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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FEBRUARY 20, 1998
REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
NORRIS COMMUNICATIONS , INC.
(Name of small business issuer in its charter)
-------------------------
DELAWARE NONE
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
-------------------------
13114 EVENING CREEK DRIVE SOUTH
SAN DIEGO, CALIFORNIA 92128
(619) 679-1504
(Address and telephone number of principal executive offices and principal
place of business)
-------------------------
ELWOOD G. NORRIS, CHAIRMAN
NORRIS COMMUNICATIONS, INC.
13114 EVENING CREEK DRIVE SOUTH
SAN DIEGO, CALIFORNIA 92128
(619) 679-1504
(Name, address and telephone number of agent for service)
Copy to:
CURT C. BARWICK, ESQ.
HIGHAM, MCCONNELL & DUNNING LLP
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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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
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,$.001 par value 36,661,766 SHARES $0.085 (1) $3,116,250 (1) $920
TOTAL REGISTRATION FEE $920
TOTAL DUE $920
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</TABLE>
(1) 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 February 12, 1998, as reported by the OTC
Bulletin Board, was $0.085.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
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PROSPECTUS
36,661,766 SHARES OF COMMON STOCK ($.001 PAR VALUE)
NORRIS COMMUNICATIONS, INC.
This Prospectus relates to 36,661,766 shares of Common Stock, $.001 par
value ("Common Stock") of Norris Communications, Inc., a Delaware corporation
(the "Company"), 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 shares of Common Stock offered hereby includes, without limitation,
the resale of such presently indeterminate number of shares of Common Stock as
shall be issued in respect of (i) 16,153,562 shares of Common Stock (subject to
adjustment) issuable upon the exercise of warrants ("Warrants") issued in
connection with the July and August 1996 private placements, (ii) 5,714,284
shares of Common Stock (subject to adjustment) issuable upon the conversion of
Convertible Secured Promissory Notes ("Convertible Notes") issued in June 1997
and (iii) 14,036,206 shares of Common Stock issuable upon the conversion of
Series A Redeemable Convertible Preferred Stock ("Series A Stock") (subject to
adjustment) issued in September 1997. The number of shares issuable in such
transactions is subject to adjustment and could be more or less than the
estimated amount depending on factors which cannot be predicted by the Company
at this time, including, among others, the market price of Common Stock which
may be issued in the future and actual dates of exercise and conversion.
The shares of Common Stock registered for resale hereby have been
registered pursuant to the Company's obligations contained in written agreements
with the Selling Shareholders. The Selling Shareholders may elect to sell all, a
portion or none of the Common Stock offered by them hereunder which is only
obtainable through the conversion of all or portion of the Warrants, Convertible
Notes or Series A Stock.
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. THE COMPANY HAS A HISTORY OF OPERATING LOSSES AND BASED ON
THE CURRENT LEVEL OF EXPENDITURES AND ANTICIPATED ADDITIONAL EXPENDITURES, THE
COMPANY DOES NOT HAVE SUFFICIENT FUNDS FOR THE NEXT TWELVE MONTHS. SEE "RISK
FACTORS" AT PAGE 6 OF THIS PROSPECTUS.
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.
<PAGE> 4
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. ("NASD") Electronic Bulletin Board ("OTC Bulletin Board") under
the symbol "NCII." On February , 1998, the bid and asked prices per share, as
reported by the OTC Bulletin Board were $0. and $0. , respectively.
The date of this Prospectus is February , 1998.
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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. In addition, such information may be accessed
electronically at the Commission's web site on the Internet at www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements with a report thereon by
independent public accountants after the end of each fiscal year. In addition,
the Company will furnish to its shareholders quarterly reports for the first
three quarters of each fiscal year containing unaudited financial and other
information after the end of each fiscal quarter, upon written request to the
secretary of the Company.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.
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.
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, 1997;
(b) The Company's Quarterly Report on Form 10-QSB for the period
ended June 30, 1997;
(c) The Company's Quarterly Report on Form 10-QSB for the period
ended September 30, 1997;
(d) The Company's Current Report on Form 8-K dated September 10,
1997;
(e) The Company's Current Report on Form 8-K dated October 3,
1997;and
(f) The Company's Quarterly Report on Form 10-QSB for the period
ended December 31, 1997;and
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(g) 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 Alfred H. Falk, President, Norris Communications, Inc.,
13114 Evening Creek Drive, San Diego, California, 92128 (Telephone:
619/679-1504).
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TABLE OF CONTENTS
The Company......................................................... 5
Risk Factors.........................................................6
Plan of Distribution................................................13
Selling Shareholders................................................14
Dividend Policy.....................................................16
Description of Securities...........................................16
Legal Matters.......................................................17
Experts.............................................................17
4
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THE COMPANY
THE FOLLOWING DISCUSSION CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS.
