance that
the Company's estimates will prove to be accurate, that the Company will be able
to raise such additional capital or that the Company's existing distributors
will fulfill their purchase commitments. See "Business -Marketing and
Distribution." If such contingencies are not realized, the Company would have
to drastically reduce its staff and curtail manufacturing operations which may
result in a default under and acceleration of the Company's loan obligations
and, ultimately, bankruptcy and/or the discontinuance of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources."
Insufficient Financing; Uncertain Financing Sources. The net proceeds of
$888,280 in equity capital and, subject to certain conditions, $1,150,000 in
loan and grant availability from the 1995 Financing are presently estimated to
satisfy the Company's cash needs through June 1996. The Company anticipates that
this financing will not be sufficient to carry out its current business plan.
The Company anticipates that it will require approximately $2 million of
additional financing, $1 million by June 30, 1996 and an additional $1 million
by December 31, 1996, to finance its operations over the 12 month period
following June, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity and Capital Resources." As of
the date hereof, the Company has secured no commitments in this regard and no
assurances can be given as to either the magnitude or terms of such financing or
the availability or commercial reasonability of any such future financing. The
absence of additional financing may have a material adverse effect on the
Company's achievement of commercial production and its ultimate profitability
and may, after the proceeds of the 1995 Financing have been expended hinder the
Company's ability to operate efficiently and to deliver product in a timely
manner. Specifically, if the Company does not obtain the necessary additional
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<PAGE>
financing it will not be able to produce sufficient product to satisfy the
minimum purchase requirements of its distributors. Failure by the Company to
produce sufficient product to satisfy its obligations to its distributors would
constitute a default under the Company's distribution agreements which would
subject the Company to claims for damages and may allow the distributors to
terminate such agreements.
Failure to Satisfy Requirements of Existing Financings; Prepayment Penalty.
The availability of most of the Company's existing financing is contingent upon
the Company achieving certain operational milestones and satisfying certain
other conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity and Capital Resources." The
Company believes that the remaining operational milestones and other currently
unsatisfied conditions precedent to the availability of certain of its financing
are within the Company's control and are reasonably attainable. However, there
can be no assurance that the Company will satisfy such conditions and be able to
access the full amount of its committed financing.
The Company's loan with People's Bank requires that it satisfy certain
financial covenants at the end of each quarter. The Company believes that it is
currently in compliance with these covenants. However, such covenants become
more stringent for the quarter ending December 31, 1996. Failure to satisfy any
of these financial covenants constitutes a default under the People's Bank
financing which allows People's Bank to terminate its obligation to provide
financing to the Company and to accelerate all loans outstanding to the Company.
A default under the People's Bank financing also constitutes a default under the
Company's other financing arrangements . The Company anticipates that it will
require approximately $2 million of additional financing, $1 million by June 30,
1996 and an additional $1 million by December 31, 1996, to finance its
operations over the 12 month period following June, 1996 and to comply with the
financial covenants contained in the People's Bank loan agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources."
Several of the Company's existing financing arrangements require either (i),
subject to certain exceptions, that the Company base fifty percent of its
officers and a majority of its employees in Connecticut and conduct a majority
of its operations, including subcontracting operations in Connecticut, except in
the case where no Connecticut subcontractor is able to produce the products or
provide the services called for in the subcontract on commercially reasonable
terms, or (ii) that the Company otherwise maintain its operations in Connecticut
(the "Connecticut Presence Requirement"). If the Connecticut Presence
Requirement is violated, such lenders may require the Company to re-pay such
financing and to pay such lenders substantial pre-payment charges. The Company
is currently in compliance with these Connecticut Presence Requirements and does
not believe that continued compliance will have a material adverse effect on the
Company. The CII loan agreement contains a mandatory prepayment provision in
the event the Company fails to satisfy the Connecticut Presence Requirement, the
Company sells Common Stock for its own account in an underwritten public
offering or there is a change in control of the Company or its assets. This
provision includes a prepayment penalty in an amount equal to the greater of (i)
an amount sufficient to provide a rate of return of 25% compounded annually or
(ii) the excess of the market price of the Common Stock underlying the warrant
granted to CII over the exercise price of such warrant. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources."
The Company's existing financing arrangements are secured by some or all of the
Company's assets, including its patents. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Liquidity and Capital
Resources."
Dependence on Distributors; Failure of Distributors to Perform. For the year
ended December 31, 1995, approximately $192,151, or 87% of the Company's net
sales were made to four distributors. The Company's distributors have agreed to
purchase a minimum of approximately $5.8 million of products from the Company
over a period of up to 36 months from January 1, 1996, which includes a
commitment to purchase a minimum of approximately 200 units (or $1,871,000)
during 1996. The obligations of such distributors are not supported by
financial or performance guaranties. In the event any distributor is unable to
achieve sales equivalent to its minimum purchase requirement, either due to its
failure to adequately market the Novabed(R) or the inadequacy of the demand for
the Novabed(R), the Company will be relying on the financial strength of such
distributor to purchase the required minimum to be held in inventory by the
distributor. While the Company believes that these distributors are financially
sound, no assurance can be given that such distributors will satisfy their
obligations to the Company. If these distributors fail to perform their
obligations, the Company will not realize this anticipated revenue and may have
to discontinue operations unless it can develop alternative distribution
arrangements for its products. See "Business - Marketing and Distribution."
The Company estimates that it will require approximately $2 million of
additional financing, $1 million by June 30, 1996 and an additional $1 million
by December 31, 1996, to finance its operations over the 12 month period
following June, 1996. If the Company does not obtain the necessary additional
financing it may not be able to produce sufficient product to satisfy the
minimum purchase requirements of its distributors. Failure by the Company to
produce sufficient product to satisfy its obligations to its distributors
-6-
<PAGE>
would constitute a default under the Company's distribution agreements which
would subject the Company to claims for damages and may allow the distributors
to terminate such agreements.
Dependence Upon Key Personnel. The success of the Company will be largely
dependent upon the efforts of Paul DiMatteo, its President and founder, Stephen
M. Fisher, Senior Vice President and Samuel N. Paul, Senior Vice President, each
of whom has an employment agreement with the Company. The loss of the services
of anyone of them may have a materially adverse effect on the Company's present
and proposed business and future prospects. The Company has obtained a key-man
insurance policy on the life of each of Messrs. DiMatteo, Fisher and Paul in the
amount of $500,000.
Limited Marketing Staff and Marketing Experience. The Company has undertaken
limited marketing efforts to date with respect to its patient transfer system.
Such marketing activity has been initially limited to the efforts of one of the
Company's four executive officers. Such officer, however, has had no prior
experience in the marketing of any health care products. The Company intends to
employ a marketing person in 1996.
No Significant Manufacturing Capacity or Experience. The basic bed and certain
other standardized components which comprise integral elements of the Company's
patient transfer system are manufactured by non-affiliated persons. The Company
is in the process of establishing its own facilities to manufacture the
remaining ancillary components of its patient transfer system and to assemble
the system. The Company, however, has undertaken limited manufacturing and
assembly activities to date, having completed the assembly of its initial lot of
40 units in June 1994, and started another lot of 50 units. See "Business -
Manufacturing."
Uncertain Patent Protection. The Company has been issued 18 United States
patents related to its patient transfer system and bed sore prevention. Three
additional patent applications, relating to transfer system design and
associated products, are pending. The Company has also filed a total of 22
patent protection applications in five European countries, Japan and Canada and
plans to file additional applications in both the United States and other
countries. The Company believes that patent protection will be of material
importance to its growth potential. No assurance can be given that additional
patents will be issued or, if so issued, that the scope of protection afforded
thereby or by the Company's current patents will be adequate to protect the
Company from competition. Further, no assurance can be given as to the
availability to the Company of adequate financial resources to contest any
possible patent infringement by others.
Competition. The health care industry in general, and the markets for patient
transfer devices, hospital and home care beds, and wheelchairs in particular,
are highly competitive. Although the Company is unaware of a competitive product
performing all of the same functions as those of the Company's patient transfer
system, other products perform some of those same functions. Virtually all of
the products which may be competitive with the Company's patient transfer system
are being manufactured and/or marketed by concerns which have substantially
greater financial resources, stronger sales forces and dealer networks, and
greater manufacturing capacities and industry experience than the Company.
Further, the Company expects that the anticipated sales or rental price of its
patient transfer system will be comparably priced to other specialty bed
products, such as air-therapy beds, but will be substantially higher than prices
for standard hospital beds. The Company believes it will initially compete on
the basis of product features and performance. No assurances can be given that
the Company will be able to compete successfully in any of its prospective
markets, or that companies with substantially greater resources than the Company
have not developed or are not in the process of developing superior patient
transfer technology and products.
Failure to Obtain Authorization for Government and Third-Party Payor
Reimbursement. Third-party payors, such as Medicare, Medicaid, and private
insurance companies, reimburse many durable medical equipment purchases and
rentals. A conventional home care hospital-type bed and a conventional
wheelchair as stand-alone units are presently reimbursed at the rate of 80% of
cost. The Company has not yet attempted to obtain advance approval of third-
party reimbursement so that no assurances can be given that an adequate level of
third-party reimbursement, or any reimbursement at all, will be available to
customers for its patient transfer system. The Company has made a presentation
to the Health Care Financing Administration ("HCFA") in anticipation of
submitting an application for a new procedure code for the Novabed(R). HCFA has
assigned analysts to the Novabed(R) and will assist the Company in preparing the
application for the procedure code. A specific new procedure code is required
prior to Medicare approval but is not required in order to obtain reimbursement
from private insurers or Medicaid reimbursement. The Company will also seek
reimbursement authorization from other governmental sources such as Medicaid and
from third-party payors such as private insurance carriers. In connection
therewith, the Company may be required to present clinical data to demonstrate
that its technology is not experimental and that its patient transfer system is
both safe and efficacious. In addition, the Company may be required to
demonstrate that its patient transfer system is valuable and therapeutically
beneficial to the patient and is not a luxury item. Although the Company
believes that the cost of its patient transfer system will eventually be
reimbursed at meaningful levels under each of, respectively, Medicare, Medicaid
and private insurance programs, it can give no
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<PAGE>
assurances to that effect, nor as to the length of time which may elapse prior
to a determination of permissible reimbursement by the various persons that
administer these programs throughout the country. In particular, applications
for new procedure codes currently take approximately a year for processing, with
no assurance that any such application will be approved or will not take a
substantially longer period of time. Denial of such application will preclude
Medicare reimbursement specifically for the Novabed(R). Failure to obtain
favorable determinations concerning reimbursement may have a material adverse
effect on the Company's competitive position and result in reduced sales of the
Novabed(R). See "Business - Third-Party Reimbursement."
Potential Product Liability. The Company may become subject to product
liability claims in connection with the use of its patient transfer system. The
Company presently maintains product liability insurance of $6 million. There can
be no assurance that any loss will be covered by such insurance, that such
coverage will continue to be available on commercially reasonable terms or that
the extent of coverage will be sufficient to cover any potential liability.
Limited Market for Common Stock. The Common Stock is quoted and traded on the
OTC Bulletin Board. The market for the Common Stock must be considered limited
and there can be no assurance that a meaningful trading market will develop.
Furthermore, prices quoted may not represent the true value of the Common Stock.
Reduced Liquidity Attendant to Penny Stock Status. S.E.C. rules impose
additional sales practice requirements on broker-dealers who recommend certain
low priced "penny stocks" to persons other than established customers and
institutional accredited investors. For transactions covered by these rules,
the broker-dealer must make a determination that based on the purchaser's
financial situation, investment experience and investment objectives, an
investment in penny stocks is suitable for such purchaser and that such
purchaser (or his independent advisor) is capable of evaluating the risks of
transactions in penny stocks. The broker-dealer must also provide a prospective
purchaser of penny stocks with certain disclosure materials and obtain the
purchaser's written consent to the transaction prior to the sale. Since the
Common Stock currently is deemed to be "penny stock", an investor may find it
more difficult to dispose of, or to obtain accurate quotations as to the market
value of the securities offered hereby. An exemption from "penny stock" status
will be available, however, as to the Common Stock if and when the market price
therefor exceeds $5.00 per share, the Company's net tangible assets exceed
$2,000,000 or the Company has average revenue of at least $6,000,000 over the
preceding three years. See "Market For Common Stock and Dividend Policy."
Control by Management Stockholders. It is less likely that the market price of
the Company's Common Stock will reflect a premium for control if at some future
date the Company were to become the target of a takeover attempt or subject to a
contest for control since approximately 29.2% of the Company's Common Stock is
owned by the executive officers and directors of the Company.
Effect of Outstanding Options and Warrants. The Company has outstanding options
and warrants to acquire an aggregate of 2,205,671 shares of Common Stock. To the
extent that all, or a substantial portion, of such options and warrants are
exercised, they will decrease the percentage ownership of the Company by the
persons who invest hereunder. The holders of such options and warrants may be
expected to exercise them at a time when the Company would be able to obtain
needed capital by a new offering of securities on terms more favorable than
those provided for by such options and warrants. The possibility of the sale of
all the shares of Common Stock issuable upon exercise of the options and
warrants may adversely affect the market price of the securities offered.
Shares Eligible for Future Sale. Actual sales or the prospect of sales of
Common Stock under Rule 144 or otherwise in the future may have a depressive
effect upon the price of the Common Stock or any market that may develop, and
also render difficult the sale of the Company's securities purchased by
investors in this offering. The sale or other transfer or disposition of
1,730,405 of the currently outstanding shares of Common Stock is restricted by
the Securities Act of 1933, as amended (the "Securities Act"). In the future,
these shares may only be sold in compliance with Rule 144, promulgated under the
Securities Act, by the availability of an exemption from registration under the
Securities Act or by their registration thereunder. As of January 1, 1996,
126,750 of these shares of Common Stock would have been eligible for sale under
Rule 144. During the period commencing January 1, 1996 and ending December 31,
1996, an additional 987,738 of such shares will become eligible for sale under
Rule 144. The balance of such shares will become eligible for sale pursuant to
Rule 144 upon the expiration of their respective two-year holding periods. In
addition, most of the current holders of outstanding Common Stock, options and
warrants have "piggy-back" registration rights with respect to their securities
should certain conditions be satisfied. Further, the Company intends to file a
registration statement covering the 338,000 shares of Common Stock reserved for
issuance, and the 427,017 shares of Common Stock issued under its stock option
plans after the completion of this offering.
-8-
<PAGE>
Ability to Pay Dividends. The Company has not paid dividends, and does not
intend to pay any dividends in the foreseeable future, since earnings, if any,
are expected to be retained for use in the development and expansion of the
Company's business. The Company's financing arrangements restrict the payment
of dividends.
-9-
<PAGE>
MARKET FOR COMMON STOCK AND DIVIDEND POLICY
The initial public offering of the Common Stock of the Company was made in
1992. Since that time, the Company's Common Stock has been traded only on a
limited basis in the over-the counter market. The following table sets forth
the quarterly high bid and low bid prices as reported on the OTC Bulletin Board.
Such quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
PERIOD HIGH BID LOW BID
- --------------------- -------- -------
<S> <C> <C>
Quarter ended
March 31, 1994 $ 2 1/2 $ 2
June 30, 1994 3 2
September 30, 1994 2 1/4 2
December 31, 1994 2 1 3/4
March 31, 1995 2 2
June 30, 1995 2 2
September 30, 1995 2 3/4 2
December 31, 1995 2 3/4 2 1/2
March 31, 1996
</TABLE>
At May __, 1996, the bid and asked prices for the Company's Common Stock as so
reported were $____ and $____ respectively. On that date, the Company had
approximately 370 holders of record of its Common Stock.
The Company has outstanding options and warrants to purchase 427,017 shares and
1,778,654 shares, respectively, of Common Stock. The Company also has
outstanding 1,730,405 shares of Common Stock the sale or other transfer or
disposition of which is restricted by the Securities Act. In the future, these
shares may only be sold in compliance with Rule 144, promulgated under the
Securities Act, by the availability of an exemption from registration under the
Securities Act or by their registration thereunder. As of January 1, 1996,
126,750 of these shares of Common Stock would have been eligible for sale under
Rule 144. During the period commencing January 1, 1996 and ending December 31,
1996, an additional 987,738 of such shares will become eligible for sale under
Rule 144. The balance of such shares will become eligible for sale pursuant to
Rule 144 upon the expiration of their respective two-year holding periods. In
addition, most of the current holders of outstanding Common Stock, options and
warrants have "piggy-back" registration rights with respect to their securities
should certain conditions be satisfied. Further, the Company intends to file a
registration statement covering the 338,000 shares of Common Stock reserved for
issuance, and the 427,017 shares of Common Stock issued under its stock option
plans after the completion of this offering. Sales of outstanding Common Stock
pursuant to Rule 144 or otherwise could materially affect the trading price of
the Company's Common Stock. See "Risk Factors - Shares Eligible for Future
Sale."
S.E.C. rules impose additional sales practice requirements on broker-dealers
who recommend certain low priced "penny stocks" to persons other than
established customers and institutional accredited investors. For transactions
covered by these rules, the broker-dealer must make a determination that based
on the purchaser's financial situation, investment experience and investment
objectives, an investment in penny stocks is suitable for such purchaser and
that such purchaser (or his independent advisor) is capable of evaluating the
risks of transactions in penny stocks. The broker-dealer must also provide a
prospective purchaser of penny stocks with certain disclosure materials and
obtain the purchaser's written consent to the transaction prior to the sale.
The Common Stock currently is deemed to be "penny stock." Since broker-dealers
must create an extensive paper trail to sell penny stocks, many investors are
not qualified to purchase penny stocks and classification as a penny stock often
carries negative connotations, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of the securities
offered hereby. An exemption from "penny stock" status will be available,
however, as to the Common Stock if and when the market price therefor exceeds
$5.00 per share, the Company's net tangible assets exceed $2,000,000 or the
Company has average revenue of at least $6,000,000 over the preceding three
years.
The Company has not paid, and does not anticipate paying in the foreseeable
future, dividends on the Common Stock. The Company's financing arrangements
impose various restrictions on the payment of dividends.
-10-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of December
31, 1995.
Long-Term Debt.................................................... $ 428,881
----------
Common Stock; $.01 par value;
14,000,000 shares authorized;
5,791,083 shares issued and outstanding.......................... 57,911
Additional paid-in capital........................................ 9,847,887
Deficit........................................................... (9,321,592)
----------
Total stockholders' equity........................................ 584,206
----------
Total Capitalization.............................................. 1,013,087
==========
SELECTED FINANCIAL DATA
The selected balance sheet data presented below for the Company as of December
31, 1994 and 1995 and selected financial data for the statements of operations
for the years ended December 31, 1994 and 1995 are derived from financial
statements included elsewhere in this Prospectus, which have been audited by
Richard A. Eisner & Company, LLP, independent auditors, as set forth in their
report also included elsewhere herein and should be read in conjunction with
such financial statements and related notes thereto.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994
----------- ------------
<S> <C> <C>
Net Sales.................................................. $ 220,368 $ 233,278
----------- -----------
Costs and expenses:
Cost of sales............................................. 697,901 558,262
Research and development expenses......................... 297,780 400,202
General, administrative and consulting expenses........... 506,124 421,573
----------- -----------
Total costs and expenses................................. 1,501,805 1,380,037
----------- -----------
(Loss) from operations before other income and (expenses).. (1,281,437) (1,146,759)
Other income and (expenses):
Interest and other income................................. 13,201 5,197
Interest expense and other................................ (33,972) (69,575)
----------- -----------
Net Loss................................................... $(1,302,208) $(1,211,137)
=========== ===========
Net loss per share (1)..................................... $(.27) $(.31)
=========== ===========
Weighted average number of common shares outstanding (1)... 4,783,050 3,964,598
=========== ===========
- -------------------------
</TABLE>
(1) Net loss per share has been computed based on the weighted average number
of shares outstanding during each year. No effect has been given to
outstanding options and warrants as the effect would be antidilutive.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Current Assets .......................................... $ 935,154 $ 372,737
Working Capital ......................................... 552,048 160,515
Total Assets ............................................ 1,396,193 542,119
Total Liabilities........................................ 811,987 1,244,121
Stockholders' Equity (deficiency)........................ 584,206 (702,002)
</TABLE>
-11-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
GENERAL
The Company, from its inception on January 23, 1984 through the fiscal year
ended December 31, 1994 had been engaged primarily in research and development
of its Novabed(R) patient transfer system and in raising capital to design and
develop a marketable product. The Company had been classified as a development
stage enterprise since substantially all of its efforts were devoted to research
and development and to establishing a new business and there were no significant
revenues. In 1994, the Company began taking orders for Novabed(R) units and in
June 1994, the Company shipped the first order of Novabed(R) units since its
inception and recorded sales of $233,000 in the year ended December 31, 1994.
The Company is now manufacturing its second lot of Novabed(R) units and is
incorporating certain design changes based on suggestions from its distributors.
For 1995, the Company is no longer classified as a development stage
enterprise. As of January 1, 1996, it had entered into eight distributorship
agreements providing for the sale and shipment of Novabeds(R) to each
distributor and the granting of an exclusive sales territory to each
distributor. At January 1, 1996, these agreements represented in the aggregate
purchase commitments with a value of approximately $5,800,000, to be ordered and
delivered over a period of up to 36 months. See "Business - Marketing and
Distribution."
In 1994, the three distributors then under contract with the Company ordered
and were shipped an aggregate of 19 Novabeds(R) which exceeded their aggregate
minimum purchase requirements by 4 units. In 1995, the Company sold and shipped
only 8 Novabeds(R) to its three distributors, most of which were shipped in the
first quarter. This sales decrease resulted from the Company's lack of
sufficient working capital and the Company's focus on arranging, negotiating and
consummating the 1995 Financing and relocating its assembly operations from New
York to Connecticut. As a result, in 1995 the Company was unable to produce
sufficient product to satisfy its distributors' minimum purchase requirements.
The Company and the two distributors who were unable to receive their minimum
purchase requirements in 1995 agreed to extend the period for selling and
purchasing the minimum requirements for 1995 and thereafter by one year.
In 1995, the Company decided to alter the way the Novabeds(R) are produced.
Through the first quarter of 1995, the Company produced a number of the
components of the Novabed(R) in-house. The Company is now subcontracting much
of this work. As a result, the Company will be able to produce Novabeds(R) with
less capital for tooling and equipment.
RESULTS OF OPERATIONS
In the year ended December 31, 1995 the Company recorded sales of $220,000 and
incurred a net loss of $1,302,000 ($.27 per share) compared to sales of $233,000
and a net loss of $1,211,000 ($.31 per share) in the year ended December 31,
1994.
In the year ended December 31, 1995 the Company's cost of sales exceeded its
sales and the Company sustained a gross loss of $478,000 compared to a gross
loss of $325,000 in the year ended December 31, 1994. In 1995 and 1994,
unfavorable manufacturing variances from the Company's standard cost to
manufacture were primarily responsible for the gross loss. A substantial
portion of the excessive variance in both years was due to low quantities
produced, changes in product design and manufacturing methods and the fact that
the units produced were part of the Company's initial production run. As a
result, the number of units produced was insufficient to absorb manufacturing
overhead and direct labor efficiency was less than it would be if the Company
were operating at greater levels of production. In addition, in September 1995
the Company opened its new 28,000 square foot manufacturing facility and
incurred start up expenses of approximately $50,000 which were charged to cost
of sales.
Research and development expenses declined $102,000 from $400,000 in 1994 to
$298,000 in 1995. Payroll and payroll-related expenses declined $62,000 due to
fewer employees devoted to research and development. Patent development costs
declined $21,000. In prior years, patent development costs were charged to
expense as incurred. In 1995, the Company began capitalizing patent costs and
will amortize these costs over the remaining lives of the related patents. The
amount capitalized in 1995 was $37,000 and amortization of new patents received
in 1995 aggregated $1,000.
General, administrative, marketing and consulting expenses increased $84,000
from $422,000 in 1994 to $506,000 in 1995. An increase in payroll and payroll-
related expenses ($50,000) is attributable to the hiring of a Senior Vice
President at the end of May 1994, who is devoting most of his energies to
marketing and to raising capital. The President's salary increased $14,000 from
$78,000 in 1994 to $92,000 in 1995. In 1995, the President waived payment of
$75,750 earned in 1994 and
-12-
<PAGE>
$39,000 earned in 1995 and the aggregate amount of $114,750 was charged to
expense and credited to additional paid-in capital. Increases in office
salaries, travel and entertainment, patent maintenance fees, insurance and
professional fees were offset by a reduction in consulting fees.
Interest expense declined $36,000 from $70,000 in 1994 to $34,000 in 1995. At
January 1, 1995, two officers/stockholders forgave repayment of debt due them by
the Company aggregating $762,851 and also waived the accrual of interest on
notes payable due them for the first half of 1995. The reduction in interest on
the debt that was forgiven and the waiver of interest due for the first half of
1995 resulted in interest expense savings of $51,000. Interest expense and
amortization of deferred finance costs and debt discount on new financing offset
this expense reduction by $15,000.
The Company's agreements with its distributors generally provide for a fixed
purchase price for Novabeds(R) for an initial period that expires June 30, 1997.
The Company's agreement with one of its distributors provides for a fixed price
through December 31, 1998. If inflation, component parts pricing or other
conditions result in an increase in the cost of producing Novabeds(R) the
Company will not be able to pass along such increased costs to its distributors.
The Company does not expect that these fixed price provisions will have a
material impact on the Company.
As a result of common stock sales and the exercise of warrants the weighted
average number of common shares used in computing loss per share increased from
3,964,598 at December 31, 1994 to 4,783,050 at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
During 1995 the Company used net cash in operating activities aggregating
$1,210,000 compared to $791,000 in the prior year. The increase in funds used
in operating activities is primarily attributable to increases in inventory,
accounts receivable and other assets as the Company began to utilize the funds
received in the 1995 Financing. The Company purchased equipment and capitalized
certain tooling costs aggregating $73,000 compared to $28,000 in the prior year
and provided cash from financing activities of $1,667,000 compared to $851,000
in 1994. In 1995, proceeds from the sale of Common Stock net of issuance costs
aggregated $1,525,000, proceeds from borrowings net of deferred financing costs
aggregated $42,000 and the Company received $100,000 from the exercise of
warrants.
The Company, since its inception through December 31, 1993 has utilized the
issuance of shares of Common Stock as a source of working capital to pay for
rent, compensation, professional fees and to repay debt. During this period,
the Company issued approximately 457,000 shares of Common Stock to pay such
liabilities, aggregating approximately $837,000. In 1994, the Company issued
15,632 shares in payment of rent and professional fees aggregating $25,093. In
1995, the Company did not issue any common stock in payment of any of its
liabilities.
The ongoing need for working capital has in the past hindered the Company's
ability to operate in an effective manner and to deliver outstanding orders on a
timely basis. During the Company's search for additional capital, it has
attempted to alleviate this problem by obtaining waivers of payment or deferring
certain salaries, extending repayment dates on officers' loans, reducing
exercise prices and extending exercise dates of expiring warrants and by selling
restricted shares of Common Stock in private placement sales.
As of September 5, 1995, the Company negotiated an equity and debt financing
package (the "1995 Financing") consisting of the following:
1. $888,280 in net proceeds after finder's fees and expenses, from the sale of
900,901 shares of Common Stock at a price of $1.11 per share.
2. $1,000,000 loan facility from People's under a two-year revolving line of
credit collateralized by accounts receivable and inventory and a cash
collateral account. This loan bears interest at prime rate plus 1.50%.
Advances shall not exceed 80% of eligible accounts receivable plus 50% of
eligible inventory. Although, People's has no obligation to advance funds
until the $100,000 loan from the CDA and the $200,000 loan from the DECD
have been fully funded, People's Bank has verbally agreed to waive such
conditions because the Company temporarily deferred the purchase of capital
equipment to be purchased with the CDA and DECD loans. People's Bank's
obligation to advance funds is also limited to 50% of the amount advanced
by CII until the CII loan has been fully funded. The Company estimates that
as of April 1, 1996 it had approximately $250,000 of availability under the
People's Bank facility.
-13-
<PAGE>
3. $750,000 loan from CII maturing on September 5, 2001. The loan bears
interest at 10% and is collateralized by all of the Company's assets,
including its intellectual property. Interest only is payable semi-annually
commencing on the earlier of (i) September 5, 1998 or (ii) the date the
Company declares any dividend or repurchases any of its outstanding stock.
The loan is to be funded upon achievement of certain milestones. The first
three milestones have been achieved and advances of $100,000, $250,000 and
$150,000 were received by the Company on September 5, 1995, January 26,
1996 and March 26, 1996. The final $250,000 will be funded when 100% of the
Company's direct labor force is working in Connecticut, 75% of all
manufacturing operations are located in Connecticut, 3 medical outcome
studies have been completed and the Company employs at least 3 sales and
service staff, including an insurance reimbursement specialist. The Company
projects that the final milestone will be achieved in June, 1996. In
connection with this loan, CII received warrants to purchase up to 300,000
shares of Common Stock at $1.11 per share. Such warrants vest pro rata as
the CII loan is advanced
4. $100,000 loan from CDA for the purchase of capital equipment, maturing on
September 1, 2002. This loan bears interest at 7.94% and is collateralized
by the equipment purchased with the proceeds. The loan is payable in equal
monthly installments of principal and interest commencing October 1, 1998
in an amount sufficient to fully amortize the loan over its remaining term.
