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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JULY 5, 1996
REGISTRATION NO. 33-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
NORRIS COMMUNICATIONS CORP.
(Name of small business issuer in its charter)
YUKON TERRITORY,
CANADA NONE
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
-----------------------
12725 STOWE DRIVE
POWAY, CALIFORNIA 92064
(619) 679-1504
(Address and telephone number of principal executive offices and principal
place of business)
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R. GORDON ROOT, PRESIDENT
NORRIS COMMUNICATIONS CORP.
12725 STOWE DRIVE
POWAY, CALIFORNIA 92064
(619) 679-1504
(Name, address and telephone number of agent for service)
Copy to:
CURT C. BARWICK, ESQ.
HIGHAM, MCCONNELL & DUNNING
28202 CABOT ROAD, SUITE 450
LAGUNA NIGUEL, CA 92677
COUNSEL FOR THE COMPANY
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF THE ONLY SECURITIES REGISTERED ON THIS FORM ARE BEING OFFERED PURSUANT
TO DIVIDEND OR INTEREST REINVESTMENT PLANS, PLEASE CHECK THE FOLLOWING BOX: / /
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED
ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT
OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION WITH DIVIDEND OR
INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX: /X/
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT OFFERING PRICE FEE
- - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 3,739,063 Shares(1) $1.16(2) $4,337,313(2) $1,498
- - - ----------------------------------------------------------------------------------------------------
Total Registration Fee $1,498
- - - ----------------------------------------------------------------------------------------------------
Total Due $1,498
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</TABLE>
(1) Includes the registration for resale of the following: (i) 2,705,857
shares of Common Stock issued in a private placement in June 1996, and
(ii) 1,033,206 of Common Stock (subject to adjustment) issuable upon the
exercise of warrants issued in the foregoing private placement. Estimated
solely for purposes of calculating the registration fee in connection with
this Registration Statement.
(2) These figures are estimates made solely for the purpose of calculating the
registration fee pursuant to Rule 457(c). The average of the bid and asked
prices for the Common Stock on July 3, 1996, as reported by NASDAQ, was
$1.16.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a) MAY DETERMINE.
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PROSPECTUS
3,739,063 SHARES OF COMMON STOCK (NO PAR VALUE)
NORRIS COMMUNICATIONS CORP.
This Prospectus relates to 3,739,063 shares of the Company's Common
Stock, no par value ("Common Stock"), heretofore issued to the persons listed
as the Selling Shareholders. Such shares of Common Stock are being offered for
the respective accounts of the Selling Shareholders, and will be sold from time
to time by the Selling Shareholders in the national over-the-counter market or
otherwise at their prevailing prices, or in negotiated transactions. The
Company will receive no proceeds from the sale of such shares of Common Stock
by the Selling Shareholders. The expenses of preparing and filing the
Registration Statement of which this Prospectus forms a part are being paid by
the Company.
-----------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
The shares offered hereby were acquired by the Selling Shareholders
from the Company in private transactions and are "restricted securities" under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
has been prepared for the purpose of registering the shares under the Act to
allow for future sales by the Selling Shareholders to the public without
restriction. To the knowledge of the Company, the Selling Shareholders have
made no arrangement with any brokerage firm for the sale of the shares. The
Selling Shareholders may be deemed to be "underwriters" within the meaning of
the Securities Act. Any commissions received by a broker or dealer in
connection with resales of the shares may be deemed to be underwriting
commissions or discounts under the Securities Act. See "Plan of Distribution."
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The Common Stock is traded on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") under the NASDAQ symbol
"NORRF." On July 3, 1996, the bid and asked prices per share, as reported by
NASDAQ, were $1 1/8 and $1 3/16 respectively.
-----------------------
The date of this Prospectus is July 5, 1996.
<PAGE> 4
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING CONTEMPLATED HEREBY, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING SHAREHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
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 and other information with the Securities
and Exchange Commission. Reports, proxy statements and other information filed
by the Company with the Securities and Exchange Commission may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: 75 Park Place, New York, New York 10007; and the
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60621; and copies of such material may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W. Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Securities and Exchange Commission and are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year
ended March 31, 1996; and
(b) The description of the Company's Common Stock contained in the
Registration Statement on Form 10 filed with the Securities and Exchange
Commission on December 13, 1992 pursuant to Section 12(g) of the Exchange Act,
together with all amendments or reports filed for the purpose of updating such
description.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination of the Offering of Common Stock offered hereby shall be deemed
to be incorporated by reference into this Prospectus and to be part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is incorporated or deemed to be incorporated herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents referred to above which have been incorporated into this Prospectus
by reference (other than exhibits to such documents). Requests for such copies
should be directed to Kathleen Terry, Chief Financial Officer, Norris
Communications Corp., 12725 Stowe Drive, Poway, California, 92064 (Telephone:
619/679-1504).
2
<PAGE> 5
TABLE OF CONTENTS
The Company . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . 6
Plan of Distribution . . . . . . . . . . . . . . . . . . 11
Selling Shareholders . . . . . . . . . . . . . . . . . . 12
Dividend Policy . . . . . . . . . . . . . . . . . . . . . 13
Description of Securities . . . . . . . . . . . . . . . . 13
Legal Matters . . . . . . . . . . . . . . . . . . . . . . 15
Experts . . . . . . . . . . . . . . . . . . . . . . . . . 15
3
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THE COMPANY
Norris Communications Corp. (the "Company") is a holding company which,
through its wholly-owned United States subsidiary, is engaged in the
development, manufacture and marketing of electronic products. The Company was
incorporated in Canada under the British Columbia Company Act on February 11,
1988 under the name 340520 B.C. Ltd. The Company changed its name to Norris
Communications Corp. on April 7, 1988 and on November 22, 1994 continued its
jurisdiction of incorporation to the Yukon Territory, Canada.