ACTUAL RESULTS COULD DIFFER MATERIALLY. SEE "RISK FACTORS - IMPORTANT FACTORS
RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS."
The Company is a holding company which, through its wholly owned
California subsidiary, Norris Communications, Inc. ("NCI"), is an innovator in
developing and marketing advanced electronic product designs and technologies
employing a rapidly growing non-volatile storage media (flash memory) for the
portable computing, digital recording, mobile office and telecommunication
markets. The Company is engaged in a single industry segment: the development,
manufacture and marketing of electronic products and technologies. The Company
is involved in (i) researching, developing and manufacturing products sold to
major OEM (original equipment manufacturer) customers of digital voice recording
and processing technology using flash storage media and (ii) marketing its
MicroOS(TM) operating system technology, a proprietary method for information
storage, manipulation and retrieval.
The Company was started in 1988 based on technology that its founder,
Elwood G. Norris, 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 Corporation
("JABRA") in which the Company holds an equity investment. The Company was
incorporated under the Company Act (British Columbia), Canada 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 the Company
continued its jurisdiction of incorporation from British Columbia to the Yukon
Territory. The Company further continued its jurisdiction of incorporation to
Wyoming on August 30, 1996 and on September 4, 1996 reincorporated into Delaware
under the name Norris Communications, Inc.
In August 1989, the Company acquired Advanced Surface Mounted Devices,
Inc., subsequently merged into NCI, establishing the Company as a regional
full-service independent supplier of turnkey manufacturing of circuit board
assemblies, systems and subsystems, to OEM's in the computer, defense,
telecommunications and medical industries. The Company invested over $2.5
million in equipping a 31,000 square foot manufacturing and administrative
facility. Prior to the late fiscal 1995 launch of the Company's first
information storage and retrieval technology product, a personal digital
recorder, ASMD's contract manufacturing services accounted for substantially all
of the Company's revenues. In January 1996, due to the startup of the
manufacturing of the Company's proprietary FLASHBACK recorder in the facility,
the Company scaled back outside contract manufacturing services. During fiscal
1997 the Company substantially reduced FLASHBACK production and terminated
contract manufacturing taking a $2.2 million restructuring charge. The Company
during the same period also discontinued retail marketing of FLASHBACK products
in favor of private labeling for OEM customers to sell.
As of the date hereof the Company has completed its restructuring by
selling most of its contract manufacturing equipment, moving to a smaller
facility more suited for its operations and disposing of or making allowances
for excess and obsolete inventory. The Company has dramatically reduced its
monthly operating expenditures from an average of $540,000 during fiscal 1997 to
approximately $130,000 currently. In November 1996, the Company entered into an
OEM contract with Sanyo Information Systems U.K. Ltd. (extended into the rest of
Europe with Sanyo Buro-Electronic Europa) (collectively "Sanyo") and in January
1997 entered into an OEM and development contract with Lanier Worldwide, Inc.
("Lanier"). Management believes it has substantially 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 agreements for the Company's FLASHBACK
family of products and from contract development services for custom digital
products.
The Company also holds as an investment 62,000 common shares (less than
5%) of JABRA. JABRA is a former wholly-owned subsidiary of which control was
sold in 1993. JABRA is a developer and manufacturer of communication products
for desktop, mobile and wireless applications.
The address of the Company's principal executive office is 13114 Evening
Creek Drive South, San Diego, California 92128, and its telephone number is
(619) 679-1504. The Company's primary operating facilities are located at that
address. Its Internet site is located at www.norriscomm.com.
5
<PAGE> 9
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 Product and Technology. 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, which was discontinued in
fiscal 1997, and from direct sales of the Company's FLASHBACK family of
products. 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's future growth, as a
consequence, is greatly dependent upon the successful marketing of the FLASHBACK
family of products and related technology (through existing OEM relationships
and new relationships) and contract development services for custom digital
products. 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 FLASHBACK MOBILE OFFICE. The
FLASHBACK MOBILE OFFICE is currently sold on an OEM basis through Sanyo in the
United Kingdom, Germany, France and elsewhere in Europe. As of December 31,
1997, relatively few sales have occurred, a limited number of written purchase
orders have been received and no established market for the Company's products
exists. There can be no assurance that Sanyo will be successful in distributing
the products in Europe or continue to order from the Company or that such
products 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 six of its past seven fiscal years with operating losses from
continuing operations of $8,725,000, $7,945,000, $7,142,000, $2,442,000,
$4,427,000 and $236,000 for the fiscal years ended March 31, 1997, March 31,
1996, March 31, 1995, March 31, 1994, March 31, 1993 and March 31, 1991,
respectively. The Company, additionally, has reported an operating loss for the
period ended December 31, 1997 of $781,789. The Company's losses are expected to
continue until such time as the Company is able to sell the FLASHBACK family of
products in commercial quantities and/or increase license and royalty fees from
OEM contracts and development services. 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 from operations. This factor, in combination with (i)
reliance upon debt and new equity financing to fund the continuing, losses from
operations and cash flow deficits, (ii) substantial inventory and material
decline in inventory turnover, (iii) material net losses and cash flow deficits
from operations during fiscal 1996 and fiscal 1997 and (iv) the possibility 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 is dependent upon its ability to obtain
adequate financing and achieve a level of revenues, adequate to support the
Company's capital requirements, 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
6
<PAGE> 10
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.