If the Company's full time employment in Connecticut is less than 67 jobs
after February 1, 1998, then the Company must prepay $1,500 of the loan for
each job below such number and the interest rate will be adjusted upward
based on a sliding scale which increases based on the number of jobs below
such employment target. CDA also received warrants to purchase 45,000
shares of Common Stock at $2.50 per share in exchange for a guarantee
securing the People's loan up to a maximum of $400,000.
5. $200,000 loan from DECD for the purchase of capital equipment, maturing ten
years from the date of the first advance. This loan bears interest at 5%
and is collateralized by the equipment purchased with the proceeds.
6. $100,000 grant from the town of Bristol, Connecticut to help the Company
relocate its primary manufacturing operations to Bristol, of which $50,000
was paid in October 1995 and $50,000 will be paid upon achievement by the
Company of certain employment levels at its Bristol facility.
7. Warrants to purchase an aggregate of 60,000 shares, collectively, of Common
Stock at a price of $2.50 per share were given to three of the Company's
distributors in exchange for their issuing letters of credit securing the
People's loan up to a maximum of $600,000. The Company and two of the
distributors also entered into an agreement allowing such distributors to
purchase, and allowing the Company to require such distributors to
purchase, under certain circumstances an aggregate of up to 126,667 shares
of restricted Common Stock at a price of $1.50 per share. The call was
exercised by the distributors in September 1995, and the Company received
proceeds of $100,000 in 1995, $50,000 in January 1996 and $40,000 in March
1996. Pursuant to the financing agreement with People's, the proceeds
received from the distributors reduced their outstanding letters of credit
and are to be held in a restricted cash account by the Company. Pursuant to
the put/call agreement, the number of warrants issued to the distributors
was reduced by 19,000. The remaining warrants to purchase an aggregate of
41,000 shares of Common Stock remain outstanding.
The Company has not received any funds under the revolving line of credit or
the equipment loans, although it plans to borrow from these sources in 1996.
Legal fees and commitment fees (excluding the value of warrants) in connection
with the 1995 Financing were approximately $90,000. As a result, as of December
31, 1995 the Company had a net worth of $584,000 and working capital of $552,000
including unrestricted cash of $486,000. At December 31, 1994, the Company had
a capital deficiency of $702,000 and working capital of $161,000, including cash
of $102,000. The Company expended less than $40,000 to purchase furniture and
equipment for its new manufacturing facility in Bristol, Connecticut.
Manufacturing operations commenced in November and at December 31, 1995 the
Company employed 11 workers in this facility, including assemblers, welders,
supervisors, a purchasing agent and an administrative assistant. The Company is
reviewing plans to purchase additional manufacturing equipment and has
accelerated manufacturing levels in order to begin shipping meaningful
quantities of Novabed(R) units. The Company has no material commitments for
capital equipment expenditures. The Company is planning to seek additional
distributors and accelerate product engineering research and development.
The Company intends to continue to explore a strategic alliance or merger as a
means of improving the Company's operating cash flow and capital. In this
regard, the Company is engaged in discussions with several distributors of
medical products regarding a potential business combination. The Company's
discussions with all but one of the distributors are preliminary. The Company's
discussions with one such distributor have recently become substantive.
However, the Company cannot state that any of these transactions is probable
because no agreement in principle with respect to transaction price and all
-14-
<PAGE>
other material terms has been reached. In addition, any such transaction is
likely to be subject to the Company obtaining additional financing, the
resolution of certain material business issues and ongoing due diligence. There
can be no assurance that any such transaction will be consummated.
The financing arrangements with CDA and DECD, both of which are
instrumentalities of the State of Connecticut, provide that the Company must
prepay such loans together with a prepayment penalty equal to 7.5% of the loans
and the guaranty if the Company physically transfers the operations of its
business located in Connecticut outside of Connecticut within 10 years.
The CII loan agreement requires, with certain exceptions, that the Company
maintain a "Connecticut presence" by basing at least 50% of its officers in
Connecticut, basing a majority of its employees in Connecticut and conducting
the majority of its operations in Connecticut. The Company is currently in
compliance with this requirement. The CII loan agreement contains a mandatory
prepayment provision in the event the Company ceases to maintain a Connecticut
presence, the Company sells Common Stock for its own account in an underwritten
public offering or there is a change in control of the Company or its assets.
This provision includes a prepayment penalty in an amount equal to the greater
of (i) an amount sufficient to provide a rate of return of 25% compounded
annually or (ii) the excess of the market price of the Common Stock underlying
the warrant granted to CII over the exercise price of such warrant. The grant
from the City of Bristol must be repaid if prior to August 8, 2005, the Company
relocates 60% of the equipment or employees of its manufacturing operations
outside of Bristol or the Company defaults in payment of property taxes due to
Bristol. The Company has treated the $50,000 grant paid by the Town of Bristol
as a grant award, to be recorded as income at a later date, if applicable. In
order to comply with these requirements, the Company established its
manufacturing facility in Bristol, Connecticut. See "Business - Manufacturing."
From January 1, 1995 through August 31, 1995, the Company sold approximately
394,000 shares of Common Stock in private placement sales, from which it derived
net proceeds of approximately $545,000. In January 1995 the Company received
$99,600 from the purchase of 73,752 shares of Common Stock by holders of
warrants issued in 1990 with an exercise price of $3.00 per share and an
expiration date of December 31, 1994, which expiration was extended to January
20, 1995 at a revised exercise price of $1.35 per share. The remaining warrants
to purchase 77,391 shares of Common Stock on the same terms were not exercised
and were permitted to lapse.
The Company has received reports on its financial statements from its
independent auditors which include an explanatory paragraph indicating that
substantial doubt exists about the ability of the Company to continue as a going
concern. The factors referenced by the auditors include the Company's recurring
operating losses and the need for additional financing for commercial
exploitation of its product. The Company believes it has sufficient working
capital and borrowing availability to finance operations until June 1996. The
Company estimates that it will need to obtain an additional equity contribution
of at least $1,000,000 on or before June 30, 1996 and that it will need
approximately $1,000,000 in additional financing prior to December 31, 1996
beyond the $1,000,000 required by June 30, 1996 to finance its operations over
the 12 month period following June, 1996. These estimates are generated from an
internally prepared business plan. The Company has begun to seek additional
capital and has retained TimeCapital Securities Corporation ("TimeCapital") as
its exclusive agent to assist the Company in raising $500,000 by May 21, 1996
and an additional $500,000 by June 30, 1996 through the sale of Common Stock at
a price of $2.00 per share in a private placement. The Company has also entered
into an agreement with TimeCapital for it to act as the Company's exclusive
agent to assist in arranging for one or more qualified broker-dealers to serve
as the underwriter(s) on behalf of the Company in connection with a public
offering of Common Stock. See "Certain Transactions." The Company also has
verbal agreements with three finders, one of whom is Arlindo Jorge a director of
the Company, pursuant to which it will pay a commission of 10% of the proceeds
of private placement sales obtained by the finders. There can be no assurance
that the Company's estimates will prove to be accurate, that the Company will be
able to raise such additional capital or that the Company's existing
distributors will fulfill their purchase commitments. See "Business - Marketing
and Distribution." If such contingencies are not realized, the Company would
have to drastically reduce its staff and curtail manufacturing operations which
may result in a default under and acceleration of the Company's loan obligations
and, ultimately, bankruptcy and/or the discontinuance of operations.
-15-
<PAGE>
BUSINESS
INTRODUCTION
The inability to get out of bed or get to the bathroom without requiring
physical assistance, or experiencing considerable discomfort, can make a
bedridden person feel confined, dependent and depressed. The use of manual
transfer procedures can be demeaning to the bedfast person and may cause a
significant loss of dignity. Such procedures can cause injury to patients and
their aides.
The absence of adequate transfer devices for home use and the stress of
physical lifting often cause families to seek institutional care for a disabled
relative. Such a decision can take an extraordinary emotional toll on all
involved. In addition, the high cost of nursing homes often results in the
depletion of a family's financial resources. Transfer-related activities of
hospital and nursing home personnel constitute a significant portion of the work
day and are considered to be a major cause of injury to patients and staff.
Further, prolonged immobility in bed has negative effects on a bedridden
person's bodily functions and health and is the primary cause of bedsores.
Mr. DiMatteo began the research and development program for the Company's
patient transfer system in 1974 while employed as President of Dynell
Electronics Corporation ("Dynell"). At that time, he applied for and was granted
several patents. The program was continued during Mr. DiMatteo's tenure as
President of Robotic Vision Systems, Inc. ("RVSI"). At Dynell and RVSI, a
prototype was developed in an attempt to achieve an effective system. In 1989,
the Company acquired RVSI's transfer bed technology and patents at a cost of
approximately $25,000. See "Patents" and "Management".
PATIENT MANAGEMENT SYSTEM
The Company's modular Novabed(R) Patient Management System, consists of a
specialized hospital type bed and companion wheelchair which allows the patient
to be gently and automatically moved from the bed into the wheelchair and back
again. The patient lies on a moveable bed sheet which smoothly moves the
patient toward the head or foot end of the bed. The companion wheelchair is
positioned at the foot of the bed. When an operating key is depressed on the
hand-held pendent, a movable leg and foot rest on the wheelchair moves into
place. The patient is then transferred by a conveyer sheet to the foot of the
bed, with the feet and legs sliding onto the elevated leg rest. The mattress is
then raised to lift the patient to a sitting position as the leg and foot rest
moves the legs forward and down to their normal position. When the wheelchair
backrest is manually inserted, a release lever can then release the wheelchair
from the bed. A patient may be moved from the wheelchair back into the bed by
reversing this process.
The Company's Patient Management System, with the tilt table option, can also
transfer a patient from the bed to a standing position or from a standing
position back to the bed. This feature, which is scheduled to be introduced in
the fourth quarter of 1996, will allow the Novabed(R) to be used as a tilt table
for angular positioning which is beneficial for certain hospital and
rehabilitation applications, such as treatment for burns and recovery from
spinal fusion, total hip replacement and other orthopedic procedures.
An Obese Patient Model for transferring patients up to 450 lbs. is complete.
An additional important feature is the Novabed(R) equipped with an air therapy
mattress for the prevention or cure of decubitus ulcers (bed sores). Both the
Obese Model and the air therapy option have been shipped to customers and have
been placed in service. The Company anticipates that its Obese Model will
account for more than half of its sales in the proximate future.
The Company has completed and is manufacturing its first production model.
This model uses a production hospital type bed which is modified to provide
transfer capability. The Company's "Standard" Patient Management System is of
modular construction and therefore can be taken apart for easy transport and
installation in a location. The Company is marketing the Novabed(R) for use in
both homes and institutions, including rehabilitation units and hospitals.
Additional features and optional equipment of the Novabed(R) include:
. Patient Positioning: In additional to the normal tilt functions of a
standard hospital bed, by pressing push buttons in sequence, the patient can
be repositioned (moved upward toward the head of the bed) in a Novabed(R).
. Toilet Access: The wheelchair seat can be replaced by a commode seat, and
the wheelchair can be located over a home or institutional toilet, or used
with a chamber pot.
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. Contour positioning: Height adjustment, upper body positioning, leg and knee
positioning.
. Air therapy mattress for bedsore prevention: The conventional mattress is
replaced with a special mattress providing air-support therapy for the
healing and prevention of bedsores.
In addition to patient transfer, the Company believes that the following
benefits may be derived from its patient transfer system:
Therapeutic Benefits: Frequent or timely movement of a patient to a sitting
or vertical position is extremely important for postoperative recuperation and
for preventing deterioration of the cardiovascular, skeletal, muscular, and
respiratory systems, the skin, and for the patient's overall physical and
psychological well being. Lack of motion can cause pneumonia, accelerated
osteoporosis, blood clots and bedsores, among other serious disorders.
Pain Management: Reduction of pain during repositioning or transfer caused
by, or associated with certain physical or pathological conditions such as
severe burns, postoperative care, multiple trauma, arthritis and advanced
cancer.
Labor Saving Device: Reduction of staffing required to transfer patients,
particularly heavy patients. Reduction of the menial tasks of nursing has the
potential of enhancing the quality of nursing care and helping reduce the
current shortage of nurses.
Reduction of Injuries to Patient and Attendant: There is a high incidence of
back injury associated with patient transfer, which may cause attendants to
lose time on the job, and contribute to the cost of workers compensation
insurance. The Company's transfer system may reduce the incidence of such
injuries.
PROSPECTIVE MARKETS
Patient Population
The Novabed(R) is designed to assist patients, and has proven to be of
particular benefit for obese patients, who require assistance in transferring in
or out of a bed or chair. Persons who are bedfast or chair-fast generally come
from the following groups:
Elderly
According to statistics compiled by the United States Bureau of the Census, in
1995 there were 33.4 million Americans age 65 or older and by 2000 this age
group is expected to increase to 34.3 million with approximately 6.6 million
elderly persons in the United Sates requiring long-term care.
Persons Severely Handicapped by Medical Conditions or Trauma
The Company believes that many persons who are severely disabled due to
muscular dystrophy and related neuromuscular disorders, including amyotrophic
lateral sclerosis (Lou Gehrig's disease), cerebral palsy, stroke or severe
traumatic spinal cord injury can benefit from the Novabed(R).
Based on input from the Company's distributors, the Company's own beta-site
testing and limited sales to date, the Company believes that potential users of
its patient transfer system fall primarily into three categories:
(1) Hospitals and Rehabilitation Centers
The Company believes that its patient transfer system may provide needed
therapeutic benefits and may be particularly useful in such hospital service
areas as those used for post-operative care, rehabilitation, long-term care,
chronic disease, orthopedic care and cancer care. The Company considers
hospitals to be important potential customers. It believes that successful
clinical trials in hospitals are important in seeking medical acceptance and
that follow-on sales to hospitals will then spread the product's reputation and
produce referrals by hospital discharge planners and physicians for the home
care and nursing home markets. The Company has conducted beta site and field
trials in non-hospital settings and the Company's distributors are compiling
information with respect to utilization in the hospital setting. The Company
believes that hospitals which
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purchase its patient transfer system may be better able to utilize staff, reduce
patient transfer staff requirements, reduce workers' compensation claims and
reduce staff transfer-related injuries.
(2) Nursing Homes
The Company believes that many residents in nursing homes require assistance in
using the toilet or are chair fast or bedfast. The Company believes that nursing
homes which purchase its patient transfer system may be better able to utilize
staff, improve quality of care given and reduce patient and staff transfer-
related injuries.
(3) Home Care Market
The Company believes that there are many adults residing at home who need
assistance in getting in or out of a bed or a chair. The Company also believes
that one of the reasons that some persons are moved from private homes to
nursing homes is that their spouse or other caregiver cannot effectively and
easily move the person between a bed and a commode or wheelchair with other
currently available transfer devices.
Nursing home costs are often financially devastating to the patient and family.
Many nursing home residents who were not initially indigent require governmental
assistance after exhausting their resources on nursing home care.
The Company believes that its transfer system would enable many patients to be
cared for at a lower per diem cost at home by a family member combined with
periodic visits by a nurse or home health care aide. The Company believes that
with a growing and relatively affluent elderly population, home care is
potentially its largest segment and that many home care families and patients
will have strong emotional or financial incentives to use its transfer system to
avoid or defer entry to a nursing home.
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MARKETING AND DISTRIBUTION
Nova has initially engaged, for select regions, distributors with experience in
the specialty bed market. These distributors in turn sell or rent direct to
institutions, to other dealers, and home healthcare service providers.
The Company has entered into eight distributorship agreements providing for
the sale and shipment of Novabed(R)s to each distributor and the granting of an
exclusive sales territory to each distributor. As of January 1, 1996, these
agreements represented in the aggregate, minimum purchase commitments during the
initial purchase period with a value of approximately $5,800,000, to be ordered
and delivered over a period of up to 36 months. In 1994, the three distributors
then under contract with the Company ordered and were shipped an aggregate of 19
Novabeds(R) which exceeded their aggregate minimum purchase requirements by 4
units. In 1995, the Company sold and shipped only 8 Novabeds(R) to its three
distributors, most of which were shipped in the first quarter. This sales
decrease resulted from the Company's focus on arranging, negotiating and
consummating the 1995 Financing and relocating its assembly operations from New
York to Connecticut and the Company's lack of sufficient working capital. As a
result, in 1995 the Company was unable to produce sufficient product to satisfy
its distributors' minimum purchase requirements. The Company and the two
distributors who were unable to receive their minimum purchase requirements in
1995 agreed to extend the period for selling and purchasing the minimum
requirements for 1995 and thereafter by one year.
Since January 1, 1996, the Company's orders have generally been fulfilled
within thirty (30) days and, consequentially, no significant unfulfilled orders
exist. Each distributor's purchase price is fixed for the period of the initial
purchase commitment. In addition to being required to satisfy a minimum
purchase commitment during an initial period, each distributor is required to
maintain certain annual purchase levels and to distribute such purchases
throughout the year to retain exclusive rights to sell in his territory. The
obligations of such distributors are not supported by financial or performance
guaranties. In the event any distributor is unable to achieve sales equivalent
to its minimum purchase requirement, either due to its failure to adequately
market the Novabed(R) or the inadequacy of the demand for the Novabed(R), the
Company will be relying on the financial strength of such distributor to
purchase the required minimum to be held in inventory by the distributor. While
the Company believes that these distributors are financially sound, no assurance
can be given that such distributors will satisfy their obligations to the
Company. No assurance can be given that the Company will be able to obtain
sufficient capital to meet its obligations under these agreements to supply the
number of units required. The Company estimates that it will need to obtain an
additional equity contribution of at least $1 million on or before June 30, 1996
and that it will need approximately another $1 million in additional financing
prior to December 31, 1996 to finance its operations through June 1997. See
"Risk Factors - Auditor's "Going Concern" Explanatory Paragraph." If the
Company does not obtain the necessary additional financing it may not be able to
produce sufficient product to satisfy the minimum purchase requirements of its
distributors. Failure by the Company to produce sufficient product to satisfy
its obligations to its distributors would constitute a default under the
Company's distribution agreements which may subject the Company to claims for
damages and may allow the distributors to terminate such agreements.
For the year ended December 31, 1995, sales aggregating approximately 87% of
the Company's net sales were made to the following distributors:
<TABLE>
<S> <C>
Advanced Therapeutics, Inc. - $ 64,596 (29%)
Comed Systems, Inc. - $ 60,956 (28%)
Concept Medical, Inc. - $ 36,194 (16%)
Recovercare, Inc. - $ 30,405 (14%)
</TABLE>
The names and exclusive territories of the distributors are as follows:
NAME OF DISTRIBUTOR TERRITORY
- ------------------- ---------
Medco Equipment, Inc. Minnesota
Comed Systems, Inc. Rhode Island; parts of
Massachusetts, New Hampshire, Maine
and Connecticut
Innovative Medical Systems, Inc. Missouri, Kansas, Arkansas and
part of Illinois
Advanced Therapeutics, Inc. Parts of Michigan and Wisconsin
Recovercare, Inc. Parts of New Jersey, Pennsylvania,
Delaware
Stat Medical, Inc. Washington
Concept Medical Corporation Parts of Florida
JCM Capital Corp. New York
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The Company is required to train the distributors' service personnel and
generally to fill orders within 180 days, although the Company's agreement with
one of its distributors requires that orders be filed within 30 days. The
distributors are required to service the product they sell in a high quality
manner to avoid loss of their right to market the Novabed(R).
The Company feels that working initially with distributors is the most
expeditious way to generate early sales, lower the Company's working capital
requirements by receiving prepayment on required product purchases and reduce
the initial cost to market the Novabed(R). The Company's agreements with its
distributors generally require that 50% of the purchase price be paid upon
acceptance by the Company of an order and that the balance of the purchase price
be paid within 10 days after delivery of the product. However, one of the
distributors is not required to make a prepayment, another distributor is only
required to make a 25% prepayment and three of the distributors either have the
right to pay the unpaid balance of the purchase price within 30 days of delivery
or no payment period is specified. These partial payment upon order and
accelerated payment upon delivery arrangements will improve the Company's cash
flow and reduce its working capital requirements. In the past, the Company has
waived these payment provisions under certain circumstances and may do so in the
future.
The Company's ability to satisfy its production requirements will depend upon
the Company's ability to obtain additional capital and/or financing. See "Risk
Factors - Dependence on Distributors; Failure of Distributors to Perform." The
Company's agreement with one of its distributors provides that such distributor
shall not be required to meet its minimum purchase requirements during any
period that the Company is not able to satisfy such requirements and extends the
term of such agreement by one month for every month of delay for each order
placed by the distributor.
Four of the Company's distributors own in the aggregate 818,784 shares of the
Company's Common Stock.
Because of the Company's desire to grow its business and its concern that its
existing distributors may not be able to fully satisfy their purchase
commitments over the agreed upon time frames, the Company is currently seeking
additional agreements with potential distributors, durable medical equipment
dealers or other organizations which have access to disabled persons who are
candidates for the Novabed(R) Patient Transfer System. The Company may also
consider entering into a license agreement or a joint venture agreement or
merger with a strategic partner. The Company also plans to retain the rights to
distribute its products and will set up its own regional distribution systems.
Nova intends to employ a direct sales force to sell to hospitals, nursing homes,
and other health care institutions. Sales to the home healthcare market will be
made through home medical equipment (HME) and durable medical equipment dealers
(DME), and home healthcare agencies. Nova will cooperate with these dealers to
install and service the product through the dealer network.
In addition, the Company will also investigate a rental program, provided that
sufficient capital to finance the rental inventory can be obtained. Equipment
rentals to institutions would be handled directly by the Company. For the home
care market Nova would maintain ownership of the product and would work with
dealers where the dealer acts as a commissioned sales and collection agent on
equipment rental to the home.
The marketing operations of the Company are currently carried out by one of the
Company's executive officers assisted by service personnel. The Company plans
to hire additional marketing, sales and service personnel in the near future.
The Company presently warrants the material and workmanship of its patient
transfer systems for a period of one year from the date of their sale. The
Company has fulfilled its warranty obligations in connection with its initial
production lot and retrofitted these units to correct design deficiencies,
improve reliability and incorporate product enhancements.
BETA SITE AND FIELD TRIALS
Nova commenced its beta-site program in November 1992. The first unit was
installed for a clinical field trial in a full service skilled nursing home in
Connecticut. The nursing home uses the patient transfer system primarily for
stroke patients. Novabed(R) has been in service continually since installation
where it has performed very well with the service and nursing staff on the
designated floor able to quickly learn to operate the product. The nursing home
estimates that 25% of their current patients could use the patient transfer
system. They have purchased an additional Novabed(R) and intend to try to
purchase other units.
In February 1993, a second unit was placed in a private home of a patient
recommended by the Multiple Sclerosis Society. The patient, who lives with her
husband and daughter in a suburban home, is very debilitated. She has a live-in
home care attendant during the week. The family reports that the patient often
experiences severe pain after being seated in a chair or lying in bed for as
short a time as a half hour. This condition mandates frequent transfers to and
from the bed, averaging 10 to 20 times a day. Prior to the installation of the
Novabed(R) such frequent transfers placed an enormous, round-the clock, burden
on the
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home care attendant and the family. The family reports that on two occasions,
because of Novabed(R), the patient's doctor approved keeping the patient at home
during a required change in drug administration regimen instead of requiring a
normal 7 to 8 day hospitalization period.
Several minor changes in design were the result of feedback from these trials
and from considering the special needs of a nursing home. These changes were
implemented in the initial production run prior to sale of units to
distributors. Design change suggestions have come from current distributors who
have been using the production model. Certain of these changes have been
incorporated in the current production lot of 50 units.
FOREIGN MARKETS
Once the Company has successfully marketed its patient transfer system in the
domestic market, the Company plans to seek license or joint venture agreements
with foreign manufacturing or trading companies in Canada, Europe and Japan. The
Company, however, is not presently engaged in any license or joint venture
negotiations.
THIRD-PARTY REIMBURSEMENT
The market for medical devices is materially affected by the extent to which
the purchase price or rental cost will be reimbursed by third-party payors, such
as Medicare, Medicaid and private insurance. This is particularly true with
home care. Sales of capital equipment, such as the Novabed(R), to institutions
such as hospitals and rehabilitation facilities are not directly reimbursed by
Medicare but are indirectly reimbursed through an overhead allocation.
In the home care equipment market, third-party reimbursement issues center
around whether the patient transfer system will be a covered item, the level of
reimbursement available, and for which medical indications reimbursement will be
available. In the absence of a national Medicare coverage determination, the
local contractors that administer the Medicare program can, within certain
guidelines, make their own coverage decisions. Favorable coverage
determinations for durable medical equipment are made in those situations where
a review concludes that the product is safe (FDA approval required), the product
is durable, medical efficacy can be established, and the patient qualifies as
needing the product for medical reasons.
The Company has made a presentation to the Health Care Financing Administration
("HCFA") in anticipation of submitting an application for a new procedure code
for the Novabed(R). HCFA has assigned analysts to the Novabed(R) and will
assist the Company in preparing the application for the procedure code. A
specific new procedure code is required prior to Medicare approval.
To obtain a new procedure code, the Company will be required to demonstrate
that its patient transfer system is valuable and medically beneficial to the
home care patient and that it is not merely a luxury item. To obtain data to
support this position, the Company intends to sponsor a study of home care
patients who have each purchased, rented or been supplied with its patient
transfer system, and who could benefit from its use, e.g. by improved health,
reduced home care cost or postponing or avoiding entry into a nursing home. The
Company anticipates that such a study, expected to be performed over a six month
period will involve the establishment of appropriate protocols, the assembly and
documentation of study data and its presentation to HCFA personnel. The Company
believes that it may take a year or more, subsequent to the completion of the
study, to obtain a new procedure code for its transfer system, and there is no
assurance that it will succeed in these regards. Because of the uncertainty that
it can obtain a new procedure code and a reimbursement level which is a major
percentage of the sale or rental price of the equipment (e.g. 80%), the Company
has assumed in its planning that a new procedure code will not be granted. It
believes, although there can be no assurance given, that in view of the number
of persons at home who need assistance in getting in and out of a bed or chair,
there will be sufficient demand for the Company's patient transfer system to
achieve commercial viability absent any reimbursement.
The agreement with one of the Company's distributors requires that the Company
apply for third party home care, hospital and nursing home reimbursement
approval for Medicare and New York State Medicaid no later than April 30, 1997
and that if such approvals are not obtained within one year of the date of
application that such distributor's minimum order quantity shall be reduced by
50% until such approval is obtained.
The Company has added an air-therapy mattress as an option to the Novabed(R).
There are procedure codes and policies established for the use of support
surfaces for the prevention of decubitus ulcers. The distributors who rent the
Novabed(R) to their customers assist these customers in obtaining Medicare
reimbursement for the Novabed(R) outfitted with the air therapy mattress.
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In addition, the Company's operations are subject to federal, state and local
regulations with respect to environmental and safety matters. The Company has
obtained Eastern Testing Laboratories approval relating to certain safety
aspects of its Novabed(R). The cost of compliance with such laws and
regulations, in the Company's opinion, have not materially affected its
operations.
RESEARCH AND DEVELOPMENT
During the years ended December 31, 1994 and 1995, the Company expended
approximately $771,000 and $298,000, respectively on research and development
activities. The objective of the Company's research and development program has
been to complete development of its patient transfer system, achieve
manufacturing efficiencies to make it commercially acceptable, improve its
reliability and maintainability and to develop additional patient transfer
capabilities to improve the applicability and appeal of Novabed(R). The Company
has also developed a pre-production model of a powered wheelchair which is
compatible with Novabed(R).
MANUFACTURING
In the fourth quarter of 1995, the Company moved most of its manufacturing and
assembly operations into an approximately 27,750 square foot facility in
Bristol, Connecticut. This move consisted of relocating certain equipment from
Hauppauge, New York, which was accomplished at an immaterial cost. The
Company's New York facility is adequate for the manufacture of only about 150
beds per year. The New York facility will continue to phase out its
manufacturing operations as the Connecticut facility continues to be developed
and ultimately the New York facility will be used primarily for research and
development and corporate offices.
Nova purchases off-the-shelf components such as hospital beds, motors,
actuators and mattresses, as well as special items such as seat cushions,
commode seats and certain electronic and manufactured parts. The Company
manufactures other remaining parts and components in-house. This manufacturing
is currently fairly limited. The Company intends to add in-house manufacturing
capabilities only when such efforts will result in cost savings and when it has
adequate capital. The Novabed(R) is then assembled and tested in accordance
with defined quality control procedures. Assembly includes welding and
electrical wiring. It is anticipated that with capital expenditures of
approximately $400,000 the Company will be able to manufacture in-house many of
the components of the Novabed(R) that are not standard, commercially available
parts, and thereby reduce its costs of production. The Company's Connecticut
facility has a production capacity of approximately 1,500 Novabeds(R) per year.