On June 24, 1996, the Company noticed a Special Meeting of Stockholders
to approve certain matters including the change of domicile of the Company from
the Yukon Territory to Wyoming, by way of continuation under the Wyoming
Corporation Act and the subsequent merger (the "Merger") of the Company into
Norris Communications Corp., a Delaware corporation ("Norris Delaware"), a
wholly-owned subsidiary of the Company that was formed by the Company in
preparation for the reincorporation of the Company into Delaware and the
proposed successor to the Company. Upon consummation of the change of domicile
to Wyoming and after the effective time of the Merger, the Company will become
a company governed by the Delaware General Corporation Law (the "Delaware
Corporation Law"). The shareholders' approval of the proposed reincorporation
will constitute their approval of all of the provisions of Norris Delaware's
Restated Certificate of Incorporation and Norris Delaware's Bylaws, including
those provisions which will cause an increase in the authorized capital shares
to 60 million, including the authorization of five million preferred shares,
the limitation of director liability and expanded scope of indemnification of
directors, officers and key employees under Delaware law, and including those
provisions having "anti-takeover" implications, which may be of significance to
the Company and its shareholders in the future. The governance of Norris
Delaware by Delaware law, Norris Delaware's Restated Certificate of
Incorporation and Norris Delaware's Bylaws will or may in the future alter
certain rights of the shareholders.
As described more fully below, through a series of transactions, the
Company has evolved to its present structure as a holding company for its
principal, wholly-owned subsidiary, Norris Communications, Inc. ("NCI").
Through NCI, the Company is principally involved in manufacturing and marketing
the FLASHBACK recording device, a newly developed proprietary technology for
information storage and retrieval. In addition, the Company provides contract
manufacturing services for circuit board assemblies, systems, and subsystems.
The Company also holds as an investment 1,800,000 common shares of JABRA
Corporation ("JABRA"), formerly Norcom Communications Corporation.
Prior to January 15, 1993, JABRA was a wholly-owned subsidiary of the Company.
JABRA is a developer and manufacturer of communication products for desktop,
mobile and wireless applications. The Company has granted an option to
purchase 300,000 of the JABRA common shares to CVD Financial Corporation
("CVD"). Prior to March 31, 1995, the Company's business was operated through
two separate wholly-owned subsidiaries, Comp General Corporation ("Comp
General") and American Surface Mounted Devices ("ASMD"). Effective March 31,
1995, ASMD merged with and into Comp General, and Comp General, as the
surviving corporation of the merger, was renamed "Norris Communications, Inc."
Prior to 1989, the Company, through a predecessor corporation, was
started based on a new technology that its founder Elwood Norris had developed
while researching and developing headset/microphone alternatives for NASA. The
successful combination of a speaker and microphone was developed into the
EarPHONE(TM) product line, now owned by JABRA.
In August 1989, the Company acquired ASMD, which enabled NCI to become
a regional full-service independent supplier of turnkey manufacturing of
circuit board assemblies, systems and subsystems, to Original Equipment
Manufacturers ("OEMs") in the computer, defense, telecommunications and medical
industries. Since acquiring ASMD, the Company invested over $2.5 million in a
new, 31,000 square foot manufacturing facility with new equipment. As the
Company develops and acquires new technologies, it is management's goal to
utilize its strong printed circuit board assembly capability to produce the
components by combining added-value technology with added-value manufacturing.
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On January 15, 1993, the Company sold 300,000 common shares of JABRA
stock for $750,000, and JABRA sold 500,000 newly issued common shares with
warrants for $1.25 million. The Company retained 2,300,000 common shares or
74.2% of JABRA stock. On July 15, 1993, the Company sold an additional 500,000
common shares for $1.625 million and JABRA sold 1,000,000 newly issued common
shares for $3.25 million. The Company's 1,800,000 common shares represented
42.8% of the outstanding shares of JABRA and as a result of the lack of
operating control, the Company ceased consolidating JABRA's operations and
recorded its investment on the cost basis because it no longer had significant
influence over the operations of JABRA. Subsequent to March 31, 1994 and
through August 30, 1995, JABRA reported to the Company the sale of 3,563,341
newly issued common shares for proceeds of $7.6 million. As a result of these
transactions, the Company's ownership in JABRA, represented by 1,800,000 common
shares, is 23.1% (or 20.1% on a fully diluted basis).
During 1993, the Company invented and commenced development of advanced
digital recording technology that does not involve mechanical moving parts.
Although various digital techniques have been adapted to sound recording and
reproduction, such as compact disc players and digital tape recorders, these
devices still utilize mechanical techniques for moving the storage media as
well as positioning the read/write head in the case of compact discs. The
Company's technology is designed to substitute all solid state electronic
control for traditional mechanical functions and magnetic media. The Company's
technology combines a micro-processor based control system with data
compression and a non-volatile storage media to produce a no-moving-parts
recording scheme with advanced features and capabilities.
Management believes the Company's newly developed proprietary
technology for information storage lends itself to a broad array of product
applications. Through a technique of combining digital signal processing with
state-of-the-art compression algorithms and a non-volatile storage array all
managed by a microcontroller, it is possible to store data without the need for
magnetic media such as is presently used in audio/video tape recording
equipment as well as computer hard drives and diskettes. Since there are no
moving parts, there are correspondingly no motors, belts, or other control
devices required. All functions associated with devices designed around this
new technology can be operated by existing microprocessor control devices.
Should the prices of various forms of storage arrays, such as flash memory
chips, continue to decline as is generally predicted, more applications
utilizing these techniques will become cost effective.
The Company has utilized this proprietary technology to develop its
FLASHBACK recording device. The Company believes the FLASHBACK fits into the
Company's strategy of developing practical electronic products with broad
applications. The FLASHBACK is being marketed by the Company's subsidiary,
NCI.
The address of the Company's principal executive office is 12725 Stowe
Drive, Poway, California 92064 and its telephone number is (619) 679-1504. The
Company's primary operating facilities are located at that address.
The Company's registered and records office is located at the Company's
Canadian solicitor's office at 3081 Third Avenue, Whitehorse, Yukon, Canada Y1A
4Z7.
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RISK FACTORS
THE SECURITIES WHICH ARE OFFERED HEREBY ARE SPECULATIVE IN NATURE,
INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE PURCHASED BY PERSONS WHO CAN AFFORD
TO LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CONSIDER
CAREFULLY THE FOLLOWING FACTORS INHERENT IN AND AFFECTING THE BUSINESS OF THE
COMPANY, IN ADDITION TO THE INFORMATION CONCERNING THE COMPANY AND ITS BUSINESS
CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE SECURITIES OFFERED HEREBY.
Dependence Upon New Products. An investment in the securities offered
hereby must be considered an investment risk due to the nature of the Company's
business, the industry in which it is operating, and the present stage of its
development. The scale and scope of the Company's business is changing.