Management's Plans for Improving Operations. Management has undertaken
steps as part of a plan to improve operations with the goal of sustaining
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 expenses. There can be no
assurance the Company can attain profitable operations in the future.
Substantial Working Capital Requirements. At December 31, 1997, the
Company had working capital of $0.9 million, compared to working capital deficit
of $0.6 million at March 31, 1997. The Company had approximately $1.6 million of
working capital invested in inventories at December 31, 1997 similar to the
level of inventories at March 31, 1997. The increase in working capital is a
result of the issuance of preferred stock and long term notes as well as the
settlement of an accrued lease obligation through the issuance of a three year
term note offset by the Company's continuing losses and including a $0.4 million
reduction in accounts payable and accrued liabilities and a $0.2 million change
in development contract components. At December 31, 1997, the Company had no
bank lines of credit or related financing facilities and $0.6 million in long
term debt. Given the Company's cash position and assuming the rate of revenues
and expenditures and level of operations after the restructuring, the Company
will require additional capital within the next twelve months to meet its debts
as they become due and to continue as a going concern. The Company is currently
financing its operations from the sale of inventory and from funds received from
OEM and contract development agreements. The Company estimates that at current
expenditure levels and projected working capital requirements it will require a
minimum of an additional $0.9 million to continue operating for the next twelve
months. The existing OEM and licensing business may be able to generate some of
the additional funding required depending on the ability of OEM and licensing
activities to generate revenues, however there can be no assurance thereof. The
Company is currently pursuing various alternatives to meet its needs for
additional capital. There can be no assurance the Company will be successful and
any such financing 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.
Possible Contingent Liability-Under Federal and State Securities Law.
The Company may have a liability to certain of the Selling Shareholders due to a
possible violation of Securities and Exchange Commission Rule 502(c) and
comparable state securities rules and regulations which prohibit an issuer from
selling securities in a private placement by any form of general solicitation or
general advertising. This violation, in turn, could cause the Company to be in
violation of Section 5 of the Securities Act which prohibits the sale of
securities pursuant to a prospectus that does not satisfy the requirements of
the Securities Act. Such violations, if deemed to occur, could give rise to a
private right of action by the Selling Shareholders against the Company for
rescission and/or damages.
Potential Detrimental Effect on the Company. If all of the Selling
Shareholders were to exercise their rights, assuming a violation, and
seek to rescind their purchases of Common Stock (sold at a per share
price of $0.69-$0.70 per share and Warrants sold at face value and
exercisable into Common Stock at a 30% discount to the average sales
price per share for the five trading days preceding the date of
exercise), the Company would have to return approximately $5,670,000 to
such shareholders, plus interest. If the Company did not have sufficient
working capital to satisfy its obligation to repurchase such securities,
the Company would have to borrow the necessary funds. If it is unable to
borrow funds, the Company would have to sell assets to satisfy its
obligation. Given the Company's historic reliance upon debt and new
equity to fund the continuing losses from operations and cash flow
deficits and its possible present inability to continue as a going
concern, such liability, if it occurs, could require the Company to seek
protection from its creditors by filing a voluntary petition in
bankruptcy. The closing price for the Common Stock on February __, 1998
was $0.__.
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<PAGE> 11
Release and Waiver Agreements. The Company has provided each of the
Selling Shareholders with agreements providing notice of the 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 general advertising and has requested that each Selling
Shareholder forego any private right of action that such Selling
Shareholder may have as a result of such possible violation. In
connection therewith, Selling Shareholders with aggregate purchases of
Common Stock and Warrants equal to $5,420,000 upon request, without
payment or other monetary inducement, have executed written releases and
waivers with respect thereto, effectively reducing the possible
liability to approximately $250,000. While the Company believes that
other exemptions and defenses may be available in the event of violation
of Rule 502(c), there can be no assurance that the Selling Shareholder
who has elected not to release the Company will not commence litigation
against the Company or that an unfavorable decision in such litigation
will not materially adversely affect the Company.
Enforceability. It is possible that the release and waiver agreements
could be challenged at some later date by a Selling Shareholder on
grounds of enforceability (i.e., that such agreements are unenforceable
under federal or state law) or because individual state securities laws
were not specifically referenced. Although 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 to other Selling
Shareholders.