The Company currently has 11 employees at its Connecticut facility and plans to
hire more as production requirements increase.
The Company has selected a particular model of a hospital-type home care bed
for incorporation into its patient transfer system. This model is currently
being produced in large quantities. Although there can be no assurances, the
Company believes that this model will continue to be available at reasonable
prices for the proximate future. The Company has an agreement with Omni
Manufacturing, Inc., its primary supplier of the above-referenced hospital-type
bed to furnish the Company with up to 800 beds at a capped price per bed for the
two year period ending February 28, 1997. The Company, in the alternative, may
obtain such beds from other sources or undertake to manufacture them in house,
or modify its product design to use a different manufacturer's bed, which are
available from a number of alternative sources. See "Risk Factors - No
Significant Manufacturing Capacity or Experience".
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<PAGE>
PATENTS AND TRADEMARKS
The Company has been issued 18 United States patents related to its patient
transfer system and bed sore prevention. These patents expire commencing in 2005
through 2014. Three additional patent applications relating to transfer system
design and associated products are pending. The Company has also filed a total
of 22 patent protection applications in five European countries, Japan, and
Canada and plans to file additional applications in both the United States and
other countries.
The Company believes that patent protection will be of material importance to
its growth potential. In addition to patents and patent applications covering
the principles of its transfer system, the Company has applied for patents on
alternative approaches and methods which it does not currently plan to utilize
but which it believes are material to its patent protection strategy. The
Company has spent over $560,000 to date on patent-related expenses and believes
that it will obtain protection for the approaches it is attempting to patent.
Effective as of January 1, 1995, the Company's policy is to capitalize legal
fees for new processes and to write these costs off over the remaining life of
any patent, when received or to write them off as soon as a patent application
is rejected.
No assurance can be given that additional patents will be issued, or if so
issued, that the scope of protection afforded thereby or by the Company's
current patents will be adequate to protect the Company from competition.
Further, no assurance can be given as to the availability to the Company of
adequate financial resources to contest any possible patent infringement by
others.
In 1994, the Company registered the trademark "NOVABED" for use with its
product.
GOVERNMENT REGULATION
The Company's patient transfer system is a "medical device" subject to
regulation by the United States Food and Drug Administration (the "FDA"). As in
the case with other medical devices, manufacture of such systems are subject to
certain "good manufacturing practices" promulgated by the FDA and the Company
is subject thereto with regard to the manufacture of its patient transfer
systems. The Company believes that it is in compliance with such regulations.
The Company received pre-market 510(k) approval for Novabed(R) from the FDA
in October 1987. Since the date of such approval the Company has made a number
of modifications to the Novabed(R). Such modifications generally comprise cost
efficiencies and operational improvements. The Company believes that these
modifications individually and in the aggregate, do not significantly affect
the safety or effectiveness of the Novabed(R) as described in its original
510(k) application to the FDA. The Company is in the process of preparing a
510(k) application for its new products and expects that the application will be
submitted by September 1996. The application will also update the current
version of the Novabed(R). The Company anticipates that the approval process
will take approximately six (6) months after application is made.
COMPETITION
The market for hospital beds, and to some degree, wheelchairs, transfer devices
and patient lifts, is dominated by several large companies of which Everest &
Jennings International Ltd., Hill-Rom Company Inc. (a subsidiary of Hillenbrand
Industries, Inc.), Invacare Corporation, Sunrise Medical Inc. and Stryker
Corporation are among the largest. Other smaller companies such as Trans-Aid
Corp., Midmark Corp., Medical Laboratory Auto Inc. and American Medical Systems
are also engaged in the marketing of transfer and patient lift devices.
Virtually all of the Company's competitors have substantially greater financial,
manufacturing and marketing resources than the Company.
Optimum pricing of rental and sales units is difficult since the Company
believes that nothing in the current marketplace provides the features and
benefits of its patient transfer system. The Company's standard model for home
care use is being offered for sale to distributors at approximately $11,500 and
for rental by the distributor at approximately $75 per day. The Company's
Obese Model is offered for sale to distributors at approximately $13,500 and for
rental by the distributor at approximately $100 per day. The Company may test
various pricing strategies as new sales and service areas are opened. By way of
comparison, other specialty bed products such as air-therapy beds are comparably
priced while standard hospital beds may cost substantially less.
The Company believes that it will be able to initially compete on the basis of
product features and performance, particularly with regard to transfer mobility
between bed and wheelchair/commode. Although the Company believes that it will
be difficult, expensive and time consuming for another concern to develop a
product similar to the Company's patient transfer system without infringing on
the Company's patents, it is possible that a concern could do so. No assurance
can be given,
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however, that companies with substantially greater resources than the Company
have not developed or are not in the process of developing patient transfer
technology and products which would be competitive with the Company's patient
transfer system in terms of product features, performance and price.
Third-party payors, such as Medicare, Medicaid, and private insurance
companies, reimburse many durable medical equipment purchases and rentals. A
conventional home care hospital-type bed and a conventional wheelchair as stand-
alone units are presently reimbursed at the rate of 80% of cost. The Company at
this time does not have advance approval of third-party reimbursement and no
assurances can be given that an adequate level of third-party reimbursement, or
any reimbursement at all, will be available to customers for its patient
transfer system. Failure to obtain favorable determinations concerning
reimbursement may have a material adverse effect on the Company's competitive
position. Although the Company has been able to effect sales and to sign up
distributors for minimum purchase commitments without any direct third-party
reimbursement, the ability of the Company to achieve adequate sales to become
profitable will be adversely affected if direct third party reimbursement for
the Company's products is not obtained.
EMPLOYEES
At the end of February 1996 the Company had twenty-two full-time employees
including four executive officers. The Company also employs part-time
technicians, when needed. The Company anticipates hiring at least three
additional salespersons, including a marketing professional and adding
additional manufacturing personnel as necessary to meet production requirements.
APPROVALS AND CERTIFICATIONS
The patient transfer system has been tested and examined by ETL Testing
Laboratories, Inc. and found to comply with the applicable requirements of the
Standard for Personal Care and Health Care Applications - UL1431, for Motor
Driven Appliances - UL73, and the Standard for Medical and Dental Equipment -
UL544.
FACILITIES
The Company leases 7,500 square feet of space in Hauppauge, New York which is
used for corporate offices, administration, manufacturing, warehousing and
research and development. The lease, which provides for a monthly rental of
$4,375, expires June 30, 1996. The Company is obligated to pay its proportionate
share of the landlord's real estate taxes and increases in the landlord's common
area maintenance charges. If the lease is not continued, the Company anticipates
no substantial business disruption in securing alternative or expanded
facilities.
The Company leases approximately 27,750 square feet of space in Bristol,
Connecticut which is used for fabricating, assembly, shipping, warehousing and
administration. The lease, which provides for a monthly rental of $11,563 is for
a term of five years commencing September 1, 1995 and ending August 31, 2000.
The Company is required to pay its proportionate share of the landlord's real
estate taxes, insurance and common area maintenance charges. The Company has an
option to renew the lease for an additional five years and also has the right to
lease an additional 2,250 square feet of the building.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth information regarding the directors and executive
officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ----- --------
<S> <C> <C>
Paul DiMatteo 68 Chairman of the Board, President, Chief
Executive Officer and Director
Charles F. Chubb 76 Senior Vice President, Secretary and Director
Stephen Fisher 49 Senior Vice President, Chief Financial Officer,
Assistant Secretary, Treasurer and Director
Samuel N. Paul 57 Senior Vice President and Director
Harold J. Lash 64 Controller
Jay M. Haft 60 Director
Arlindo Jorge 72 Director
Robert Segnini 53 Director
</TABLE>
Mr. Chubb has indicated his intention to retire in the near future. The
Company is in discussions with Mr. Chubb to retain him as a part-time consultant
after he retires.
PAUL DIMATTEO, the founder and principal stockholder of the Company, has been
the Company's Chairman and President since its inception in January 1984. From
December 1977 until the beginning of the Company's active operations in July
1984, Mr. DiMatteo was Chairman of the Board and President of Robotic Vision
Systems, Inc., ("RVSI"). From June 1960 until its merger in December 1977 with
United Technologies Corporation ("United"), he was Chairman of the Board and
President of Dynell Electronics Corporation ("Dynell"), of which Mr. DiMatteo
was a co-founder. The merger of Dynell with United in December 1977 resulted in
a spin-off company called Solid Photography, Inc., which later changed its name
to RVSI. For his inventions in three-dimensional vision, Mr. DiMatteo was cited
by Technology magazine as one of 100 persons responsible for important technical
advances during 1981. Mr. DiMatteo holds a Bachelor of Science degree in
Electrical Engineering from the University of Rhode Island and is listed as the
inventor or co-inventor on 70 patents and patents pending.
CHARLES F. CHUBB has served as Senior Vice President and a Director of the
Company from 1985, as Treasurer from 1985 to March 1996 and as Secretary from
December 1994. From 1962 to 1978, he was Senior Vice President for Research and
Development at Dynell. After the merger in 1977 of Dynell and United, he served
as Manager of Shipboard Technology until joining the Company in February 1985.
Mr. Chubb holds degrees from Princeton University, Massachusetts Institute of
Technology and Polytechnic University and is listed as the inventor or co-
inventor on 20 patents and patents pending.
STEPHEN FISHER has served the Company as Senior Vice President and Director
since June 1994, and as Assistant Secretary from December 1994 and as Treasurer
from March 1996. From May 1992 to May 1994 he served as an officer and director
of Aztech Corp., which acted as a consultant to the Company during such period.
From 1985 to 1992 Mr. Fisher held various positions including President and
Director of Memry Corporation, a developer and manufacturer of new products.
Prior thereto, he was President of Materials Systems, Ltd., an engineering and
management consulting firm. He was an INCRA Fellow at Carnegie-Mellon University
and was an Assistant Professor and conducted research at West Virginia Institute
of Technology and Virginia Polytechnic Institute.
SAMUEL N. PAUL has served the Company as Senior Vice President since September
1995 and as a Director since December 1995. From February 1992 to May 1994 he
was President, Chief Operating Officer and Director of Industrial Health Care
Company, a provider of occupational health services. From October 1990 to
January 1992 he was Manager of International Sales and Marketing for Colt's
Manufacturing Company, a manufacturer of firearms. From May 1988 to October 1990
he was a
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<PAGE>
Vice President and Director of Shared Technologies, Inc., a provider of leased
communication equipment. Mr. Paul is President and part owner of Meadowbrook, a
skilled nursing facility located in Connecticut. Mr. Paul holds a Bachelor of
Science degree in Mechanical Engineering from the University of New Hampshire.
HAROLD J. LASH has served the Company as Controller since March 1992. From 1989
to 1991 he was Chief Financial Officer of Pen-Tab Industries Inc., a privately-
held manufacturer of stationery and school supplies. From 1976 to 1988 he was
Vice President-Finance and a Director of Aileen, Inc., a publicly-held apparel
manufacturer and retailer. Mr. Lash is a Certified Public Accountant.
JAY M. HAFT, a Director of the Company since July 1985 has served as Chief
Executive Officer and Co-Chairman of the Board of Directors of Noise
Cancellation Technologies, Inc., a developer of noise cancellation technology
and products ("NCT"), since November 1994. He also served as President of NCT
from November 1994 to July 1995. Since January 1994, Mr. Haft has been of
counsel to the law firm of Parker Duryee Rosoff & Haft, the Company's counsel.
He has been a practicing lawyer since 1959 and received his law degree from Yale
Law School. Mr. also serves as a Director of Extech Inc., RVSI, CAS Medical
Systems, Inc., Viragen Inc. and Oryx Technology Inc., all of which are publicly-
owned concerns.
ARLINDO JORGE has been a Director of Syncor Industries, Inc. since 1972 and,
until June 30, 1991, when he retired, had been Executive Vice President of such
concern as well as President of Syncor Services, Inc., which provides sales and
administrative services to Syncor Industries, Inc. Prior thereto, he was an
engineering manager in the Radiation Division of the Sperry Gyroscope Company.
Mr. Jorge holds a Bachelor of Science degree from the University of
Massachusetts and a Master's degree in Electrical Engineering from the
University of Michigan. He has been a Director of the Company since September
1988.
ROBERT SEGNINI, has been employed by the State University of New York at
Stonybrook as Director of Physical Laboratories in the Department of Physics
since 1990. From July 1986 through December 1989, Mr. Segnini was employed by
the Company as its Vice President of Operations. Prior to joining the Company,
he was a Vice President and a Director of RVSI. In February 1986, Mr. Segnini
left RVSI to establish Robotic Automation, Inc., an engineering and consulting
company specializing in the field of factory automation. Mr. Segnini holds an
Associate's degree in Electrical Engineering from the City University of New
York and is listed as the co-inventor on seven patents and patents pending in
the health care field. He has been a Director of the Company since July 1986.
The term of each director extends until the next annual meeting of stockholders
of the Company and until his successor is duly elected and qualified. The term
of each officer of the Company extends until the first meeting of the Board of
Directors following such next annual meeting, and until his successor is duly
elected and qualified.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information with respect to the compensation for
services rendered in all capacities to the Company during its fiscal years ended
December 31, 1995, 1994 and 1993 by its Chief Executive Officer. No executive
officer's compensation exceeded $100,000 during the Company's fiscal year ended
December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------- -----------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) OPTIONS (#)
- --------------------------------------- ------------ ------------ ----------
<S> <C> <C> <C>
Paul DiMatteo-Chief Executive Officer 1995 $92,000 (1) ---
1994 $78,000 (2) ---
1993 $78,000 (2) ---
</TABLE>
(1) $39,000 was waived and will not be paid; $2,250 has been paid; $50,750 was
deferred.
(2) $75,750 was deferred, then waived in 1995 and will not be paid; $2,250 has
been paid.
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<PAGE>
(3) $75,750 was deferred, then waived in 1995 and will not be paid; $2,250 has
been paid.
DIRECTOR COMPENSATION
Non-employee directors are entitled to receive $200 for each Board of Directors
or committee meeting attended and $50 for participation at a telephone meeting
or execution of a consent in lieu of a meeting.
EMPLOYMENT AGREEMENTS
In 1984 and 1985, respectively, the Company entered into employment agreements
with Messrs. DiMatteo and Chubb, each of which provides for a minimum annual
compensation of $78,000, which was increased on September 1, 1995 to $120,000
and $100,000, respectively. The agreement with Mr. DiMatteo, as amended, expires
on September 30, 1996. The agreement with Mr. Chubb is cancellable by either the
Company or Mr. Chubb on 60 days notice. Mr. DiMatteo has waived payment of
salaries due under his employment agreement for the period January 1, 1989
through June 30, 1995 (aggregating approximately $507,000) and Mr. Chubb has
waived payment of salaries due under his employment agreement for the period
January 1, 1989 through March 31, 1995 (aggregating approximately $487,000). In
addition, Mr. DiMatteo has agreed to defer until 1996, payment of the balance of
compensation due under his employment agreement for the period July 1, 1995
through December 31, 1995 (an aggregate of $50,750) and Mr. Chubb has agreed to
defer until 1996, payment of the balance of compensation due under his
employment agreement for 1995 (an aggregate of $17,333). From July 1, 1995 to
December 31, 1995 such deferred balances have accrued interest thereon at the
rate of 6.5% per annum.
In May 1994, the Company entered into an employment agreement with Stephen
Fisher, engaging him as Senior Vice President at a salary of $96,000 per annum,
of which $36,000 per annum was to be deferred for at least one year (but not
more than two years), and of which $60,000 per annum is payable in cash as
earned. In 1995, Mr. Fisher was paid $96,617, including $15,617 in deferred
compensation earned in 1994. At December 31, 1995, Mr. Fisher is owed deferred
compensation aggregating $18,000. The agreement also provides for Mr. Fisher to
receive a ten-year stock option to purchase 150,000 shares of the Company's
common stock at an exercise price of $2.75 per share. The employment agreement
provided for incentive compensation in the event Mr. Fisher obtained certain
financing for the Company. No such financing was obtained and no incentive
compensation was earned or paid and the term for such payment has elapsed. The
agreement with Mr. Fisher is cancellable by Mr. Fisher on 30 days notice, and by
the Company at its discretion subject to the payment of six months salary as
severance.
In September 1995, the Company entered into a three-year employment agreement
with Samuel N. Paul, engaging him as Senior Vice President at a salary of
$96,000 per annum. The agreement provides for Mr. Paul to receive a stock option
to purchase 150,000 shares of the Company's common stock at an exercise price of
$2.61 per share, which expires on December 31, 2004. The agreement also provides
for Mr. Paul to receive a seven-year warrant to purchase 30,000 shares of the
Company's common stock at an exercise price of $2.61 per share. The agreement
with Mr. Paul provides for severance payments of six months, nine months and
twelve months salary if Mr. Paul is terminated without cause in the first,
second or third year, respectively, of his agreement.
STOCK OPTION PLANS
The Company's 1994 Stock Option Plan (the "Plan") was adopted by the Board of
Directors on November 1, 1994 and approved by the Company's stockholders on
December 14, 1994. The Plan provides for (i) the granting to employees of stock
options intended to qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") or (ii) the granting
to employees and directors of non-statutory stock options not intended to
qualify as "incentive stock options". The Plan expires on October 31, 2004 and
is administered by a committee of the Board of Directors which is empowered to
select the optionees and determine, subject to the provisions of the Plans,
among other items, (i) the number of shares subject to each option, (ii) the
time at which the option becomes exercisable, (iii) the exercise price, and (iv)
the duration of the option. The exercise price for incentive stock options
granted under the Plan may not be less than 100% of the fair market value of the
shares as of the date of grant (110% for options granted to a participant who
owns shares possessing more than 10% of the voting rights of the Company's
outstanding capital stock). The exercise price for non-statutory options granted
under the Plan is determined by the committee of the Board of Directors at its
absolute discretion. The maximum number of shares of Common Stock which may be
issued pursuant to options granted under the plan shall not exceed Five Hundred
Thousand (500,000) shares.
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<PAGE>
In the year ended December 31, 1995, Mr. Haft, (a director of the Company) was
granted stock options to purchase 10,000 shares of Common Stock at $3.13 per
share through December 31, 2002 under the Plan and Mr. Paul (an executive
officer and a director of the Company) was granted stock options to purchase
150,000 shares of Common Stock at $2.61 per share through December 31, 2004
under the Plan.
As of December 31, 1995, options to purchase an aggregate of 162,000 shares at
exercise prices ranging from $2.61 to $3.13 per share and expiring at various
dates through December 31, 2004 were outstanding under the Plan. Such options
included (i) those held by Mr. Haft to purchase 10,000 shares at $3.13 per share
through December 31, 2002 and (ii) those held by Mr. Paul to purchase 150,000
shares at $2.61 per share through December 31, 2004.
As of December 31, 1995, under the 1985 Incentive Stock Option Plan (the "ISO
Plan") and under the 1985 General Stock Option Plan (the "GSO Plan" and
collectively with the ISO Plan, the "Plans") (both Plans terminated on February
19,1995 and from which options may no longer be granted), options to purchase an
aggregate of 265,017 shares at prices ranging from $1.50 to $4.75 per share and
expiring at various dates through May 23, 2004 were outstanding under the Plans.
Such options included (i) those held by Mr. Haft to purchase 6,667 shares at
$3.37 per share through December 31, 1999 (expiration date extended from
December 31, 1995) and 5,333 shares at $2.75 per share through December 31, 1999
pursuant to the GSO Plan, (ii) those held by Mr. Segnini to purchase 6,667
shares at $3.37 per share through December 31, 1999 (expiration date extended
from December 31, 1995) and 5,333 shares at $2.75 per share through December 31,
1999 pursuant to the GSO Plan, (iii) those held by Mr. Jorge to purchase 6,667
shares at $3.00 per share through December 1, 1998 and 6,667 shares at $3.37 per
share through December 31, 1999 (expiration date extended from December 31,
1995) and 5,333 shares at $2.75 per share through December 31, 1999 pursuant to
the GSO Plan, (iv) those held by Mr. Fisher to purchase 150,000 shares at $2.75
per share through May 23, 2004 pursuant to the ISO Plan.
No executive officer or director exercised any stock options in the year ended
December 31, 1995.
The Plan is open to participation by full-time employees, including officers of
the Company or of any subsidiary of the Company, as well as by non-employee
Directors of, or consultants to the Company or any subsidiary of the Company.
At April 1, 1996 there were approximately 22 employees (including four officers)
of the Company eligible to participate in the 1994 Plan.
CERTAIN TRANSACTIONS
On December 31, 1993, the balance of outstanding 11% notes payable to Mr.
DiMatteo by the Company aggregated $159,669. The balance of the note plus
accrued interest was due on October 31, 1993 and was not paid by the Company.
Mr. DiMatteo agreed to defer repayment to him of the note plus interest thereon.
In consideration thereof, the remaining principal balance of the note plus
unpaid accrued at December 31, 1993 was combined into a new note aggregating
$202,009 and payable in full at April 1, 1995. No payments were made to Mr.
DiMatteo in 1994 and as of January 1, 1995 Mr. DiMatteo agreed to forgive
payment of principal aggregating $32,009 resulting in a new principal balance
of $170,000 due Mr. DiMatteo by the Company. In addition, accrued interest on
the note aggregating $22,221 was forgiven. The maturity date of the note has
been rescheduled to January 2, 1997 and the accrual of interest thereon
commenced on July 1, 1995.
Unpaid accrued interest in the amount of $5,360 was owed to Mr. Chubb on notes
payable whose principal balance had been fully paid up in August 1993. In 1993,
Mr. Chubb agreed to defer repayment to him of the accrued interest. In
consideration thereof, a new note was been given to him in the amount of $5,360,
accruing interest at 11% per annum, and payable on demand. No payments were made
to Mr. Chubb during 1994 and at December 31, 1994, the amount owed to Mr. Chubb
including accrued interest aggregated $5,953. On January 1, 1995, Mr. Chubb
waived repayment of the note and the accrued interest thereon.
In October and November 1993, Messrs. DiMatteo and Chubb provided loans to the
Company of $70,000 and $35,000, respectively, with interest payable at the rate
of 12% per annum and maturing in October and November 1996 or on the officers
demand, at any date after April 1, 1995, whichever is earlier. Subsequent
thereto, the demand date was extended several times. The lenders may select
repayment in cash or in the form of three-year warrants (at an exchange rate of
$1 per warrant). Such warrants would permit the lenders to purchase the
Company's Common Stock at an exercise price of $1.50 per share. No payments were
made to Messrs. DiMatteo and Chubb during 1995 and as of January 1, 1995 Messrs.
DiMatteo and Chubb agreed to forgive accrued interest aggregating $9,792 and
$4,899, respectively. At December 31, 1995 the amounts owed to Messrs. DiMatteo
and Chubb aggregated $74,234 and $37,117, respectively. The maturity date of
these loans has been extended to January 2, 1997, the demand option has been
discontinued and the accrual of interest thereon commenced on July 1, 1995.
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<PAGE>
The above referenced notes issued to Messrs. DiMatteo and Chubb by the Company
are subordinated to the obligations of the Company under the People's Bank and
CII loans. However, by agreement dated as of March 26, 1996, People's Bank
consented to the payment of the Company of principal in the aggregate amount of
$123,082 due from the Company to Messrs. DiMatteo and Chubb pursuant to such
notes. The Company and Messrs. DiMatteo and Chubb agreed to subordinate to the
payment of the Company's obligations to People's Bank an equal amount of
deferred compensation accrued during the period June 1, 1995 through March 31,
1996.
Arlindo Jorge, a director of the Company received commissions for acting as a
finder in connection with the sale of Common Stock in private placement
transactions. These commissions aggregated $11,905 in 1995 and $24,300 in 1994.
In connection with its loan from CII in September 1996, the Company entered
into an Officers' Agreement with CII, Paul DiMatteo, Stephen Fisher and Samuel
Paul. Pursuant to this Agreement, Messrs. Fisher and Paul agreed that so long
as the Company owes any obligations to CII or CII owns any equity securities of
the Company they will not sell more than 20% of the equity securities of the
Company then owned by them. Mr. DiMatteo agreed that so long as the Company
owes any obligations to CII he will not sell more than 40% of the equity
securities of the Company then owned by him within the first 2 years from the
date of the Agreement or more than 60% of such securities with the first 3 years
from such date. Such officers also agreed to continue to serve the Company in
their current capacities and not to sell more than 50% of their equity
securities of the Company without allowing CII to participate in such sale pro
rata.
In September 1995, Paul DiMatteo guaranteed (the "DiMatteo Guaranty") 20% of
the amount payable by CDA to People's under a guaranty by CDA securing People's
loan to the Company up to a maximum of $400,000 (the "CDA Guaranty"). The
DiMatteo Guaranty is payable in full at any time after the CDA has paid People's
$80,000 under the CDA Guaranty and is limited to a maximum amount of $80,000.
Three of the Company's distributors i.e. Advanced Therapeutics,
Inc.("Advanced"), Comed Systems, Inc. and Innovative Medical Systems, Inc.
("Innovative") each provided an irrevocable letter of credit in the amount of
$200,000 for an aggregate of $600,000, which letters of credit can be drawn down
upon the Company's failure to make when due any payment due People's. The
Company issued each of these distributors a warrant to purchase 20,000 shares of
Common Stock at $2.50 per share. The Company entered into a Stock Put and Call
Agreement with Advanced and Innovative granting them the right to purchase
66,667 and 60,000 shares, respectively of Common Stock at $1.50 per share
together with a reduction in the number of shares purchasable pursuant to such
warrants in exchange for reducing the amount of their outstanding letters of
credit. In September 1995, Advanced purchased 66,667 shares of Common Stock for
an aggregate price of $100,000 and its irrevocable letter of credit was reduced
to $100,000 and its warrant was reduced to the right to purchase 10,000 shares
of Common Stock, and Innovative purchased 60,000 shares for an aggregate price
of $90,000 and its irrevocable letter of credit was reduced to $110,000 and its
warrant was reduced to the right to purchase 11,000 shares of Common Stock.
On September 5, 1995, the Company paid a finder's fee to Merolla & Bogar, LLC.
in the amount of $60,000, in connection with the sale of 900,901 shares of
Common Stock for $1,000,000, pursuant to a consulting agreement engaging Mr. C.
R. Merolla, upon consummation of the sale, as a financial consultant to the
Board of Directors at a fee of $3,000 per quarter, payable in Common Stock at
$1.11 per share for the first year and at the average bid price for the Common
Stock for the preceding month for the next two years and in cash, or at Mr.
Merolla's option in Common Stock at such average bid price the last two years.
In August 1995, the Company entered into an agreement with TimeCapital
Securities Corporation ("TimeCapital") which became effective upon the
consummation of the sale by the Company of 900,901 shares of its Common Stock in
September 1995. The agreement gives TimeCapital for a period of 15 days after
notice from Nova (i) the exclusive right to present to the Company a written
proposal with respect to any financing sought by the Company and (ii) a right of
first refusal to effect any offering of more than $50,000 of the Company's
securities on terms as favorable as those offered to Nova in writing by
reputable investment bankers. The agreement expires in September 2000 and Nova
has the right to terminate by paying TimeCapital $100,000.
In April 1996, the Company entered into an agreement (the "Placement
Agreement") with TimeCapital for TimeCapital to act as the Company's exclusive
agent for a period of two months to assist the Company in raising $500,000 by
May 21, 1996 and an additional $500,000 by June 30, 1996 through the sale of
Common Stock at a price of $2.00 per share in a private placement. The majority
of such shares will be entitled to one demand registration on or after January
1, 1997 and to piggyback registration. If a transaction is consummated during
the term of the agreement or within 12 months after the term if such transaction
is with a party introduced to Nova or contacted by TimeCapital during the term,
TimeCapital will receive a cash placement fee of 10% of
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<PAGE>
the money raised and warrants to purchase Common Stock equal to 5% of the shares
of Common Stock sold in the private placement. The warrants will have an
exercise price of $2.00 per share and will expire 5 years from the closing of
the placement. The Company also agreed to pay TimeCapital's reasonable expenses
in an amount not to exceed $10,000. Nova has the right to terminate the
exclusive agency if $250,000 has not been raised by May 21, 1996.
Also in April 1996, the Company entered into an agreement with TimeCapital for
it to act as the Company's exclusive agent for a period of one year to assist in
arranging for one or more qualified broker-dealers to serve as the
underwriter(s) on behalf of the Company in a public offering of Common Stock
anticipated to produce gross proceeds in the $5-$10 million range. If a
transaction is consummated during the term or within 18 months after the term if
such transaction is with a party introduced to Nova or contacted by TimeCapital
during the term, TimeCapital will receive a fee of 10% of the gross proceeds.