Historically, a majority of the Company's revenues have been derived from its
contract manufacturing business. The Company's future growth is greatly
dependent upon the successful marketing of its FLASHBACK product. The
Company's performance will be dependent upon the risks that are inherent in any
business venture that is undergoing a major change in the scope of its
operations, certain specific risks that are discussed below, future events and
developments, and changes in the Company's policies and methods of operations
in the future.
No Established Market for New Products. The Company has developed a
proprietary technology which is used in its most recent product, the FLASHBACK.
The FLASHBACK is currently in production and as of July 1, 1996, relatively few
sales have occurred, a limited number of written purchase orders have been
received and no established market for the FLASHBACK exists. The Company
commenced its initial production of the product during the quarterly period
ended December 31, 1994 and commenced full commercial scale production during
the quarterly period ended June 30, 1995, but there can be no assurance that
such product will be favorably accepted by the marketplace or that significant
sales of such product will occur.
Significant Losses From Operations. The Company has incurred operating
losses in five of its past six fiscal years with operating losses from
continuing operations of $8,268,000, $7,142,000, $2,442,000, $4,427,000 and
$236,000 for the fiscal years ended March 31, 1996, March 31, 1995, March 31,
1994, March 31, 1993 and March 31, 1991, respectively. The losses for fiscal
1996 resulted primarily from the higher costs associated with bringing the
Company's new FLASHBACK product to market and the decline in revenues and
increased operating losses from NCI's contract manufacturing operations. See
"Product Line; Reliance on Major Customers." In this regard, management
anticipates higher research, development and marketing costs associated with the
FLASHBACK for fiscal 1997 to continue at levels equivalent to prior years. The
Company's losses have increased and are expected to continue and/or increase
until such time as the Company is able to manufacture and sell the FLASHBACK in
commercial quantities and/or reestablish the Company's contract manufacturing
business and increase its historical operating margins. No assurance can be
given as to the Company's ability to accomplish the foregoing. The Company's
inability to accomplish the foregoing would have a material adverse effect upon
the Company's ability to operate profitably, and may force the Company to reduce
or curtail operations. The Company is also subject to the risks normally
associated with any new business activity, including unforeseeable expenses,
delays and complications. Accordingly, no assurance can be given that the
Company can or will report operating profits in the future.
Possible Inability to Continue as a Going Concern. The Company has
suffered recurring losses and cash flow deficits from operations. This factor
in combination with (i) expected losses and cash flow deficits from operations
during fiscal 1997, (ii) substantial inventory buildup consisting of FLASHBACK
units, together with raw materials and components to be utilized in the
manufacture of its FLASHBACK product and material decline in inventory turnover,
(iii) the Company's exhaustion of presently existing lines of credit, (iv) the
Company's historical reliance upon lines of credit to fund the continuing losses
from operations and cash flow deficits and (v) the likelihood that the Company
may be unable to meet its debts as they come due, raise substantial doubt about
the Company's ability to continue as a going concern. The Company's ability to
continue as a going concern
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<PAGE> 9
is dependent upon its ability to achieve a profitable level of operations and
obtain additional financing, as to which no assurance can be given. In the
event the Company is unable to continue as a going concern, it may elect or be
required to seek protection from its creditors by filing a voluntary petition
in bankruptcy or may be subject to an involuntary petition in bankruptcy. To
date, management has not considered this alternative, nor does management view
it as a likely occurrence.
Substantial Working Capital Requirements. As at March 31, 1996, the
Company had working capital of $1.1 million. The decrease in working capital
from March 31, 1995 is a result of the Company's continuing losses, which
historically have been funded by the Company's credit line, the net proceeds of
a $1.9 million private placement (completed on or about October 26, 1995) and
the net proceeds of a $3 million private placement of convertible notes
(completed on or about March 25, 1996). During fiscal 1995, the Company
borrowed approximately $3.3 million (and has subsequently repaid approximately
$3.0 million) under its existing credit line with CVD. In accordance with the
terms of the Loan Agreement with CVD, as amended, the Company has exhausted its
available credit thereunder and must repay all of the outstanding principal of
approximately $.3 million and interest by October 31, 1996. Approximately
$_____ million in working capital was expended by the Company in the quarterly
period ended March 31, 1996 and management estimates that approximately $______
in working capital was expended in the quarterly period ended June 30, 1996. The
Company's cash position as of the date of this Prospectus is insufficient to
enable the Company to meet its obligations to creditors and its on-going
expenses. Moreover, the Company believes that its capital resources are
sufficient to enable it to continue operations at planned levels of expenditures
for only two to three months from the date of this Prospectus. Additionally, the
Company anticipates that during fiscal 1997 higher levels of working capital
will be needed to fund the increased levels of inventories and anticipated
accounts receivable necessary in connection with the manufacture, sales and
marketing of its FLASHBACK product and to repay its existing credit line. In
order to fund its working capital requirements, the Company must achieve a
profitable level of operations, obtain lines of credit and raise additional
funds through various financing methods, including equity offerings, which may
result in dilution to shareholders. No assurance can be given that additional
financing, including new lines of credit, can be obtained or obtained under
acceptable terms. The failure to raise additional funds would have a material
adverse effect on the Company's ability to operate profitably, and would force
the Company to reduce or curtail operations.
Loan Agreement; Repayment of Amounts Due. Pursuant to the Loan
Agreement and related security agreements entered into with CVD, substantially
all of the assets of the Company and its subsidiary (including securities) are
pledged to CVD as collateral for amounts loaned and the Company is prohibited
from incurring additional indebtedness without CVD's prior consent. The Loan
Agreement, in addition, requires full repayment of all outstanding principal of
approximately $.3 million and interest by October 31, 1996. Moreover, the
existence of the Loan Agreement and the grant of a first priority security
interest to CVD in substantially all of the assets of the Company, may make it
difficult for the Company to obtain additional financing necessary to enable it
to continue as a going concern.
Disruption of Contract Manufacturing Business; Historical Dependence
Upon Renewal of Short-Term Contracts. The Company is currently utilizing its
contract manufacturing operations to build the Company's new FLASHBACK product.