Limited Release. The releases and waivers provided by the Selling
Shareholders were limited to any private right of action which such
shareholders may have had as a result of any violation of federal and
state securities laws prohibiting an issuer from selling securities in a
private placement by any form of general solicitation. Such releases and
waivers, as a result, will not be applicable as a defense to other
claims under the securities laws which, at a later date, may be
asserted, including fraud liability for false and misleading statements
in the Prospectus.
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. The Company has recently
completed a transition from a manufacturing and sales organization to an OEM
provider of technology, product development services and technology licensing.
As a result of this restructuring and change in the source of revenues,
comparisons to prior results are less meaningful and prior operating results are
not indicative of future results. Moreover, demand for the Company's private
labeled FLASHBACK products is uncertain as the Company's OEM customers are 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 its OEM customers face a high
level of competition. Demand for FLASHBACK products and technology 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
8
<PAGE> 12
financial resources. Any failure to manufacture and sell the FLASHBACK products
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 the nine month period ended December 31, 1997, sales of the
Company's FLASHBACK product to Sanyo and provision of contract development
services to Lanier accounted for approximately 87% of its revenues. There can be
no assurance that any such customers will continue to purchase FLASHBACK
products or development services 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.
Dependence Upon Major Suppliers. In the past the Company "box-built" 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.
Dependence on Contract Manufacturer. To date, the Company's sales of
FLASHBACK products to Sanyo have been from existing inventory. Continued future
sales of FLASHBACK products to Sanyo or others and the sale of future products
pursuant to the Lanier development agreement, if any, requires that the Company
establish a contract manufacturing arrangement with one or more assemblers of
electronic components. Thereafter, the Company will be dependent on such party
or parties to assemble products for the Company's customers. Failure to
establish a relationship on acceptable terms could have an adverse effect on the
Company's operations.
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 private labeled FLASHBACK product and its OEM
and licensing business. Attracting new OEM customers requires ongoing marketing
and sales efforts and expenditure of funds to create awareness of and demand for
the Company's products and technology. There can be no assurance that the
Company's marketing efforts 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, some of whom do not
have employment contracts. 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 only part-time services to the Company (approximately 20 hours
per week). The Company may need to hire additional skilled personnel, including
additional engineers, 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 29%
of the issued and outstanding shares of ATC. Robert Putnam, the Secretary and a
Director of the Company, is also a Vice President and Treasurer of ATC. Mr.
Putnam is the beneficial owner of approximately 4% of the issued and outstanding
shares of ATC.
9
<PAGE> 13
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 substantial portion of
their time to their other endeavors.
Unpredictable Product Acceptance. The Company's sales and marketing
strategy contemplates sales of its existing private label FLASHBACK products and
related companion products (upon completion of their development), to the
electronics and computer software markets, including sales to markets through
its OEM customers yet to be established. The failure of the Company's OEM
customers to penetrate their projected markets would have a material adverse
effect upon the Company's operations and prospects. Market acceptance of the
Company's private label 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 technology, 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.
NASDAQ Listing Requirements; Risk of Low-Price Securities. The
Securities and Exchange Commission (the "Commission") approved rules imposing
more stringent criteria for the listing of securities on NASDAQ, including total
assets and net worth requirements of $4,000,000 and $2,000,000, respectively.
The Company does not currently satisfy NASDAQ's listing criteria and trading is
and will be conducted in the over-the-counter market in the so-called "pink
sheets" or the OTC Bulletin Board. As a consequence, investors could find it
more difficult to dispose of, or to obtain accurate quotations as to the price
of, the Company's securities.
In addition, the Common Stock is subject to Rules 15g1-15g6 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") that imposes
additional sales practice requirements on broker-dealers who sell such
securities to
10
<PAGE> 14
persons other than established customers and accredited investors (generally, a
person with assets in excess of $1,000,000 or annual income exceeding $200,000
or $300,000 together with his or her spouse). For transactions covered by this
rule, the broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. Consequently, the rule may affect the ability of broker-dealers
to sell the Company's securities and may affect the ability of investors to sell
their securities in the secondary market.
The Commission has also adopted regulations which define a "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the regulations require the delivery, prior to the transaction, of a disclosure
schedule prepared by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock in the account and information on the limited
market in penny stocks. While many NASDAQ-listed securities are covered by the
definition of penny stock, transactions in a NASDAQ-listed security are exempt
from all but the sole market-maker provision for (i) issuers who have
$2,000,000 in tangible assets ($5,000,000 if the issuer has not been in
continuous operation for three years), (ii) transactions in which the customer
is an institutional accredited investor, or (iii) transactions that are not
recommended by the broker-dealer. In addition, transactions in a NASDAQ security
directly with a NASDAQ market-maker for such security are subject only to the
sole market-maker disclosure, and the disclosure with respect to commissions to
be paid to the broker-dealer and the registered representative.