Such fee is payable in cash or Common Stock (valued at market if such shares are
registered or 75% of market if unregistered) or in any combination thereof as
determined by TimeCapital. The Company also agreed to pay TimeCapital's
reasonable expenses in an amount not to exceed $10,000. Nova has the right to
terminate this agreement by paying TimeCapital $100,000 in cash or issuing to it
100,000 shares of Common Stock with a deemed value of $2.00 per share or in any
combination thereof as determined by TimeCapital (the "Buy-Out Price"). Nova
may terminate this Agreement without payment of the Buy-Out Price if Nova does
not receive at least $500,000 from the placement of its securities by May 21,
1996 and an aggregate of at least $1,000,000 (inclusive of the $500,000
described above) from the placement of its securities by June 30, 1996.
On January 24, 1996, the Company entered into a Distributorship Agreement with
JCM Capital Corporation giving JCM Capital the exclusive right to distribute
Nova's products in the State of New York. Other terms and conditions are
similar to the Company's other distributorship agreements. On such date, the
Company and JCM Capital also entered into an agreement providing JCM Capital
with a nine month option to enter into a distributorship agreement for the
States of Ohio, California, Arizona and Georgia on terms substantially similar
to other current distribution agreements.
On May 23, 1994, the Company signed an employment agreement with Stephen Fisher
and retained him as a Senior Vice President. See "Executive Compensation -
Employment Agreements." Prior thereto, Mr. Fisher was the President of Aztech
Corporation ("Aztech"). Aztech was engaged by the Company for the period April
27, 1992 through May 22, 1994 as a consultant for the Company to assist it in
developing a marketing plan, drafting a business plan and raising capital. For
its services, Aztech was paid the sum of $3,000 per month plus 1,000 shares of
the Company's Common Stock per month.
In May, 1994, in connection with the cancellation of certain stock options, the
Company issued to Charles Chubb a warrant to purchase 172,599 shares of Common
Stock at $2.75 per share, expiring December 31, 1999.
In September 1995, the Company issued to Samuel N. Paul a warrant to purchase
30,000 shares of Common Stock at $2.61 per share, expiring September 4, 2002 for
financial consulting.
In June 1995, Paul DiMatteo, and Charles Chubb, executive officers of the
Company and Jay Haft, a director of the Company, were issued seven-year warrants
to purchase 180,000, 120,000, and 6,667 shares, respectively, of Common Stock at
$2.75 per share.
Pursuant to his employment agreement, in May 1994, the Company issued to
Stephen Fisher, an executive officer and director, an option pursuant to its ISO
Plan to purchase 150,000 shares of Common Stock at $2.75 per share, expiring May
23, 2004.
Pursuant to his employment agreement which became effective in September 1995,
the Company issued to Samuel N. Paul, an executive officer and director an
option pursuant to its 1994 Stock Option Plan (the "Plan") to purchase 150,000
shares of Common Stock at $2.61 per share, expiring December 31, 2004.
In October 1995, Jay Haft, a director of the Company, was granted an option
pursuant to the Plan to purchase 10,000 shares of Common Stock at $3.13 per
share through December 31, 2002.
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<PAGE>
The following directors were issued the following options to purchase Common
Stock pursuant to the Company's GSO Plan:
<TABLE>
<CAPTION>
DIRECTOR DATE OF GRANT # OF SHARES PRICE EXPIRATION DATE
- ----------------- ------------- ----------- ----- ------------------
<S> <C> <C> <C> <C>
Jay Haft 12/06/91 6,667 $3.37 December 31, 1999*
05/23/94 5,333 $2.75 December 31, 1999
Robert Segnini 12/06/91 6,667 $3.37 December 31, 1999*
05/23/94 5,333 $2.75 December 31, 1999
Arlindo Jorge 12/06/91 6,667 $3.37 December 31, 1999*
05/23/94 5,333 $2.75 December 31, 1999
</TABLE>
* Extended from December 31, 1995 in June 1994.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 1, 1996, the number and percentage
of shares of Common Stock held by (i) all persons who, to the knowledge of the
Company, are the beneficial owners of more than five percent (5%) of the
Company's outstanding Common Stock; (ii) each director and executive officer of
the Company; and (iii) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS BENEFICIAL
OF BENEFICIAL OWNER OWNERSHIP (1) PERCENT OF BENEFICIAL OWNERSHIP
- ----------------------- ------------- -------------------------------
BEFORE AFTER
OFFERING OFFERING
-------- --------
<S> <C> <C> <C>
Paul DiMatteo 1,081,616(2) 18.0% 18.0%
c/o Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, NY 11788
Charles F. Chubb 407,724(3) 6.7% 6.7%
c/o Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, NY 11788
Stephen Lowenstein 508,400(4) 8.3% 8.3%
c/o Jos. H. Lowenstein Sons, Inc.
420 Morgan Avenue
Brooklyn, NY 11222
JCM Capital Corp. 450,450 7.8% 0%
555 Broadhollow Road
Melville, NY 11747
Stephen M. Fisher 100,692(5) 1.7% 1.7%
c/o Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, NY 11788
Harold J. Lash 28,327(6) 0.5% 0.5%
c/o Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, NY 11788
Samuel N. Paul 30,000(7) 0.5% 0.5%
c/o Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, NY 11788
Jay M. Haft 67,000(8) 1.1% 1.1%
c/o Parker Duryee Rosoff & Haft
529 Fifth Avenue
New York, NY 10017
Arlindo Jorge 180,499(9) 3.1% 3.1%
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
33 Robinson Avenue
Glen Cove, NY 11742
Robert Segnini 24,745(10) 0.4% 0.4%
19 Shawmont Lane
Stonybrook, NY 11790
All executive officers and 1,920,605(11) 29.2% 29.2%0
directors as a group (8 persons)
</TABLE>
_____________________
(1) Effect has been given to shares issuable upon exercise of stock options or
warrants outstanding on and exercisable within 60 days of April 1, 1996.
Except as otherwise indicated, the persons named herein have sole voting
and dispositive power with respect to the shares beneficially owned.
(2) Includes 94,675 shares held of record by members of Mr. DiMatteo's
immediate family, including 43,212 shares issuable upon exercise of
outstanding options and warrants, held of record by Mr. DiMatteo's son, as
to all of which Mr. DiMatteo disclaims beneficial ownership, and 180,000
shares issuable upon exercise of outstanding warrants.
(3) Includes 6,000 shares held by Mr. Chubb's wife as to which shares Mr. Chubb
disclaims beneficial ownership, and 310,932 shares issuable upon exercise
of outstanding warrants.
(4) Includes 4,200 shares and 4,200 shares issuable upon exercise of
outstanding warrants, both of which are held by Mr. Lowenstein's wife and
children, as to all of which Mr. Lowenstein disclaims beneficial ownership,
and 300,000 shares issuable upon exercise of outstanding warrants.
(5) Includes 50,000 shares issuable upon exercise of outstanding stock options
and 692 shares owned by Aztech Corporation, a company controlled by Mr.
Fisher.
(6) Includes 27,327 shares issuable upon exercise of outstanding options and
warrants.
(7) Includes 30,000 shares issuable upon exercise of outstanding warrants.
(8) Includes 33,333 shares held by Venture Capital Associates, Ltd., of which
Cerhaft, Inc. ("Cerhaft") is the sole general partner. Mr. Haft is an
officer and director of Cerhaft. Also includes 28,667 shares issuable upon
exercise of outstanding options and warrants.
(9) Includes 15,000 shares held by Mr. Jorge's wife as to which shares Mr.
Jorge disclaims beneficial ownership, and 52,610 shares issuable upon
exercise of outstanding options and warrants. Also includes 30,000 shares
held in Mr. Jorge's Individual Retirement Account.
(10) Includes 12,000 shares issuable upon exercise of outstanding options.
(11) Includes 784,748 shares issuable upon exercise of outstanding warrants and
options owned by such executive officers and directors.
-33-
<PAGE>
SELLING STOCKHOLDERS
The following table shows for each of the Selling Stockholders (i) the number
of shares of Common Stock beneficially owned by each of them as of April 1,
1996, (ii) the number of shares of Common Stock covered by this Prospectus, and
(iii) the number and the percentage of ownership if all shares of Common Stock
covered by this Prospectus were sold.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF SHARES SHARES
SHARES COVERED OWNED
SELLING BENEFICIALLY BY THIS AFTER PERCENTAGE
STOCKHOLDER OWNED PROSPECTUS OFFERING OF CLASS
- -------------------------- ------------ ----------- -------- ----------
<S> <C> <C> <C> <C>
Field Family Trust 225,225 225,225 0 0
JCM Capital Corp. 450,450 450,450 0 0
Kirsch, Jodi 22,522 22,522 0 0
Kula, Adam 22,523 22,523 0 0
Kula, Albert 45,046 45,046 0 0
Kula, Robert 45,045 45,045 0 0
Tower, Leonard 63,090 63,090 0 0
Zeman, Barry T. & Angela 13,500 13,500 0 0
Zeman, Joshua & Barry T. 13,500 13,500 0 0
-------
TOTALS 900,901
=======
</TABLE>
None of the Selling Stockholders has had any material relationship with the
Company or any of its affiliates within the past three years except for their
purchase of the Common Stock offered hereby and except for JCM Capital Corp.
("JCM"). The Selling Stockholders acquired the Common Stock in a private
placement as part of the 1995 Financing described above at "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." JCM has entered into an agreement to
distribute the Company's products in New York on substantially the same terms as
the Company's other distributor agreements and holds an option to become the
Company's exclusive distributor in Ohio, California, Arizona and Georgia.
PLAN OF DISTRIBUTION
The shares may be sold by the Selling Stockholders, or by pledgees, donees,
transferees or other successors-in-interest. Such sales may be made on the OTC
Bulletin Board, in privately negotiated transactions, or otherwise, at market
prices or at negotiated prices. The shares may be sold by one or more of the
following methods: (a) a block trade in which the 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 in order to consummate the transaction; (b) purchase
by a broker or dealer as principal, and the resale by such broker or dealer for
its account pursuant to this Prospectus, including resale to another broker or
dealer; or (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers. In effecting sales, brokers or dealers engaged by
the Selling Stockholders may arrange for other brokers or dealers to
participate. Any such brokers or dealers may receive commissions or discounts
from the Selling Stockholders in amounts to be negotiated immediately prior to
the sale. Such brokers or dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended. Any gain realized by such a broker or dealer on the
sale of shares which it purchases as a principal may be deemed to be
compensation to the broker or dealer in addition to any commissions paid to the
broker by the Selling Stockholders.
The Company will not receive any portion of the proceeds of the shares sold by
the Selling Stockholders. There is no assurance that any of the Selling
Stockholders will sell any or all of the shares of Common Stock covered by this
Prospectus.
The Selling Stockholders have advised the Company that during the time they
are engaged in distribution of Common Stock covered by this Prospectus, they
will comply with Rules 10b-5 and 10b-6 under the Exchange Act, and pursuant
thereto: (i) will not engage in any stabilization activity in connection with
the Company's securities; (ii) will furnish each broker through which Common
Stock covered by this Prospectus may be offered the number of copies of this
Prospectus which are required by each broker; and (iii) will not bid for or
purchase any securities of the Company or attempt to induce any person to
purchase any of the Company's securities other than as permitted under the
Exchange Act. Selling Stockholders who may be an "affiliated purchaser" of the
Company as defined in Rule 10b-6 have been further advised that pursuant to
Exchange Act Release 34-23611 (September 11, 1986), they must coordinate their
sales under this Prospectus with each other and the Company for purposes of Rule
10b-6.
-34-
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 14,000,000 shares of Common
Stock, $.01 par value per share, and 1,750,000 shares of Preferred Stock, $2.25
par value per share.
COMMON STOCK
Holders of shares of Common Stock do not have the right to cumulate their votes
in the election of directors and, accordingly, holders who control more than 50%
of the outstanding voting power can elect all of the directors of the Company.
The shares of Common Stock carry no preemptive or other subscription rights and
there are no redemption provisions applicable thereto. In the event of
liquidation, dissolution or winding-up of the Company, the holders of all shares
of Common Stock are entitled to share ratably in all the assets of the Company
available for distribution to the holders of its Common Stock.
At April 1, 1996, there were 5,801,183 shares of Common Stock issued and
outstanding, held of record by approximately 370 persons.
PREFERRED STOCK
The Board of Directors is authorized to issue all undesignated shares of
Preferred Stock in series and to determine the number, designation, preferences,
relative rights and limitations of the shares of each series.
Among the determinations which the Board of Directors is authorized to make for
each of the shares of Preferred Stock are (a) the number of shares in the
series and the designation thereof; (b) the dividend rate and whether dividends
would be cumulative; (c) the price and other terms of any redemption; (d) the
extent of liquidation rights; (e) whether a sinking fund would be created with
respect to the shares and the terms of any such fund; (f) whether there would
be conversion rights into shares of Common Stock or other shares of Preferred
Stock and the terms of any such conversion; and (g) whether, and the extent
to which there would be voting rights, which might include the rights to elect a
specified number of directors if dividends on the series were not paid for a
specified period of time. The rights of the holders of shares of Preferred
Stock may include priorities over the holders of shares of Common Stock. For
example, in almost all cases, holders of shares of Preferred Stock of a
particular series are entitled to dividends in preference to holders of shares
of Common Stock. In addition, holders of shares of Preferred Stock of a
particular series generally are entitled to a priority over holders of Common
Stock in the distribution of assets available to all stockholders of the Company
upon any liquidation, dissolution and winding up of the Company. Further,
holders of shares of Preferred Stock of a particular series may be given voting
rights on a share-for-share basis with holders of shares of Common Stock and in
certain events may be given greater voting rights or voting rights exercisable
as a separate class. There are no shares of Preferred Stock outstanding.
Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock or the issuance of rights to
purchase such shares may have the effect of delaying, deferring or preventing a
change in control of the Company or an unsolicited acquisition proposal.
REDEEMABLE WARRANTS
The Company issued 500,000 redeemable common stock purchase warrants (the
"Redeemable Warrants") as part of its Initial Public Offering in February 1992
pursuant to a Warrant Agreement (the "Warrant Agreement") between the Company
and the American Stock Transfer & Trust Company (the "Warrant Agent"). Each
Redeemable Warrant is in registered form and is saleable, assignable, and
conveyable, and entitles the registered holder to purchase one share of Common
Stock at an exercise price of $4.00 per share through March 31, 1997.
The Company has the right to redeem all, or any portion, of the Redeemable
Warrants at any time at a price of $.05 per Redeemable Warrant if the average of
the closing bid and asked prices of the Common Stock equals or exceeds $11.00
per share during any consecutive 10-day trading period and notice of redemption
is given no later than 20 days after the expiration of such 10-day trading
period. The Company has authorized and reserved for issuance 500,000 shares of
Common Stock purchasable upon exercise of the Redeemable Warrants. Such shares
of Common Stock, when issued, shall be fully paid and non-assessable.
The exercise price and the number of shares of Common Stock to be obtained
upon exercise of the Redeemable Warrants are subject to adjustment in the event
of a stock dividend or of a split of the Common Stock, or in the event of a
-35-
<PAGE>
reorganization or recapitalization of the Company or of the merger or
consolidation of the Company, all as more fully set forth in the Warrant
Agreement.
Fractional shares will not be issued upon exercise of the Redeemable Warrants
and, in lieu thereof, a cash adjustment based on the market price of the Common
Stock on the date of exercise will be made. The Redeemable Warrants do not
confer upon the holder any voting or preemptive rights, or any other rights of a
stockholder of the Company unless the Warrants have been exercised.
A Redeemable Warrant may be exercised upon the surrender of a duly completed
certificate prior to its expiration at the office of the Warrant Agent,
accompanied by cash or certified or office bank check payable to the order of
the Warrant Agent for the exercise price.
The Act requires that the Redeemable Warrants cannot be exercised unless at the
time of such exercise the Company shall then have a current effective
registration statement under the Act with respect to the shares of Common Stock
issuable upon exercise of the Redeemable Warrants. Similar requirements are
also imposed by certain state securities regulatory authorities. The Company has
not endeavored to keep such a registration statement current because the
exercise price of the Redeemable Warrants has exceeded, and continues to exceed
the bid price for the Company's Common Stock as reported on the OTC Bulletin
Board. No holder of the Redeemable Warrants has attempted to exercise them.
Once the offering contemplated hereby has been completed, the Company intends
to endeavor to have declared effective, and to maintain in effect a registration
statement registering the Common Stock underlying the Redeemable Warrants in
order to permit future exercises of such Warrants.
The above summary does not purport to be complete. The Warrant Agreement,
containing all of the terms and conditions applicable to the Warrants, has been
incorporated as an exhibit to the Registration Statement of which this
Prospectus is a part.
TRANSFER AND WARRANT AGENT
The transfer agent for the Warrants is American Stock Transfer & Trust Company,
40 Wall Street, New York, New York 10005.
REPORTS TO STOCKHOLDERS
The Company will furnish to stockholders, after the close of each fiscal year,
an Annual Report which will contain audited financial statements. In addition,
the Company may furnish unaudited quarterly reports to stockholders for the
first three quarters of each fiscal year.
SHARES ELIGIBLE FOR FUTURE SALE
In general, Rule, 144, promulgated under the Act, permits a stockholder of the
Company who has beneficially owned restricted shares of Common Stock for a
period of at least two years to sell without registration, within any three
month period, such number of shares not exceeding the greater of 1% of the then
outstanding shares, or, if the shares are quoted on NASDAQ, the average weekly
trading volume during the four calendar weeks preceding such sale, assuming
compliance by the Company with certain public information requirements of Rule
144. Furthermore, if the restricted shares are held for a period of at least
three years by a person not affiliated with the Company (in general, a person
who is not a director, executive officer or principal stockholder of the Company
during the three month period prior to resale), such restricted shares can be
sold without limitation as to volume or manner of sale.
As of April 1, 1996, 5,801,183 shares of Common Stock were outstanding of which
1,730,405 shares are "restricted" securities, as such term is defined under the
Act. As of January 1, 1996, 126,750 of these shares of Common Stock would have
been eligible for sale under Rule 144. During the period commencing January 1,
1996 and ending December 31, 1996, an additional 987,738 of such shares will
become eligible for sale under Rule 144. The balance of such shares will become
eligible for sale pursuant to Rule 144 upon the expiration of their respective
two-year holding periods. In addition, certain of the current holders of
outstanding Common Stock, options and warrants have "piggy-back" registration
rights with respect to their securities should certain conditions be satisfied.
In addition, the Company intends to file a registration statement covering the
338,000 shares of Common Stock reserved for issuance, and the 427,017 shares of
Common Stock issued under its stock option plans
-36-
<PAGE>
after the completion of this offering. Further, once the offering contemplated
hereby has been completed, the Company intends to endeavor to have declared
effective, and to maintain in effect a registration statement registering the
500,000 shares of Common Stock underlying the Redeemable Warrants in order to
permit future exercises of such Warrants.
-37-
<PAGE>
LEGAL PROCEEDINGS
There are no material legal proceedings which are currently pending or, to the
Company's knowledge, contemplated against the Company or to which it is a party.
LEGAL MATTERS
Matters relating to the legality of the issuance of the shares of Common Stock
offered hereby are being passed upon for the Company by Whitman Breed Abbott &
Morgan, 100 Field Point Road, Greenwich, Connecticut 06830.
EXPERTS
The financial statements of the Company at December 31, 1995 and for each of
the years in the two-year period ended December 31, 1995 included in this
Prospectus and Registration Statement have been audited by Richard A. Eisner &
Company, LLP independent auditors, as set forth in their report with respect
thereto, and are included in reliance upon such report given upon the authority
of such firm as experts in auditing and accounting. Such report includes an
uncertainty regarding the Company's ability to continue as a going concern.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Certificate of Incorporation of the Company provides with respect to the
indemnification of directors and officers that the Company shall indemnify to
the fullest extent permitted by Section 145 of the Delaware General Corporation
Law, as amended from time to time, each person that such Section grants the
Company the power to indemnify and that such indemnification shall not be deemed
exclusive of any other rights to which such persons may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or otherwise.
The Certificate of Incorporation of the Company also provides that no director
shall be liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to the Company or its stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware General
Corporation Law or (4) for any transaction from which the director derived an
improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act of
1993 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
-38-
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "S.E.C."). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the S.E.C. at 450 Fifth Street N.W.
(Room 1024), Judiciary Plaza, Washington, D.C. 20549; as well as at the Regional
Offices of the S.E.C. located at Northwestern Atrium Center, 500 West Madison
Street (Suite 1400), Chicago, Illinois 60661; and Seven World Trade Center (13th
Floor), New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the S.E.C. at 450 Fifth Street N.W., Washington,
D.C. 20549 at prescribed rates.
The Company has filed with the S.E.C. in Washington, D.C., a Registration
Statement on Form SB-2 under the Securities Act of 1933 (the "Act"), as amended,
with respect to the Common Stock offered hereby (the "Registration Statement").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the S.E.C.. For further information with respect
to the Company and the securities offered hereby, reference is made to the
Registration Statement, including the exhibits and financial statements and
schedules, if any, filed therewith or incorporated therein by reference.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete, and in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement or incorporated therein by reference, each statement
being qualified in its entirety by such reference. The Registration Statement,
including the exhibits thereto, may be inspected without charge at the S.E.C.'s
principal office in Washington, D.C., and copies of any and all parts thereof
may be obtained from such office after payment of the fees prescribed by the
S.E.C..
-39-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Nova Technologies, Inc.
Hauppauge, New York
We have audited the accompanying balance sheets of Nova Technologies, Inc.
as at December 31, 1995 and December 31, 1994, and the related statements of
operations, changes in stockholders' equity (deficiency), and cash flows for
each of the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the financial position of Nova Technologies, Inc. as at
December 31, 1995 and December 31, 1994, and the results of its operations and
its cash flows for each of the years then ended in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced recurring operating losses and
will require additional financing for the commercial exploitation of its patient
transfer system. These factors raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Richard A. Eisner & Company, LLP
New York, New York
February 12, 1996
With respect to the last paragraph
of Note 9[a]
March 26, 1996
With respect to Note 1
April 26, 1996
F-1
<PAGE>
NOVA TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------
A S S E T S 1995 1994
----------- ------------ -----------
(Note 9)
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 2)..................... $ 485,819 $ 102,245
Inventories (Notes 2 and 3)............................ 332,995 206,106
Accounts receivable.................................... 45,155 12,870
Prepaid expenses and other current assets.............. 71,185 51,516
------------ -----------
Total current assets............................ 935,154 372,737
Restricted cash (Note 9[b])............................... 100,000
Subscription receivable (Note 9[b])....................... 90,000
Equipment and leasehold improvements (net of accumulated
depreciation and amortization of $226,576 in 1995 and
$138,200 in 1994) (Note 2)............................. 136,256 152,925
Deposits and other assets................................. 64,931 16,457
Deferred financing costs (Note 9)......................... 69,852
------------ -----------
T O T A L....................................... $ 1,396,193 $ 542,119
============ ===========
L I A B I L I T I E S
---------------------
Current liabilities:
Accounts payable and accrued expenses.................. $ 277,430 $ 136,273
Customer prepayments................................... 18,909 51,972
Notes payable - officers (Note 4)...................... 5,360
Deferred officers' compensation (including accrued
interest of $684 in 1995) (Note 10[a])............... 86,767 18,617
------------ -----------
Total current liabilities....................... 383,106 212,222
Notes payable - other (net of deferred debt discount of
$15,111) (Note 9[a])................................... 88,102
Notes payable - officers (including accrued interest of
$15,779 in 1995 and $36,917 in 1994) (Note 4).......... 290,779 343,926
Deferred officers' compensation (including accrued
interest of $69,523 in 1994) (Note 10[a]).............. 687,973
Grant award (Note 9[e])................................... 50,000
------------ -----------
Total liabilities............................... 811,987 1,244,121
------------ -----------
Commitments (Note 10)
STOCKHOLDERS' EQUITY (DEFICIENCY)
---------------------------------
(Note 1)
Preferred stock (Note 6)..................................
Common stock - $.01 par value; 14,000,000 shares
authorized; 5,791,083 and 4,295,365 shares issued and
outstanding, respectively.............................. 57,911 42,954
Additional paid-in capital................................ 9,847,887 7,274,428
Deficit................................................... (9,321,592) (8,019,384)
------------ -----------
Total stockholders' equity (deficiency)......... 584,206 (702,002)
------------ -----------
T O T A L....................................... $ 1,396,193 $ 542,119
============ ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-2
<PAGE>
NOVA TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales................................... $ 220,368 $ 233,278
----------- -----------
Costs and expenses:
Cost of sales............................ 697,901 558,262
Research and development expenses........ 297,780 400,202
General, administrative and consulting
expenses............................... 506,124 421,573
----------- -----------
Total costs and expenses.......... 1,501,805 1,380,037
----------- -----------
(Loss) from operations before other income
and (expenses)........................... (1,281,437) (1,146,759)
Other income and (expenses):
Interest and other income................ 13,201 5,197
Interest expense and other............... (33,972) (69,575)
----------- -----------
NET LOSS.................................... $(1,302,208) $(1,211,137)
=========== ===========
Net loss per share (Note 2)................. $(.27) $(.31)
=========== ===========
Weighted average number of common shares
outstanding (Note 2)..................... 4,783,050 3,964,598
=========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-3
<PAGE>
NOVA TECHNOLOGIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Common Shares
Outstanding
------------- Additional
Number of Paid-in
Shares Amount Capital Deficit
------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Balance - December 31, 1993....................................... 3,474,963 $34,750 $6,343,418 $(6,808,247)
Year ended December 31, 1994:
Common stock issued to landlord for rent....................... 10,940 109 10,831
Common stock issued for cash................................... 804,770 8,048 936,607
Costs incurred in connection with issuance of common stock..... (93,465)
Common stock issued for professional services rendered......... 4,692 47 14,106
Value assigned to warrants given to employees.................. 62,931
Net loss for the year ended December 31, 1994.................. (1,211,137)
Balance - December 31, 1994....................................... 4,295,365 42,954 7,274,428 (8,019,384)
Year ended December 31, 1995:
Exercise of warrants........................................... 73,752 737 98,828
Common stock issued for cash................................... 1,361,966 13,620 1,677,977
Costs incurred in connection with issuance of common stock..... (166,778)
Value assigned to warrants given in connection with financing
(Note 9)..................................................... 28,000
Subscription receivable from distributor....................... 60,000 600 89,400
Value assigned to warrants given to employees.................. 24,681
Waiver of prior years deferred compensation and forgiveness
of debt to officers.......................................... 762,851
Waiver of deferred compensation to officers - current
year......................................................... 58,500
Net loss for the year ended December 31, 1995.................. (1,302,208)
-----------
BALANCE - DECEMBER 31, 1995....................................... 5,791,083 $57,911 $9,847,887 $(9,321,592)
============= ========== ========== ===========
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-4
<PAGE>
NOVA TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $(1,302,208) $(1,211,137)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization................................................ 90,344 76,800
Value assigned to warrants given to employees of the Company................. 24,681 62,931
Increase in grant award...................................................... 50,000
Waiver of deferred compensation.............................................. 58,500
Common stock issued in lieu of cash payment to landlord for rent............. 10,940
Common stock issued for professional services rendered....................... 14,153
Changes in operating assets and liabilities:
(Increase) in inventories.................................................. (126,889) (11,519)
(Increase) in accounts receivable, prepaid expenses and other assets....... (100,428) (37,577)
(Increase) in restricted cash.............................................. (100,000)
Increase in accounts payable and accrued expenses.......................... 108,686 65,412
Increase in deferred officers' compensation................................ 67,466 172,367
Increase in accrued interest payable....................................... 19,676 67,012
----------- -----------
Net cash (used in) operating activities................................. (1,210,172) (790,618)
----------- -----------
Cash flows from investing activities:
Purchase of equipment and capitalized tooling costs............................ (72,786) (27,723)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable.................................................... 200,000
Proceeds from sale of common stock............................................. 1,691,597 944,655
Issuance costs incurred in sale of common stock................................ (166,778) (93,465)
Proceeds from exercise of warrants............................................. 99,565
Repayment of notes payable..................................................... (100,000)
Deferred financing costs....................................................... (57,852)
-----------
Net cash provided by financing activities............................... 1,666,532 851,190
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS............................................. 383,574 32,849
Cash and cash equivalents at beginning of year.................................... 102,245 69,396
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................................... $ 485,819 $ 102,245
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid.................................................................. $ 3,575 $ 1,451
Noncash transactions:
Forgiveness of debt owed to officers......................................... 762,851
Subscription receivable...................................................... 90,000
Value of warrants given in connection with financing......................... 28,000
</TABLE>
Attention is directed to the foregoing accountants' report
and to the accompanying notes to financial statements.
F-5
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 1) - The Company:
- ----------------------
Nova Technologies, Inc. (the "Company") developed and manufactures an advanced
patient transfer system. The Company, which was in the development stage prior
to 1995, is manufacturing, marketing and selling its patient transfer systems
and therefore is no longer in the development stage.
The Company has experienced significant losses since inception. In order to
achieve profitable operations, the Company will have to reach levels of
manufacturing and sales, sufficient to cover its operating expenses. In this
regard management's plans are to obtain additional financing through equity
offerings or debt financings, a strategic alliance or joint venture arrangement.
