<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
Commission File Number 0-20734
NORRIS COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware None
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
13114 Evening Creek Drive South, San Diego, California 92128
(Address of principal executive offices) (Zip Code)
(619) 679-1504
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO ___
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, par value $.001 55,413,405
- ----------------------------- ----------
(Class) (Outstanding at October 15, 1997)
Transitional Small Business Disclosure Format (check one): YES ___ NO X
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<PAGE> 2
NORRIS COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1997 and
and March 31, 1997 (unaudited) 3
Consolidated Statements of Operations for the three and six
months ended September 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the six months
ended September 30, 1997 and 1996 (unaudited) 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
* No information provided due to inapplicability of the item.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
NORRIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 MARCH 31, 1997
$ $
------------------ --------------
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents 784,060 176,158
Accounts receivable, less allowance for doubtful
accounts of $20,999 and $36,330, respectively 253,704 30,097
Inventory [note 3] 1,586,477 1,648,863
Property and equipment held for sale -- 68,567
Prepaid expenses and other 6,199 --
------------------ --------------
2,630,440 1,923,685
------------------ --------------
Property and equipment, net 166,708 199,320
Other intangible assets, net of accumulated amortization of
$36,063 and $32,341 respectively 38,346 42,068
------------------ --------------
205,054 241,388
------------------ --------------
TOTAL ASSETS 2,835,494 2,165,073
================== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable, trade 758,050 1,264,150
Other accounts payable and accrued liabilities [note 10] 742,064 1,049,697
Advances in excess of earnings on development contract 54,966 174,341
Current portion of term note payable [note 4] 71,603 --
------------------ --------------
1,626,683 2,488,188
------------------ --------------
LONG-TERM [NOTE 4]
Secured notes payable 500,000 --
Term note payable, net of current portion 111,030 --
------------------ --------------
611,030 --
------------------ --------------
TOTAL LIABILITIES 2,237,713 2,488,188
------------------ --------------
Contingencies [note 12]
REDEEMABLE PREFERRED STOCK
Series A, $.001 par value (redeemable at anytime at variable prices of $10 or
more), 8% cumulative and convertible voting preferred stock, $10 liquidation
preference, 100,000 shares authorized, 82,000 shares issued
and outstanding at September 30, 1997 [note 5] 782,500 --
------------------ --------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, $0.001 par value, authorized 60,000,000 and
30,000,000 respectively; 55,413,405 and 23,370,008 shares
outstanding, respectively [note 6] 55,413 23,370
Additional paid-in capital 31,200,396 28,459,269
Prepaid warrants [note 7] 966,928 3,276,505
Contributed surplus 1,592,316 1,592,316
Accumulated deficit (33,999,772) (33,674,575)
------------------ --------------
(184,719) (323,115)
------------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 2,835,494 2,165,073
================== ==============
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 4
NORRIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30 September 30
1997 1996 1997 1996
$ $ $ $
-------------------------- --------------------------
<S> <C> <C> <C> <C>
REVENUE:
Product sales 107,906 147,817 270,114 301,543
Development services 207,438 -- 434,289 --
---------- ---------- ---------- ----------
Total revenues 315,344 147,817 704,403 301,543
---------- ---------- ---------- ----------
COST OF REVENUES:
Cost of product sales 87,882 790,061 242,782 1,049,318
Cost of development services 106,683 -- 241,912 --
---------- ---------- ---------- ----------
Total cost of revenues 194,565 790,061 484,694 1,049,318
---------- ---------- ---------- ----------
Gross profit (loss) 120,779 (642,244) 219,709 (747,775)
OPERATING EXPENSES:
Selling and administrative 253,918 1,376,351 573,776 2,449,651
Research and related expenditures 44,229 196,101 104,399 407,685
---------- ---------- ---------- ----------
Total operating expenses 298,147 1,572,452 678,175 2,857,336
---------- ---------- ---------- ----------
Operating loss (177,368) (2,214,696) (458,466) (3,605,111)
OTHER INCOME (EXPENSE)
Interest expense (15,123) (1,042) (22,613) (77,522)
Interest income 1,467 13,589 2,882 24,781
Other income [note 9] -- -- 153,000 --
---------- ---------- ---------- ----------
Other income (expense), net (13,656) 12,547 133,269 (52,741)
---------- ---------- ---------- ----------
Loss before provision for income taxes (191,024) (2,202,149) (325,197) (3,657,852)
Provision for income taxes -- -- -- --
========== ========== ========== ==========
NET LOSS (191,024) (2,202,149) (325,197) (3,657,852)
========== ========== ========== ==========
NET LOSS PER COMMON SHARE [NOTE 14] (0.004) (0.10) (0.01) (0.19)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES 52,465,515 22,287,418 39,145,164 19,641,347
========== ========== ========== ==========
</TABLE>
See notes to interim consolidated financial statements
4
<PAGE> 5
NORRIS COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 31, 1997
1997 1996
OPERATING ACTIVITIES $ $
------------ ------------
<S> <C> <C>
Net loss (325,197) (3,657,852)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 40,733 202,998
Gain on disposal of equipment (12,088)
Interest paid by issuance of common stock -- 33,772
Professional services paid by issuance of common stock 42,708 72,000
Legal settlement paid by issuance of common stock -- 127,500
Changes in assets and liabilities:
Accounts receivable (223,607) (18,616)
Inventory 62,386 (2,841)
Prepaid expenses and other (6,199) 61,637
Accounts payable, trade 9,918 (1,215,479)
Other accounts payable and accrued liabilities (220,133) (217,150)
Advances on research and development contract (119,375) --
------------ ------------
Cash (used in) operating activities (750,854) (4,614,031)
------------ ------------
INVESTING ACTIVITIES
Purchase of property and equipment (4,663) (148,803)
Proceeds on disposal of property and equipment 80,919 --
------------ ------------
Cash provided by (used in) investing activities 76,256 (148,803)
------------ ------------
FINANCING ACTIVITIES
Repayments under demand loan payable -- (2,185,546)
Proceeds from secured notes payable 500,000 --
Proceeds from sale of preferred stock 782,500 --
Proceeds from issuance of common shares and warrants -- 5,095,949
------------ ------------
Cash provided by financing activities 1,282,500 2,910,403
------------ ------------
Net increase (decrease) in cash 607,902 (1,852,431)
Cash and cash equivalents, beginning of period 176,158 2,843,540
------------ ------------
Cash and cash equivalents, end of period 784,060 991,109
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION:
Cash paid during the period for:
Interest 15,123 77,521
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Interest paid by issuance of common stock -- 33,772
Professional services paid by issuance of common stock 42,708
Conversion of long-term convertible note to common stock -- 3,033,772
Common stock issued on exercise of prepaid warrants 2,309,578 --
Accounts payable and accruals paid by issuance of common stock 420,885 --
Settlement of accrued lease termination by issuance of term note 182,633 --
</TABLE>
See notes to interim consolidated financial statements
5
<PAGE> 6
NORRIS COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
1. OPERATIONS
Norris Communications, Inc. (the "Company") was incorporated in the Province of
British Columbia, Canada on February 11, 1988 and on November 22, 1994, changed
its domicile from British Columbia to the Yukon Territory, Canada. The Company
further changed its domicile to Wyoming on August 30, 1996 and on September 4,
1996 reincorporated into Delaware. The Company is engaged through its
wholly-owned U.S. subsidiary in developing and exploiting proprietary electronic
technologies.
2. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Norris Communications, Inc.
("NCI"), a California corporation, based in San Diego, California.
The interim consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future. The
Company has incurred significant losses and negative cash flow from operations
in each of the last three fiscal years and for the six month period ended
September 30, 1997 and has an accumulated deficit of $33,999,772 at September
30, 1997. The Company's operational plan involves focusing on licensing and
product development on a contract basis and for the Company's own account. The
Company's ability to continue as a going concern is in doubt and is dependent
upon achieving a profitable level of operations.
These interim consolidated financial statements do not give effect to any
adjustments which would be necessary should the Company be unable to continue as
a going concern and therefore be required to realize its assets and discharge
its liabilities in other than the normal course of business and at amounts
different from those reflected in the accompanying interim consolidated
financial statements.
These interim consolidated financial statements have been prepared in accordance
with accounting principles generally accepted for interim financial information
and the instructions to Form 10-QSB. They do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. The interim consolidated financial statements and notes
thereto should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the fiscal year ended March 31, 1997.
Loss per common share is computed by dividing net loss, adjusted for dividends
related to the Company's preferred stock, by the weighted average number of
common shares and common share equivalents, unless antidilutive, outstanding
during the period (see Note 14).