In so doing, the Company de-emphasized its contract manufacturing business,
upon which it has historically been dependent for revenue. This occurrence
disturbed the long-standing relationships which the Company has had with
certain of its contract manufacturing customers; such relationships have
historically been predicated upon one-year contracts, which in the past have
been renewed for subsequent years. During fiscal 1997, the Company has been
attempting to reestablish its contract manufacturing business. Notwithstanding
goodwill and pre-existing relationships, no assurance can be given that such
relationships and contracts will continue to be in place or renewed in the
future, that the Company will acquire new contracts or that the Company will
elect to maintain contract manufacturing as a separate line of business. In
addition, the Company's contract manufacturing operations are subject to
intense competition from significantly larger domestic competitors, from
overseas assemblers with far lower costs and from other intermediate-size
7
<PAGE> 10
assemblers and many smaller shops. The contract manufacturing services
provided by the Company are available from many independent sources as well as
in-house manufacturing capabilities of current and potential customers. Some
of the Company's larger competitors, including SCI Systems, Inc., Avex
Electronics, Inc., Solectron Corporation, Comptronix Corporation, and Benchmark
Electronics, Inc. have greater financial, manufacturing and marketing resources
than the Company and each have annual sales in excess of $50 million. These
competitors generally operate regionally from multiple plant locations. Such
competitors and others continue to expand regionally and although none of the
named competitors have a regional manufacturing facility in San Diego County,
the establishment of such a facility by a competitor could have an adverse
effect on the Company's contract manufacturing operations, should it elect to
maintain this line of business in the future.
Competition. The market for electronics products is intensely
competitive and has been affected by foreign competition. The Company competes
and expects to compete with a number of large foreign companies with U.S.
operations and a number of domestic companies, many of which have substantially
greater financial, marketing, personnel and other resources than the Company.
In addition, the industry in which the Company competes has been characterized
in recent years by rapid and significant technological changes and frequent new
product introductions. Current competitors or new market entrants could
introduce new or enhanced products with features which render the Company's
technology or products obsolete or less marketable, or could develop means of
producing competitive products at a lower cost. The ability of the Company to
compete successfully will depend in large measure on its ability to maintain
its capabilities in connection with upgrading its products and quality control
procedures and to adapt to technological changes and advances in the industry.
In addition, the Company's FLASHBACK product competes with a number of
conventional tape recording devices, and has to compete in an established
market with a technology that is not compatible with the present standard in
such market. The major manufacturers of micro cassette recorders which are the
most competitive include Thomson (GE), Olympus, Panasonic, Sanyo and Sony.
There can be no assurance that the Company will be able to keep pace with the
technological demands of the marketplace or successfully enhance its products
or develop new products which are compatible with the products of the
electronics industry.
Product Line; Reliance on Major Customers. Prior to the introduction
of the FLASHBACK in December 1994, substantially all of the Company's revenues
had been derived from its contract manufacturing operations. Contract
manufacturing accounted for over 90% of total revenues in fiscal 1995.
However, as a result of the termination of certain contract manufacturing
services, the reconfiguration of manufacturing to accommodate FLASHBACK
production and other changes, sales of the FLASHBACK accounted for
approximately 82% of revenues in fiscal 1996. As a result of these changes and
the introduction of FLASHBACK prior operating results are not indicative of
future results. Moreover, demand for the Company's FLASHBACK recorder is
uncertain as the Company is in the early stages of entering various marketing
channels. Sales are expected to be subject to significant month to month
variability resulting from the limited market penetration achieved to date and
the seasonal nature of demand for consumer electronic products. The markets
for consumer electronic products are subject to rapidly changing customer
tastes and a high level of competition. Demand for FLASHBACK is expected to be
influenced by marketing and advertising expenditures, product positioning in
retail outlets, technological developments and general economic conditions.
Because these factors can change rapidly, customer demand can also shift
quickly. The Company may not be able to respond to changes in customer demand
because of the time required to change or introduce products, production
limitations and limited financial resources. Any failure to manufacture and
sell the FLASHBACK in commercial quantities will have a material adverse effect
on the Company and jeopardize its ability to continue as a going concern. See
"Possible Inability to Continue as a Going Concern." Moreover, a substantial
portion of the Company's revenues have been derived primarily from a limited
number of customers. For fiscal 1996, sales of the Company's FLASHBACK product
to its three largest customers accounted for approximately 29% of its revenues.
There can be no assurance that any such customers will continue to purchase the
FLASHBACK from the Company in the future. The loss of certain large customers
or a decline in the economic prospects of such customers would have a material
adverse effect on the Company. As of March 31, 1996, the Company had no
proprietary products other than its FLASHBACK product.
8
<PAGE> 11
Dependence Upon Major Suppliers. The Company "box-builds" its
FLASHBACK product from parts and electronic components purchased from regular
distribution channels. The Company owns its own tooling and although plastic
cases have been produced by one supplier, other suppliers exist to supply
plastic parts. Delays could occur, however, should the Company be required to
change suppliers. The Company is currently reliant on DSP Group, Inc., a sole
source supplier, for one key electronic component produced to the Company's
specifications. Although other suppliers of the basic component exist,
additional time would be required to modify components to meet the Company's
specifications, and any delays could have an adverse impact on the Company's
results of operations. The Company believes there are secondary suppliers of
components such that it is not otherwise reliant on one supplier, although
delays could result should the Company be required to change suppliers of
longer lead time components. Delays could also result from component
shortages, which are common to the electronics industry. The occurrence of any
such events could have a material adverse impact on the Company's operations.
The Company's business is subject to the risk of price fluctuations and
periodic shortages of components. The Company has no supply agreements with
its suppliers and, accordingly, purchases components pursuant to purchase
orders placed from time to time in the ordinary course of business. Failure or
delay by such suppliers in supplying necessary components to the Company could
adversely affect the Company's ability to manufacture and deliver products on a
timely and competitive basis.
Government Regulation. Management believes that the Company's
activities conform to present Federal, state and local environmental and other
regulations. There can be no assurance that current laws and regulations will
not be changed or interpreted in such a manner as to require the Company to
obtain licenses or approvals to conduct its business or otherwise restrict its
activities. Although the Company has not experienced any materially adverse
effects on its operations from governmental regulations, there can be no
assurance that such regulations will not adversely effect the Company in one or
more ways, including, but not limited to, the need for additional capital
equipment and/or potential liability if it is determined that the Company
improperly discharged or disposed of a hazardous substance.