Recent Sales of Securities; Possible Future Dilution. During fiscal
1997, the Company received $3,396,505 from the issuance and sale of Warrants net
of offering costs of $409,395. The original terms of the Warrants provided that
the face amount of the Warrants or $3,805,900 was exercisable, without further
cash payment, into shares of Common Stock of the Company at the lessor of: $0.70
per share (with respect to $805,900 of Warrants) and $0.69125 per share (with
respect to $3,000,000 of Warrants) or a 30% discount to the five day moving
average bid price of the 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. In September 1997, the remaining three Warrant holders executed
Amendment No. 1 to Stock Purchase Warrants. 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 Warrants ($1.0 million, as adjusted) are convertible into
approximately 14.6 million shares as of January 31, 1998. The number of shares
issuable further increases by 7% per annum. The original expiration of the
Warrants was in July and August 1999, however, such date was extended to January
2000 due to the temporary lack of authorized but unissued shares of Common
Stock.
In June 1997, the Company issued secured notes which bear interest at
12%, payable quarterly. The notes are collateralized by the Company's issued and
pending patents and the FLASHBACK technology. The notes are then convertible at
the lowest Warrant conversion price used by the 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. On January 31, 1998, the notes were convertible into approximately 5.7
million shares of Common Stock with warrants exercisable into a like number of
shares at $0.0875 per share for three years.
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. 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. 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 at a
redemption price of $10.00 per share plus accrued and unpaid dividends if there
are sufficient shares
11
<PAGE> 15
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. On January 31, 1998, the outstanding shares of Series A Stock were
convertible into approximately 11.7 million shares of Common Stock.
The conversion or exercise of these securities could be dilutive and the
potential dilution to existing stockholders could be material.
Volatility of Stock Price. To date, the price of the Company's Common
Stock has been extremely volatile. The Company believes that future
announcements concerning the Company, its competitors or its principal
customers, including technological innovations, new product introductions,
governmental regulations, litigation or changes in operating results, may cause
the market price of the Common Stock to fluctuate substantially in the future.
Trading in the Company's Common Stock is currently conducted in the
over-the-counter market on the OTC Bulletin Board or in what are commonly
referred to as the "pink sheets." As a result, an investor may find it difficult
to dispose of, or to obtain accurate quotations as to the price of, the
Company's Common Stock. Sales of substantial amounts of the Company's
outstanding Common Stock in the public market could materially adversely affect
the market price of the Common Stock. Further, in recent years the stock market
has experienced extreme price and volume fluctuations that have particularly
affected the market prices of equity securities of many high technology
companies and that often have been unrelated or disproportionate to the
operating performance of such companies. These fluctuations as well as general
economic, political and market conditions such as recessions or international
currency fluctuations, may materially adversely affect the market price of the
Common Stock. See "Risk Factors - Recent Sales of Securities; Possible Future
Dilution."
Important Factors Related to Forward-Looking Statements and Associated
Risks. This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act") and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the products and
future economic performance of the Company. The forward-looking statements and
associated risks set forth in this Prospectus may include or relate to (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 retail product offering by introducing a computer interface
VOICELINK which allows the FLASHBACK recorder to interact with a personal
computer, and communicate with other computers via the internet; (iii)
repositioning the core retail product, the FLASHBACK recorder, at the computer
peripheral and telephony markets; (iv) building a sales and marketing
infrastructure to focus on the computer retail and OEM markets; (v) upgrading
and expanding the management team; (vi) development of appropriate technology
and the ability of the Company to enforce its patent or obtain additional
patents; (vii) increasing sales through the introduction and development of new
products and product lines; (viii) success of marketing initiatives to be
undertaken by the Company; (ix) increasing distribution through expansion of the
Company's network of distributors and its customer base; (x) success of the
Company in forecasting demand for particular products and its success in
establishing production and delivery schedules and forecasts which accurately
anticipate and respond to market demand; (xi) success in expanding the Company's
market through increasing sales to large regional and national distributor
accounts; and (xii) success of the Company in achieving increases in net sales
such that cost of goods sold and selling, general and administrative expenses
may decrease as a percentage of net sales.