In the opinion of management, the interim consolidated financial statements
reflect all adjustments of a normal recurring nature necessary for a fair
statement of the results for interim periods. Operating results for the three
and six month periods ended September 30, 1997 are not necessarily indicative of
the results that may be expected for the fiscal year ending March 31, 1998.
3. INVENTORY
Inventory of raw material, work in process and finished goods is recorded at the
lower of cost and net realizable value. Cost is determined on a first-in,
first-out basis. Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, 1997 March 31, 1997
------------------ --------------
<S> <C> <C>
Raw material $748,744 $666,634
Work in process 170,785 179,967
Finished goods 666,948 802,262
------- -------
$1,586,477 $1,648,863
========== ==========
</TABLE>
4. LONG-TERM DEBT
Secured Notes Payable
The secured notes payable bear interest at 12%, payable quarterly. The notes are
collateralized by the Company's issued and pending patents and the FLASHBACK
technology. The notes may become convertible only when and if allowable under
the terms of the prepaid warrants (see note 7) and when sufficient authorized
stock is available and are then convertible at the lowest warrant conversion
price used by the prepaid warrant holders (currently $0.0875 per share), subject
to certain future adjustments. Upon conversion, the note holders will receive a
stock purchase warrant exercisable into the same number of shares as converted
at the conversion price for a period of three years. If these notes were
convertible by their terms on September 30, 1997 they would have been
convertible into approximately 5.7 million common shares with warrants
exercisable into a like number of shares at $0.0875 per share for three years.
See Note 13.
6
<PAGE> 7
NORRIS COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
4. LONG-TERM DEBT (Cont'd)
Term Note Payable
A 10% unsecured term note was issued effective September 30, 1997 in connection
with the settlement of accrued balances owing related to the Company's former
facility lease. The Company made a principal payment of $25,000 in October 1997
and is obligated to make monthly payments of principal and interest of $5,000
for 38 months through November 1, 2000. At September 30, 1997 the total note
obligation was $182,633 with $71,602 being the current portion.
5. REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $.001 par value preferred
stock in one or more series from time to time by action of the Board of
Directors. During September 1997, the first series, consisting of up to 100,000
shares, was designated by the Board of Directors as Series A. The Series A Stock
has voting rights equal to the number of shares of Common Stock into which the
Series A Stock is convertible. Dividends of 8% per annum are cumulative and may
be payable in cash or shares of Common Stock, at the Company's election. The
Series A Stock has a liquidation preference of $10.00 per share, plus accrued
and unpaid dividends, with no participation after the preference is paid.
The Series A Stock is convertible into shares of Common Stock computed by
dividing $10.00 plus accrued and unpaid dividends by the lesser of (i) $0.0875
or (ii) 80% of the average closing bid price for the Common Stock for the ten
trading days immediately following any and each distribution in shares,
subdivision, split up, combination, reclassification, or other change in Common
Stock. There are not currently sufficient authorized but unissued shares of
Common Stock available for conversion of the Series A Stock and the Company is
obligated to take appropriate corporate action to authorize additional shares of
its Common Stock, to be reserved and kept available solely for issuance upon the
conversion of the Series A Stock. There can be no assurance when or if the
Series A Stock will become convertible. See Note 13.
The Company is required to redeem the Series A Stock on September 1, 2000
("Mandatory Redemption Date") and upon the occurrence of certain other events.
The Company may redeem the Series A Stock earlier only if there are sufficient
shares available for conversion of the Series A Stock. The redemption price is
$10.00 per share plus accrued and unpaid dividends if there are sufficient
shares available for conversion of the Series A Stock, otherwise the redemption
price is equal to the greater of (i) $10.00 per share plus accrued and unpaid
dividends or (ii) an amount equal to a five day market price multiplied by the
shares into which the Series A Stock would be convertible if shares were
authorized, plus a 10% premium. If sufficient shares of Common Stock for
conversion of the Series A Stock are not authorized by March 31, 1998, the
dividend rate shall be increased to 12% until sufficient shares are authorized
and the Mandatory Redemption Date shall be accelerated to December 31, 1998.
During September 1997 the Company sold 82,000 shares of Series A Stock at $10.00
per share or $820,000 with net proceeds of $782,500. Subsequent to September 30,
1997 the Company sold an additional 17,500 shares for gross proceeds of
$175,000.
6. COMMON STOCK
The following table summarizes common equity transactions during the six month
period ended September 30, 1997 (see Note 5 for preferred stock transactions):
<TABLE>
<CAPTION>
Additional
paid-in Prepaid Contributed Accumulated
Shares Amount capital Warrants Surplus Deficit Total
---------- ------- ----------- ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997 23,370,008 $23,370 $28,459,269 $3,276,505 $ 3,276,505 $(33,674,575) $(323,115)
Stock issued on exercise of
prepaid warrants 29,805,455 29,805 2,279,772 (2,309,577) -- -- --
Stock issued pursuant to private
placement fees 457,484 457 (457) -- -- -- --
Stock issued in debt settlement 400,000 400 87,100 -- -- -- 87,500
Stock issued as payment for
accrued professional services
and compensation 1,380,458 1,381 374,712 -- -- -- 376,093
Net loss -- -- -- -- -- (325,197) (325,197)
---------- ------- ----------- ---------- ----------- ------------ ---------
Balance, September 30, 1997 55,413,405 $55,413 $31,200,396 $ 966,928 $ 1,592,316 $(33,999,772) $(184,719)
========== ======= =========== ========== =========== ============ =========
</TABLE>
7
<PAGE> 8
NORRIS COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
7. PREPAID WARRANTS
During fiscal 1997, the Company received cash from prepaid warrants of
$3,396,505, net of offering costs of $409,395. The original terms of the Prepaid
Warrants provided that the face amount of the warrants or $3,805,900 was
exercisable, without further cash payment, into common shares of the Company at
the lessor of: $0.70 per common share (with respect to $805,900 of warrants) and
$0.69125 per common share (with respect to $3,000,000 of warrants) or a 30%
discount to the 5 day moving average bid price of the common shares on the day
prior to exercise with the exercise price of the warrants further discounted by
7% per year until the warrants are exercised.
The Company does not presently have sufficient authorized and unissued common
shares for the exercise of the remaining Prepaid Warrants. Under the terms of
the Prepaid Warrants, the Company is obligated to take action to increase the
authorized shares and conversions in excess of authorized and unissued Common
Stock are suspended pending such increase.
In September 1997, the remaining three Prepaid Warrant holders executed
Amendment No. 1. Among other terms, the Amendment fixes the exercise price at
$0.0875 per share subject to certain adjustments. The fixed price of $0.0875 per
share may be adjusted down (i) to 80% of the market price following certain
changes in the Company's Common Stock including a reverse stock split, and (ii)
to the price at which new securities are issued if at a price below $0.0875 per
share. At the fixed price of $0.0875 per share the remaining Prepaid Warrants
($1.3 million, as adjusted) are convertible into approximately 15.3 million
shares as of September 30, 1997. The number of shares issuable further increases
by 7% per annum. The original expiration of the Prepaid Warrants was in July and
August 1999, however, such date is currently being extended during the
suspension period as described above.
Under terms of Amendment No. 1, the Company made 1,000,000 additional shares of
Common Stock available for exercise by Prepaid Warrant holders during September
1997 from shares previously reserved for other warrants and options. The Company
is required to make a second 1,000,000 shares of Common Stock to be made
available from shares previously reserved for other warrants and options by
October 31, 1997. The Company has also agreed to hold a stockholders meeting or
otherwise conduct a consent solicitation to increase the authorized number of
shares on or before December 15, 1997 and have sufficient shares authorized by
January 31, 1998. Failure by the Company to meet these conditions allows the
Prepaid Warrant holders, at their option, to nullify Amendment No 1.
8. WARRANTS AND OPTIONS
At September 30, 1997, warrants were outstanding/exercisable into the following
listed shares. Also see Note 4 for additional warrants that may become issuable
upon conversion of secured notes payable.
<TABLE>
<CAPTION>
Number of Exercise Price
Description Shares U.S.$ Expiration Date
- ------------------------------------------------------------------
<S> <C> <C> <C>
Warrants 200,000 2.00 September 1998
Warrants 33,750 4.00 June 1999
Warrants 450,000 1.75 July 1999
Warrants 82,100 4.00 August 1999
Warrants (a) 20,570 0.25 February 2000
Warrants (a) 25,000 0.25 March 2000
Warrants (a) 27,500 0.25 March 2001
Warrants (a) 401,924 0.25 July 2001
Warrants (a) 400,000 0.25 August 2001
Warrants (a) 150,000 0.15625 October 2001
Warrants (a) 128,067 0.25 October 2005
- ------------------------------------------------------------------
Total 1,918,911
- ------------------------------------------------------------------
</TABLE>
(a) During the current period, the Company amended the terms of these
warrants to adjust and fix the exercise price in conjunction with a
reduction in the number of shares subject to exercise and/or to
eliminate future adjustments for certain dilutive events.