Limited Marketing Capability. The Company has limited marketing
capabilities and resources and is primarily dependent upon in-house employees
for the marketing and sale of its contract manufacturing business and its
FLASHBACK product. Attracting new customers requires substantial marketing and
sales efforts and expenditure of significant funds to create awareness of and
demand for the Company's products. While the Company has recently hired and
put into place a sales and marketing structure for its FLASHBACK product which
includes an emphasis in telemarketing, computer retail channel, OEM, private
labeling and strategic alliances, there can be no assurance that the Company's
expanded marketing efforts in new areas will be successful or result in
significantly increased levels of revenues.
Reliance on Key Employees. The Company is currently dependent upon the
continued support and involvement of existing management, none of whom
presently is engaged under an employment contract. The loss of members of
existing management would severely curtail the Company's ability to operate and
implement its business plan. Elwood Norris serves as a director of two other
companies. As such, he currently devotes approximately 80% of his time to the
Company and 20% to other activities. The Company may need to hire additional
skilled personnel, including additional senior management, to support the
anticipated growth in its business. The inability to attract and retain
additional qualified employees or the loss of current key employees could
materially and adversely affect the Company's business.
Certain Transactions/Conflict of Interest. Elwood Norris, the Chairman
of the Board and a Director of the Company, is also a director of American
Technology Corporation ("ATC"). He is the beneficial owner of approximately
36% of the issued and outstanding shares of ATC. Robert Putnam, the Secretary
and a Director of the Company, is also the President and Chief Executive
Officer of ATC. Mr. Putnam is the beneficial owner of approximately 5.6% of
the issued and outstanding shares of ATC. As a result of their ownership and
involvement with ATC, Mr. Norris and Mr. Putnam have in the past, and may in
the future, devote a portion of their time to their other endeavors.
9
<PAGE> 12
Unpredictable Product Acceptance. The Company's sales and marketing
strategy contemplates sales of its existing FLASHBACK product and related
companion products (upon completion of their development), to the electronics
and computer software markets, including sales to markets yet to be
established. There can be no assurance that the Company's marketing strategy
will be effective and that consumers will buy the Company's FLASHBACK product.
The failure of the Company to penetrate its projected markets would have a
material adverse effect upon the Company's operations and prospects. Market
acceptance of the Company's proposed products will depend in part upon the
ability of the Company to demonstrate the advantages of its products over
competing products.
Technological Obsolescence. The electronics, contract manufacturing
and computer software markets are characterized by extensive research and
development and rapid technological change resulting in very short product life
cycles. Development of new or improved products, processes or technologies may
render the Company's proposed products obsolete or less competitive. The
Company will be required to devote substantial efforts and financial resources
to enhance its existing products and methods of manufacture and to develop new
products and methods. There can be no assurance that the Company will succeed
with these efforts. Moreover, there can be no assurance that the Company will
be able to overcome the obstacles necessary to complete its proposed products
or that other products will not be developed which would render the Company's
proposed products obsolete.
Protection of Proprietary Information. The Company owns one patent
protecting its products. The Company has applied for additional multiple
patents for its FLASHBACK product, but there is no assurance that any
additional patents will be awarded. The Company has received notification of
allowance from the United States Patent and Trademark Office for use of
FLASHBACK as a registered trade name. Other trade names are owned by the
Company and applications for registration of additional trade names are
pending. The Company does not own any copyrights. The Company treats its
technical data as confidential and relies on internal nondisclosure safeguards,
including confidentiality agreements with employees, and on laws protecting
trade secrets, to protect its proprietary information. There can be no
assurance that these measures will adequately protect the confidentiality of
the Company's proprietary information or that others will not independently
develop products or technology that are equivalent or superior to those of the
Company. With respect to patented products, there can be no assurance that the
Company will be able to identify, and successfully prosecute, infringements of
such patents. The Company may receive in the future communications from third
parties asserting that the Company's products infringe the proprietary rights
of third parties. There can be no assurance that any such claims would not
result in protracted and costly litigation. There can be no assurance that any
particular aspect of the Company's technology will not be found to infringe the
products of other companies. Other companies may hold or obtain patents on
inventions or may otherwise claim proprietary rights to technology useful or
necessary to the Company's business. The extent to which the Company may be
required to seek licenses under such proprietary rights of third parties and
the cost or availability of such license, cannot be predicted. While it may be
necessary or desirable in the future to obtain licenses relating to one or more
of its proposed products or relating to current or future technologies, there
can be no assurance that the Company will be able to do so on commercially
reasonable terms.
Lack of Dividends. The Company has never paid any cash dividends on
its Common Stock and does not anticipate paying any cash dividends in the
future. The Company currently intends to retain any future earnings to fund
the development and growth of its business. See "DIVIDEND POLICY."
Reliance on Small Number of Customers. The Company has relied on a
small number of customers for a large percentage of its FLASHBACK sales. Loss
of any major customer could have a material adverse effect on the Company's
financial condition.
Enforceability of Civil Liabilities Against Foreign Persons. For a
non-Canadian making an investment in the securities offered hereby, the
enforcement of civil liabilities under foreign, non-Canadian securities laws
may be affected by the fact that the Company is incorporated and has offices in
a foreign country (namely Canada). A non-Canadian investor may not be able to
effect service of process outside of the Yukon Territory, Canada, which is the
jurisdiction of incorporation of the Company. Additionally, non-Canadian
investors may not be able to enforce, in the courts of their residency,
judgments against the Company or its directors resident in Canada obtained from
courts outside
10
<PAGE> 13
of the Yukon Territory, Canada predicated upon the civil liability provisions
of any non-Canadian securities laws. Further, Canadian courts may not enforce
judgments of a non-Canadian court obtained in actions against the Company or
its officers and directors predicated solely upon non-Canadian securities laws.
Accordingly, a non-Canadian making an investment in the securities offered
hereby may be unable to effect the enforcement of civil liabilities against the
Company of its officers and directors. In addition, it may be more difficult
under Canadian law than under United States law for a stockholder to maintain a
class action or derivative lawsuit.
Impact of Possible Delisting of Securities from NASDAQ System; Penny
Stock Regulations. The Company's Common Stock is currently quoted on NASDAQ.
In order to maintain the Company's NASDAQ listing, the Company must have at
least $2 million in assets, $1 million in capital and surplus, a minimum bid
price of $1.00 per share and two market-makers. If the Company is unable to
maintain the listing criteria, its securities will be subject to delisting from
NASDAQ. Trading, if any, in the Company's securities would thereafter be
conducted in the over-the-counter market on the NASD Electronic Bulletin Board
or in what are commonly referred to as the "pink sheets." As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, the Company's securities. In addition, if the
Company's securities are delisted from NASDAQ, the securities would be subject
to a rule that imposes additional sales practice requirements on broker-dealers
who sell such securities.