In April 1996, the Company entered into an agreement with a placement agent to
pursue a private placement of at least 250,000 shares of its common stock.
There is no assurance that such financing or that a strategic alliance or joint
venture arrangement will be consummated on terms acceptable to the Company.
There is no assurance that the Company can establish profitable operations.
(NOTE 2) - Summary of Significant Accounting Policies:
- -----------------------------------------------------
[a] Inventories:
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
market. In estimating the net realizable value of inventories, management
considers technological obsolescence as a factor, based on industry trends and
developments.
[b] Equipment and leasehold improvements:
------------------------------------
Equipment (which includes internally constructed tooling of $51,000 in
1995 and $88,000 in 1994) is recorded at cost and depreciated on the straight-
line method over their estimated useful lives of 3 to 5 years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful life of the asset.
[c] Cash flow statement:
-------------------
For purposes of reporting cash flows, the Company considers all highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.
F-6
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 2) - Summary of Significant Accounting Policies: (continued)
- -----------------------------------------------------
[d] Net loss per share:
------------------
Net loss per share has been computed based on the weighted average number
of shares outstanding during each year.
[e] Rent expense:
------------
The Company for financial accounting purposes, spreads scheduled rent
holidays over the term of the lease on a straight-line basis.
[f] Revenue recognition:
-------------------
Revenues are recognized at the time of the shipment of patient transfer
systems.
[g] Use of estimates:
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
[h] Nonmonetary transactions:
------------------------
The Company's policy is to record the issuance of common shares for
services or to satisfy other obligations at the fair value of the common shares
issued.
[i] Recently issued accounting standards:
------------------------------------
The Company has not elected to adopt early the provisions of two recently
issued accounting standards regarding impairments of long-lived assets ("FAS
121") and stock based compensation ("FAS 123"). FAS 121 requires entities to
review long-lived assets and certain identifiable intangibles to be held and
used, for impairment whenever changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. FAS 123 establishes a fair
value based method of accounting for stock-based compensation plans. The
Company has not determined the potential impact, if any, of the adoption of
these standards on its financial position or results of operations.
(continued)
F-7
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 2) - Summary of Significant Accounting Policies: (continued)
- -----------------------------------------------------
[j] Deferred financing costs:
------------------------
The Company amortizes the deferred financing costs of any financings,
over the period in which the obligation matures.
[k] Warranty obligations:
--------------------
The Company provides a warranty on the sale of its products for a period
of one year. To date warranty obligations have been insignificant.
[l] Patent costs:
------------
Patent costs are capitalized and amortized over 17 years.
The Company estimates undiscounted future cash flows from products which
are covered by these patents. An impairment in the patent would be recognized
if those estimated future cash flows were less than the amortized costs.
[m] Reclassifications:
-----------------
Certain reclassifications have been made to the 1994 financial statements
to be comparable to the 1995 financial statements.
(NOTE 3) - Inventories:
- ----------------------
Inventories comprise the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Raw materials.... $115,907 $ 23,130
Work in process.. 167,714 82,639
Finished goods... 49,374 100,337
-------- --------
</TABLE>
T o t a l...... $332,995 $206,106
======== ========
(continued)
F-8
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 4) - Notes Payable - Officers:
- -----------------------------------
At December 31, 1995 the notes payable to officers, who are also stockholders,
as amended, bear interest at 11% and 12% per annum. The 11% and 12% notes
(aggregating $170,000 and $105,000, respectively) are payable on January 2,
1997. At the officers' discretion the notes can be repaid in cash or they may
elect to receive one three-year warrant in exchange for each dollar of debt, to
purchase the Company's common stock at $1.50 per share. The notes are
subordinated to the borrowings under the People's Bank and Connecticut
Innovations, Incorporated loan facilities (see Notes 9[a] and [b]). The notes
payable to the officers previously aggregated $312,369 and were due in 1996. Of
this amount, $37,369 of principal and $36,917 of interest was forgiven in 1995
(see Note 5).
(NOTE 5) - Waiver of Deferred Compensation and Forgiveness of Debt:
- ------------------------------------------------------------------
During 1995 two officers, who are also stockholders, agreed to waive the
payment of their prior year's deferred compensation, and to forgive the
repayment of certain notes payable and all accrued interest due to them as of
January 1, 1995. The waiver and forgiveness by these officers, aggregating
$762,851 was recorded as a contribution to additional paid-in capital and
calculated as follows:
Waiver of compensation owed . . . . . . . . . . . . . $618,450
Forgiveness of notes payable. . . . . . . . . . . . . 37,369
Forgiveness of accrued interest . . . . . . . . . . . 107,032
These same officers have agreed to waive the payment of a portion of their
1995 salaries in an amount aggregating $58,500, with a corresponding offset to
additional paid-in capital.
(NOTE 6) - Redeemable Convertible Preferred Stock:
- -------------------------------------------------
The Company has 1,750,000 shares of preferred stock authorized; of which
500,000 shares have been designated as Series A Convertible Preferred Stock.
(continued)
F-9
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 7) - Income Taxes:
- -----------------------
At December 31, 1995, the Company has approximate net operating loss and
research and development credit carryforwards, for income tax purposes, expiring
as follows:
<TABLE>
<CAPTION>
Net Research and
Operating Development
Expiration Losses Credits
- ------------- ---------- ------------
<S> <C> <C>
2000...... $ 121,000 $ 5,000
2001...... 536,000 25,000
2002...... 899,000 44,000
2003...... 802,000 21,000
2004...... 826,000 9,000
2005...... 234,000 12,000
2006...... 327,000 12,000
2007...... 771,000 29,000
2008...... 910,000 36,000
2009...... 940,000 35,000
2010...... 1,171,000 -
---------- --------
$7,537,000 $228,000
========== ========
</TABLE>
The Company's expected tax benefit rate of 34% has been reduced to zero due to
its nonutilization of its net operating loss. The provision for income tax
benefit and increase in valuation allowance thereon for the years ended December
31, 1995 and December 31, 1994 were $398,000 and $343,000, respectively.
The Company has a deferred tax asset of $2,335,000 resulting principally from
its net operating loss and research and development credit carryforwards which
have been fully reserved due to recurring operating losses and uncertainty about
future operating results.
Pursuant to the Internal Revenue Code, future utilization of past losses or
credits are subject to certain limitations based on changes in ownership of the
Company's stock. In addition, pursuant to the Tax Reform Act of 1986, the
Company's annual utilization of such limited net operating loss and tax credit
carryforwards will be further limited to a 90 percent reduction of its tax
liability as a result of the corporate alternative minimum tax.
(continued)
F-10
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 8) - Stock Warrants and Options:
- -------------------------------------
The exercise price for warrants and options issued in connection with services
rendered by nonemployees or financing arrangements is determined by negotiations
between the Company and the third party. Generally, warrants and options are
issued to employees with an exercise price of not less than the quoted market
price of the stock. If the Company issues options and warrants to employees at
less than the quoted market price, a compensation charge is recorded for the
difference between the exercise price and the quoted market price.
[a] Common stock warrants:
---------------------
The Company has outstanding warrants for the purchase of its common stock
as follows:
<TABLE>
<CAPTION>
Number of
Exercise Price Expiration Date Shares
--------------- --------------------- -------
<S> <C> <C> <C>
Conversion of notes payable
and sale of common stock $3.00 December 31, 1997 (4) 33,943
Extension of note payable $2.25 March 14, 1997 18,333
Sale of common stock $3.00 December 31, 1997 (4) 6,667
Sale of common stock $4.50 December 31, 1997 (4) 31,333
Sale of units (1) March 31, 1997 500,000
Consulting agreement $2.00 February 4, 1997 100,000
Sale of common stock $7.09 (2) November 21, 1996 100,000
Services rendered $4.00 (3) March 30, 1996 5,500
Replacement of stock options $2.75 (5) December 31, 1999 172,599
Services rendered $1.50 (6) September 30, 1997 54,991
Services rendered $1.50 (6) December 31, 1997 7,941
----------
Warrants outstanding -
December 31, 1994 1,031,307
Services rendered $1.50 (6) March 30, 1998 9,141
Services rendered $1.50 (6) June 29, 1998 8,840
Services rendered $1.50 (6) September 29, 1998 6,699
Issued to officers $2.75 (7) December 31, 2002 300,000
Consulting agreement $2.61 (8) September 4, 2002 30,000
Connecticut financing $2.50 (9) September 1, 1997 33,750
Connecticut financing $1.11 (9) September 1, 2001 300,000
Connecticut financing $2.50 (9) September 1, 2002 11,250
Connecticut financing $2.50 (9) September 5, 1996 41,000
Other $2.75 December 31, 2002 6,667
----------
Warrants outstanding -
</TABLE>
December 31, 1995 1,778,654
==========
(1) May be redeemed by the Company at any time on 30 days prior written
notice at a price of $.05 per warrant if the average of the closing bid and
asked prices of the common stock equals or exceeds $11.00 per share during any
consecutive 10 day trading period and notice of redemption is given no later
than 20 days after the expiration of such 10 day trading period. In 1994 the
exercise price was reduced to $4.00 per share and the expiration date was
extended to March 31, 1997.
(continued)
F-11
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 8) - Stock Warrants and Options: (continued)
- -------------------------------------
[a] Common stock warrants: (continued)
---------------------
(2) In connection with the public offering which occurred in February
1992, the Company sold to the underwriter, at a nominal amount, warrants
exercisable over a three-year period commencing November 1993, to purchase
50,000 units at $7.09 per unit, each unit consisting of one share of common
stock and one redeemable warrant.
(3) In 1994 the Company issued a warrant to purchase 5,500 shares of
common stock at an exercise price of $4.00 per share, expiring March 30, 1996,
as compensation, which it valued at $5,500.
(4) Warrants previously issued with an expiration date of December 31,
1994.
(5) In connection with the cancellation of certain stock options the
Company in 1994 granted a warrant to purchase 172,599 shares of common stock
exercisable at $2.75, which expires at December 31, 1999.
(6) The Company issued warrants to purchase 87,612 shares of common
stock (62,932 in 1994 and 24,680 in 1995) at an exercise price of $1.50 per
share, expiring at various dates through September 29, 1998, which is valued at
$88,000 ($63,000 in 1994 and $25,000 in 1995), in exchange for services
rendered.
(7) The Company granted to two officers, who are also stockholders,
warrants to purchase 300,000 shares of common stock at an exercise price of
$2.75 per share, expiring December 31, 2002. The exercise price exceeded the
market price on the date of grant.
(8) The Company issued a warrant to purchase 30,000 shares of common
stock at an exercise price of $2.61 per share, expiring September 4, 2002 for
financial consulting, which it valued at $7,000.
(9) In connection with the various financing agreements entered into in
September 1995, the Company issued warrants to purchase up to 386,000 shares of
common stock at exercise prices of $1.11 and $2.50 per share expiring at various
dates through September 1, 2002. The exercisable portion of such warrants have
been valued at $21,000 (see Note 9). The value of such warrants is measured at
the time they become exercisable.
(continued)
F-12
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 8) - Stock Warrants and Options: (continued)
- -------------------------------------
[b] Stock option plans:
------------------
The Company's 1985 incentive and general (nonstatutory) stock option
plans as amended, provided for the granting of options to purchase up to 500,000
shares of its common stock to eligible employees and nonemployee directors.
Both plans expired in February 1995.
The Company's 1994 stock option plan (the "Plan") provides for the
granting to employees and directors of both incentive and nonstatutory stock
options. Pursuant to the Plan 500,000 shares of the Company's common stock have
been reserved for granting at prices and for periods determined by the Company's
Board of Directors. The Plan expires on October 31, 2004 and at December 31,
1994 no stock options had been issued under the Plan.
<TABLE>
<CAPTION>
Stock options outstanding under these plans are as follows:
Nonstatutory Incentive
------------ ---------
<S> <C> <C>
Outstanding at December 31, 1993
($1.50 - $4.75 per share)........ 100,935 207,499
Granted ($2.25 - $2.75 per share). 15,999 152,500
Cancelled........................... (57,600) (132,899)
------- --------
Outstanding at December 31, 1994
($1.50 - $4.75 per share)........ 59,334 227,100
Granted ($2.13 - $3.13 per share). 10,000 158,000
Cancelled........................... (16,667) (10,750)
------- --------
Outstanding at December 31, 1995
($1.50 - $4.75 per share)........ 52,667 374,350
======= ========
</TABLE>
At December 31, 1995 all of the nonstatutory stock op tions and 99,084 of
the incentive stock options were exercisable.
As at December 31, 1995, options for the purchase of 338,000 shares were
available for future grant.
(continued)
F-13
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - Financing Agreements:
- -------------------------------
In September 1995, pursuant to a series of interdependent transactions, the
Company sold 900,901 shares of its common stock for an aggregate of $1,000,000
in a private placement, received a grant commitment from the city of Bristol,
Connecticut of up to $100,000 and received loan commitments to borrow in the
aggregate of up to $2,050,000 from a bank and from various agencies and public
authorities of the state of Connecticut in connection with moving its
manufacturing facilities to Bristol, Connecticut. The loan commitments are as
follows:
[a] The Company entered into a financing agreement with Connecticut
Innovations, Incorporated ("CII") to borrow up to $750,000 in four stages based
on the achievement of certain milestones at an interest rate of 10% per annum.
Interest only is payable semi-annually commencing on the earlier of (i)
September 5, 1998 or (ii) the date the Company declares any dividends or
repurchases any of its outstanding stock. Principal is due on September 5,
2001, collateralized by the assets of the Company, including patents, which
security interest except for patents, is subordinated to the security interest
of the Company's lending bank. As of December 31, 1995, the Company was
eligible and has borrowed $100,000 under this facility. The Company granted CII
a warrant to purchase 300,000 shares of common stock at an exercise price of
$1.11 per share, expiring on September 1, 2001. The warrant becomes exercisable
on a pro rata basis, as the Company achieves its milestones and makes additional
borrowings under the facility. As of December 31, 1995, 40,000 of such warrants
are exercisable and have been valued at $16,000. As the Company borrows
additional amounts and more warrants become exercisable, those warrants will
then be valued at the time of such borrowings.
The exercise price of the warrant is subject to downward adjustment if
any sales of common stock are made at less than $1.11 per share. The warrant
may be exercised on a "cashless basis", whereby the Company must pay to the
warrantholder an amount equal to the difference between the warrant exercise
price and the fair market value of the underlying stock.
The agreement contains provisions that provide for repayment of
borrowings under the facility in the event of 1) an underwritten public
offering, 2) a change of control of the Company, as defined and 3) failure to
maintain a Connecticut presence, as defined. The agreement also provides for a
prepayment premium in the amount of the greater of 1) return on borrowings
recalculated at 25% per annum or 2) the difference between the warrant exercise
price (or the underlying common stock if the warrant has been exercised) of the
exercisable warrants and the market price of the common stock. Any payments
representing the prepayment premium will be charged to expense when incurred.
(continued)
F-14
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - Financing Agreements: (continued)
- -------------------------------
In January 1996 and March 1996, the Company borrowed $250,000 and
$150,000, respectively, under the second and third stages of the financing
agreement. The final $250,000 milestone requires 100 percent of the Company's
direct labor force to work in Connecticut, 75 percent of all manufacturing
operations to be located in Connecticut, 3 medical outcome studies to have been
completed and that the Company employ at least 3 sales and service staff,
including an insurance reimbursement specialist. The Company believes that it
will meet these requirements and thus be eligible to receive the final stage of
funding in mid-year 1996.
[b] The Company entered into a loan agreement with People's Bank ("Peoples")
providing for a $1,000,000 revolving credit facility expiring on September 5,
1997 at an interest rate of prime plus 1 1/2%. Borrowings available under the
facility are limited to 80% of eligible accounts receivable and 50% of eligible
inventory and are collateralized by the Company's accounts receivable and
inventory. At December 31, 1995 no borrowings were made under this loan
agreement.
The facility contains restrictive covenants that limit capital
expenditures and other financial and ratio requirements with respect to working
capital, equity and unsubordinated debt. The facility also requires funds to be
held in escrow as a Debt Service Reserve, as defined in the agreement. The
agreement also restricts the payment of dividends.
The Connecticut Development Authority ("CDA") has guaranteed repayment of
40% of the outstanding balance of the loan. The Company's president has
guaranteed repayment of 20% (up to $80,000) of any amounts paid by CDA to
Peoples under their guarantee. In addition, three of the Company's product
distributors (the "LOC Corporations") each agreed to provide an irrevocable
letter of credit in the amount of $200,000 for an aggregate of $600,000, which
letters of credit can be drawn down upon the failure of the Company to make when
due any payment to Peoples. In exchange for issuing these letters of credit,
the Company issued each of the LOC Corporations a warrant to purchase up to
20,000 shares (60,000 in the aggregate) of the Company's common stock at an
exercise price of $2.50 per share.
Pursuant to a put/call agreement with two of the LOC Corporations, the
Company had the right to require the two LOC Corporations to purchase an
aggregate of 126,667 shares of common stock (or the LOC corporations had the
right to call the Company to issue its common stock) at $1.50 per share for
total proceeds of $190,000. The call was exercised by the LOC Corporations in
September 1995, and the Company received proceeds of $100,000 in 1995, $50,000
in January 1996. Pursuant to the financing agreement with Peoples, the proceeds
received from the LOC Corporations reduce their outstanding letters of credit in
that amount and the funds are to be
(continued)
F-15
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 9) - Financing Agreements: (continued)
- -------------------------------
[b] (continued)
held in a restricted cash account by the Company. Under the put/call agreement,
the number of warrants issued to the LOC Corporations was reduced by 19,000.
The remaining warrants to purchase an aggregate of 41,000 shares of common stock
have been valued at $1,400.
[c] The Company entered into a loan agreement with CDA providing for a line
of credit of up to $100,000 until September 4, 1996 for 80% of the purchase
price of new or used equipment, bearing interest at the rate of 7.94%. The loan
is repayable in 48 equal monthly installments commencing October 1, 1998 and is
collateralized by all the equipment financed. The Company granted CDA warrants
to purchase an aggregate of 45,000 shares of common stock at an exercise price
of $2.50 per share. The warrants were valued at $3,600. At December 31, 1995
no borrowings were made under this loan agreement.
[d] The Company entered into an Assistance Agreement, which was approved
November 30, 1995 with the Department of Economic and Community Development
("DECD"), providing for a loan to the Company in an amount not to exceed
$200,000 for funding the relocation of the Company's factory (as defined
therein) at an interest rate of 5% per annum. The principal and interest of the
loan is due in 84 equal monthly payments commencing on the third anniversary of
the advancement date, and is collateralized by certain machinery and equipment.
At December 31, 1995 no borrowings were made under the Assistance Agreement.
[e] The Company entered into a Grant Agreement, dated August 8, 1995 with the
city of Bristol, Connecticut, providing, under certain conditions, for a grant
in an amount up to $100,000 ($50,000 was received in October 1995 and the
balance is to be received on the achievement of certain employment levels). If
the Company relocates its equipment or employees of its manufacturing facilities
outside the city of Bristol prior to August 8, 2005, the Company will be
obligated to immediately repay the grant.
(NOTE 10) - Commitments:
- -----------------------
[a] Employment agreements:
---------------------
At December 31, 1995, the Company has employment agreements with its
president and three other officers. The agreement with the president expires on
September 30, 1996. One agreement is cancellable by either party on 60-days
notice and the other two agreements are cancellable by the Company with six
months notice. Aggregate annual salaries pursuant to all the agreements
aggregate $412,000.
(continued)
F-16
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 10) - Commitments: (continued)
- -----------------------
[a] Employment agreements: (continued)
---------------------
During the year ended December 31, 1995 the president of the Company and
one of its officers, both of whom are stockholders, waived payment of their
deferred salaries (along with accrued interest thereon at 6% per annum) due to
them under their employment agreements for the period January 1, 1991 through
December 31, 1994 (see Note 5) and $58,500 for the year ended December 31, 1995.
As at December 31, 1995, the Company owed its president and two of its officers
approximately $86,000 in deferred compensation.
[b] Lease of premises:
-----------------
The Company entered into a five-year lease which commenced in September
1995 for office, warehousing and manufacturing space in Bristol, Connecticut.
The terms of the lease provide for the first two months rent to be paid
in the fifth year of the lease. Rental expense is recognized by the Company on
a straight-line basis over the life of the lease.
Minimum annual rental payments required are as follows:
Year Ending
December 31,
------------
1996. . . . . . . . . . . . $138,750
1997. . . . . . . . . . . . 138,750
1998. . . . . . . . . . . . 138,750
1999. . . . . . . . . . . . 146,458
2000. . . . . . . . . . . . 107,917
---------
T o t a l . . . . . . $670,625
=========
The terms of the lease include escalation clauses for increases in real
estate taxes. The Company also has the option to extend this lease for an
additional five-year period at an adjusted rent based on certain cost of living
adjustments.
Additional premises are leased on a month-to-month basis at $4,375 per
month plus real estate taxes. Beginning January 1, 1994 and until May 31, 1994,
the Company's landlord agreed to accept shares of the Company's common stock at
a value of $1.00 per share in lieu of payment for approximately one-half of the
monthly obligation.
Total rent expense aggregated $125,000 and $68,000 for the years ended
December 31, 1995 and 1994, respectively (see Note 2[e]).
(continued)
F-17
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 10) - Commitments: (continued)
- -----------------------
[c] Commission agreements:
---------------------
The Company has agreements with three finders pursuant to which it will
pay a commission of 10% of the proceeds of any financing obtained by these
finders.
[d] Consulting agreement:
--------------------
In 1995, the Company entered into a five-year consulting agreement with a
financial consultant. In year one of the agreement, the Company is required to
make quarterly payments of 2,700 shares of common stock. In years two and three
of the agreement, the Company is required to make quarterly payments of $3,000,
payable in common stock. In years four and five, the Company is required to
make quarterly payments of $3,000, payable in cash or common stock at the
discretion of the consultant.
[e] Arbitration proceeding:
----------------------
In 1993, the Company entered into an agreement for the sale of 1,250,000
units; each unit consisting of one share of common stock of the Company and one
common stock purchase warrant exercisable at $4.00 per share over a period of
three years, for $5,000,000. The Company did not receive any funds and
commenced an arbitration proceeding for breach of contract. In 1995, the
Company determined that the prospective buyers had no significant assets to
pursue and the Company discontinued the proceeding.
(NOTE 11) - Major Customers:
- ---------------------------
For the year ended December 31, 1995, sales to four separate customers $64,596
(29%), $60,956 (28%), $36,194 (16%) and $30,405 (14%) aggregated approximately
87% of the Company's net sales. For the year ended December 31, 1994, sales to
three separate customers $90,195 (39%), $65,852 (28%) and $57,615 (25%)
aggregated approximately 92% of the Company's net sales.
(continued)
F-18
<PAGE>
NOVA TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE 12) - Subsequent Events:
- -----------------------------
On January 1, 1996, the Company entered into a distribution agreement for the
sale of its patient transfer systems whereby the distributor has the exclusive
right to sell or lease the systems in specific territories in the state of New
York. Pursuant to the agreement, the distributor is required to order 50 of the
Company's products in the first year, 75 in the second year and 100 in the third
year, subject to the receipt by the Company of 3,000,000 in additional financing
by September 30, 1996. If the financing is not received, the distributor's
minimum order requirements increase to 150, 200 and 200 Nova products,
respectively.
F-19
<PAGE>
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE
OFFER MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
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 ANY OFFER
TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY STATE OR OTHER
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
UNTIL ______, 1996 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
___________________________________________
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Page
----
Prospectus Summary ............................................. 2
Risk Factors.................................................... 5
Market For Common Stock and Dividend Policy..................... 10
Capitalization.................................................. 11
Selected Financial Data......................................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operation...................................... 12
Business........................................................ 16
Management...................................................... 25
Certain Transactions............................................ 28
Principal Stockholders.......................................... 32
Selling Stockholders............................................ 34
Plan of Distribution............................................ 34
Description of Securities....................................... 35
Legal Proceedings............................................... 38
Legal Matters................................................... 38
Experts......................................................... 38
Indemnification for Securities Act Liabilities.................. 38
Available Information .......................................... 39
Report of Independent Auditors ................................. F-1
Financial Statements............................................ F-2
Notes to Financial Statements................................... F-6
===============================================================
===============================================================
NOVA TECHNOLOGIES, INC.
COMMON STOCK
____________________________________
PROSPECTUS
_____________________________________
May __, 1996
===============================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of Nova Technologies, Inc. (the
"Registrant") provides with respect to the indemnification of directors and
officers that the Registrant shall indemnify to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time to
time, each person that such Section grants the Registrant the power to
indemnify and that such indemnification shall not be deemed exclusive of any
other rights to which such persons may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors or otherwise. The Certificate
of Incorporation of the Registrant also provides that no director shall be
liable to the Registrant or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the Delaware General
Corporation Law or (4) for any transaction from which the director derived an
improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the offering described in this Registration Statement. None of such expenses
will be paid by Selling Stockholders.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee Under Securities Act of 1933 $1,009.55
- ----------------------------------------------------------- ---------
Photocopying/Printing Expenses $ 200.00
- ----------------------------------------------------------- ---------
Accounting Fees and Expenses $
- ----------------------------------------------------------- ---------
Legal Fees and Expenses $
- ----------------------------------------------------------- ---------
Blue Sky Fees and Expenses (including related legal fees) $
- ----------------------------------------------------------- ---------
Miscellaneous $ 300.00
- ----------------------------------------------------------- ---------
TOTAL $
- ----------------------------------------------------------- ---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all securities of the
Company which were sold by it during the past three years and which were not
registered under the Securities Act of 1933, as amended (the "Act").
1. During the period February through May 1994, the Company issued 10,940
shares of Common Stock, valued at $10,940 per share to First Island
Partners L.P., the landlord for the Company's Hauppauge, New York
facility, in payment of a portion of its rent.
2. During the period from November 1993, through April 1994, the Company
sold 650,000 shares of Common Stock at a price of $1.00 per share to
various accredited investors. A commission of 10% was paid by the
Company in connection with each of these sales to one or more of
Arlindo Jorge, Barry Goldstein and Jeremy Wiesen.
3. During the period from April 1994, through August 1995, the Company
sold 674,168 shares of Common Stock at a price of $1.50 per share to
various accredited investors. A commission of 10% was paid by the
Company in connection with each of these sales to one or more of
Arlindo Jorge, Barry Goldstein and Jeremy Wiesen.
II-1
<PAGE>
4. In 1993 and 1994, the Company issued 12,000 and 4,692 shares,
respectively, of Common Stock to Aztech Corp., a company controlled by
Stephen Fisher, an executive officer of the Company, in consideration
of consulting services.
5. In January 1995, the Company issued 73,752 shares of Common Stock
pursuant to the exercise of outstanding warrants. The warrants were
issued in 1990 with an exercise price of $3.00 per share and an
expiration date of December 31, 1994. In 1994, the exercise price of
these warrants was reduced to $1.35 per share and the expiration date
was extended to January 20, 1995.
6. In May, 1994, in connection with the cancellation of certain stock
options, the Company issued to Charles Chubb a warrant to purchase
172,599 shares of Common Stock at $2.75 per share, expiring December
31, 1999.
7. In exchange for services rendered, the Company issued to four
employees in 1994 and 1995 warrants to purchase 62,932 and 24,680
shares, respectively, of Common Stock at an exercise price of $1.50
per share, expiring at various dates through September 29, 1998.
8. In September 1995, the Company issued to Samuel N. Paul a warrant to
purchase 30,000 shares of Common Stock at $2.61 per share, expiring
September 4, 2002 for financial consulting.
9. In June 1995, Paul DiMatteo, and Charles Chubb, executive officers of
the Company and Jay Haft, a director of the Company, were issued
seven-year warrants to purchase 180,000, 120,000, and 6,667 shares,
respectively, of Common Stock at $2.75 per share.
10. In September 1995, the Company sold 900,901 shares of Common Stock at
a price of $1.11 per share to 9 accredited investors. The Company paid
a commission of $60,000 to Merolla & Bogar LLC and $40,000 to
TimeCapital Securities Corporation.
11. In September 1995, the Company issued to Connecticut Innovations
Incorporated warrants to purchase up to 300,000 shares of Common Stock
at $1.11 per share, expiring September 1, 2001 in connection with its
loan agreement with the Company.
12. In September 1995, the Company issued to Connecticut Development
Authority warrants to purchase 33,750 and 11,250 shares of Common
Stock at $2.50 per share, expiring September 1, 1997 and September 1,
2002, respectively, in connection with its loan agreement with the
Company and its guarantee of the Company's loan agreement with
People's Bank.