8
<PAGE> 9
NORRIS COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
8. WARRANTS AND OPTIONS (Cont'd)
The following table summarizes stock option activity for the period:
<TABLE>
<CAPTION>
<S> <C>
Outstanding at March 31, 1997 1,170,658
Granted 1,920,000
Exercised --
Expired (347,818)
Canceled (345,113)
----------
Outstanding at September 30, 1997 2,397,727
==========
</TABLE>
Options outstanding are exercisable at prices ranging from $0.1562 to $3.65 and
expire over the period from 1997 to 2002.
9. OTHER INCOME
The Company received $153,000 from a former vendor resulting from prior period
overpayments. The overpayments were recorded as an expense in the prior period
because of uncertainty regarding the amount and likelihood of recovery.
10. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $2,228,001 in fiscal 1997
resulting from the change in the Company's operations due to the discontinuance
of contract manufacturing services. At March 31, 1997, a total of $162,423 was
included in other accounts payable and accrued liabilities relating to the
restructuring. During the fiscal quarter ended June 30, 1997, the restructuring
was completed.
11. INCOME TAXES
The Company has not provided a tax provision for the current period, due to
current losses. The Company has U.S. net operating loss carryforwards of
approximately $15,682,000 and $11,213,000 for federal and state tax purposes,
respectively, subject to certain limitations.
12. CONTINGENT LIABILITY
The Company may have a liability to certain security holders due to a possible
violation of federal and state securities laws prohibiting an issuer from
selling securities in a private placement by any form of general solicitation or
advertising. Section 5 of the Securities Act of 1933 prohibits the sale of
securities pursuant to a prospectus that does not satisfy the requirements of
the Securities Act. Such violation, if deemed to have occurred, could give rise
to a private right of action by the affected security holders for rescission of
recently issued securities in the amount of $5.67 million and for damages.
Management of the Company has provided notice to each of the affected security
holders of the possible violation and has obtained from affected security
holders, representing $5.42 million of the above shares, written release and
waivers with respect thereto. It is possible that the release and waiver
agreements could be challenged at some later date by an affected security holder
on grounds of enforceability. Although management of the Company has no present
reason to believe that the release and waiver agreements are not enforceable, a
contrary finding by a federal or state court may result in a continuing risk of
potential liability. Management of the Company believes the likelihood of a
future event occurring to confirm the contingent liability is remote. See notes
6 and 7 for partial conversions to Common Stock by these security holders.
13. ACCOUNTING FOR CONVERTIBLE SECURITIES AT A DISCOUNT
The position of the Securities & Exchange Commission on convertible preferred
stock and convertible debt that are in the money at the time of issuance
requires recording the discount as a non-cash dividend or interest. The imputed
dividend or interest is recognized beginning with the issuance of the security
to the first date that conversion can occur. The Secured Notes (Note 4) issued
in June 1997 and the Series A Stock (Note 5) issued in September 1997 are not
presently convertible due to certain restrictions including the unavailability
of authorized but unissued common shares . The date the Secured Notes or Series
A Stock may become convertible is indeterminate and unless additional common
shares are authorized they may not become convertible prior to their maturity or
redemption. There can be no assurance of authorization of additional common
shares or the future convertibility of the securities. The Company, therefore
has not recorded any imputed dividend or interest on the Series A Stock or
Secured Notes. If these securities had been convertible at issuance the Company
would have recorded non-cash interest of approximately $178,000 in the first
quarter of the current year related to the Secured Notes (increasing the net
loss) and approximately $550,000 as a non-cash dividend on preferred stock
(impacting the computation of loss per common share, see Note 14) during the
second quarter. The Company has no contractual obligation to pay such non-cash
imputed dividends or interest.
9
<PAGE> 10
NORRIS COMMUNICATIONS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
14. NET LOSS PER COMMON SHARE
Net loss per share applicable to common stockholders is calculated as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1997 1996 1997 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net loss $ (191,024) $ (2,202,149) $ (325,197) $ (3,657,852)
Preferred stock dividends
at stated rate (1,085) -- (1,085) --
Net loss applicable to
------------ ------------ ------------ ------------
common stockholders $ (192,109) $ (2,202,149) $ (326,282) $ (3,657,852)
Net loss per common share $ (0.004) $ (0.10) $ (0.01) $ (0.19)
============ ============ ============ ============
Weighted average shares
outstanding 52,465,515 22,287,418 39,145,164 19,641,347
============ ============ ============ ============
</TABLE>
The net loss per common share for the three and six months ended September 30,
1997 would have been $(0.01) and $(0.03), respectively, assuming the secured
notes and convertible preferred stock were convertible at issuance as described
in Note 13.
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings Per
Share," which will be effective for financial statements issued for periods
ending after December 15, 1997. SFAS No. 128 requires that public companies
present basic and diluted earnings per share, which are computed differently
than the currently used earnings per share. Basic and diluted earnings per share
for the above periods would not have been materially different than the earnings
per common share reported for those periods.
------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING,
"BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED MARCH 31, 1997.
GENERAL
The Company has completed the transition from a manufacturing and sales
organization to an OEM provider of technology, product development services, and
technology licensing. The Company, as a consequence, anticipates that the
majority of its future revenues will be from license and royalty fees, private
label arrangements for the Company's Flashback family of products and from
contract development services for custom digital products.
The Company is actively developing licensing, private label, and OEM
opportunities seeking to penetrate the digital sound recording and playback
market. The Company has contracts with Sanyo Information Systems UK Ltd. and
Lanier Worldwide, Inc. Under the terms of the Sanyo Agreement, as amended, Sanyo
is private labeling current Company products (principally, FLASHBACK, SOUNDCLIP
and VOICELINK) under an exclusive arrangement in Europe. The agreement, which
terminates in October 1999, provides that Sanyo must purchase at least 500
product units per month (plus o minus 20%) in order to maintain exclusivity. As
of September 30, 1997, the Company has received approximately $414,000 in orders
from Sanyo, of which approximately $249,000 has been shipped. Under the terms of
the Lanier Agreement, the Company is receiving non-recurring engineering expense
("NRE"), upon the satisfaction of certain milestones, to develop a new portable
digital voice recorder and related accessory products. The Lanier Agreement
contemplates that the products to be developed will be completed in early 1998,
with the Company to provide Lanier with manufactured product thereafter to be
sold by Lanier's sales force worldwide. As of September 30, 1997, the Company
was on schedule with respect to the product to be developed. The Company, as of
such date, in connection therewith, has received NRE of approximately $493,000.
The agreement is for an initial term of three years, terminating January 6,
2000.
10
<PAGE> 11
The quantity of product to be purchased and sold by Lanier is to be determined
by Lanier according to periodic forecast reports submitted to the Company.
As a result of the restructuring and change in the source of revenues,
comparisons to prior results are less meaningful and prior results are not
necessarily indicative of future results.
The Company has incurred operating losses in each of the last three fiscal years
and these losses have been material. The Company incurred an operating loss of
$7.9 million in fiscal 1996 and $8.7 million in fiscal 1997 (including a
restructuring charge of $2.2 million). As a result of the restructuring of the
Company to discontinue its contract manufacturing operations and focus on
licensing and contract development, the Company has reduced its monthly cash
operating costs from an average of approximately $540,000 per month in fiscal
1997 to approximately $130,000 per month at the current time. However, the
Company intends to increase expenditure levels in future periods to support its
new Flashback Audio technology and support OEM customers. Accordingly, the
Company's losses are expected to continue until such time as the Company is able
to increase sales of Flashback proprietary products and/or obtain licensing,
royalty and development revenues sufficient to cover fixed costs of operations.
Should the Company be unable to accomplish the foregoing and operate profitably,
the Company may be forced to reduce or curtail operations. The Company continues
to be subject to the risks normally associated with any new business activity,
including unforeseeable expenses, delays and complications. Accordingly, there
is no assurance the Company can or will report operating profits in the future.
Sales of and demand for the Company's Flashback recorder and Mobile Office
products (including VoiceLink) introduced into the domestic retail channel in
September 1996 never met management's expectations due to a variety of factors
including competitive pressure in the portable recording industry and
insufficient financial resources to meet the demands of the retail distribution
market. However, management believes initial shipments of the foregoing to the
Company's OEM customer, Sanyo, for distribution on an international basis have
been positively received. Management is focused on OEM licensing with respect to
the Micro OS Imbedded Operating System and MultiChip modules and contract
development of private label and custom-designed products for computers,
dictation systems, computer peripherals and telecommunication equipment.