The forward-looking statements included herein are based upon current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based upon assumptions that the Company will
continue to design, manufacture, market and ship new products on a timely basis,
that competitive conditions within the computer peripheral and telephony markets
will not change materially or adversely, that the computer peripheral and
telephony markets will continue to experience steady growth, that demand for the
Company's products will increase, that the Company will obtain and/or retain
existing distributors and key management personnel, that inventory risks due to
shifts in market demand will be minimized, that the Company's forecast will
accurately anticipate market demand and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect, among other things, to future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions
12
<PAGE> 16
could prove inaccurate and, therefore, there can be no assurance that the
results contemplated in forward-looking information will be realized. In
addition, as disclosed above, the business and operations of the Company are
subject to substantial risks which increase the uncertainty inherent in such
forward-looking statements. Any of the other factors disclosed above could cause
the Company's net sales or net income (or loss), or growth in net sales or net
income (or loss), to differ materially from prior results. Growth in absolute
amounts of costs of sales and selling and administrative expenses or the
occurrence of extraordinary events could cause actual results to vary materially
from the results contemplated in the forward-looking statements. Budgeting and
other management decisions are subjective in many respects and thus susceptible
to interpretations and periodic revisions based on actual experience and
business developments, the impact of which may cause the Company to alter its
marketing, capital expenditure or other budgets, which may in turn affect the
Company's results of operations. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
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 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.
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.
The Selling Shareholders are not restricted as to the price or prices at
which they may sell their shares of Common Stock. Shares at less than market
prices may depress the market price of the Company's Common Stock. Moreover, the
Selling Shareholders are not restricted as to the number of shares which may be
sold at any one time, and it is possible that a significant number of shares
could be sold at the same time.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the shares may not bid for or purchase
shares of Common Stock during a period which commences one business day (5
business days, if the Company's public float is less than $25 million or its
average daily trading volume is less than $100,000) prior to such person's
participation in the distribution, subject to exceptions for certain passive
market making activities. In addition and without limiting the foregoing, each
Selling Shareholder will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including, without limitation,
Regulation M which provisions may limit the timing of purchase and sales of
shares of the Company's Common Stock by such Selling Shareholder. The Company
will not receive any proceeds from any sales of the shares.
13
<PAGE> 17
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.
14
<PAGE> 18
<TABLE>
<CAPTION>
Common
Shares Common Shares
Beneficially Beneficially
Owned Maximum Common Shares Issuable to Maximum Owned
Before Holders of Number of After
Offering (1) ---------------------------------- Shares Offering (6)
------------------ Warrants Convertible Preferred Offered -----------------
Name Number % (2) Notes (3) Stock (4) For Sale (5) Number %
---- --------- ---- ---------- ----------- ---------- ----------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Foundation, Inc. 3,142,640 5.6% 11,403,882 0 0 11,403,882 3,142,640 3.4%
Kolel Zera Kodesh 0 0.0% 567,906 0 0 567,906 0 0.0%
Madison Trading, Inc. 450,000 0.8% 4,181,774 0 0 4,181,774 450,000 0.5%
CCL Holdings (USA) Ltd. 0 0.0% 0 285,714 0 285,714 0 0.0%
R. Kirk Avery 0 0.8% 0 285,714 705,063 990,777 0 0.0%
Canusa Trading Ltd. 0 0.0% 0 1,428,571 1,058,983 2,487,554 0 0.0%
ZZYZX Technology Ltd. 0 0.0% 0 1,142,857 0 1,142,857 0 0.0%
Neo Optics Ltd. 0 0.0% 0 1,142,857 1,058,983 2,201,840 0 0.0%
D.J. Melvin & Associates Inc. 0 0.0% 0 285,714 352,537 638,251 0 0.0%
James C. Zolin & Josephine M. Zolin 14,000 0.0% 0 400,000 0 400,000 14,000 0.0%
Wayne Opperman 0 0.0% 0 285,714 0 285,714 0 0.0%
Richard G. Daniels & Mary E. Daniels 0 0.0% 0 457,143 0 457,143 0 0.0%
CCL Pacific Ltd. 0 0.0% 0 0 2,825,771 2,825,771 0 0.0%
Taishin Company (Hong Kong) Ltd. 0 0.0% 0 0 2,119,326 2,119,326 0 0.0%
Jerry E. Polis Family Trust 0 0.0% 0 0 705,063 705,063 0 0.0%
MES Group, Inc. 0 0.0% 0 0 352,537 352,537 0 0.0%
John C. Roemer 0 0.0% 0 0 493,543 493,543 0 0.0%
Barbara C. Roemer 0 0.0% 0 0 705,063 705,063 0 0.0%
R. Hartman Roemer 0 0.0% 0 0 352,537 352,537 0 0.0%
Stephen & Katherine Roemer 0 0.0% 0 0 493,543 493,543 0 0.0%
Robert G. Brito & Katie Dunahoo 0 0.0% 0 0 352,537 352,537 0 0.0%
Tia Ltd. 0 0.0% 0 0 703,063 703,063 0 0.0%
Paril Holding 0 0.0% 0 0 1,054,594 1,054,594 0 0.0%
Arcadia Mutual Fund Inc. 0 0.0% 0 0 703,063 703,063 0 0.0%
Higham, McConnell & Dunning LLP 757,714 1.3% 0 0 0 757,714 0 0.0%
--------- ---------- --------- ---------- ---------- ---------
Total 4,364,354 16,153,562 5,714,284 14,036,206 36,661,766 3,606,640
========= ========== ========= ========== ========== =========
</TABLE>
(1) Based upon a review of a shareholder transcript prepared by the Company as
of January 14, 1998 and other information available to the Company or provided
by the Selling Shareholder. There can be no assurance that Selling Shareholders
do not beneficially own shares in addition to those listed herein. This column
excludes any shares beneficially owned which are issuable upon exercise of
Warrants or conversion of Convertible Notes and Series A Stock.