13. In September 1995, the Company issued to each of Advanced
Therapeutics, Inc. ("Advanced"), Comed Systems, Inc. ("Comed") and
Innovative Medical Systems, Inc. ("Innovative"), distributors of the
Company, a warrant to purchase 20,000 shares of Common Stock at $2.50
per share, expiring the day after such distributor's obligations to
People's Bank expire, in connection with each such distributor posting
a $200,000 letter of credit as security for the Company's loan
facility with People's Bank. Also in September 1995, the Company
entered into a Stock Put and Call Agreement with Advanced and
Innovative. Pursuant to such agreements, in September 1995, the
Company sold 66,667 and 60,000 shares, respectively, of its Common
Stock to Advanced and Innovative at $1.50 per share. The proceeds of
such sales are held in a restricted account and the letter of credit
posted by each of Advanced and Innovative as security for the
Company's loan facility with People's Bank was reduced by the amount
of such proceeds. In addition, Advanced's warrant was reduced to the
right to purchase 10,000 shares of Common Stock and Innovative's
warrant was reduced to the right to purchase 11,000 shares of Common
Stock.
II-2
<PAGE>
14. Merolla & Bogar LLC was issued 5400 and 2700 shares of Common Stock in
January and March 1996, representing payment of its $12,000 annual fee
for the period September 1995 through May 1996 at $1.11 per share
pursuant to a consulting agreement with the Company.
15. Pursuant to his employment agreement, in May 1994, the Company issued
to Stephen Fisher, an executive officer and director, an option
pursuant to its ISO Plan to purchase 150,000 shares of Common Stock at
$2.75 per share, expiring May 23, 2004.
16. Pursuant to his employment agreement which became effective in
September 1995, the Company issued to Samuel N. Paul, an executive
officer and director an option pursuant to its 1994 Stock Option Plan
(the "Plan") to purchase 150,000 shares of Common Stock at $2.61 per
share, expiring December 31, 2004.
17. In October 1995, Jay Haft, a director of the Company, was granted an
option pursuant to the Plan to purchase 10,000 shares of Common Stock
at $3.13 per share through December 31, 2002.
18. In October 1995, an employee of the Company, was granted an option
pursuant to the Plan to purchase 2,000 shares of Common Stock at $3.13
per share, expiring October 9, 2002.
19. In March 1996, John Maher and John O'Brien were each issued 1,000
shares of Common Stock as finder's fees in connection with certain
private placement sales of Common Stock.
20. The following directors were issued the following options to purchase
Common Stock pursuant to the Company's GSO Plan:
<TABLE>
<CAPTION>
DIRECTOR DATE OF GRANT # OF SHARES PRICE EXPIRATION DATE
- --------------------- ------------- ----------- ----- ------------------
<S> <C> <C> <C> <C>
Jay Haft 12/06/91 6,667 $3.37 December 31, 1999*
05/23/94 5,333 $2.75 December 31, 1999
Robert Segnini 12/06/91 6,667 $3.37 December 31, 1999*
05/23/94 5,333 $2.75 December 31, 1999
Arlindo Jorge 12/06/91 6,667 $3.37 December 31, 1999*
05/23/94 5,333 $2.75 December 31, 1999
</TABLE>
* Extended from December 31, 1995 in June 1994.
Exemption from registration under the Act is claimed for the sales of
securities referred to above in reliance upon the exemption afforded by
Sections 3(b) or 4(2) of the Act. Each certificate evidencing such securities
bears an appropriate restrictive legend and "stop transfer" orders are
maintained on the Company's stock transfer records thereagainst. Other than as
noted above, none of these sales involved the payment of underwriting
commissions.
II-3
<PAGE>
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Certificate of Incorporation, as amended(1)
3.2 By-Laws(1)
4.1 See Exhibit 3.1 and 3.2
4.2 Form of certificate evidencing shares of Common Stock(1)
4.3 Form of certificate evidencing Redeemable Common Stock
Purchase Warrant(1)
4.4 Form of Warrant Agreement between the Company and Euro-
Atlantic Securities, Inc.(1)
4.5 Form of Redeemable Warrant Agreement between the
Company and American Stock Transfer & Trust Company
as warrant agent(1)
5 Opinion of Whitman Breed Abbott & Morgan(8)
10.1 1985 General Stock Option Plan(1)
10.2 1985 Incentive Stock Option Plan(1)
10.3 Employment Agreements, dated March 6, 1984 and June 28,
1985, and amendments thereto, between the Company and
Paul DiMatteo(1)
10.4 Employment Agreement, dated February 22, 1985, and
amendments thereto, between the Company and
Charles Chubb(1)
10.5 Promissory Notes of the Company in the principal amounts of
$40,000, $20,000, $20,000 $30,000 and $120,000, dated
December 18, 1987, December 31, 1987, April 29, 1988,
May 26, 1988 and June 15, 1989, respectively, and
amendments thereto, payable to Paul DiMatteo and the
related Security Agreement, dated June 15, 1989(1)
10.6 Agreement and Restated Stock Purchase Agreement, dated
December 31, 1986, between the Company, Transitions Two,
Limited Partnership, Nadfa Ltd., Paul DiMatteo and Venture
Capital Associates, Ltd(1)
10.7 Lease Agreement, dated March 7, 1986, and amendments
thereto, between the Company and First Island Partners,
L.P. (the "Lease Agreement")(1)
10.8 Amendment to Lease Agreement, dated February 29, 1992,
between the Company and First Island Partners, L.P.(3)
II-4
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.9 Form of Warrant Agreement between the Company and
various persons(1)
10.10 Extension of Lease Agreement, dated May 5, 1992, between
the Company and First Island Partners, L.P.(4)
10.11 Extension of Lease Agreement, dated July 15, 1992, between
the Company and First Island Partners, L.P.(4)
10.12 Amendment of Lease Agreement, dated September 9, 1992,
between the Company and First Island Partners, L.P.(4)
10.13 Extension of Lease Agreement, dated March 23, 1993 between
the Company and First Island Partners, L.P.(5)
10.14 Amendment to Lease Agreement, dated June 25, 1993 between
the Company and First Island Partners, L.P.(5)
10.15 Promissory Notes of the Company in the principal amounts
of $15,000, $15,000 and $5,000 dated October 19, 1993,
November 5, 1993 and November 23, 1993, respectively,
payable to Charles Chubb and the related Security
Agreements, dated October 19, 1993, November 5, 1993
and November 23, 1993(5)
10. 16 Promissory Notes of the Company in the principal amounts
of $30,000, $30,000 and $10,000, dated October 19, 1993,
November 5, 1993 and November 23, 1993, respectively,
payable to Paul DiMatteo and the related Security Agreements,
dated October 19, 1993, November 5, 1993
and November 23, 1993(5)
10.17 1994 Stock Option Plan(6)
10.18 Employment Agreement, dated May 23, 1994 between the
Company and Stephen M. Fisher(6)
10.19 Amendment to Lease Agreement, dated January 13,
1994 between the Company and First Island Partners,
L.P.(6)
10.20 Employment Agreement, dated August 10, 1995
between the Company and Samuel N. Paul(7)
10.21 Lease Agreement, dated August 25, 1995 between
the Company and Industrial Builders & Realty
Company together with amendments thereto dated
September 5, 1995 and September 6, 1995(7)
II-5
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.22 Consulting and Related Agreements, dated
August 24, 1995 between the Company and
Merolla & Bogar, LLC(7)
10.23 Distributorship Agreement, dated February 24, 1994
between the Company and James J. Brooksbank(7)
10.24 Distributorship Agreement, dated May 24, 1994, and
amendment thereto, between the Company and Comed
Systems, Inc.(7)
10.25 Distributorship Agreement, dated June 20, 1994, between
the Company and Innovative Medical Systems, Inc.(7)
10.26 Distributorship Agreement, dated January 24, 1995, between
the Company and Advanced Therapeutics, Inc.(7)
10.27 Distributorship Agreement, dated February 15, 1995, between
the Company and Recovercare, Inc.(7)
10.28 Distributorship Agreement, dated March 24, 1995, between
the Company and Stat Medical, Inc.(7)
10.29 Distributorship Agreement, dated March 17, 1995, between
the Company and Concept Medical Corporation(7)
10.30 Distributorship Agreement dated January 1, 1996, between
the Company and JCM Capital Corp.(7)
10.31 Agreement, dated August 24, 1995, between the Company
and JCM Capital Corp. to enter into a distributorship agreement,
together with an amendment thereto dated January 24,
1996(7)
10.32 Agreement, dated November 1, 1994, between the
Company and Omni Manufacturing, Inc.(7)
10.33 Financing Agreement, dated September 5, 1995, between
the Company and Connecticut Innovations, Incorporated
("CII")(2)
10.34 Senior Note, dated September 5, 1995, by the
Company in favor of CII(2)
10.35 Security Agreement, dated September 5, 1995, between
the Company and CII(2)
10.36 Collateral Assignment and Grant of License, dated
September 5, 1995, between the Company and CII(2)
10.37 Stock Subscription Warrant, dated September 5, 1995, by
the Company in favor of CII(2)
II-6
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.38 Warrant Put Agreement, dated September 5, 1995, between
the Company and CII(2)
10.39 Officers' Agreement, dated September 5, 1995, among the
Company, CII, Paul DiMatteo, Stephen Fisher and Samuel
Paul(2)
10.40 Subordination Agreement, dated September 5, 1995, among
the Company, CII, Paul DiMatteo and Charles Chubb(2)
10.41 Loan Agreement, dated September 5, 1995, between the
Company and People's Bank(2)
10.42 Revolving Credit Note, dated September 5, 1995, by
the Company in favor of People's Bank(2)
10.43 Security Agreement, dated September 5, 1995, between
the Company and People's Bank(2)
10.44 Guarantee Agreement, dated September 5, 1995,
between Connecticut Development Authority and
People's Bank and agreed to by the Company(2)
10.45 Guaranty, dated September 5, 1995, by Paul DiMatteo
for the benefit of Connecticut Development
Authority(2)
10.46 Letter of Credit Agreement, dated September 5, 1995,
among the Company, People's Bank and Advanced
Therapeutics Inc.(2)
10.47 Letter of Credit Agreement, dated September 5, 1995,
among the Company, People's Bank and Innovative
Medical Systems, Inc.(2)
10.48 Letter of Credit Agreement, dated September 5, 1995,
among the Company, People's Bank and Comed
Systems, Inc.(2)
10.49 Letter of Credit Reimbursement, Warrant Grant and
Security Agreement, dated September 5, 1995, between
the Company and Advanced Therapeutics, Inc.(2)
10.50 Letter of Credit Reimbursement, Warrant Grant and
Security Agreement, dated September 5, 1995, between
the Company and Innovative Medical Systems, Inc.(2)
10.51 Letter of Credit Reimbursement, Warrant Grant and
Security Agreement, dated September 5, 1995, between
the Company and Comed Systems, Inc.(2)
II-7
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.52 Loan Agreement, dated September 5, 1995, between
the Company and Connecticut Development Authority(2)
10.53 Promissory Note, dated September 5, 1995, by the Company
in favor of Connecticut Development Authority(2)
10.54 Security Agreement, dated September 5, 1995, between
the Company and Connecticut Development Authority(2)
10.55 Stock Subscription Warrant, dated September 5, 1995,
between the Company and Connecticut Development
Authority(2)
10.56 Assistance Agreement, approved November 30, 1995,
between the Company and the State of Connecticut, acting
by the Department of Economic and Community Development(2)
10.57 Promissory Note, dated October 6, 1995, by the Company
in favor of the State of Connecticut, acting by the
Department of Economic and Community Development(2)
10.58 Intercreditor and Subordination Agreement, dated September
5, 1995, among the Company, People's Bank, CII, Connecticut
Development Authority, Comed Systems, Inc., Innovative
Medical Systems, Inc., Advanced Therapeutics, Inc., Charles
F. Chubb and Paul DiMatteo(7)
10.59 Intercreditor Agreement, dated November __, 1995, among
the Company, People's Bank, CII and Department of Economic
and Community Development(7)
10.60 Stock Put and Call Agreement, dated September 5, 1995,
between the Company and Innovative Medical Systems, Inc.(7)
10.61 Stock Put and Call Agreement, dated September 5, 1995,
between the Company and Advanced Therapeutic, Inc.(7)
10.62 Agreement dated August 25, 1995, between the Company and
TimeCapital Securities Corporation(8)
10.63 Amendment No. 1 to Loan Agreement, dated as of December
31, 1996, between the Company and People's Bank*
10.64 Amendment No. 2 to Loan Agreement, dated as of April __,
1996, between the Company and People's Bank*
10.65 Agreement, Dated April 26, 1996, between the Company
and TimeCapital Securities Corporation*
10.66 Amendment to Distributorship Agreement,
effective as of October 17, 1995, between the
Company and Innovative Medical Systems, Inc.*
II-8
<PAGE>
10.67 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Comed Systems, Inc.*
10.68 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Concept Medical Corporation*
10.69 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Advanced Therapeutics Inc.*
10.70 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Recovercare, Inc.*
10.71 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Stat Medical, Inc.*
10.72 Amendment to Distributorship Agreement, dated
as of May 6, 1996, between the Company and
JCM Capital Corp.*
10.73 Consent and Subordination Agreement, dated as of
March 26, 1996, among the Company, Charles F. Chubb,
Paul DiMatteo and People's Bank*
23.1 Consent of Whitman Breed Abbott & Morgan(8)
23.2 Consent of Richard A. Eisner & Company, LLP*
_______________________________________
(1) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-42880).
(2) Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-KSB dated December 27, 1995.
(3) Incorporated by reference to the exhibits to the Company's fiscal 1991 Form
10-K.
(4) Incorporated by reference to the exhibits to the Company's fiscal 1992 Form
10-KSB.
(5) Incorporated by reference to the exhibits to the Company's fiscal 1993 Form
10-KSB.
(6) Incorporated by reference to the exhibits to the Company's fiscal 1994 Form
10-KSB.
(7) Incorporated by reference to the exhibits to the Company's fiscal 1995 Form
10-KSB.
(8) Previously filed.
* Filed herewith.
II-9
<PAGE>
ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act, the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the small business issuer under Rule 424(b)(1),
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time the S.E.C. declared it effective.
(2) That for purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement for the
securities offered in the Registration Statement, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering of
those securities.
Insofar as indemnification for liabilities arising under the
Securities Act of 1993 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions in Item 15 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless, in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-10
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Hauppauge, New York on the 6th day of May, 1996.
NOVA TECHNOLOGIES, INC.
By: Paul DiMatteo*
-------------------------------------------
Paul DiMatteo
Chairman of the Board, President and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Paul DiMatteo* Chairman of the Board, Chief Executive May 6, 1996
- -------------------------------- Officer, President and Director
Paul DiMatteo (Principal Executive Officer)
Charles F. Chubb* Senior Vice President, Secretary May 6, 1996
- -------------------------------- and Director
Charles F. Chubb
/s/ Stephen M. Fisher
____________________________ Senior Vice President, Treasurer, May 6, 1996
Stephen M. Fisher Assistant Secretary and Director
(Principal Financial Officer)
Samuel N. Paul* Senior Vice President and Director May 6, 1996
- --------------------------------
Samuel N. Paul
Harold J. Lash* Controller (Principal Accounting Officer) May 6, 1996
- --------------------------------
Harold J. Lash
Jay M. Haft* Director May 6, 1996
- --------------------------------
Arlindo Jorge* Director May 6, 1996
- --------------------------------
Arlindo Jorge
Robert Segnini* Director May 6, 1996
- --------------------------------
Robert Segnini
* By: /s/ Stephen M. Fisher
-------------------------
Stephen M. Fisher
Attorney-in-Fact
</TABLE>
<PAGE>
NOVA TECHNOLOGIES, INC. FORM SB-2
FILE NO. 33-00364
INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- --------- ----------- -------------
3.1 Certificate of Incorporation, as amended(1) N.A.
3.2 By-Laws(1) N.A.
4.1 See Exhibit 3.1 and 3.2 N.A.
4.2 Form of certificate evidencing shares of Common Stock(1) N.A.
4.3 Form of certificate evidencing Redeemable Common Stock N.A.
Purchase Warrant(1)
4.4 Form of Warrant Agreement between the Company and Euro- N.A.
Atlantic Securities, Inc.(1)
4.5 Form of Redeemable Warrant Agreement between the
Company and American Stock Transfer & Trust Company
as warrant agent(1) N.A.
5 Opinion of Whitman Breed Abbott & Morgan(8)
10.1 1985 General Stock Option Plan(1) N.A.
10.2 1985 Incentive Stock Option Plan(1) N.A.
10.3 Employment Agreements, dated March 6, 1984 and June 28,
1985, and amendments thereto, between the Company and
Paul DiMatteo(1) N.A.
10.4 Employment Agreement, dated February 22, 1985, and
amendments thereto, between the Company and
Charles Chubb(1) N.A.
10.5 Promissory Notes of the Company in the principal amounts
of $40,000, $20,000, $20,000 $30,000 and $120,000, dated
December 18, 1987, December 31, 1987, April 29, 1988,
May 26, 1988 and June 15, 1989, respectively, and
amendments thereto, payable to Paul DiMatteo and the
related Security Agreement, dated June 15, 1989(1) N.A.
10.6 Agreement and Restated Stock Purchase Agreement, dated
December 31, 1986, between the Company, Transitions Two,
Limited Partnership, Nadfa Ltd., Paul DiMatteo and
Venture Capital Associates, Ltd(1) N.A.
(i)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.7 Lease Agreement, dated March 7, 1986, and amendments
thereto, between the Company and First Island Partners,
L.P. (the "Lease Agreement")(1) N.A.
10.8 Amendment to Lease Agreement, dated February 29, 1992,
between the Company and First Island Partners, L.P.(3) N.A.
10.9 Form of Warrant Agreement between the Company and
various persons(1) N.A.
10.10 Extension of Lease Agreement, dated May 5, 1992, between
the Company and First Island Partners, L.P.(4) N.A.
10.11 Extension of Lease Agreement, dated July 15, 1992, between
the Company and First Island Partners, L.P.(4) N.A.
10.12 Amendment of Lease Agreement, dated September 9, 1992,
between the Company and First Island Partners, L.P.(4) N.A.
10.13 Extension of Lease Agreement, dated March 23, 1993 between
the Company and First Island Partners, L.P.(5) N.A.
10.14 Amendment to Lease Agreement, dated June 25, 1993 between
the Company and First Island Partners, L.P.(5) N.A.
10.15 Promissory Notes of the Company in the principal amounts
of $15,000, $15,000 and $5,000 dated October 19, 1993,
November 5, 1993 and November 23, 1993, respectively,
payable to Charles Chubb and the related Security
Agreements, dated October 19, 1993, November 5, 1993
and November 23, 1993(5) N.A.
10. 16 Promissory Notes of the Company in the principal amounts
of $30,000, $30,000 and $10,000, dated October 19, 1993,
November 5, 1993 and November 23, 1993, respectively,
payable to Paul DiMatteo and the related Security
Agreements, dated October 19, 1993, November 5, 1993
and November 23, 1993(5) N.A.
10.17 1994 Stock Option Plan(6) N.A.
10.18 Employment Agreement, dated May 23, 1994 between the
Company and Stephen M. Fisher(6) N.A.
(ii)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.19 Amendment to Lease Agreement, dated January 13,
1994 between the Company and First Island Partners,
L.P.(6) N.A.
10.20 Employment Agreement, dated August 10, 1995
between the Company and Samuel N. Paul(7) N.A.
10.21 Lease Agreement, dated August 25, 1995 between
the Company and Industrial Builders & Realty
Company together with amendments thereto dated
September 5, 1995 and September 6, 1995(7) N.A.
10.22 Consulting and Related Agreements, dated
August 24, 1995 between the Company and
Merolla & Bogar, LLC(7) N.A.
10.23 Distributorship Agreement, dated February 24, 1994
between the Company and James J. Brooksbank(7) N.A.
10.24 Distributorship Agreement, dated May 24, 1994, and
amendment thereto, between the Company and Comed
Systems, Inc.(7) N.A.
10.25 Distributorship Agreement, dated June 20, 1994, between
the Company and Innovative Medical Systems, Inc.(7) N.A.
10.26 Distributorship Agreement, dated January 24, 1995,
between the Company and Advanced Therapeutics, Inc.(7) N.A.
10.27 Distributorship Agreement, dated February 15, 1995,
between the Company and Recovercare, Inc.(7) N.A.
10.28 Distributorship Agreement, dated March 24, 1995, between
the Company and Stat Medical, Inc.(7) N.A.
10.29 Distributorship Agreement, dated March 17, 1995, between
the Company and Concept Medical Corporation(7) N.A.
10.30 Distributorship Agreement dated January 1, 1996, between
the Company and JCM Capital Corp.(7) N.A.
10.31 Agreement, dated August 24, 1995, between the Company
and JCM Capital Corp. to enter into a distributorship
agreement, together with an amendment thereto dated
January 24, 1996(7) N.A.
(iii)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.32 Agreement, dated November 1, 1994, between the
Company and Omni Manufacturing, Inc.(7) N.A.
10.33 Financing Agreement, dated September 5, 1995, between
the Company and Connecticut Innovations, Incorporated
("CII")(2) N.A.
10.34 Senior Note, dated September 5, 1995, by the
Company in favor of CII(2) N.A.
10.35 Security Agreement, dated September 5, 1995, between
the Company and CII(2) N.A.
10.36 Collateral Assignment and Grant of License, dated
September 5, 1995, between the Company and CII(2) N.A.
10.37 Stock Subscription Warrant, dated September 5, 1995, by
the Company in favor of CII(2) N.A.
10.38 Warrant Put Agreement, dated September 5, 1995, between
the Company and CII(2) N.A.
10.39 Officers' Agreement, dated September 5, 1995, among the
Company, CII, Paul DiMatteo, Stephen Fisher and Samuel
Paul(2) N.A.
10.40 Subordination Agreement, dated September 5, 1995, among
the Company, CII, Paul DiMatteo and Charles Chubb(2) N.A.
10.41 Loan Agreement, dated September 5, 1995, between the
Company and People's Bank(2) N.A.
10.42 Revolving Credit Note, dated September 5, 1995, by
the Company in favor of People's Bank(2) N.A.
10.43 Security Agreement, dated September 5, 1995, between
the Company and People's Bank(2) N.A.
10.44 Guarantee Agreement, dated September 5, 1995,
between Connecticut Development Authority and
People's Bank and agreed to by the Company(2) N.A.
10.45 Guaranty, dated September 5, 1995, by Paul DiMatteo
for the benefit of Connecticut Development
Authority(2) N.A.
(iv)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.46 Letter of Credit Agreement, dated September 5, 1995,
among the Company, People's Bank and Advanced
Therapeutics Inc.(2) N.A.
10.47 Letter of Credit Agreement, dated September 5, 1995,
among the Company, People's Bank and Innovative
Medical Systems, Inc.(2) N.A.
10.48 Letter of Credit Agreement, dated September 5, 1995,
among the Company, People's Bank and Comed
Systems, Inc.(2) N.A.
10.49 Letter of Credit Reimbursement, Warrant Grant and
Security Agreement, dated September 5, 1995, between
the Company and Advanced Therapeutics, Inc.(2) N.A.
10.50 Letter of Credit Reimbursement, Warrant Grant and
Security Agreement, dated September 5, 1995, between
the Company and Innovative Medical Systems, Inc.(2) N.A.
10.51 Letter of Credit Reimbursement, Warrant Grant and
Security Agreement, dated September 5, 1995, between
the Company and Comed Systems, Inc.(2) N.A.
10.52 Loan Agreement, dated September 5, 1995, between
the Company and Connecticut Development Authority(2) N.A.
10.53 Promissory Note, dated September 5, 1995, by the Company
in favor of Connecticut Development Authority(2) N.A.
10.54 Security Agreement, dated September 5, 1995, between
the Company and Connecticut Development Authority(2) N.A.
10.55 Stock Subscription Warrant, dated September 5, 1995,
between the Company and Connecticut Development
Authority(2) N.A.
10.56 Assistance Agreement, approved November 30, 1995,
between the Company and the State of Connecticut, acting
by the Department of Economic and Community Development(2) N.A.
10.57 Promissory Note, dated October 6, 1995, by the Company
in favor of the State of Connecticut, acting by the
Department of Economic and Community Development(2) N.A.
(v)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.58 Intercreditor and Subordination Agreement, dated
September 5, 1995, among the Company, People's Bank,
CII, Connecticut Development Authority, Comed Systems,
Inc., Innovative Medical Systems, Inc., Advanced
Therapeutics, Inc., Charles F. Chubb and
Paul DiMatteo(7) N.A.
10.59 Intercreditor Agreement, dated November __, 1995, among
the Company, People's Bank, CII and Department of Economic
and Community Development(7) N.A.
10.60 Stock Put and Call Agreement, dated September 5, 1995,
between the Company and Innovative Medical Systems, Inc.(7) N.A.
10.61 Stock Put and Call Agreement, dated September 5, 1995,
between the Company and Advanced Therapeutic, Inc.(7) N.A.
10.62 Agreement dated August 25, 1995, between the Company and
TimeCapital Securities Corporation(8) N.A.
10.63 Amendment No. 1 to Loan Agreement, dated as of December
31, 1995, between the Company and People's Bank*
10.64 Amendment No. 2 to Loan Agreement, dated as of April __,
1996, between the Company and People's Bank*
10.65 Agreement, dated April 26, 1996, between the Company
and TimeCapital Securities Corporation*
10.66 Amendment to Distributorship Agreement,
effective as of October 17, 1995, between the
Company and Innovative Medical Systems, Inc.*
10.67 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Comed Systems, Inc.*
10.68 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Concept Medical Corporation*
10.69 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Advanced Therapeutics Inc.*
10.70 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Recovercare, Inc.*
(vi)
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.71 Amendment to Distributorship Agreement, effective as
of October 17, 1995, between the Company and
Stat Medical, Inc.*
10.72 Amendment to Distributorship Agreement, dated
as of May 6, 1996, between the Company and
JCM Capital Corp.*
10.73 Consent and Subordination Agreement, dated as of
March 26, 1996, among the Company, Charles F. Chubb,
Paul DiMatteo and People's Bank*
23.1 Consent of Whitman Breed Abbott & Morgan(8) N.A.
23.2 Consent of Richard A. Eisner & Company, LLP*
_______________________________________
(1) Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-42880).
(2) Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-KSB dated December 27, 1995.
(3) Incorporated by reference to the exhibits to the Company's fiscal 1991 Form
10-K.
(4) Incorporated by reference to the exhibits to the Company's fiscal 1992 Form
10-KSB.
(5) Incorporated by reference to the exhibits to the Company's fiscal 1993 Form
10-KSB.
(6) Incorporated by reference to the exhibits to the Company's fiscal 1994 Form
10-KSB.
(7) Incorporated by reference to the exhibits to the Company's fiscal 1995 Form
10-KSB.
(8) Previously filed.
* Filed herewith.
(vii)
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
AMENDMENT NO. 1
TO
FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
NOVA TECHNOLOGIES, INC.
================================================================================
<PAGE>
EXHIBIT 10.63
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of December 31, 1995 between NOVA TECHNOLOGIES,
INC., a corporation duly organized and validly existing under the laws of the
State of Delaware ("Nova") and PEOPLE'S BANK.
Nova and People's Bank are parties to a Loan Agreement dated as of
September 5, 1995 (the "Agreement") providing, subject to the terms and
conditions thereof, for extensions of credit to be made by People's Bank to Nova
in an aggregate principal amount not exceeding $1,000,000. Nova and People's
Bank wish to amend the Agreement in certain respects, and accordingly, the
parties hereto hereby agree as follows:
Section 1. Definitions. Terms defined in the Agreement are used herein as
-----------
defined therein.
Section 2. Amendments. Effective as of the date hereof, Article 7 of the
----------
Agreement shall be amended in its entirety to read as follows:
ARTICLE 7
FINANCIAL COVENANTS
-------------------
The Borrower covenants and agrees that, until payment is made of the Loans
and the performance of all its obligations hereunder, Borrower shall:
Section 7.01. Minimum Working Capital. Maintain at the end of each
-----------------------
quarter minimum Working Capital of not less than (a) $500,000 during the period
ending September 30, 1996; and (b) $700,000 during the period commencing October
1, 1996 and thereafter.
Section 7.02. Minimum Current Ratio. Maintain at the end of each quarter
---------------------
a Current Ratio of not less than (a) 1.50 to 1.00 during the period ending
September 30, 1996; and (b) 1.75 to 1.00 during the period commencing October 1,
1996 and thereafter.
Section 7.03. Minimum Capital Funds. Maintain at the end of each quarter
---------------------
Minimum Capital Funds of not less than (a) $700,000 during the period ending
September 30, 1996; and (b) 1,300,000 during the period commencing October 1,
1996 and thereafter.
Section 7.04. Maximum Unsobordinated Debt Ratio. Maintain at the end of
---------------------------------
each quarter a maximum Unsubordinated Debt Ratio of not more than (a) 2.00 to
1.00 during the period ending September 30, 1996; and (b) 2.50 to 1.00 during
the period commencing October 1, 1996 and thereafter.
Section 7.05. Additional Definitions. For the purposes of this Agreement,
----------------------
the following terms shall have the following meanings:
<PAGE>
(a) "Working Capital" shall mean Borrower's current assets minus Borrower's
current liabilities.
(b) "Current Ratio" shall mean Borrower's current assets divided by
Borrower's current liabilities.