Revenues from licensing, royalties and development services, as well as
continuing sales of the Company's private labeled Flashback and related products
are expected to be subject to significant month to month variability resulting
from the limited market penetration and license activity to date, the timing and
delays associated with OEM new product introductions and the seasonal nature of
demand for consumer electronic products. Development and OEM contracts may be
delayed or terminated by customers and are subject to a number of factors beyond
the Company's control. The termination of either the Sanyo or Lanier agreements
would have a material adverse effect on operations. The markets for consumer
electronic products are subject to rapidly changing customer tastes and a high
level of competition. Demand for the Company's products is expected to be
influenced by OEM market success, technological developments and general
economic conditions. Because these factors can change rapidly, customer demand
for the Company's technology can also shift quickly. The Company may not be able
to respond to technical developments by competitors because of the time required
and risks involved in the development or introduction of new or improved
technology and due to limited financial resources.
RESULTS OF OPERATIONS
For the first six months of fiscal 1998, the Company reported revenues of
$704,403, a 133% increase over revenues of $301,543 for the first six months of
fiscal 1997. For the three months ended September 30, 1997, revenues were
$315,344 versus $147,817 for the second quarter of the prior fiscal year.
Revenue for the first six months of fiscal 1998 included $270,114 of product
sales to OEMs and development services of $434,289. Two customers accounted for
78% of fiscal 1998's first six months of revenues and the loss of a customer
could have a material adverse impact on the Company. The Company's development
arrangements are designed to produce limited current revenues while creating
proprietary OEM products to be sold to OEM customers or to be produced under
long-term license or royalty arrangements. The Company had no development
services revenues for the first six months of the prior year and the $301,543 of
the prior year's first six months revenues included $140,000 of contract
manufacturing sales which have since been discontinued. The Company's future
revenues are expected to consist primarily of product sales to OEM customers and
development, license and royalty fees.
For the six months ended September 30, 1997, the Company reported a gross profit
of $219,709 or 31% of revenues as compared to a gross loss of $747,775 for the
first six months of fiscal 1997. The gross profit for the second fiscal 1998
quarter was $120,779 or 38% of revenues versus a gross loss of $642,244 for the
prior comparable quarter. The improvement in gross margins resulted from the
restructuring of the Company which has resulted in the termination of
manufacturing overhead and the addition of new development services. There can
be no assurance the Company can maintain positive gross margins in the future.
Total operating expenses (consisting of research and related expenditures and
selling and administrative expenses) for the three and six months ended
September 30, 1997 were $298,147 and $678,175, respectively, as compared to
$1,572,452 and
11
<PAGE> 12
$2,857,336, respectively, for the three and six months ended September 30, 1996.
In connection with its restructuring, the Company dramatically reduced the
number of personnel and related operating costs. Accordingly, comparisons of
costs with prior periods are less meaningful. Selling and administrative costs
aggregated $573,776 in the first six months of fiscal 1998 compared to
$2,449,651 in the prior period. The $1,875,875 reduction was comprised primarily
of a $545,000 decrease in compensation costs, a $220,000 decrease in legal and
related costs, a $160,000 decrease in depreciation and amortization, a $670,000
decrease in advertising and related costs, and a $120,000 reduction in occupancy
related costs.
Research and related expenditures for the three and six months ended September
30, 1997 were $44,229 and $104,399, respectively, as compared to $196,101 and
$407,685, respectively, for the three and six months ended September 30, 1996.
An aggregate of $241,912 of development costs were incurred for contract
development work and are included in cost of revenues. This included
approximately $160,000 of personnel costs which were included in research and
related expenditures in the prior comparable period. Research and development
costs are subject to significant quarterly variations depending on the use of
outside services and the availability of financial resources.
The Company reported an operating loss of $458,466 for the six months ended
September 30, 1997, as compared to an operating loss of $3,605,111 for the six
months ended September 30, 1996 with the decreased loss resulting primarily from
the improved gross margins combined with the reduction in operating expenses
described above. In addition to variances in operating expenses, the Company's
operating losses are impacted by the timing and amount of OEM product sales and
the recognition of contract service revenues. Accordingly, there is substantial
uncertainty about future operating results and the results for the first six
months are not necessarily indicative of operating results for future periods or
the fiscal year.
The Company's interest expense for the six months ended September 30, 1997 was
$22,613, a reduction from $77,522 for the prior period resulting from the
retirement of demand loans and other interest bearing debt outstanding during
fiscal 1997. The Company also received a $153,000 payment from a former vendor
in the first fiscal 1998 quarter resulting from prior year overpayments by the
Company. This payment has been included in other income.
The Company reported a net loss for the first six months of the current fiscal
year of $325,197 compared to a net loss of $3,657,852 for the prior year's first
six months. The Company anticipates reduced losses during the current fiscal
year as compared to fiscal 1997, however there can be no assurance of future
profitability.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $1,003,757 compared to
a working capital deficit of $564,503 at March 31, 1997. The Company had
approximately $1.6 million of working capital invested in inventories at
September 30, 1997. The increase in working capital was a result of a long-term
preferred stock issuance as well as a settlement of an accrued lease obligation
through the issuance of a three year term note offset by the Company's
continuing losses which consumed working capital during the period.
In June 1997 the Company sold $500,000 of long-term 12% secured notes due
September 30, 1999 with limited common stock conversion rights and stock
purchase warrants issuable on conversion to nine investors. In September 1997
the Company sold 82,000 shares of Series A Preferred Stock at $10.00 per share
for net proceeds of $782,500. The proceeds are being applied to reduce debt and
for working capital. Subsequent to September 30, 1997, the Company sold an
additional 17,500 shares of Series A Preferred Stock at $10.00 per share.
The Company also paid accrued liabilities or operating expenses aggregating
$463,593 through the issuance of Common Stock during the first six months. The
Company also obtained $76,256 of proceeds from net equipment disposals during
the first six months.
For the six months ended September 30, 1997, net cash increased by $607,902.
Cash used in operating activities was $750,854. Major components using cash were
a net loss of $325,197 reduced by $40,733 of aggregate depreciation and
amortization and $42,708 of expenses paid in shares and increased by $12,088 of
equipment sale gains, or a net loss use of cash of $253,844. The major change in
assets and liabilities providing net cash used in operating activities was a
reduction in inventory of $62,386. The major changes in assets and liabilities
using operating cash was an increase in accounts receivable of $223,607, a
reduction in other payables and accrued liabilities of $220,133 and a reduction
of research and development advances of $119,375.
Based on the Company's cash position assuming continuation of existing OEM
development arrangements and currently planned expenditures and level of
operations, the Company estimates it will require additional capital within the
next twelve months to meet its debts as they become due and to continue as a
going concern. Given such assumptions, the Company estimates that at current
expenditure levels and projected working capital requirements it will require a
minimum of an additional $500,000 to continue operating for the next twelve
months. The Company's OEM and licensing business may be able to generate the
additional funding required depending on the ability of OEM and licensing
activities to generate additional revenues, however there can be no assurance
thereof. The Company is currently pursuing various alternatives to meet its
needs for capital. There can be no assurance the Company will be successful and
any such financing
12
<PAGE> 13
may be dilutive to current shareholders. The failure to raise additional funds
could have a material adverse effect on the Company and could force the Company
to further reduce or curtail operations.
The Company may, from time to time, seek additional funds through lines of
credit, public or private debt or equity financing. The Company estimates that
it will require additional capital to finance future developments and
improvements to its technology. There can be no assurances that additional
capital will be available when needed. The Company currently has no authorized
and unissued or unreserved (for prepaid warrants, warrants and options) shares
of common stock. This factor severely limits the Company's ability to obtain
additional sources of financing. This factor already impacted the Company
resulting in the Company obtaining long-term debt financing secured by
technology and redeemable preferred stock rather than more common equity
financing (see Notes 4 and 5 to the interim statements). The Company is pursuing
various options to resolve the deficiency of authorized common stock, but there
can be no assurance of a timely resolution. The Company has scheduled an annual
meeting on December 11, 1997 to increase its authorized common shares and
failure of this resolution and/or subsequent efforts could have a material
adverse effect on the Company, its business and results of operations and may be
unable to continue as a going concern.
MANAGEMENT'S PLANS FOR IMPROVING OPERATIONS
Management has taken steps to improve operations with the goal of sustaining the
Company operations for the next twelve months and beyond. These steps include
(i) re-focusing the Company on a family of products, technology components and
software and not having the Company be reliant on a single recorder product;
(ii) expanding the Company's private label product offering by introducing
VoiceLink and Mobile Office products; (iii) focusing sales and marketing on the
OEM markets; and (iv) controlling overhead and operating expenses. There can be
no assurance the Company can attain profitable operations in the future.
FUTURE COMMITMENTS AND FINANCIAL RESOURCES
The Company was in arrears on an operating equipment lease obligation to
Comdisco, Inc. during fiscal 1997, but has negotiated a settlement providing for
future payments of approximately $515,000 from time to time based on agreed upon
percentages of future equity raises.