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<PAGE> 19
(2) Represents shares issuable upon the exercise of $1,012,956 face value of
Warrants beneficially owned by such persons assuming a fixed exercise price of
$0.0875 per share of Common Stock, or 11,576,640 shares. Includes up to
2,788,543 shares of Common Stock issuable at a discount (7% per annum) assuming
the Warrants are held to the end of their term in January 2000. Also includes
1,788,379 shares of Common Stock issuable for private placement penalties due to
registration delays. The actual number of shares of Common Stock issuable on
exercise as a result of the discount may be less if exercise occurs prior to the
expiration date of the Warrants. The exercise 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 split, and (ii) to the price at which
new securities are issued if at a price below $0.0875 per share. In such case
the shares issuable on exercise would increase. Qualifying Selling Shareholders
may elect to exercise all or a portion of the Warrants but no Selling
Shareholder can exercise Warrants such that they would beneficially own more
than 10% of the Company's outstanding shares of Common Stock.
(3) Assumes conversion of $500,000 of Convertible Notes at $0.0875 per share of
Common Stock. The conversion price of $0.0875 per share of Common Stock may be
adjusted down to 70% of the average market price upon a distribution in shares,
subdivision, split-up, combination, reclassification or other change in Common
Stock. In such case the shares issuable on conversion would increase.
(4) Assumes conversion of 99,500 shares of Series A Stock, with the per share
conversion price determined by dividing $10.00 per share of Preferred Stock plus
a sum equal to accrued but unpaid dividends (or a premium amount equivalent
thereto) by $0.0875. For purposes of computing the maximum number of shares
issuable, dividends have been accrued to the latest redemption date of September
1, 2000. The actual number of shares of Common Stock issuable for dividends may
be less if conversion occurs prior to such redemption date. The conversion
factor of $0.0875 may be adjusted down to 80% of the average market price upon a
distribution in shares, subdivision, split-up, combination, reclassification or
other change in Common Stock. In such case the shares issuable on conversion
would increase.
(5) Includes the issuance of the maximum shares on exercise of the Warrants and
conversion of the Convertible Notes and Series A Stock assuming a price factor
of $0.0875 (see Notes 2, 3 and 4).
(6) Assumes the issuance by the Company and sale of all shares of Common Stock
covered by this Prospectus. There can be no assurance that any of the Selling
Shareholders will exercise or convert the securities or sell any or all of the
shares of common stock offered by them hereunder.
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
The authorized capital stock of the Company consists of 120,000,000
shares of Common Stock $.001 per share par value, and 5,000,000 shares of
preferred stock, $.001 per share par value ("Preferred Stock"). As of January
31, 1998 there were 56,413,405 shares of Common Stock issued and outstanding and
99,500 shares of Preferred Stock are outstanding.
Common Stock. Holders of Common Stock are entitled to one vote per share
on matters to be voted upon by the shareholders of the Company. Holders of
Common Stock do not have cumulative voting rights; therefore, the holders of a
simple majority of the outstanding shares of Common Stock will have the right to
elect all of the Company's directors. Holders of Common Stock will be entitled
to receive dividends when, as and if declared by the Company's Board of
Directors and to share ratably in the assets of the Company legally available
for distribution to its shareholders in the event of the liquidation,
dissolution or winding up of the Company, in each case subject to the rights of
the holders of any Preferred Stock issued by the Company. Holders of Common
Stock have no preemptive, subscription, redemption or conversion rights.
Preferred Stock. The Company's Board of Directors has the authority
without further action by the stockholders of the Company to issue shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions of those shares. The issuance of Preferred Stock
could adversely affect the voting power and economic rights of holders of Common
Stock and could have the effect of delaying, deferring or preventing a change in
control of the Company.
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
16
<PAGE> 20
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. 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.
California Law. 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 (Delaware). 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.
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 LLP, Laguna Niguel, California. Higham, McConnell
and Dunning LLP owns 757,714 shares of Common Stock and warrants to acquire
150,000 shares of Common Stock.
EXPERTS
The Consolidated Financial Statements of the Company for the years ended
March 31, 1997 and March 31, 1996, respectively, have been audited by Ernst &
Young, independent auditors, as set forth in their report thereon included
therein and included herein by reference. Such 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.