Shares Eligible for Future Sales. In addition to the shares of Common
Stock to be sold hereunder, 2,637,808 shares of the Company's Common Stock were
registered pursuant to a registration statement filed with the Securities and
Exchange Commission on December 16, 1994, an additional 3,854,041 shares of the
Company's Common Stock were registered pursuant to a registration statement
filed with the Securities and Exchange Commission on May 8, 1995, an additional
1,461,143 shares of the Company's Common Stock were registered pursuant to a
Registration Statement filed with the Securities and Exchange Commission on
December 12, 1995 and an additional 379,059 and 1,280,666 shares of the
Company's Common Stock were purchased in transactions closing on or about March
21, 1995 and October 26, 1995, respectively, by certain investors who were not
"U.S. Persons," as such term is defined in Regulation S adopted under the
Securities Act. An additional ________ shares of Common Stock were issued upon
the conversion of an aggregate of $3 million of 7% notes which were converted
into shares of Common Stock of the Company in or about May __, 1996. Future
sales of these shares could depress the market price for the Common Stock in
any market which may exist.
PLAN OF DISTRIBUTION
Each Selling Shareholder is free to offer and sell his or her shares of
Common Stock at such times, in such manner and at such prices as he or she
shall determine. The Selling Shareholders have advised the Company that sales
of shares of Common Stock may be effected from time to time in one or more
types of transactions (which may include block transactions) in the over-the-
counter market, in negotiated transactions, through the writing of options on
the Common Stock or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such transactions may
or may not involve brokers, dealers or cash transactions. The Selling
Shareholders have advised the Company that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities, nor is there an
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the Selling Shareholders. The Selling Shareholders may effect
such transactions by selling Common Stock directly to purchasers or to or
through broker-dealers which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the Selling Shareholders and/or the purchasers of Common
Stock for whom such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions). The Selling Shareholders and any
broker-dealers that act in connection with the sale of the Common Stock might
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act, and any commissions received by them and any profit on the
resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Shareholders may agree to indemnify any
11
<PAGE> 14
agent, dealer or broker-dealer that participates in transactions involving
sales of the shares of Common Stock against certain liabilities including
liabilities arising under the Securities Act.
Because Selling Shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Shareholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of his or her shares, any Selling
Shareholder, any selling broker or dealer and any "affiliated purchasers" may
be subject to Rule 10b-7 under the Exchange Act which prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of Common Stock in connection with the Selling
Shareholder offering.
The Company has informed the Selling Shareholders that the
anti-manipulative Rules 10b-6 and 10b-7 promulgated under the 1934 Act may
apply to their sales in the market and has furnished each Selling Shareholder
with a copy of such rules and has informed them of the possible need for
delivery of copies of this Prospectus.
Selling Shareholders also may use Rule 144 under the Securities Act to
sell such securities, if they meet the criteria and conform to the requirements
of such Rule.
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
Selling Shareholders. Except as set forth below, none of the Selling
Shareholders is currently an affiliate of the Company, and none of them has had
a material relationship with the Company during the past three years.
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------
Beneficial
Ownership and
Beneficial Maximum Number Percentage of
Ownership of of Shares of Common Stock
Common Stock at Common Stock After Giving
Name July 5, 1996 (1) Offered for Sale Effect to
- - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dina Partners, L.P 400,000 400,000 0.00
Porter Capital Management 300,000 300,000 0.00
EDJ Ltd 400,000 400,000 0.00
Irwin Roberts 143,000 143,000 0.00
Stu Zimmerman 75,000 75,000 0.00
Sanwa Bank Trustee for Joe Wizan IRA 71,429 71,429 0.00
Kamren Ghiasi 45,000 45,000 0.00
Privatim Finanz AG 714,286 714,286 0.00
Jerome Moss 357,143 357,143 0.00
Michael Klein 285,714 285,714 0.00
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
Michael Klein Trustee Under Agreement 71,429 71,429 0.00
dated 12/22/80 Joyce Faye Klein Trust
FBO Michael Klein Issue Trust
Gregory Hookstratten 142,857 142,857 0.00
St. Claire Options Trading, L.P.(3) 384,615 384,615 0.00
JMG Management, Inc.(3) 384,615 384,615 0.00
Iacocca Capital Partners, L.P.(3) 135,769 135,769 0.00
William Elkus(3) 64,103 64,103 0.00
Richard Bertagna(3) 64,103 64,103 0.00
=================================================================================================
</TABLE>
- - - -------------------
(1) Based solely upon the review of a shareholder transcript prepared by the
Transfer Agent for the Company as of such date.
(2) Assumes the sale of all shares covered by this Prospectus. There can be no
assurance that any of the Selling Shareholders will sell any or all of the
shares of Common Stock offered by them hereunder.
(3) Beneficial ownership represents the number of shares of Common Stock
issuable upon exercise of warrants beneficially owned by such person,
assuming that a 30% discount to the average sales price per share of
Common Stock for the five trading days preceding July 3, 1996 was used to
determine the number of shares of Common Stock into which the warrants may
be exercised. The actual number of shares of Common Stock offered is
subject to adjustment and could be less or more than the indicated amount
depending upon factors which cannot be predicted by the Company at this
time including, among others, application of exercise provisions based, in
part, on market prices of the Common Stock prevailing during the five
trading days immediately preceding the actual day of exercise.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not currently intend to do so. The Company intends to retain
any future earnings to support the development and growth of its business. Any
future determination to pay cash dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's financial
condition, results of operations, cash requirements, plans for expansion,
contractual restrictions, if any, and other factors deemed relevant by the
Board of Directors.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 30,000,000 shares of Common
Stock, no par value. As of July 5, 1996, there were 22,023,013 shares of
Common Stock issued and outstanding.
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted by shareholders and, upon giving
notice as required by law, are entitled to cumulate votes for the election of
directors. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Board of
13
<PAGE> 16
Directors out of funds legally available therefor. See "DIVIDEND POLICY." In
the event of the liquidation, dissolution or winding up of the Company, the
holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of all debts and other liabilities. Holders of shares
of Common Stock, as such, have no conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the Common Stock.