(c) "Capital Funds" shall mean the sum of Borrower's tangible net worth
plus subordinated debt minus the sum of intangible assets plus loans to
officers, directors, employees and affiliates.
(d) "Unsubordinated Debt Ratio" shall mean Borrower's total unsubordinated
debt divided by total capital funds.
Section 3. Representations and Warranties. Nova represents and warrants
------------------------------
to People's Bank that the representations and warranties set forth in Article 4
of the Agreement are true and correct on the date hereof as if made on and as of
the date hereof and as if each reference in said Article 4 to "this Agreement"
included reference to this Amendment No. 1.
Section 4. Miscellaneous. Except as herein provided, the Agreement shall
-------------
remain unchanged and in full force and effect. This Amendment No. 1 may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and either of the parties
hereto may execute this Amendment No. 1 by signing any such counterpart. This
Amendment No. 1 shall be governed by, and construed in accordance with, the law
of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed as of the day and year first above written.
NOVA TECHNOLOGIES, INC.
By: /s/ Stephen M. Fisher
-----------------------------
Stephen M. Fisher,
Senior Vice President
PEOPLE'S BANK
By:
-----------------------------
<PAGE>
EXHIBIT 10.64
AMENDMENT NUMBER TWO TO LOAN AGREEMENT
--------------------------------------
FIRST AMENDMENT TO LOAN AGREEMENT dated as of April __, 1996, by and
between NOVA TECHNOLOGIES, INC., a Delaware corporation with its principal
executive offices located at 89 Cabot Court Unit L, Hauppaugue, New York, 11788
(the "BORROWER"), and PEOPLE'S BANK, a Connecticut based bank with an office
located at Bridgeport Center, 850 Main Street, Bridgeport, Connecticut 06604-
4913 (the "LENDER").
RECITALS:
--------
A. The Borrower and Lender are a party to a certain Loan Agreement dated
as of September 5, 1995 as amended by Amendment Number One thereto dated as of
December 31, 1995 (the "ORIGINAL AGREEMENT"). Unless the context otherwise
requires, capitalized terms used herein shall have the same meanings as are
ascribed to them in the Original Agreement.
B. The obligation of the Lender to make the initial Revolving Credit
Advance was subject to Lender's entering into certain Letter of Credit Agreement
between Lender and certain of Borrower's customers, in form and substance
satisfactory to Lender in its sole and absolute discretion and to the Loan being
secured by Standby LC's in the aggregate amount of $600,000 which shall have
been posted pursuant to the Letter of Credit Agreement.
C. At the Closing of the Original Agreement, Lender entered into Letter of
Credit Agreements with COMED SYSTEMS, INC. ("Comed"), ADVANCED THERAPEUTICS INC.
("ATI"); and INNOVATIVE MEDICAL SYSTEMS, INC. ("IMS") (Comed, ATI and IMS being
referred to as the "Distributors") (the "EXISTING LETTER OF CREDIT AGREEMENTS").
The Existing Letter of Credit Agreements recited that the letters of credit to
be delivered to Lender pursuant thereto were delivered to Lender on the date of
such agreements. As of the date hereof, only the letters of credit described in
Appendix A attached hereto have been and will be delivered to Lender by the
- ----------
Customers (the "POSTED LC'S").
D. Borrower has requested that Lender accept the Posted LC's together with
a pledge of cash in the amount of $190,000 in lieu of the requirement of the
Original Agreement that $600,000 of Standby LC's be posted as collateral.
E. The Lender is willing to agree to such modifications, but only on the
terms, and subject to the conditions, contained in this First Amendment.
F. As a condition to entering into this First Amendment, Lender is
requiring that the Existing Letter of Credit Agreements be amended to correctly
reflect the
<PAGE>
status of those Posted LC's that have been delivered and to require that
Borrower establish and maintain a second cash collateral account with Lender as
additional collateral for its obligations to Lender under the Loan Documents.
NOW THEREFORE, in consideration of these premises and the covenants and
agreements herein contained, the Borrower and the Lender agree as follows:
1. AMENDMENT TO ORIGINAL AGREEMENT. The Original Agreement is hereby amended
--------------------------------
as follows:
a. Section 1.01(c) of the Original Agreement which reads:
(c) "AGREEMENT" means this Loan Agreement, as amended, supplemented,
or modified from time to time.
is hereby amended to read as follows:
(c) "AGREEMENT" means this that certain Loan Agreement dated as of
September 5, 1995 between Lender and Borrower as amended by an
Amendment Number One thereto dated as of December 31, 1995 (the
"ORIGINAL AGREEMENT"), and as further amended by a certain Amendment
Number Two to Loan Agreement between Lender and Borrower dated as of
April __, 1996 (the "SECOND AMENDMENT"), as the same may be amended,
supplemented, or modified from time to time.
b. Section 1.01(g) of the Original Agreement which reads:
(g) "COLLATERAL" means all of Borrower's now owned or hereafter
acquired accounts receivable and inventory, and any proceeds thereof,
all as more particularly described in Schedule 1.01(g) attached
----------------
hereto, any letters of credit pledged pursuant to the Letter of Credit
Agreement, and any letters of credit or cash pledged pursuant to the
Additional Pledge Agreement.
is hereby amended to read as follows:
(g) "COLLATERAL" means all of Borrower's now owned or hereafter
acquired accounts receivable and inventory, and any
-2-
<PAGE>
proceeds thereof, all as more particularly described in Schedule
--------
1.01(g) attached to the Original Agreement, any letters of credit
-------
pledged pursuant to the Letter of Credit Agreements, and the Account
Proceeds, any additions thereto, and the Cash Collateral Account, all
as more fully described in Section 8.03, and the Second Account
------------
Proceeds, any additions thereto, and the Second Cash Collateral
Account, all as more fully described in Section 8.04.
------------
c. Section 1.01(af) of the Original Agreement which reads:
(af) "LETTER OF CREDIT AGREEMENT" shall mean the agreement between the
Bank and certain of Borrower's customers more fully described in
Section 8.01(b).
---------------
is hereby amended to read as follows:
(af) "LETTER OF CREDIT AGREEMENTS" shall mean the Amended and Restated
agreements between the Bank and certain of Borrower's customers more
fully described in Section 8.01(b).
---------------
d. Section 1.01(ai) of the Original Agreement which reads:
(ai) "LOAN DOCUMENTS" means this Agreement, the Note, the Security
Agreement, the Letter of Credit Agreement, and all other promissory
notes, guaranties, mortgages, deeds to secure debt, deeds of trust,
pledges, negative pledges, powers of attorney, trust account
agreements and written matters, whenever executed and delivered to the
Lender, with respect to the transactions contemplated by this
Agreement.
is hereby amended to read as follows:
(ai) "LOAN DOCUMENTS" means this Agreement, the Note, the Security
Agreement, the Letter of Credit Agreements, and all other promissory
notes, guaranties, mortgages, deeds to secure debt, deeds of trust,
pledges, negative pledges, powers of attorney, trust account
agreements and written matters, whenever executed and delivered to the
Lender, with respect to the transactions contemplated by this
Agreement.
e. Section 8.01 of the Original Agreement which now reads:
Section 8.01 SECURITY. The Loan shall be secured by:
--------
-3-
<PAGE>
(a) A first priority security interest in the Collateral
pursuant to the Security Agreement;
(b) Standby letters of credit (the "STANDBY LC'S") in the
aggregate amount at all times of $600,000, which Standby
LC's shall have been posted by certain of Borrower's
customers in accordance with the Letter of Credit Agreement;
(c) a first priority security interest in the Account Proceeds,
as provided for in Section 8.03.
------------
is hereby amended to read as follows:
Section 8.01 SECURITY. The Loan shall be secured by:
--------
(a) A first priority security interest in the Collateral
pursuant to the Security Agreement;
(b) Standby letters of credit (the "STANDBY LC'S") in the
aggregate amount at all times of $410,000, which Standby
LC's shall have been posted by certain of Borrower's
customers in accordance with the Amended and Restated Letter
of Credit Agreements;
(c) a first priority security interest in the Account Proceeds,
any additions thereto, and the Cash Collateral Account as
provided for in Section 8.03; and
------------
(d) a first priority security interest in the Second Account
Proceeds any additions thereto, and the Second Cash
Collateral Account, as provided for in Section 8.04.
------------
f. The Original Agreement is hereby further amended by adding the
following new section at the end of Article 8:
Section 8.04 SECOND CASH COLLATERAL ACCOUNT. Upon execution of the
------------------------------
Second Amendment to this Agreement: (a) Lender will establish an
interest bearing special money market account and/or certificate of
deposit at Lender to be designated "Second Cash
-4-
<PAGE>
Collateral Account c/o Nova Technologies, Inc." (the "SECOND CASH
COLLATERAL ACCOUNT"), and (b) the Borrower shall deposit the sum of
$190,000 cash (the "CASH DEPOSIT") into the Second Cash Collateral
Account. The Second Cash Collateral Account shall remain under the
dominion and control of Lender. The Second Cash Collateral Account
shall contain only the funds representing the Cash Deposit plus any
interest earned in the Second Cash Collateral Account (collectively
the "SECOND ACCOUNT PROCEEDS"). Borrower hereby grants to Lender a
security interest in the Second Account Proceeds, and any additions
thereto and in the Second Cash Collateral Account, as collateral
security for all of Borrower's obligations to Lender under the Loan
Documents. Borrower represents and warrants to Lender that Borrower
has not granted a security interest in or otherwise pledged the Second
Account Proceeds or Second Cash Collateral Account to any other person
or entity. Borrower further agrees that Borrower shall not hereafter
grant any security interest in or otherwise pledge the Second Account
Proceeds or Second Cash Collateral Account and any attempt by Borrower
to do so shall constitute an "Event of Default" under this Agreement.
Borrower agrees to take all other steps reasonably required by Lender
in order to perfect Lender's security interest in the Second Account
Proceeds and Second Cash Collateral Account. The Second Account
Proceeds in the Second Cash Collateral Account shall be subject to
setoff by Lender at any time, without notice. So long as Borrower has
any outstanding obligations to Lender under the Loan Documents, the
Borrower shall have no access to the Second Cash Collateral Account or
to the Second Account Proceeds. Lender reserves its rights to take
such action with respect to the Second Cash Collateral Account or the
Second Account Proceeds as Lender, in its sole discretion, may
determine in order to protect and defend its security interest therein
and in order to effect repayment to it of such obligations due it.
Borrower further agrees that Lender has no custodial, fiduciary or any
other duty or obligation, direct, indirect or implied to Borrower or
any other person with respect to theCash Collateral Account, the
Second Cash Collateral Account, the Account Proceeds or the Second
Account Proceeds and agrees to indemnify and hold Lender harmless from
and against any loss, cost, liability or expense (inluding attorney's
fees) which may be incurred directly or indirectly as a result of the
establishment of the Cash Collateral Account or Second Cash Collateral
Account Lender's acceptance, delivery or custody of the Account
Proceeds or Second Account Proceeds and the security interests with
respect thereto.
-5-
<PAGE>
2. REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into this
-------------------------------
Second Amendment, the Borrower hereby represents and warrants to Lender that (a)
each of the representations and warranties of Borrower contained in the Original
Agreement is true and correct as of the date hereof; and (b) the execution and
delivery by Borrower of this Second Amendment, and the performance by Borrower
of its obligations hereunder, have been duly authorized by all necessary
corporate action and do not and will not (i) require any consent or approval of
the shareholders of Borrower; (ii) contravene the certificate of incorporation
or by-laws of Borrower; (iii) violate any provision of any law, rule, regulation
(including, without limitation, Regulation U of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to it; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which it is a
party or by which it or its properties may be bound or affected; (v) result in
or require the creation or imposition of any Lien upon or with respect to any of
the properties now owned or hereafter acquired by it other than the Liens
created by the Security Agreement, or (vi) cause it to be in violation of or
default under any such law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, agreement, lease or
instrument, and (c) no Default or Event of Default has occurred and is
continuing.
3. CONDITIONS TO THIS SECOND AMENDMENT. As a condition precedent to Lender's
------------------------------------
entering into this Second Amendment, Borrower shall have received in form and
substance satisfactory to the Lender and its counsel:
a. Copies of all corporate action taken by Borrower, including
resolutions of its Board of Directors, authorizing the execution,
delivery and performance of this First Amendment and each other
document to be delivered pursuant to this First Amendment, certified
as of the date of this Second Amendment by the Secretary of Borrower;
b. Amended and Restated Letter of Credit Agreements between Lender and
each of the Distributors, in form and substance satisfactory to Lender
in its sole and absolute discretion;
c. the written consent to this Second Amendment by CII and the CDA;
d. an opinion of Borrower's counsel in form and substance satisfactory to
Lender in its sole discretion.
e. All other documents, instruments and agreements that Lender shall
require in connection with this Agreement.
-6-
<PAGE>
4. COOPERATION. The Borrower from time to time shall execute and deliver to
------------
the Lender such additional documents and will provide such additional
information as the Lender may reasonably require to carry out the terms of this
Agreement and to keep the Lender informed of the status and affairs of the
Borrower.
5. NO FURTHER AMENDMENT. Except as expressly provided herein, the Original
--------------------
Agreement remains unchanged and is in full force and effect as originally
written.
6. COUNTERPARTS. This Second Amendment may be executed and delivered in any
-------------
number of counterparts. Each counterpart shall constitute an original, but all
counterparts together shall constitute but one and the same agreement.
7. MISCELLANEOUS. This Second Amendment shall be binding upon and inure to the
--------------
benefit of the Borrower and the Lender and their respective successors and
assigns; provided, however, that the Borrower shall not (by agreement, operation
-------- -------
of law, or otherwise) assign any of its rights, or delegate any of its
obligations, under any Loan Document to which the Borrower is a party without
the prior written consent of the Lender, and any such assignment or delegation
made without such consent shall be null and void. This Second Amendment shall
be construed in accordance with and governed by the laws of the State of
Connecticut without regard to its conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
NOVA TECHNOLOGIES, INC.
_____________________________
_____________________________ By:____________________________
Stephen Fisher
Senior Vice President,
(Duly Authorized)
-7-
<PAGE>
PEOPLE'S BANK
_____________________________
_____________________________ By:____________________________
Stephen F. Roche
Its Vice President
(Duly Authorized)
STATE OF CONNECTICUT )
: ss. Hartford April __ 1996
COUNTY OF HARTFORD )
Before me the undersigned officer, personally appeared Stephen F. Roche,
Vice President of PEOPLE'S BANK, a capital stock savings bank, who acknowledged
the execution of this Agreement to be his free act and deed and the free act and
deed of said bank.
________________________________________
Commissioner of the Superior Court
Notary Public
My Commission Expires:____________________
STATE OF CONNECTICUT )
: ss. _____________ April __, 1996
COUNTY OF HARTFORD )
Before me the undersigned, personally appeared Stephen Fisher, Senior Vice
President of Nova Technologies, Inc., a Delaware corporation, who acknowledged
the execution of this Agreement to be his free act and deed and the free act and
deed of said corporation.
__________________________________
Commissioner of the Superior Court
Notary Public
My Commission Expires:____________________
-8-
<PAGE>
Appendix A
----------
Description of Letters of Credit
--------------------------------
<TABLE>
<CAPTION>
Distributor Amount of LC Date of LC Issuing Bank
- ----------- ------------ ---------- ------------
<S> <C> <C> <C>
Comed Systms, Inc. $200,000 11/22/95 First National Bank of
Portsmouth
Advanced Therapeutics, Inc. $100,000 1/18/96 Bank of America
Innovative Medical
Systems, Inc. $110,000 4/ /96 Commercial Bank of Westport
</TABLE>
-9-
<PAGE>
EXHIBIT 10.65
TIMECAPITAL SECURITIES CORPORATION
ONE ROOSEVELT AVENUE
PORT JEFFERSON STATION, NEW YORK 11776
PHONE (516) 331-1400 FAX (516) 331-1407
April 26, 1996
Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, New York 11788
Attn: Stephen M. Fisher
Senior Vice President
Dear Sirs:
We are parties to two recently executed agreements with respect to our
performing certain investment banking services on behalf of Nova Technologies,
Inc. ("Nova"). The agreement dated April 19, 1996 engaging TimeCapital
Securities Corporation ("TimeCapital") as Nova's exclusive, private placement
agent (the "Placement Agreement") is annexed hereto as Exhibit A and the
agreement engaging TimeCapital as Nova's exclusive agent to arrange for an
underwriter (the "Underwriter Agreement") is annexed hereto as Exhibit B.
Both executed agreements contemplated the completion of a private placement
of at least 250,000 shares of Nova's Common Stock at $2.00 per share on or
before May 1, 1996 and provided Nova with certain rights if such event did not
occur. However, various circumstances have arisen which have resulted in the
impossibility of completing any private placement of Nova securities on or
before May 1, 1996. Among such circumstances are the delay in our reaching the
annexed agreements and Nova's registration statement (Form SB-2) for 900,901
shares of its Common Stock not having been declared effective by the Securities
and Exchange Commission. As a consequence, we have agreed to amend the annexed
agreements as follows:
The second sentence of Section V of the Placement Agreement is hereby
amended to read in its entirety as follows:
<PAGE>
Stephen M. Fisher
Nova Technologies, Inc.
Page 2
April 26, 1996
"If TimeCapital shall not have sold at least 250,000 shares of Nova's
Capital Stock hereunder on or before May 21, 1996, Nova shall have the
right to terminate TimeCapital's exclusive agency pursuant to this
Agreement."
Paragraph 4 of the Underwriters Agreement is hereby amended to read in its
entirety as follows:
"4. Anything in this Agreement to the contrary notwithstanding, Nova may
terminate this Agreement without payment of the Buy Out Price described in
paragraph 7 if, and only if, either Nova fails to receive at least $500,000
of gross proceeds from the placement of its securities on or before May 21,
1996 or if Nova fails to receive at least $1,000,000 (inclusive of the
$500,000 described above) of gross proceeds from the placement of its
securities on or before June 30, 1996."
Please confirm the foregoing amendments by executing the counterpart of
this letter and returning it to TimeCapital.
Very truly yours,
TimeCapital Securities Corporation
/s/ Richard G. Rohman
Richard G. Rohman
Vice President
ACCEPTED AND AGREED TO:
Nova Technologies, Inc.
By: /s/ Stephen M. Fisher
----------------------------
Stephen M. Fisher
Senior Vice President
<PAGE>
EXHIBIT A
TIMECAPITAL SECURITIES CORPORATION
ONE ROOSEVELT AVENUE
PORT JEFFERSON STATION, NEW YORK 11776
PHONE (516) 331-1400 FAX (516) 331-1407
April 19, 1996
Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, New York 11788
Attn: Paul DiMatteo
President
Dear Sirs:
This letter agreement (the "Agreement") sets forth the understanding
and agreement between TimeCapital Securities Corporation ("TimeCapital") and
Nova Technologies, Inc. (together with its successors, assigns, subsidiaries and
affiliates hereinafter referred to as "Nova") under which Nova has engaged
TimeCapital as the exclusive private placement agent in connection with the
private placement of 500,000 shares of its Common Stock at a price of two
dollars ($2.00) per share subject to the terms and conditions of this Agreement.
This Agreement shall become effective upon the execution hereof by Nova.
Section 1. Services To Be Rendered.
- ------------------------------------
Under this Agreement, TimeCapital will use its best efforts to secure financing
for Nova and, in that connection, will render such advisory and investment
banking services as outlined:
(a) TimeCapital will familiarize itself, to the extent it deems
appropriate and feasible, with the business, operations, properties, financial
condition and prospects of Nova, based upon information supplied by Nova as well
as other relevant information which may be publicly available, and advise Nova
on appropriate financing terms given current market conditions;
(b) TimeCapital will assist Nova in preparation of an information
Memorandum which will be distributed to potential investors and will negotiate,
on Nova's behalf, with such financing sources; and
<PAGE>
(c) TimeCapital will render such other financial advisory and
investment banking services to which Nova and TimeCapital may mutually agree.
Section II. Compensation.
- -------------------------
If a Transaction in consummated during the term of this Agreement, as defined
below in Section V, or by which Nova receives capital within twelve (12) months
after termination of the Agreement with a party introduced to Nova or contracted
by TimeCapital during the term of its engagement (a "Transaction"), Nova agrees
to compensate TimeCapital as follows:
(a) TimeCapital will be entitled to receive a placement fee equal to
10% of the total amount of money raised in the Transaction. Such fee will be
paid from the proceeds at closing. This is an exclusive agency agreement and,
according, TimeCapital will be entitled to such compensation regardless of
whether the financing is obtained directly by TimeCapital or as a result of an
introduction of a course of capital by Nova, a Director thereof or otherwise.
In addition, Nova agrees that, during the period of engagement, it will have no
contact with any financing source or permit any person to contact a financing
source except through TimeCapital nor will it use any written offering materials
not given to and approved by TimeCapital;
(b) TimeCapital will also be entitled to receive common stock purchase
warrants (the "Warrants") in an amount equal to 5% of the total number of shares
placed with investors. The Warrants will be exercisable for a period of five
years from the date of closing at an exercise price equal to the Common Stock
price offered to investors in the Transaction.
The provisions of this Section II shall survive the termination and expiration
of this Agreement.
Section III. Expenses.
- -----------------------
In addition to any fees that may be payable to TimeCapital hereunder, Nova shall
reimburse TimeCapital for all reasonable out-of-pocket expenses incurred for
carrying out the terms of this agreement, including travel and lodging expenses
associated with "due diligence" investigations which may be required. Nova at
its own expense will also bear all legal and other fees necessary in connection
with any required blue sky law qualifications or confirmation of exemption as
Time Capital may reasonably request. Payment of reasonable out-of-pocket
expenses and all legal and other fees payable to TimeCapital shall be limited to
and not to exceed the amount of $10,000.
2
<PAGE>
Section IV. Indemnity.
- -----------------------
It is agreed that if in connection with any services or matters that are the
subject of this Agreement, TimeCapital becomes involved in any investigation,
act or legal proceeding, Nova will reimburse TimeCapital for reasonable legal
fees, disbursements of counsel and other expenses incurred by or imposed on
TimeCapital. Nova agrees to indemnify and hold TimeCapital harmless against any
losses, claims, damages or liabilities, joint or several, to which TimeCapital
may become subject in connection therewith; provided, however, that Nova shall
not be liable under the foregoing indemnity agreement in respect to any loss,
claim, damage or liability to the extent that a court having jurisdiction shall
have determined by final judgment that such loss, claim, damage or liability
resulted from TimeCapital's willful misfeasance or gross negligence.
Section V. Terms of Engagement Survival, etc.
- ----------------------------------------------
The Agreement is exclusive and will be in effect for an initial period of two
(2) months from the date of execution hereof by Nova and may be extended by the
mutual written consent of Nova and TimeCapital. If TimeCapital shall not have
sold at least 250,000 shares of Nova's Common Stock hereunder on or before May
1, 1996, Nova shall have the right to terminate TimeCapital's exclusive agency
pursuant to this Agreement. TimeCapital's engagement hereunder may be
terminated by Nova pursuant to the preceding sentence upon written notice;
provided, however, that notwithstanding any termination of TimeCapital's
engagement hereunder. TimeCapital will be entitled to its full fees under
Section II hereof in the event that any time within twelve (12) months from the
date of termination, a transaction is consummated with sources of capital
introduced to Nova or contacted by TimeCapital. The provisions of Sections III,
IV and V hereof shall survive any termination of TimeCapital's engagement
hereunder.
Section VI. Governing Laws.
- ----------------------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York applicable to contracts made and to be performed solely in
such State by citizens thereof. Any dispute arising out of this Agreement shall
be adjudicated in the courts of the State of New York in the federal courts
sitting in the State of New York and Nova hereby agrees that service of process
upon it by registered or certified mail at the address shown in this Agreement
shall be deemed adequate and lawful. The parties hereto shall deliver notices
to each other by personal delivery or registered or certified mail (return
receipt requested) at addresses set forth above.
3
<PAGE>
Section VII. Offering Materials and Documentation.
- ---------------------------------------------------
Nova will provide to TimeCapital all financial and other information reasonably
requested by TimeCapital for the purpose of rendering its services pursuant to
this engagement. Nova recognizes and confirms that TimeCapital will use and
rely upon information available from generally recognized public sources in
performing the services contemplated by this engagement without having
independently verified the same and that TimeCapital does not assume
responsibility for the accuracy or completeness of such information. Nova
represents that the information provided to TimeCapital will not contain any
untrue statement of a material fact or omit to state any material fact that
would make the statements made misleading. Nova agrees to alert TimeCapital
immediately of the occurrence of any event or any change which would require any
supplement to, or amendment of, the information provided in order to maintain
the accuracy of the representation set forth in the proceeding sentence.
Section VIII. Registration Rights.
- -----------------------------------
The holders of a majority of the up to 500,000 shares of common Stock privately
placed by TimeCapital s Nova's exclusive agent hereunder shall be entitled to
have Nova register at Nova's expense such shares for resale under the Securities
Act of 1933 upon a one-time demand therefor. Such demand can be made at any time
on or after January 1, 1997.
The holders of any of the up to 500,000 shares of Common Stock privately placed
by TimeCapital as Nova's exclusive agent hereunder shall also have the right to
piggyback registration of such shares.
The form and substances of such registration rights shall be substantially
similar to those set forth in the form of subscription agreement used by Nova in
connection with its private placement of its Common Stock in or about August,
1995.
Section IX. Entire Agreement.
- ------------------------------
This Agreement sets forth the entire understanding of the parties relating to
the specific transaction and supersedes and cancels any prior communications,
understanding and agreements between the parties only to the extent they apply
to such subject matter. This Agreement cannot be modified or changed, nor can
any of its provisions be waived, except by written agreement signed by all
parties hereto.
4
<PAGE>
Section X. Other Outstanding Relationships.
- --------------------------------------------
Nova acknowledges that it has previously engaged TimeCapital in connection with
the private placement of Nova's securities and that in connection therewith, and
other investment banking relationships, certain securities have been and may be
delivered by Nova to investors and TimeCapital in connection therewith. All
such relationships shall continue in force and effect and shall not be deemed
amended or modified by this Agreement.
Section XI. Acceptance.
- ------------------------
Please confirm that the foregoing is in accordance with your understanding by
signing on behalf of Nova and returning an executed copy of this Agreement,
whereupon it shall become a binding agreement between Nova and TimeCapital. By
such signing, you will be representing to TimeCapital that all corporate action
on the part of Nova necessary to authorize this Agreement shall have been
completed.
Section XII. Additional Conditions.
- ------------------------------------
It is understood that TimeCapital's undertaking is subject to all documentation
related thereto being satisfactory to TimeCapital and its counsel and is subject
further to TimeCapital's determination that the market conditions are and remain
suitable for the Transaction. If for any reason TimeCapital concludes in its
sole judgment that the Transaction cannot be successful, TimeCapital may
terminate this Agreement immediately upon written notice thereof to Nova and
Nova shall have no liability to TimeCapital except to reimburse TimeCapital in
full for its out-of-pocket expense including without limitation, its legal fees
and disbursements.
Very truly yours,
TimeCapital Securities Corporation
By: /s/ Richard G. Rohman
------------------------------------
Richard G. Rohman, Vice President
ACCEPTED AND AGREED TO
AS OF APRIL 19, 1996:
Nova Technologies, Inc.
By:/s/ Stephen M. Fisher
--------------------------
Stephen M. Fisher
Senior Vice President
5
<PAGE>
EXHIBIT B
TIMECAPITAL SECURITIES CORPORATION
ONE ROOSEVELT AVENUE
PORT JEFFERSON STATION, NEW YORK 11776
PHONE (516) 331-1400 FAX (516) 331-1407
Nova Technologies, Inc.
89 Cabot Court, Unit L
Hauppauge, New York 11788
Attn: Stephen M. Fisher
Senior Vice President
Dear Sirs:
This letter agreement (the "Agreement") sets forth the understanding and
agreement between TimeCapital Securities Corporation, Inc., a New York
corporation, ("TimeCapital") and Nova Technologies, Inc., a Delaware
corporation, (together with its successors, assigns, subsidiaries and affiliates
hereinafter referred to as "Nova") in connection with certain proposed financing
transactions described herein. This Agreement is supplemental to and not a
modification of or substitution for the letter agreement between TimeCapital and
Nova dated August 25, 1995.
1. Nova hereby engages TimeCapital as its exclusive agent to arrange for
one or more qualified broker dealers to serve as the underwriter(s) on behalf of
Nova in connection with a public offering of shares of Nova's common stock, $.01
par value (the "Common Stock"). It is anticipated that the public offering will
be designed to produce gross proceeds in the $5,000,000.00 to $10,000,000.00
range with such number of shares of Common Stock offered as the underwriter(s)
and Nova determine to be appropriate. The terms of this exclusive engagement
are stated below. This agreement shall become effective upon execution by Nova
and shall continue for a term of one (1) year thereafter.