The Company recently announced a new Flashback Audio(TM) technology that
provides the means of near CD-quality, stereo audio playback from a
CompactFlash(TM) cartridge. This technology can be employed in a stand-alone
product, or integrated into a variety of products, such as laptop or hand-held
PC's, pagers, cellular phones, etc. The Company's plans are to continue to
develop the technology and seek OEM partnerships to exploit the technology. The
Company may require additional funds to continue development of this and other
technologies and the extent of such requirements are not presently determinable
by management.
If, in the future, operations of the Company increase significantly, the Company
may require additional funds. The Company might also require additional capital
to finance future developments, acquisitions or expansion of facilities. The
Company currently has no plans, arrangements or understandings regarding any
acquisitions.
BUSINESS RISKS
This report contains a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results or
those anticipated. In this report, the words "anticipates," "believes,"
"expects," "intends," "future" and similar expressions identify forward-looking
statements. Readers are cautioned to consider the specific and substantial
business risk factors described above and in the Company's Annual Report on Form
10-KSB for the year ended March 31, 1997 and not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements, to reflect events or circumstances that may arise
after the date hereof.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(a) The Company is involved in routine litigation incidential to the conduct of
its business. There are currently no material pending legal proceedings to which
the Company is a party or to which any of its property is subject.
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<PAGE> 14
ITEM 2. CHANGES IN SECURITIES
(a) and (b) NONE
(c) On August 19, 1997 the Company issued 400,000 common shares to settle a
lease obligation of $87,500. The securities were issued to one debtor. The
issuance was exempt by reason of Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). The common shares were issued with restrictive legend
indicating the shares cannot be sold without registration or an opinion of
counsel that registration is not required and the purchaser represented in
writing that it was sophisticated.
ITEM 3. AND 4.
(a) Have been omitted because the related information is either inapplicable or
has been previously reported.
ITEM 5. OTHER INFORMATION
(a) Pursuant to the instructions of this item, the Company elects to report
additional sales of equity securities pursuant to Regulation S otherwise
reportable on Form 8-K. On October 16, 1997 the Company sold an additional
17,500 shares of its Series A Redeemable Preferred Stock ("Series A Stock") for
gross proceeds of $175,000 on the same terms as described in the Company's Form
8-K dated and filed on October 3, 1997. The conversion, redemption and other
terms of the Series A Stock are described above in Footnote 5 of the interim
financial statements. Net proceeds of approximately $166,250 are intended to
supplement working capital. The 17,500 shares were sold to three qualified
investors outside of the United States and were issued in accordance with
Regulation S of the Securities Act of 1933. An appropriate legend was placed on
the Series A Stock and will be placed on the common shares that may be issuable
upon conversion of the Series A Stock unless registered under the Act prior to
issuance, or exempt from registration.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
4.7.3 First Amendments to Warrant Agreements No. 1, 2 and 3 between the
Company and Pennsylvania Merchant Group Ltd. dated as of September 29,
1997
4.10.1 First Amendment to Warrant Agreement between the Company and First
Bermuda Securities Ltd. dated as of September 30, 1997
4.12.1 First Amendment to Common Stock Warrant, Termination of January 7,
1997 Letter Agreement and Amendment to Consulting Agreement dated
September 29, 1997 between the Company and Klein Investment Group,
L.P.
4.13.1 Amendment No. 1 to Stock Purchase Warrant Agreement between the
Company and Higham, McConnell & Dunning dated September 30, 1997
10.13.1 Lease Settlement Agreement and Promissory Note dated as of September
30, 1997 between the Company and Pomerado Properties
10.18.2 Form of Amendment to Warrant Certificate and Warrant Agreement between
the Company and Auerbach, Pollak & Richardson, Inc. and six individual
assignees (identical amendments except as to the number of shares
(total of 128,067 shares) and the name of holder) dated as of
September 30, 1997
27 Financial Data Schedule
(b) Reports on Form 8-K:
1. On September 10, 1997 (for an event dated September 5, 1997) the
Company filed a Form 8-K reporting an Item 5 event and accompanying
exhibit related to an amendment to outstanding prepaid warrants.
2. On October 3, 1997 (for an event dated September 19, 1997) the
Company filed a Form 8-K reporting an Item 9 event and accompanying
exhibit related to a preferred stock financing.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NORRIS COMMUNICATIONS, INC.
Date: October 17, 1997 By: /s/RENEE' WARDEN
--------------------------------
Renee' Warden
Controller
(Principal Financial and Accounting
Officer and duly authorized to sign
on behalf of the Registrant)
15
<PAGE> 1
EXHIBIT 4.7.3
FIRST AMENDMENT TO
WARRANT FOR PURCHASE OF SHARES OF COMMONS STOCK
(NO. 1 FOR 106,986 SHARES DATED MARCH 1, 1995)
This shall constitute an Amendment to that certain Warrant for the Purchase of
Shares of Common Stock (the "Warrant") executed as of March 1, 1995, by Norris
Communications Corp. (predecessor to Norris Communications, Inc., the
"Corporation") in favor of Pennsylvania Merchant Group Ltd. (the "holder"),
which agreement granted to Holder the right to purchase 106,986 shares of common
stock of the Corporation. Said Warrant is hereby amended and modified in the
following manner:
1. To cancel 81,986 shares subject to option and amend the Warrant to reflect
25,000 shares subject to option the header line is hereby deleted and replaced
with the following header:
"No. 1 25,000 Shares"
2. To amend the option exercise price, the first sentence of the second
paragraph of the Warrant is hereby deleted and replaced with the following
sentence:
"The Holder may purchase such number of shares of Common Stock at a purchase
price per share (as appropriately adjusted pursuant to Section 6, as amended,
hereof) of Twenty Five Cents ($0.25) (the "Exercise Price")."
3. To remove further price adjustments for sale of equity, Section 6(c) and
Section (d) are deleted in their entirety and no further such adjustments shall
be made and otherwise than provided in the balance of Section 6, the Exercise
Price shall be "$0.25 per share.
All other provision of the Warrant shall remain in full force and effect as
amended, without modification.
The undersigned Holder acknowledges that the Warrant has not been assigned,
transferred, pledged or encumbered in any manner and that the undersigned has
all corporate power and authority to execute this amendment which is a binding
agreement between Holder and Corporation.
IN WITNESS WHEREOF, the Corporation and Holder have caused this Amendment to be
executed by duly authorized officers effective as of this 29th day of September,
1997.
NORRIS COMMUNICATIONS, INC.
BY: /s/ Alfred H. Falk
------------------------------------
Alfred H. Falk, President
PENNSYLVANIA MERCHANT GROUP, LTD.
BY: /s/ Mary E. Bowler
------------------------------------
Mary E. Bowler, Vice President
Printed Name: Mary E. Bowler
--------------------------
Position: Vice President
------------------------------
<PAGE> 2
FIRST AMENDMENT TO
WARRANT FOR PURCHASE OF SHARES OF COMMONS STOCK
(NO. 2 FOR 87,300 SHARES DATED MARCH 17, 1995)
This shall constitute an Amendment to that certain Warrant for the Purchase of
Shares of Common Stock (the "Warrant") executed as of March 17, 1995, by Norris
Communications Corp. (predecessor to Norris Communications, Inc., the
"Corporation") in favor of Pennsylvania Merchant Group Ltd. (the "holder"),
which agreement granted to Holder the right to purchase 87,300 shares of common
stock of the Corporation. Said Warrant is hereby amended and modified in the
following manner:
1. To cancel 66,900 shares subject to option and amend the Warrant to reflect
20,400 shares subject to option the header line is hereby deleted and replaced
with the following header:
"No. 2 20,400 Shares"
2. To amend the option exercise price, the first sentence of the second
paragraph of the Warrant is hereby deleted and replaced with the following
sentence:
"The Holder may purchase such number of shares of Common Stock at a purchase
price per share (as appropriately adjusted pursuant to Section 6, as amended,
hereof) of Twenty Five Cents ($0.25) (the "Exercise Price")."
3. To remove further price adjustments for sale of equity, Section 6(c) and
Section (d) are deleted in their entirety and no further such adjustments shall
be made and otherwise than provided in the balance of Section 6, the Exercise
Price shall be "$0.25 per share.
All other provision of the Warrant shall remain in full force and effect as
amended, without modification.
The undersigned Holder acknowledges that the Warrant has not been assigned,
transferred, pledged or encumbered in any manner and that the undersigned has
all corporate power and authority to execute this amendment which is a binding
agreement between Holder and Corporation.
IN WITNESS WHEREOF, the Corporation and Holder have caused this Amendment to be
executed by duly authorized officers effective as of this 29th day of September,
1997.