The outstanding shares of Common Stock are when issued and paid for, fully paid
and non-assessable.
The common shares of the Company, including those offered hereunder,
are not subject to any future call or assessment and all have equal voting
rights. There are no limitations imposed by Canadian law or by the Articles or
other constituent documents of the Company on the rights of persons who are not
Canadian citizens or residents to hold or vote such common shares. There are
no special rights or restrictions of any nature attached to any of the shares,
and they all rank pari passu, each with the other, as to all benefits
(including dividends) which might accrue to the holders of the shares. Common
shareholders are entitled to written notice of any general meetings (i.e.,
shareholder meetings) to be convened by the Company. At any general meeting of
the Company, the minimum quorum requirement is two persons present and being,
or representing by proxy, members holding no less than five percent of the
shares which may be voted at such meeting.
The rights of common shareholders may be modified only in accordance
with the provisions of the Company's By-Laws and the Business Corporations Act
of the Yukon Territory. These provisions stipulate that before the
modification of any rights of common shareholders, such modification must be
approved by a special resolution of the common shareholders cast at a meeting
held for that purpose notwithholding any other business that may be transacted
at that meeting. A special resolution is defined as not less than two-thirds
of the votes cast by the common shareholders who voted in respect of that
resolution or signed by all of the common shareholders entitled to vote on that
resolution. A quorum of shareholders for such a meeting is stipulated in the
proposed By-Laws for the Company as being at least two persons present in
person (each being a shareholder entitled to vote or a duly appointed proxy or
representative for an absent shareholder so entitled) and representing, in
aggregate, not less than 5% of the outstanding common shares of the Company
carrying voting rights at the meeting.
There is no statutory prohibition in the Yukon Territory against a
substantial shareholder acquiring further shares in the capital of the Company
or voting those shares or entering into business transactions with the Company.
Since, however, upon continuation of the Company from British Columbia into the
Yukon, the Company will still be a reporting issuer under the British Columbia
Securities Act there are regulatory and statutory restrictions and requirements
which must be met under the British Columbia Securities Act where an individual
desires to increase his shareholdings in the Company from less than 20% to 20%
or greater of the issued and outstanding share capital of the Company. If such
a shareholder is increasing his shareholdings by the acquisition of previously
issued shares in the capital of the Company and such shareholdings will mean
that such shareholder is a holder of 20% or more of the issued and outstanding
share capital of the Company, then such shareholder must comply with the
takeover bid provisions, reporting requirements and resale restrictions
contained in the British Columbia Securities Act. In addition if a person
holds over 10% of the issued shares of the Company then he is an insider by
definition under the British Columbia Securities Act and must file insider
reports with and abide by the insider trading restrictions of the British
Columbia Securities Act. There is also a requirement under the British
Columbia Securities Act for an individual to file certain special reports with
the British Columbia Securities Commission and to issue a press release
containing prescribed information when, as a result of an acquisition of
additional shares (or securities convertible into or exercisable for additional
shares) his shareholdings in the Company will be equal to or exceed (or could
become equal to or exceed if the convertible securities were converted and the
exercisable securities were exercised) 10% of the issued and outstanding share
capital of the Company. Thereafter, each time such shareholder acquires an
additional 2% or more of the outstanding share capital of the Company (or
securities convertible into or exercisable for 2% or more) he must file an
additional report and issue an additional press release and is restricted from
acquiring any further shares in the Company (or securities convertible into or
exercisable for shares) for a period of one business day following the filing
of such report. This restriction as to the acquisition of additional shares or
convertible or exercisable securities ceases when the shareholder has acquired
such number of shares (and convertible or exercisable securities) equal to or
greater than 20% of the outstanding share capital of the Company although
certain other reporting requirements and resale restrictions become applicable
to the shareholder and his
14
<PAGE> 17
shareholding at the time. There are no similar restrictions or statutory
reporting requirements applicable to the Company under the Securities Act of
the Yukon Territory.
The Company may be a "quasi-California corporation" within the meaning
of Chapter 21 of the California Corporations Code. This would be the case if
the average of its property factor, payroll factor and sales factor (as defined
in the California Revenue and Taxation Code) is more than fifty percent (50%),
and more than one-half of its outstanding voting securities are held of record
by persons having addresses in California. If a corporation is a
quasi-California corporation, California law provides that certain portions of
the California Corporations Code shall govern it, to the exclusion of the law
of the true jurisdiction of incorporation (Yukon Territory). One such
provision is Section 708, pertaining to cumulative voting for directors.
Under Section 708, if any shareholder gives notice at a meeting, prior
to voting for directors, of his intention to cumulate his votes, all
shareholders may cumulate their votes in the election for directors; i.e., give
one candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are
normally entitled, or distribute the shareholder's votes on the same principle
among as many candidates as the shareholder thinks fit. The candidates
receiving the highest number of affirmative votes, up to the number of
directors to be elected, are the winners.
The Company's Articles do not provide for cumulative voting, although
the Business Corporations Act (Yukon) does allow cumulative voting by
shareholders if the Articles of the Company so provide. If the Articles do
provide for cumulative voting then the Articles must also provide for a fixed
number of directors.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Interwest
Transfer Co., Salt Lake City, Utah.
LEGAL MATTERS
The validity of the securities offered will be passed on for the
Company by Higham, McConnell & Dunning, Laguna Niguel, California.
EXPERTS
The consolidated financial statements of Norris Communications Corp.
appearing in Norris Communications Corp.'s Annual Report (Form 10-KSB) for the
years ended March 31, 1996 and March 31, 1995, respectively, have been audited
by Ernst & Young, independent accountants, as set forth in their reports thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
15
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable in connection with the distribution of the securities
being registered (estimated except for the registration fee), all of which will
be borne by the Registrant, are as follows:
<TABLE>
<S> <C>
Registration Fee $ 1,498
Blue Sky Fees and Expenses $ 3,500
Legal Fees and Expenses $30,000
Accounting Fees and Expenses $ 8,000
Miscellaneous Expenses $ 2,500
-------
Total $45,498
=======
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 7 of the By-Laws of the Company provides that, subject to the
Business Corporations Act (Yukon) the Company shall indemnify a director or
officer, a former director or officer, and a person who acts or acted at the
Company's request as a director or officer of a body corporate of which the
Company is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of being or having been a director or officer of
the Company or such body corporate, if (i) he acted honestly and in good faith
with the view to the best interest of the Company and (ii) in the case of a
criminal or administrative action or proceeding that is enforced by a monetary
penalty, he had reasonable grounds for believing his conduct was lawful.