2. Under this Agreement, TimeCapital will use its best efforts to find one
or more qualified broker dealers interested in serving as underwriter(s) on
behalf of Nova in connection with such public offering. In that connection,
TimeCapital will familiarize itself, to the extent it deems appropriate and
feasible, with the business, operations, properties, financial conditions and
prospects of Nova based upon information supplied by Nova as well as other
relevant information which may be publicly available, and advise Nova on
appropriate financing terms under the market conditions then prevailing. If
requested by Nova, TimeCapital will also assist Nova in negotiating the terms
and conditions for the proposed underwriting. Whether or not such request is
made by Nova, TimeCapital will receive notice of and may attend all meetings
between Nova and its proposed underwriter(s).
3. Nova represents that it is authorized to issue 14,000,000 shares of
Common Stock of which 5,798,483 are currently issued and outstanding. Nova
covenants that prior to the underwriting described herein or the termination of
this Agreement, it will not materially increase the number of shares of Common
Stock issued and outstanding without prior approval from TimeCapital. Nova
further covenants that during the term of this Agreement, it will timely file
all annual, quarterly and interim reports with the Securities and Exchange
Commission, NASDAQ, and applicable state and federal authorities having
jurisdiction of Nova and the Common Stock.
4. Anything in this Agreement to the contrary notwithstanding, Nova may
terminate this Agreement without payment of the Buy Out Price described in
paragraph 7 if, and only if, either Nova fails
<PAGE>
Nova Technologies, Inc.
Page 2
March 15, 1996
to receive at least $500,000 of gross proceeds from the placement of its
securities on or before May 1, 1996 or if Nova fails to receive at least
$1,000,000 (inclusive of the $500,000 described above) of gross proceeds from
the placement of its securities on or before June 30, 1996.
5. If an offering of Nova's securities is consummated during the term of
this Agreement or within eighteen (18) months after termination of this
Agreement with a party introduced to Nova or contacted by TimeCapital hereunder
during the term of this engagement or otherwise, Nova shall compensate
TimeCapital in an amount equal to ten (10%) percent of the gross proceeds of the
financing. Such fee shall be paid from the proceeds at closing. This is an
exclusive agency agreement and, accordingly, TimeCapital shall be entitled to
such compensation regardless of whether the financing is obtained directly by
TimeCapital or as a result of an introduction of a source of financing or
otherwise. Nova and TimeCapital shall each advise the other by facsimile
transmission, if to Nova at 516-434-8859 and if to TimeCapital at 516-331-1407
within one business day of each initial communication directly or indirectly to
or from any prospective underwriter of Nova securities. The provisions of this
paragraph 5 shall survive termination and expiration of this Agreement.
6. In addition to any fees that may be payable to TimeCapital hereunder,
Nova shall reimburse TimeCapital for all reasonable out-of-pocket expenses
incurred for carrying out the terms of this Agreement. Expenses shall only be
reimbursed if a transaction contemplated herein is consummated and such expense
reimbursement shall in no event exceed $10,000.00.
7. Nova shall have the right to terminate this Agreement at any time upon
the payment of One Hundred Thousand and 00/100 ($100,000.00) Dollars to
TimeCapital (the "Buy Out Price"). The Buy Out Price shall be paid in cash or in
100,000 shares of unregistered Common Stock of Nova, which Common Stock shall be
deemed to have a value of $2.00 per share (subject to equitable adjustments for
stock splits, stock dividends and other such transactions), or in any pro rata
combination of cash and such Common Stock as may be exclusively determined by
TimeCapital. However, TimeCapital's rights to compensation as provided in
paragraph 5 shall survive any such termination if a transaction is consummated
with or through a party introduced to Nova or contacted by TimeCapital prior to
TimeCapital's receipt of the Buy Out Price.
8. Nova reserves the right to reject or modify any proposal made by or on
behalf of any prospective underwriter, whether or not introduced by TimeCapital.
9. Any payment due from Nova to TimeCapital pursuant to this Agreement,
except payment of the Buy Out Price pursuant to paragraph 7 hereof, shall be
paid in cash or in shares of Common Stock of Nova or in any combination of cash
and such Common Stock as may be exclusively determined by TimeCapital. For such
purposes, registered shares under the Securities Act of 1933 of the Common Stock
shall be deemed to have the value equal to the price of the last reported sale
of the Common Stock on NASDAQ or any other securities market in which the
largest number of shares of Nova Common Stock are traded on the closest date
preceding the date payment became due to TimeCapital and unregistered shares of
the Common Stock shall be deemed to have 75% of the value of registered shares
as provided above. Any unregistered shares of Nova Common Stock delivered to
TimeCapital pursuant to this Agreement shall be subject to piggyback
registration rights.
<PAGE>
Nova Technologies, Inc.
Page 3
March 15, 1996
10. This Agreement sets forth our entire understanding relating to the
specific subject matter hereof and cannot be changed except by written agreement
of the parties.
Please confirm that the foregoing is in accordance with your understanding
by signing on behalf of Nova and returning an executed copy. By its execution,
each party represents to the other all corporate action necessary on its part to
authorize this Agreement shall have been completed.
Dated: April ___, 1996
Very truly yours,
TimeCapital Securities Corporation
By: /s/ Richard G. Rohman
-----------------------------
Richard G. Rohman, Vice President
Accepted and Agreed to
Nova Technologies, Inc.
By: /s/ Stephen M. Fisher
------------------------
Stephen M. Fisher
Senior Vice President
<PAGE>
EXHIBIT 10.66
AMENDMENT TO DISTRIBUTORSHIP AGREEMENT
DATED JUNE 20, 1994
BETWEEN
INNOVATIVE MEDICAL SYSTEMS
AND
NOVA TECHNOLOGIES, INC.
Section 4.B subsections b) and c) are hereby amended as of October 17, 1995 to
read as follows:
b. Purchase of an additional 28 Standard and/or Obese model units before
January 1, 1997
c. Purchase of an additional 27 Standard and/or Obese model units before
January 1, 1998
Agreed And Accepted
_______________________
Innovative Medical Systems
_______________________
Nova Technologies, Inc.
<PAGE>
EXHIBIT 10.67
AMENDMENT TO DISTRIBUTORSHIP AGREEMENT
DATED MAY 25, 1994 AND AS AMENDED JUNE 16, 1994
BETWEEN
COMED SYSTEMS INC.
AND
NOVA TECHNOLOGIES, INC.
Section 4.B subsections b) and c) are hereby amended as of October 17, 1995 to
read as follows:
b. Purchase of an additional 20 Standard and/or Obese model units
before January 1, 1997
c. Purchase of an additional 22 Standard and/or Obese model units
before January 1, 1998
Agreed And Accepted
_______________________
COMED Systems, Inc.
_______________________
Nova Technologies, Inc.
<PAGE>
EXHIBIT 10.68
AMENDMENT TO DISTRIBUTORSHIP AGREEMENT
DATED DECEMBER 12, 1995
BETWEEN
CONCEPT MEDICAL CORPORATION
AND
NOVA TECHNOLOGIES, INC.
Section 2. PURCHASE REQUIREMENTS is hereby amended as of October 17, 1995 to
read as follows:
2. Purchase Requirements
Distributor agrees to purchase 171 Nova Products, where Nova Product means
complete systems as described in Appendix A (Optional Equipment does not count
as a Nova Product).
a.) Distributor shall purchase 68 Nova Products in the calendar year 1996.
Any purchases prior to January 1, 1996 shall count toward the required purchase
amount for 1996.
b.) Distributor shall purchase 103 Nova Products in the calendar year
1997. Any purchases in excess of 68 Nova Products purchase prior to January 1,
1997 shall count toward the required purchase amount for 1997.
Agreed and Accepted
_________________________
Concept Medical Corporation
_________________________
Nova Technologies, Inc.
<PAGE>
EXHIBIT 10.69
AMENDMENT TO DISTRIBUTORSHIP AGREEMENT
DATED JANUARY 24, 1995
BETWEEN
ADVANCED THERAPEUTICS INC.
AND
NOVA TECHNOLOGIES, INC.
Section 2. PURCHASE REQUIREMENTS is hereby amended as of October 17, 1995 to
read as follows:
2. Purchase Requirements
Distributor agrees to purchase 45 Nova Products, where Nova Product means
complete systems as described in Appendix A (Optional Equipment does not count
as a Nova Product).
a.) Distributor shall purchase 20 Nova Products in the calendar year 1996.
Any purchases prior to January 1, 1996 shall count toward the required purchase
amount for 1996.
b.) Distributor shall purchase 23 Nova Products in the calendar year 1997.
Any purchases in excess of 20 Nova Products purchase prior to January 1, 1997
shall count toward the required purchase amount for 1997.
Agreed and Accepted
_________________________
Advanced Therapeutics, Inc.
_________________________
Nova Technologies, Inc.
<PAGE>
EXHIBIT 10.70
AMENDMENT TO DISTRIBUTORSHIP AGREEMENT
DATED FEBRUARY 15, 1995
BETWEEN
RECOVERCARE, INC.
AND
NOVA TECHNOLOGIES, INC.
Section 2. PURCHASE REQUIREMENTS is hereby amended as of October 17, 1995 to
read as follows:
2. Purchase Requirements
Distributor agrees to purchase 79 Nova Products, where Nova Product means
complete systems as described in Appendix A (Optional Equipment does not count
as a Nova Product).
a.) Distributor shall purchase 29 Nova Products in the calendar year 1996.
Any purchases prior to January 1, 1996 shall count toward the required purchase
amount for 1996.
b.) Distributor shall purchase 50 Nova Products in the calendar year 1997.
Any purchases in excess of 29 Nova Products purchase prior to January 1, 1997
shall count toward the required purchase amount for 1997.
Agreed and Accepted
_________________________
Recovercare, Inc.
_________________________
Nova Technologies, Inc.
<PAGE>
EXHIBIT 10.71
AMENDMENT TO DISTRIBUTORSHIP AGREEMENT
DATED MARCH 15, 1995
BETWEEN
STAT MEDICAL, INC.
AND
NOVA TECHNOLOGIES, INC.
Section 2. PURCHASE REQUIREMENTS is hereby amended as of October 17, 1995 to
read as follows:
2. Purchase Requirements
Distributor agrees to purchase 49 Nova Products, where Nova Product means
complete systems as described in Appendix A (Optional Equipment does not count
as a Nova Product).
a.) Distributor shall purchase 20 Nova Products in the calendar year 1996.
Any purchases prior to January 1, 1996 shall count toward the required purchase
amount for 1996.
b.) Distributor shall purchase 29 Nova Products in the calendar year 1997.
Any purchases in excess of 20 Nova Products purchase prior to January 1, 1997
shall count toward the required purchase amount for 1997.
Agreed and Accepted
_________________________
Stat Medical, Inc.
_________________________
Nova Technologies, Inc.
<PAGE>
EXHIBIT 10.72
AMENDMENT TO DISTRIBUTORSHIP AGREEMENT
DATED JANUARY 24, 1996
BETWEEN
JCM CAPITAL CORP.
AND
NOVA TECHNOLOGIES, INC.
SECTION 8. NON-EXCLUSIVE DISTRIBUTION RIGHTS is hereby amended as of May 6,
1996 to read as follows:
8. NON-EXCLUSIVE DISTRIBUTION RIGHTS
a.) In the event the Distributor fails to meet the minimum
requirements for exclusive distribution as set forth in paragraph 7.b
above, his right to distribute Nova Products will terminate or,
alternatively, he may chose to continue this agreement with a non-
exclusive right to distribute Nova Products in the Territory by
agreeing to maintain 60% of his minimum order requirement as set forth
in paragraph 7.b. In this case, the Distributor must then pay to Nova
a royalty fee of 10% of all rental profit revenues, received by the
Distributor, for any Nova Products. Payments shall be made on a
quarterly basis, no later than fifteen (15) days after the end of the
quarter. These payments will terminate when the distributor is no
longer renting any Nova Products.
b.) Distributor will, however, be allowed to purchase parts for Nova
Products under the same terms and conditions of this agreement and
agrees to continue to provide service on such units until other
service becomes available.
Agreed and Accepted
____________________
JCM Capital Corp.
____________________
Nova Technologies, Inc.
<PAGE>
EXHIBIT 10.73
CONSENT AND SUBORDINATION AGREEMENT
-----------------------------------
THIS AGREEMENT is made as of the 26th day of March, 1996 by and among NOVA
TECHNOLOGIES, INC., a Delaware corporation having a principal executive office
located at 545 Middle Street, Bristol, Connecticut 06010 (the "BORROWER"),
CHARLES F. CHUBB, an individual who resides at 25 Meadowood Lane, Brookville,
New York 11545 ("CHUBB"), PAUL DIMATTEO, an individual who resides at 6 Carol
Court, Dix Hills, New York 11746 ("DIMATTEO") and PEOPLE'S BANK, a Connecticut
banking corporation with an office located at 850 Main Street, Bridgeport,
Connecticut 06604-4913 ("PEOPLE'S") (Chubb and DiMatteo are hereinafter
sometimes referred to jointly, severally and collectively as the
"SHAREHOLDERS").
Recitals:
- --------
A. Reference is made to a certain Intercreditor and Subordination Agreement
among Borrower, People's, Connecticut Development Authority ("CDA"), Connecticut
Innovations Inc. ("CII"), Innovative Medical Systems, Advanced Therapeutics
Inc., Comed Systems, Inc., Chubb and DiMatteo dated as of September 5, 1995 (the
"INTERCREDITOR AGREEMENT"). Unless defined herein or unless the context
otherwise requires, capitalized terms used herein shall have the same meaning as
is ascribed to them in the Intercreditor Agreement.
B. Prior to the date hereof, Borrower executed and delivered in favor of Chubb
certain promissory notes (the "CHUBB NOTES") as evidence of loans made by Chubb
to the Borrower.
C. Prior to the date hereof, Borrower executed and delivered in favor of
DiMatteo certain promissory notes (the "DIMATTEO NOTES") as evidence of loans
made by DiMatteo to the Borrower. The Chubb Notes and DiMatteo Notes
(collectively the "SHAREHOLDER NOTES") are described on Schedule A attached
----------
hereto.
D. Borrower's obligations under the Chubb Notes and the DiMatteo Notes are
referred to in the Intercreditor Agreement and in this Agreement as the
"SHAREHOLDER OBLIGATIONS".
E. The Borrower has requested that People's consent to its payment of certain
of the Shareholder Obligations and People's has agreed to give such consent upon
the terms set forth herein.
Now therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Agreements:
- ----------
1. Salary Deferral. Borrower and the Shareholders each represent to
---------------
People's that:
(a) aggregate salary in the amount of $123,082 proposed to be paid by the
Borrower to the Shareholders (the "SALARY DEFERRAL AMOUNT") for the period from
June 1, 1995 through March 31, 1996 (the "SALARY DEFERRAL PERIOD") has been
deferred and not paid to the Shareholders; and
(b) upon execution of this Agreement, and subject to People's consent
hereunder and to the satisfaction of the Conditions (as defined below):
(i) Borrower intends to make payments of principal on the
Shareholder Notes in an amount not to exceed the Salary
Deferral Amount (the "LOAN PAYMENTS");
(ii) to the extent of any Loan Payments made, an equal portion of
the Salary Deferral Amount (the "SUBSTITUTED DEFERRAL
AMOUNT") shall continue to be deferred and
<PAGE>
not paid to the Shareholders and shall be subordinate to the
People's Loan Obligations as provided in Section 2 below;
2. Subordination. Each of the Shareholders jointly and severally hereby
-------------
postpone and subordinate, to the extent and in the manner provided in this
Agreement, all of the Shareholder Obligations and all of the Substituted
Deferral Amounts which have been actually deferred and not paid (collectively
the "JUNIOR DEBT") to and until the full and final payment of all of the
People's Loan Obligations and the termination of any obligation of People's to
extend further People's Loan Obligations. The books of the Borrower shall be
marked to evidence the subordination of all of the Junior Debt to the People's
Loan Obligations. It is understood and agreed that the maximum principal amount
of the People's Loan Obligations shall not exceed $1,000,000.
3. Permitted Payments. So long as the Conditions (as defined below) have
------------------
been met at the time of a Permitted Payment (as defined below), People's
consents to Borrower making the following payments (each a "PERMITTED PAYMENT")
to the Shareholders on account of the Junior Debt:
(a) Borrower shall be permitted to make the Loan Payments, but only to the
extent that the Substituted Deferral Amount shall have been deferred and not
paid to the Shareholders; and
(b) Borrower shall be permitted to make monthly payments of accrued but
unpaid interest under the Shareholder Notes.
4. Conditions. People's continuing consent to the making of the Permitted
----------
Payments is subject, at all times, to the continuing satisfaction of each of
the following conditions (the "CONDITIONS"):
(a) At the time of a Permitted Payment, no Default (as defined in the
People's Financing Agreement) shall have occurred and be continuing.
(b) As a result of the making of a Permitted Payment, no Default (as
defined in the People's Financing Agreement) shall occur.
(c) The amount of the Loan Payment shall not exceed the amount of the
Substituted Deferral Amount actually deferred by the Borrower and not paid to
the Shareholders.
(d) At the time of a Permitted Payment, neither Borrower nor either of the
Shareholders shall have breached any of their respective representations,
warranties or covenants under this Agreement.
5. Borrower's Reporting Obligations. Borrower represents and warrants
--------------------------------
to, and covenants with, People's that the amount of the Substituted Deferral
Amount shall be identified by item and amount as a liability on the balance
sheet of the Borrower on all financial statements delivered to People's in
accordance with the provisions of Section 5.08 of the People's Financing
Agreement. Any certificate to be delivered by Borrower pursuant to the
provisions of Section 5.08(c) of the People's Financing Agreement shall also
contain an itemization of the Salary Amount paid to the Shareholders by the
Company, the salary amount owing to each of the Shareholders, the aggregate
amount of Loan Payments made and the Substituted Deferral Amount owed during the
period covered by such certificate.
6. Warranties and Representations of Shareholders. Each of the
----------------------------------------------
Shareholders hereby represents and warrants: (a) that neither of them has
relied and will not rely on any representation or information of any nature made
by or received from People's relative to Borrower in deciding to execute this
Agreement or to permit it to continue in effect; (b) that, since the date of the
last financial statement delivered by Borrower to People's there has been no
change in the amount of the Junior Debt; (c) that the Shareholders are the
lawful owners of the Junior
-2-
<PAGE>
Debt and no part thereof is subject to any defense, offset or counterclaim; (d)
that neither Shareholder has heretofore assigned or transferred any of the
Junior Debt or any interest therein; and (e) that neither Shareholder has
heretofore given any subordination with respect to the Junior Debt, except to
People's and CII.
7. Negative Covenants. Except as otherwise provided in Section 3 above,
------------------ ---------
until all of the People's Loan Obligations has been fully and finally paid and
any obligations of People's to extend further People's Loan Obligations is
terminated: (a) the Borrower shall not, directly or indirectly, make any
payment on account of or grant a security interest in, mortgage, pledge, assign
or transfer any of its assets to secure or satisfy all or any part of the Junior
Debt; (b) neither of the Shareholders shall demand or accept from the Borrower
or any other person any such payment of, or collateral for, nor shall either of
the Shareholders enforce any part of, the Junior Debt; (c) neither Shareholder
shall hereafter give any subordination with respect to the Junior Debt, or
transfer or assign any of the Junior Debt to any person other than People's or
CII in accordance with the Intercreditor Agreement; (d) neither of the
Shareholders will commence or join with any other creditors of the Borrower in
commencing any bankruptcy, reorganization, receivership or insolvency proceeding
against the Borrower; and (e) neither of the Shareholders nor the Borrower shall
otherwise take or permit any action prejudicial to or inconsistent with the
provisions of this Agreement.
8. Turnover of Prohibited Transfers. Except as otherwise provided in
--------------------------------
Section 3 above, if any payment on account of or any collateral for any part of
- ---------
the Junior Debt is received by either of the Shareholders, such payment or
collateral shall be delivered forthwith by such Shareholder to People's for
application to the People's Loan Obligations, in the form received except for
the addition of any endorsement or assignment necessary to effect a transfer of
all rights therein to People's. People's is irrevocably authorized to supply
any required endorsement or assignment which may have been omitted. Until so
delivered, any such payment or collateral shall be held by Borrower in trust for
People's and shall not be commingled with other funds or property of Borrower.
9. Authority to Act for Borrower. For so long as any of the People's
-----------------------------
Loan Obligations shall remain unpaid, People's shall have the right, upon the
occurrence of an Event of Default under the People's Financing Agreement and the
continuation thereof, to act as each Shareholder's attorney-in-fact for the
purposes specified herein and each of the Shareholders hereby irrevocably
appoints People's as his true and lawful attorney, with full power of
substitution, in the name of such Shareholder or in the name of People's, for
the use and benefit of People's, without notice to such Shareholder or any of
his representatives, heirs or assigns, to perform the following acts, at
People's' option, at any meeting of creditors of the Borrower or in connection
with any case or proceeding, whether voluntary or involuntary, for the
distribution, division or application of the assets of the Borrower or the
proceeds thereof, regardless of whether such case or proceeding is for the
liquidation, dissolution, winding up of affairs, reorganization or arrangement
of the Borrower, or for the composition of the creditors of Borrower, in
bankruptcy or in connection with a receivership, or under an assignment for the
benefit of creditors of the Borrower or otherwise: (a) to enforce claims
comprising the Junior Debt, either in its own name or in the name of applicable
Shareholder, by proof of debt, proof of claim, suit or otherwise; (b) to collect
any assets of the Borrower distributed, divided or applied by way of dividend
or payment or any securities issued, on account of the Junior Debt and to apply
the same, or the proceeds of any realization upon the same that People's in its
discretion elects to effect, to the People's Loan Obligations until all of the
People's Loan Obligations (including, without limitation, all interest accruing
on the People's Loan Obligations after the commencement of any bankruptcy case)
has been paid in full, rendering any surplus to the Shareholders, as their
interest may appear, if and to the extent permitted by law; (c) to vote claims
comprising the Junior Debt to accept or reject any plan of partial or complete
liquidation, reorganization, arrangement, composition or extension; and (d) to
take generally any action in connection with any such meeting, case or
proceeding that either of the Shareholders would be authorized to take but for
this Agreement. In no event shall People's be liable to either of the
Shareholders for any failure to prove the Junior Debt, to exercise any right
with respect thereto or to collect any sums payable thereon.
-3-
<PAGE>
10. Waivers. The Shareholders and Borrower each hereby waives any defense
-------
based on the adequacy of a remedy at law which might be asserted as a bar to the
remedy of specific performance of this Agreement in any action brought therefor
by People's. To the fullest extent permitted by law, each of the Shareholders
and Borrower each hereby further waives: presentment, demand protest, notice of
protest, notice of default or dishonor, notice of payment or nonpayment and any
and all other notices and demands of any kind in connection with instruments,
documents and agreements evidencing, securing or relating in any way to all or
any portion of the People's Loan Obligations or the Junior Debt to which each of
the Shareholders or Borrower may be a party; notice of the acceptance of this
Agreement by People's; notice of any loans made, extensions granted or other
action taken by People's in reliance hereon, including without limitation: (i)
granting time or other indulgences to Borrower, (ii) renewing, extending,
modifying or compromising any of the People's Loan Obligations, (iii)
possessing, substituting, modifying, waiving or releasing any guaranty or
collateral held as security for any of the People's Loan Obligations, or (iv)
adding or releasing any person primarily or secondarily liable thereon; and all
other demands and notices of every kind in connection with this Agreement, the
People's Loan Obligations or Junior Debt, and no such action taken by People's
shall affect the subordination or other provisions herein in any manner.
11. Indulgences Not Waivers. Neither the failure nor any delay on the
-----------------------
part of People's to exercise any right, remedy, power or privilege hereunder or
under any instruments, documents or agreements evidencing or relating to the
People's Loan Obligations shall operate as a waiver thereof or give rise to an
estoppel, nor be construed as an agreement to modify the terms of this
Agreement, nor shall any single or partial exercise of any right, remedy, power
or privilege with respect to any occurrence be construed as a waiver of such
right, remedy, power or privilege with respect to any other occurrence. No
consent or waiver by a party hereunder shall be effective unless it is in
writing and signed by the party making such consent or waiver, and then only to
the extent specifically stated in such writing.
12. Duration and Termination. This Agreement shall constitute a
------------------------
continuing agreement of subordination and shall terminate only upon the full and
final payment of the People's Loan Obligations and termination of any obligation
of People's to extend any further People's Loan Obligations. Neither the
dissolution nor the bankruptcy of, the Borrower shall effect a termination
hereof.
13. Administration by People's. In the administration of the People's
--------------------------
Loan Obligations, either before or after a demand or default, the Shareholders
acknowledge and agree that People's may proceed in its sole discretion,
including without limitation, raising or lowering loan advances, interest rates
or fees, charging additional fees, declining to make further advances, extending
additional loans or other financing accommodations to the Borrower, increasing
the dollar amounts of Borrower's credit limits, extending credit terms and
maturities, compromising claims and exchanging and releasing collateral or
obligors; all with no duty to Borrower, and no such action shall affect the
subordination or other provisions herein in any manner.
14. Notices. All notices, requests, demands and other communications
-------
required or permitted under this Agreement or by law shall be in writing and
shall be deemed to have been duly given, made and received only when delivered
against receipt or when deposited in the United States mails, certified mail,
return receipt requested, postage prepaid, or when delivered by next day express
mail, addressed to the respective parties to this Agreement as set forth in the
first paragraph of this Agreement. Any addressee may alter the address to which
communications are to be sent by giving notice of such change of address in
conformity with the provisions of this paragraph for the giving of notice.
15. Duties of People's Limited. The rights granted to People's in this
--------------------------
Agreement are solely for its protection and nothing herein contained imposes on
People's any duties with respect to any property either of the Shareholders or
of Borrower heretofore or hereafter received by People's.
-4-
<PAGE>
16. Entire Agreement, Amendments. This Agreement and the Intercreditor
----------------------------
Agreement constitute and express the entire understanding between the parties
hereto and with respect to the subject matter hereof, and supersede all prior
and contemporaneous agreements and understandings, inducements or conditions,
whether express or implied, oral or written. Neither this Agreement nor any
portion or provision hereof may be waived or amended orally or in any manner
other than by an agreement in writing signed by People's, each of the
Shareholders and Borrower.
17. Additional Documentation. The Shareholders and the Borrower shall
------------------------
execute and deliver to People's such further instruments and shall take such
further action as People's may at any time or times request in order to carry
out the provisions and intent of this Agreement.
18. Prejudgment Remedy Waiver. THE BORROWER AND EACH OF THE SHAREHOLDERS
-------------------------
ACKNOWLEDGE THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS A PART IS A
COMMERCIAL TRANSACTION AND WAIVE THEIR RIGHTS TO NOTICE AND HEARING UNDER
CHAPTER 903A OF THE CONNECTICUT GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY
STATE OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH PEOPLE'S MAY
DESIRE TO USE. THE BORROWER AND EACH OF THE SHAREHOLDERS ACKNOWLEDGE THAT EACH
MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS RESPECTIVE ATTORNEY.
19. Expenses. Each of the Shareholders and the Borrower agrees to pay
--------
People's on demand all expenses of every kind, including attorney's fees, that
People's may incur in enforcing any of its rights under this Agreement against
such person.
20. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
People's, its successors and assigns, and shall be binding upon each of the
Shareholders and Borrower and their respective heirs, personal representatives,
successors and assigns.
21. Defects Waived. This Agreement is effective notwithstanding any
--------------
defect in the validity or enforceability of any instrument or document
evidencing the People's Loan Obligations.
22. Governing Law. The validity, construction and enforcement of this
-------------
Agreement shall be governed by the laws of the State of Connecticut (but not its
conflicts of law provisions).
23. Counterparts. This Agreement may be executed in multiple counterparts
-------------
all of which will constitute one instrument.
[The balance of this page is blank. Signatures on next page.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered as of the day and year first above written.
PEOPLE'S BANK
By____________________________
Stephen F. Roche
Vice President
Duly Authorized
NOVA TECHNOLOGIES, INC.
By____________________________
Stephen M. Fisher
Senior Vice President
Duly Authorized
______________________________
CHARLES F. CHUBB
______________________________
PAUL DIMATTEO
-6-
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Date Payee Original Amount
- ------------------- -------- ---------------
<S> <C> <C>
April 1, 1992 DiMatteo $90,502
October 19, 1993 Chubb $15,000
November 5, 1993 Chubb $15,000
November 23, 1993 Chubb $ 5,000
October 19, 1993 DiMatteo $30,000
November 3, 1993 DiMatteo $30,000
November 23, 1993 DiMatteo $10,000
May 26, 1988 DiMatteo $30,000
April 29, 1988 DiMatteo $20,000
December 31, 1987 DiMatteo $20,000
December 18, 1987 DiMatteo $40,000
==============================================
</TABLE>
-7-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Registration Statement on Form SB-2 of
our report dated February 12, 1996 (March 26, 1996 and April 26, 1996 as to Note
9[a] and Note 1, respectively) relating to the financial statements of Nova
Technologies, Inc. We also consent to the reference to our firm under the
captions "Selected Financial Data" and "Experts".
Richard A. Eisner & Company, LLP
New York, New York
May 6, 1996