NORRIS COMMUNICATIONS, INC.
BY: /s/ Alfred H. Falk
------------------------------------
Alfred H. Falk, President
PENNSYLVANIA MERCHANT GROUP, LTD.
BY: /s/ Mary E. Bowler
------------------------------------
Mary E. Bowler, Vice President
Printed Name: Mary E. Bowler
--------------------------
Position: Vice President
------------------------------
<PAGE> 3
FIRST AMENDMENT TO
WARRANT FOR PURCHASE OF SHARES OF COMMONS STOCK
(NO. 3 FOR 714 SHARES DATED MARCH 20, 1995)
This shall constitute an Amendment to that certain Warrant for the Purchase of
Shares of Common Stock (the "Warrant") executed as of March 20, 1995, by Norris
Communications Corp. (predecessor to Norris Communications, Inc., the
"Corporation") in favor of Pennsylvania Merchant Group Ltd. (the "holder"),
which agreement granted to Holder the right to purchase 714 shares of common
stock of the Corporation. Said Warrant is hereby amended and modified in the
following manner:
1. To cancel 544 shares subject to option and amend the Warrant to reflect 170
shares subject to option the header line is hereby deleted and replaced with the
following header:
"No. 3 170 Shares"
2. To amend the option exercise price, the first sentence of the second
paragraph of the Warrant is hereby deleted and replaced with the following
sentence:
"The Holder may purchase such number of shares of Common Stock at a purchase
price per share (as appropriately adjusted pursuant to Section 6, as amended,
hereof) of Twenty Five Cents ($0.25) (the "Exercise Price")."
3. To remove further price adjustments for sale of equity, Section 6(c) and
Section (d) are deleted in their entirety and no further such adjustments shall
be made and otherwise than provided in the balance of Section 6, the Exercise
Price shall be "$0.25 per share.
All other provision of the Warrant shall remain in full force and effect as
amended, without modification.
The undersigned Holder acknowledges that the Warrant has not been assigned,
transferred, pledged or encumbered in any manner and that the undersigned has
all corporate power and authority to execute this amendment which is a binding
agreement between Holder and Corporation.
IN WITNESS WHEREOF, the Corporation and Holder have caused this Amendment to be
executed by duly authorized officers effective as of this 29th day of September,
1997.
NORRIS COMMUNICATIONS, INC.
BY: /s/ Alfred H. Falk
------------------------------------
Alfred H. Falk, President
PENNSYLVANIA MERCHANT GROUP, LTD.
BY: /s/ Mary E. Bowler
------------------------------------
Mary E. Bowler, Vice President
Printed Name: Mary E. Bowler
--------------------------
Position: Vice President
------------------------------
<PAGE> 1
EXHIBIT 4.10.1
FIRST AMENDMENT TO
WARRANT FOR PURCHASE SHARES OF COMMON STOCK
OF NORRIS COMMUNICATIONS CORPORATION
(FOR 129,230 SHARES DATED MARCH 25, 1996)
This shall constitute an Amendment to that certain Warrant for the Purchase of
Shares of Common Stock (the "Warrant") executed as of March 25, 1996, by Norris
Communications Corporation (predecessor to Norris Communications, Inc., the
"Issuer") in favor of First Bermuda Securities Limited (the "Holder"), which
agreement granted to Holder the right to purchase 129,230 shares of common stock
of the Corporation, Said Warrant is hereby amended and modified in the following
manner:
1. To cancel 101,730 shares subject to option, amend the Warrant to reflect
27,500 shares subject to option and amend the Exercise Price to $0.25 per share,
the first paragraph of the Warrant is hereby deleted and replaced with the
following paragraph:
"This certifies that, for value received, First Bermuda Securities Limited
and any subsequent transferee pursuant to the terms of the Agreement and
this Warrant (each, "Holder") is entitled to purchase, subject to the
provisions of this Warrant, from Norris Communications, Inc., a Delaware
corporation (the "Issuer"), at any time or from time to time on or after
the date hereof and on or before March 25, 2001 (the "Expiration Date"),
27,500 fully paid and nonassessable shares of common stock, par value
$0.001 (the "Common Stock"), of the Issuer at a price equal to $0.25 per
share (the "Exercise Price") (such shares of Common Stock and other
securities issued and issuable upon exercise of this Warrant, the "Warrant
Shares")."
All other provisions of the Warrant shall remain in full force and effect as
amended, without modification.
The undersigned Holder acknowledges that the Warrant has not been assigned,
transferred, pledged or encumbered in any manner and that the undersigned has
all corporate power and authority to execute this amendment which is a binding
agreement between Holder and Issuer.
IN WITNESS WHEREOF, the Issuer and Holder have caused this Amendment to be
executed by duly authorized officers effective as of this 29th day of September,
1997.
NORRIS COMMUNICATIONS, INC.
BY: /s/ Alfred H. Falk
------------------------------------
Alfred H. Falk, President
FIRST BERMUDA SECURITIES LIMITED
BY: /s/ Maxwell Roberts
------------------------------------
Maxwell Roberts, Chief Operating Officer
Printed Name: Maxwell Roberts
--------------------------
Position: Chief Operating Officer
------------------------------
<PAGE> 1
EXHIBIT 4.12.1
FIRST AMENDMENT TO
COMMON STOCK WARRANT FOR KLEIN INVESTMENT GROUP, L.P.
(FOR 401,924 SHARES ISSUED AUGUST 7, 1996)
TERMINATION OF LETTER AGREEMENT DATED JANUARY 7, 1997
TERMINATION OF ACCRUED COMPENSATION OBLIGATIONS
PURSUANT TO CONSULTING AGREEMENT AUGUST 23, 1996
This shall constitute an Amendment to that certain Common Stock Warrant for the
Purchase of Shares of Common Stock (the "Warrant") issued as of August 7, 1996,
by Norris Communications Corp. (predecessor to Norris Communications, Inc., the
"Issuer") in favor of Klein Investment Group, L.P. (the "Holder"), which
agreement granted to Holder the right to purchase 401,924 shares of common stock
of the Issuer. The Warrant was issued as required by the Placement Agreement
dated April 16, 1996 between the parties. Said Warrant is hereby amended and
modified in the following manner:
1. The number of shares subject to the Warrant shall be hereby amended to be
801,924 shares, the new quantity for purposes of the preamble paragraph to the
Warrant. This is being done to implement the requirement of a warrant on an
additional 400,000 shares, as defined in Section 3(a) of sthe Consulting
Agreement dated August 23, 1996 (the "Consulting Agreement"), and amended in
that letter agreement dated January 7, 1997 (erroneously dated 1996), which
letter agreement is hereby terminated. After this amendment, the only Warrant
outstanding to the Holder shall be the August 7, 1996 Warrant, as amended by
this First Amendment (granting the right to purchase 801,924 shares) and the
Issuer shall not be obligated to grant or issue any additional Warrants except
as may be agreed to by the parties in writing subsequent to the date of this
amendment, or as required by the terms of the Warrant itself.
2. To amend the exercise price, the Section 4 (a) of the Warrant is hereby
deleted and replaced with the following new Section 4 (a):
"The Exercise Price for this Warrant shall be $0.25 per Share."
3. To correct the language for share reservation, Sections 3 (a), (b) and (c)
are hereby deleted in their entirety and replaced with the following new Section
3:
"The Issuer hereby agrees that at all times there shall be reserved for issuance
and delivery a number of shares of Common Stock sufficient to provide for the
full exercise of the rights of purchase represented by this Warrant. All such
shares shall be duly authorized and, when issued upon the exercise or exchange
of the Warrant in accordance with the terms hereof, shall be validly issued,
fully paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale (other than as set forth
herein or pursuant to applicable federal and state securities laws) and free and
clear of all preemptive rights."
All other provisions of the Warrant shall remain in full force and effect as
amended, without modification.
As consideration of this amendment and for the separate amendment to the
Controlled Liquidation and Lock Up Agreement dated March 31, 1997 and May 19,
1997, for certain participants therein stated, the Holder agrees that any and
all claims for additional warrants
<PAGE> 2
or other compensation pursuant to the Consulting Agreement, as amended, and as
terminated by the Issuer by letter dated July 23, 1997, are hereby waived,
canceled and terminated. The Issuer shall not be obligated for any prior
compensation or expenses pursuant to Section 3 of the Consulting Agreement. Any
future services shall require a separate written agreement. The provisions of
Sections 4, 5, 8 and 9 of the Consulting Agreement remain in full force and
effect.
The undersigned Holder acknowledges that neither the Warrant nor any rights
under the Consulting Agreement have been assigned, transferred, pledged or
encumbered in any manner prohibited therein. The undersigned represent and
warrant that each has all corporate and partnership power and authority required
to validly execute this as a binding agreement between Holder and Issuer.