The Business Corporations Act (Yukon) stipulates that a Company may,
with the approval of the Supreme Court, indemnify a person referred to in the
aforesaid paragraph in respect of an action by or on behalf of the Company or
body corporate to procure a judgment in its favor, to which such person is a
party by reason of being or having been a director or officer of the Company or
body corporate, against all costs, charges and expenses reasonably incurred by
such person in connection with the action if he fulfills the conditions set out
in paragraph (i) and (ii) aforesaid. In addition, the Business Corporations
Act (Yukon) provides that notwithstanding the foregoing a person referred to
above is entitled to indemnity from the Company in respect of all costs,
charges and expenses reasonably incurred by him in connection with the defense
of any civil, criminal or administrative action or proceeding to which he is
made a party by reason of being or having been a director or officer of the
Company or body corporate, if the person seeking such an indemnity (i) was
substantially successful in the merits of his defense of the action or
proceeding, (ii) fulfills the conditions set out in paragraphs (i) and (ii)
aforesaid and (iii) is fairly and reasonably entitled to indemnity.
Pursuant to the Business Corporations Act (Yukon) a company may
purchase and maintain insurance for the benefit of any person referred to in
the first paragraph aforesaid against any liability incurred by him (i) in his
capacity as a director or officer of the Company, except when the liability
relates to his failure to act honestly and in good faith with a view to the
best interests of the Company or (ii) in his capacity as a director or officer
of another body corporate if he acts or acted in that capacity at the Company's
request, except when the liability relates to his failure to act honestly and
in good faith with a view to the best interests of the body corporate.
The Business Corporations Act (Yukon) further stipulates that a company
or person referred to in the first paragraph aforesaid may apply to the Supreme
Court for an order approving an indemnity under the Business Corporations Act
(Yukon) and the Supreme Court may so order and make any further order it thinks
fit and in such a case the Supreme
II-1
<PAGE> 19
Court may order notice to be given to any interested person and that person is
entitled to appear and be heard in person or by counsel before the court.
If Yukon law and California law are in conflict with regard to the
Company's power or obligation to indemnify, and the issue were to be contested
in the Yukon and/or California, the legal outcome is unpredictable.
Item 16. Exhibits.
The exhibits are listed in the Exhibit Index commencing at page II-5
hereof.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in this
Registration Statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration Statement.
Provided however, that paragraphs (1)(i) and (1)(ii) shall not apply if
the information required to be included in a post- effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of post-effective
amendment to this Registration Statement any of the securities being registered
which remain unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
issuer's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or
II-2
<PAGE> 20
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Poway, State of California on July 5, 1996.
NORRIS COMMUNICATIONS CORP.
By: /s/ R. Gordon Root
-----------------------------
R. Gordon Root, President and
Chief Executive Officer
------------------------------
POWER OF ATTORNEY
Each person whose signature to this Registration Statement appears
below hereby appoints R. Gordon Root and Peter Gorrie, and each of them, as his
attorney-in-fact to sign on his behalf individually and in the capacity stated
below and to file all amendments and post-effective amendments to this
Registration Statement as such attorney-in-fact may deem necessary or
appropriate.
------------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ R. Gordon Root President and Chief Executive Officer July 5, 1996
- - - --------------------- and Director
R. Gordon Root
/s/ Kathleen Terry Chief Financial Officer and July 5, 1996
- - - --------------------- (principal financial and
Kathleen Terry accounting officer)
/s/ Elwood G. Norris Director July 5, 1996
- - - ---------------------
Elwood G. Norris
Director July _, 1996
- - - ---------------------
Robert Putnam
/s/ James Miller Director July 5, 1996
- - - ---------------------
James Miller
</TABLE>
II-4
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Page Number
- - - ------- -----------
<S> <C> <C>
2.1 Share Exchange Agreement among the Company, Norcom
Communications Corporation, and American Technology
Corporation, dated for reference March 23, 1988.*
2.1.1 Amendment of Agreement among the Company, Norcom
Communications Corporation, and American Technology
Corporation, dated for reference March 23, 1988.*
2.2 Plan and Agreement of Reorganization among the
Company, American Surface Mounted Devices, Inc. and
ASMD, Inc., dated August 11, 1989.*
2.3 Plan and Agreement of Reorganization among the
Company, Sage Microsystems, Inc., and Sage Micro,
Inc., dated November 7, 1991.*
2.4 Plan and Agreement of Reorganization among the
Company, C.A.D. Co. Engineering, Inc. and CADCO
Design Group, Inc., dated June 1, 1992.*
2.5 Plan and Agreement of Reorganization between American
Surface Mounted Devices, Inc. and Comp General
Corporation, Inc., dated March 31 1995.**
3.1 Memorandum of Norris Communications Corp. (as amended
through September 30, 1992) [equivalent to articles
of incorporation].*
3.2 Articles of Continuance of Norris Communications
Corp.***
3.3 By-Laws of Norris Communications Corp.***
5.1 Opinion of Higham, McConnell & Dunning.****
23.1 Consent of Higham, McConnell & Dunning.****
23.2 Consent of Ernst & Young. 23
</TABLE>
- - - -------------------
* Filed previously as an Exhibit to the Company's Registration Statement on
Form 10, as amended, and by this reference incorporated herein.
** Filed previously as an exhibit to Registration Statement No. 33-92978.
*** Filed previously as an Exhibit to the Company's Current Report on Form
8-K, filed November 29, 1994.
**** To be filed by amendment.
II-5
<PAGE> 1
EXHIBIT 23.2
CONSENT OF
INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our Firm as experts in accounting and auditing
under the caption "Experts" and to the use in the Prospectus constituting part
of this Registration Statement on United States Securities and Exchange
Commission Form S-3 dated July 5, 1996 of Norris Communications Corp. of our
reports dated May 24, 1996 (except as to Note 16[b] which is as of June 7, 1996)
relating to the consolidated financial statements of Norris Communications
Corp. for the years ended March 31, 1996 and March 31, 1995, which are
incorporated by reference in such Prospectus.
/s/ ERNST & YOUNG
Vancouver, Canada Chartered Accountants
July 5, 1996