IN WITNESS WHEREOF, the Issuer and Holder have caused this Amendment to be
executed by duly authorized officers effective as of this 29th day of September,
1997.
NORRIS COMMUNICATIONS, INC.
BY: /s/ Alfred H. Falk
------------------------------------
Alfred H. Falk, President
KLEIN INVESTMENT GROUP, L.P.,
a Delaware limited partnership
BY: ICG, Inc., its general partner
By: /s/ William S. Elkus
------------------------------------
William S. Elkus
President
<PAGE> 1
EXHIBIT 4.13.1
AMENDMENT NO. 1
TO
STOCK PURCHASE WARRANT
The Stock Purchase Warrant, dated October 10, 1996, by Norris Communications,
Inc. in favor of Higham, McConnell & Dunning ("Holder"), is hereby amended as
follows:
1. The first unnumbered paragraph of the Stock Purchase Warrant is hereby
amended by deleting "$.65625" and inserting "$.15625" and deleting Section
3.4 in its entirety.
Except as provided in this Amendment No. 1 to Stock Purchase Warrant, all terms
and provisions of the Stock Purchase Warrant are in full force and effect, and
have not been changed, amended or modified.
IN WITNESS WHEREOF, the Company and Holder have caused this Amendment No. 1 to
Stock Purchase Warrant to be executed by duly authorized officers effective as
of this 14th day of October, 1997.
"Company"
NORRIS COMMUNICATIONS, INC.,
a Delaware corporation
By: /s/ Alfred H. Falk
--------------------------------------
Title: President
-----------------------------------
"Holder"
HIGHAM, McCONNELL & DUNNING
By: /s/ Curt Barwick
--------------------------------------
<PAGE> 1
EXHIBIT 10.13.1
POMERADO PROPERTIES L.P.
LEASE SETTLEMENT AGREEMENT
This Lease Settlement Agreement is entered into this 30th day of September, 1997
by and between POMERADO PROPERTIES L.P., a California Limited Partnership,
formerly a California General Partnership comprised of Bothwell International,
Ltd., and Techbilt Construction Corporation, ("Landlord"), and NORRIS
COMMUNICATIONS, INC., a Delaware Corporation, ("Tenant"), and relates to that
certain lease between Landlord and Tenant dated July 2, 1992 ("Lease"). All
references to section numbers in this Agreement, if any, shall mean and refer to
the section numbers in the Lease. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings as defined in the Lease.
RECITALS
A. Landlord and Tenant entered into the Lease for the Premises which
consisted of approximately 30,729 rentable square feet, known as Building 29,
12725 Stowe Drive, Poway, California.
B. The term of the Lease is for ten years beginning on the Commencement
Date of the Lease.
C. Tenant took occupancy of the premises on or about the Commencement Date
and has occupied the same continuously ever since.
D. Tenant no longer requires the use of the facilities and lease premises
and has vacated the same on or before July 18, 1997.
E. As of the date of this Agreement, Tenant is indebted to Landlord for
arrearages in the payment of minimum monthly rent and other charges under the
Lease as more particularly described below.
F. As of the date of this Agreement, Landlord has located a new tenant for
the premises, under a new lease that commenced on August 1, 1997.
G. The Lease provides, among other things, that on the occurrence of any
material default by Tenant, Landlord may, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have, maintain Tenant's right to possession, in which case the Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the future rent and
other charges as they become due.
H. The parties desire to provide for the liability of Tenant with respect
to past and future rent and other charges under the Lease and for broker's fees
and similar expenses incurred in connection with reletting the property by the
execution of a Promissory Note by Tenant in favor of Landlord.
I. Landlord and Tenant have reached an agreement for the payment of the
sums now due and owing Landlord and now desire to covenant and agree as set
forth hereinbelow.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which the parties hereby acknowledge, Landlord and Tenant agree as follows:
<PAGE> 2
AGREEMENT
1. Effective Date. The effective date ("Effective Date") of this Agreement
shall be September 30, 1997.
2. Address for Notices. The following shall be addresses for notices:
Address for Notices:
To Lessor: POMERADO PROPERTIES L.P.
3575 Kenyon Street
San Diego, California 92110
To Tenant: NORRIS COMMUNICATIONS, INC.
13114 Evening Creek Drive S.
San Diego, California 92128
3. Past Due Amounts.
3.1 Past Due Rent. Landlord and Tenant acknowledge and agree that as of the
date of this Agreement, Tenant is indebted to Landlord in the total amount of
$115,925.61 (the "Past Due Rent") representing accrued and unpaid Rent now owing
by Tenant under the Lease. A current statement showing the breakdown of the Past
Due Amount is attached hereto as Exhibit A.
3.2 Unearned Brokers Commissions. Landlord and Tenant acknowledge that, as
of the Effective Date, the Tenant is indebted to Landlord in the amount of
$6,203.13, representing unearned leasing commissions under the original Lease
paid by Landlord. The Past Due Rent and the Commissions totalling $122,128.74
are sometimes hereinafter collectively referred to as the "Past Due Amounts".
4. Amounts Becoming Due.
4.1 Future Rent and Other Charges Payable by Tenant. Landlord and Tenant
acknowledge and agree that, from the date it vacated the Premises forward,
Tenant became further obligated to Landlord resulting from obligations under the
lease to pay base rent, additional rent and other charges. This obligation shall
be called "Future Amounts Due".
4.2 Future Amounts Due After Reletting. The Landlord has entered into a new
lease for the property and has begun receiving rent thereunder. The revenues to
be collected by Landlord under the new lease more or less equals the revenues it
would have received for the same term of the new lease as from the original
Lease. The Landlord has become obligated to CB Commercial Real Estate Group for
the additional cost of the broker's commission for the new lease in the amount
of $60,000.00, payable in four monthly installments.
5. Repayment of Past Due Amounts and Future Amounts Due.
5.1 Promissory Note. Concurrently with the execution of this Agreement,
Tenant shall execute a Note. Tenant's obligation to pay the Past Due Amounts and
the Future Amounts Due shall be evidenced by a Promissory Note (the "Promissory
Note") in the form attached hereto as Exhibit B, which shall be executed by
Tenant. Tenant acknowledges and agrees that a breach of any of the terms and
conditions of this Agreement shall also constitute a material default under the
Note, and at Landlord's election, the entire indebtedness then outstanding under
the Note shall become immediately due and payable, provided however, a default
in payment under this note shall have occurred if payment has not been received
by the holder within five (5) days of the due date of any payment; the maker of
the note shall have a further five (5) days to cure the default.
5.2 The principal amount of the Promissory Note shall comprise the total
amount past due rent as set forth in Article 3.1 above, together with unearned
broker's commission as set forth in Article 3.2 above, or a total of
<PAGE> 3
$122,128.74 plus the Future Amount Due of $60,000.00 as set forth in Article 4.2
above; however, insofar as the amount of $60,000.00 is payable by Pomerado
Properties L.P. to CB Commercial Real Estate Group in four equal monthly
installments without interest, the amount of the Promissory Note for interest
calculation purposes from time to time shall include only those installments of
$60,000.00 that have been paid by Pomerado Properties L.P. together with the
other amounts of principal of the Promissory Note. The total amount of the
Promissory Note is $182,128.74. Repayment of the Promissory Note shall be by an
initial payment of $25,000 applied first as to interest and then as to principal
when the Promissory Note is executed followed by consecutive equal installments
of $5,000 or more each month commencing on November 1, 1997 applied first as to
interest and then as to principal.
5.3 Release. Upon the execution of the Promissory Note, Landlord shall
release Tenant from all obligations under the lease to pay base rent, additional
rent, and other periodic payments other than as set forth in this Agreement.
5.4 Accelerated Rate of Payment. Notwithstanding the payment schedule set
out in Article 5.2 and in the Promissory Note, Tenant intends to accelerate the
rate of repayment if Norris Communications, Inc. is able to raise additional
equity financing or has increased net revenues leading to an improved financial
condition of Norris Communications, Inc.
6. Security Deposit.
6.1 The Security Deposit in the amount of $16,185 deposited with the
Landlord under the original lease will be used by the Landlord to offset
Landlord's cost of repair, repainting, cleaning the premises at mid-term of the
original lease. These costs totalled $15,334.14. The amount of Security Deposit
remaining will be credited by Landlord against Promissory Note.
7. No brokers. Landlord and Tenant acknowledge that each party has represented
its own interest in structuring this Agreement and that no brokerage
commissions, finders fees or any other similar compensation is payable by either
party to the other or to any other party in regard to this transaction.
8. Notices. All notices provided for under this Agreement shall be in writing
and shall be sufficient if sent by certified mail, return receipt requested,
postage prepaid, to the last known address of the parties to whom such notice is
to be given.
9. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
10. Further Agreements. The parties agree to execute any further agreements or
instruments and to perform any further acts incidental to the purpose of this
Agreement as are necessary to put it into full force and effect.
11. Successors Bound. All rights and obligations hereunder shall inure to the
benefit of and be binding on the heirs, personal representatives, successors,
and assigns of the parties hereto.
12. California Law. This Agreement shall be governed by the laws of the State
of California applicable to agreements made and to be executed within
California.
13. Entire Understanding. This Agreement represents the entire understanding of
the parties and supersedes all previous written or oral agreements relative to
the subject matter thereof.
14. Attorney's Fees. If any action at law or in equity, including an action for
declaratory relief, is brought to enforce or interpret the provisions of this
agreement, the prevailing party shall be entitled to a reasonable attorney's
fee, which may be set by the Court in the same action or in a separate action
brought for that purpose, in addition to any other relief to which that party
may be entitled.
<PAGE> 4
IN WITNESS WHEREOF, Landlord and Tenant have executed this Agreement effective
as of the date first set forth above.
LANDLORD: TENANT:
POMERADO PROPERTIES L.P. NORRIS COMMUNICATIONS, INC.
a California Limited Partnership a Delaware Corporation
by: /s/ Paul K. Tchang by: /s/ Alfred H. Falk
Name: Paul K. Tchang Name: Alfred H. Falk
Title: President Title: President
by: /s/ Neville F. Bothwell by: /s/ Robert Putnam
Name: Neville F. Bothwell Name: Robert Putnam
Title: General Partner Title: Corporate Secretary
(seal)
<PAGE> 5
EXHIBIT B
$182,128.74 Sept. 30, 1997
Promissory Note
FOR VALUE RECEIVED, the undersigned NORRIS COMMUNICATIONS, INC., a Delaware
Corporation, promises to pay to the order of POMERADO PROPERTIES L.P., a
California Limited Partnership, at its principal office at 3575 Kenyon Street,
San Diego, California, 92110, or at such other place as the Holder of this Note
may from time to time designate in writing, the principal sum of $182,128.74
together with interest from date hereof at the rate of Ten percent (10%) per
annum; principal and interest to be paid as follows:
1. The sum of $25,000.00 as an initial payment of when this Promissory Note
is executed followed by consecutive equal monthly installments of $5,000 or more
each, commencing November 1, 1997 until such principal sum together with
interest has been paid in full.
The first installment is due on October 10, 1997, and subsequent
installments are due on the first day of each succeeding month thereafter until
this Note is paid in full. Each such installment, when paid shall be applied
first to the payment of interest accrued on unpaid principal and the residue
thereof to be credited to principal.
A default in payment under this Note shall have occurred if payment has not
been received by the Holder within the five (5) days of the due date of any
payment. The Maker of the Note shall have a further five (5) days to cure the
default. If the Maker has not cured the default by the end of this ten (10) day
period, this Note may, at the option of the Holder hereof, be declared
immediately due and payable without notice to the maker. The Holder may waive
any default before or after the same has been declared and restore this Note to
full force and effect without impairing the right to declare this Note due for a
subsequent default, this right being a continuing one.
In addition to the foregoing, if the Maker shall fail to make any payment
of interest or principal, including the payment due upon maturity, a late charge
equal to ten percent (10%) of the delinquent installment shall be paid for the
first month that each installment is delinquent, provided such installment has
not been paid by the eleventh day of the month in which the installment becomes
delinquent.
The right is reserved to prepay the Note in full on any interest-bearing
date, and to pay a greater sum than $5,000 upon the due date of any monthly
installment.
The undersigned waives presentment, protest and demand, notice of protest,
demand and dishonor and non-payment of this Note and agrees to pay all costs of
collection when incurred, including reasonable attorneys' fees, and to perform
and comply with each of the covenants, conditions, provisions and agreements of
any of the undersigned contained in every instrument now evidencing of securing
said indebtedness. No extension of the time for the payment of this Note shall
operate to release, discharge, modify, change or affect the original liability
under this Note, either in whole or in part, of any of the undersigned not a
party to such agreement. Notwithstanding any provision herein or in any
instrument now or hereafter securing said indebtedness, the total liability for
payments in the nature of interest shall not exceed the limits now imposed by
the usury laws of the State of California.
NORRIS COMMUNICATIONS, INC.,
a Delaware Corporation
by: /s/ Alfred H. Falk
--------------------------------
Name: Alfred H. Falk
------------------------------
Title: President
-----------------------------
by:/s/ Robert Putnam
--------------------------------
Name: Robert Putnam
------------------------------
Title: Corporate Secretary
-----------------------------
<PAGE> 1
EXHIBIT 10.18.2
FIRST AMENDMENT TO
WARRANT CERTIFICATE NO. W-PA-5
AND
UNDERLYING PLACEMENT AGENT'S WARRANT AGREEMENT
(FOR 38,067 SHARES DATED AS OF OCTOBER 4, 1995)
This shall constitute an Amendment to that certain Warrant Certificate for the
Purchase of Shares of Common Stock (the "Warrant Certificate") executed as of
October 4, 1995, by Norris Communications Corp. (predecessor to Norris
Communications, Inc., the "Company") in favor of AUERBACH, POLLAK & RICHARDSON,
INC. (the "Holder"), which agreement granted to Holder the right to purchase
38,067 shares of common stock of the Company. Said Warrant Certificate is hereby
amended and modified in the following manner:
1. To amend the Warrant Certificate to reflect 38,067 shares subject to future
option and amend the Purchase Price to $0.25 per share, the header and first
paragraph of the Warrant Certificate is hereby deleted and replaced with the
following header and paragraph:
"No. W-PA-5 38,067 Warrants
This Warrant Certificate certifies that AUERBACH, POLLAK & RICHARDSON, INC.
is the registered holder of Thirty Eight Thousand Sixty Seven (38,067)
Warrants to purchase initially, at any time from October 4, 1995 until 5:00
p.m., New York time on October 5, 2005 (the "Expiration Date"), up to
Thirty Eight Thousand Sixty Seven (38,067) fully paid and non-assessable
shares (the "Shares") of Common Stock, par value $0.001 (the "Common
Stock"), of Norris Communications, Inc., a Delaware corporation, (the
"Company"), at a purchase price of $0.25 per Share (the "Purchase Price"),
upon surrender of this Warrant Certificate and payment of the applicable
Purchase Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Placement Agent's Warrant Agreement
dated as of October 4, 1995, as amended, by and between the Company and
Auerbach, Pollak & Richardson, Inc. (the "Warrant Agreement"). Payment of
the Purchase Price shall be made by certified check or cashier's check or
money order payable to the order of the Company."
All other provisions of the Warrant Certificate shall remain in full force and
effect as amended, without modification.
2. Holder agrees that for purposes of applying the Warrant Certificate and the
Warrant Agreement, that the Holder hereby eliminates all prior and any future
price and share adjustments for dilutive events by hereby agreeing to the
deletion of Section 8 c. - "Adjustments for Dilutive Events" of the Warrant
Agreement in application with Holder's Warrant Certificate. The other
adjustments for other events provided in Section 8 and all other provisions of
the Warrant Agreement shall remain in full force and effect as amended, without
modification.
The undersigned Holder acknowledges that the Warrant Certificate has not been
assigned, transferred, pledged or encumbered in any manner and that the
undersigned has all corporate power and authority to execute this amendment
which is a binding agreement between Holder and Company.
IN WITNESS WHEREOF, the Company and Holder have caused this Amendment to be
executed by duly authorized officers effective as of the 30th day of September,
1997.
NORRIS COMMUNICATIONS, INC.
BY: /s/ Alfred H. Falk
------------------------------------
Alfred H. Falk, President
AUERBACH, POLLAK & RICHARDSON, INC.
BY: /s/ Hugh Regan
------------------------------------
Printed Name: Hugh Regan
--------------------------
Position: President and Chief Executive Officer
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 784,060
<SECURITIES> 0
<RECEIVABLES> 274,703
<ALLOWANCES> 20,999
<INVENTORY> 1,586,477
<CURRENT-ASSETS> 2,630,440
<PP&E> 418,448
<DEPRECIATION> 251,740
<TOTAL-ASSETS> 2,835,494
<CURRENT-LIABILITIES> 1,626,683
<BONDS> 611,030
<COMMON> 55,413
782,500
0
<OTHER-SE> (240,132)
<TOTAL-LIABILITY-AND-EQUITY> 2,835,494
<SALES> 270,114
<TOTAL-REVENUES> 704,403
<CGS> 242,782
<TOTAL-COSTS> 484,694
<OTHER-EXPENSES> 678,175
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,613
<INCOME-PRETAX> (325,197)
<INCOME-TAX> 0
<INCOME-CONTINUING> (325,197)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (325,197)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