17
<PAGE> 21
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 $ 920
Blue Sky Fees and Expenses $ 1,000
Legal Fees and Expenses $ 8,000
Accounting Fees and Expenses $ 2,500
Miscellaneous Expenses $ 2,000
Total $14,420
=======
</TABLE>
Item 15. Indemnification of Directors and Officers.
Article TENTH of the Certificate of Incorporation of the Company
provides:
"TENTH: The corporation shall, to the fullest extent legally permissible
under the provisions of the Delaware General Corporation Law, as the same may be
amended and supplemented, shall indemnify and hold harmless any and all persons
whom it shall have power to indemnify under said provisions from and against any
and all liabilities (including expenses) imposed upon or reasonably incurred by
him in connection with any action, suit or other proceeding in which he may be
involved or with which he may be threatened, or other matters referred to in or
covered by said provisions both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer of the corporation. Such
indemnification provided shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any Bylaw, Agreement or Resolution
adopted by the shareholders entitled to vote thereon after notice."
The Company's Bylaws provide that an officer, director, employee or
agent of the Company is entitled to be indemnified for the expenses, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him by
reason of any action, suit or proceeding brought against him by virtue of his
acting as such officer, director, employee or agent, provided he acted in good
faith or in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
The Company has directors and officers liability insurance. The
insurance policy covers liability for claims made against directors and officers
for their wrongful acts involving errors, misstatements, misleading statements
or acts or omissions or neglect or breach of duty, while acting in their
individual or collective capacities for any matter claimed against them solely
by reason of their being directors or officers of the Company. The coverage
includes damages, judgment, settlements and costs of legal actions, claims or
proceedings and appeals therefrom but does not include fines or penalties
imposed by law for matters which may be deemed uninsurable under the law.
If Delaware 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 Delaware and/or California, the legal outcome is unpredictable.
II-1
<PAGE> 22
Item 16. Exhibits.
The exhibits are listed in the Exhibit Index commencing at page II-4
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 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-2
<PAGE> 23
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 San Diego, State of California on February 20, 1998.
NORRIS COMMUNICATIONS, INC.
By: /s/ Elwood G. Norris
-------------------------------------
ELWOOD G. NORRIS,
CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
Each person whose signature to this Registration Statement appears below
hereby appoints Elwood G. Norris, Alfred H. Falk and Robert Putnam, 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/ Elwood G. Norris Chairman of the Board, President, February 20, 1998
- --------------------------------- Chief Executive Officer and Director
Elwood G. Norris
/s/ Alfred H. Falk President and Director February 20, 1998
- ---------------------------------
Alfred H. Falk
/s/ Renee Warden Controller February 20, 1998
- --------------------------------- (principal financial and
Renee Warden accounting officer)
/s/ Robert Putnam Vice President and Director February 20, 1998
- ---------------------------------
Robert Putnam
</TABLE>
II-3
<PAGE> 24
EXHIBIT INDEX
EXHIBIT SEQUENTIAL DESCRIPTION
NUMBER
2.1 Share Exchange Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988 and filed as an Exhibit to the Company's Registration
Statement on Form 10, as amended.
2.1.1 Amendment of Agreement among the Company, Norcom Communications
Corporation, and American Technology Corporation, dated for reference
March 23, 1988 and filed as an Exhibit to the Company's Registration
Statement on Form 10, as amended.
2.2 Plan and Agreement of Reorganization among the Company, American
Surface Mounted Devices, Inc. and ASMD, Inc.,dated August 11, 1989 and
filed as an Exhibit to the Company's Registration Statement on Form 10,
as amended.
2.3 Plan and Agreement of Reorganization among the Company, Sage
Microsystems, Inc., and Sage Micro, Inc., dated November 7, 1991 and
filed as an Exhibit to the Company's Registration Statement on Form 10,
as amended.
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 and
filed as an Exhibit to the Company's Registration Statement on Form 10,
as amended.
2.5 Plan and Agreement of Reorganization between American Surface Mounted
Devices, Inc. and Comp General Corporation, Inc., dated March 31 1995
and filed previously as an Exhibit to Registration Statement No.
33-92978.
2.6 Plan of Reorganization and Agreement of Merger, dated July , 1996 and
filed as Exhibit A to the Company's July 3, 1996 Proxy Statement.
3.1 Certificate of Incorporation of Norris Communications, Inc. (as amended
through May 28, 1996) and filed as Exhibit B to the Company's July 3,
1996 Proxy Statement.
3.2 Bylaws of Norris Communications, Inc., filed as Exhibit C to the
Company's July 3, 1996 Proxy Statement.
4.1 Certificate of Incorporation of Norris Communications, Inc. (as amended
through May 28, 1996),filed as Exhibit B to the Company's July 3, 1996
Proxy Statement.
4.2 Bylaws of Norris Communications, Inc., filed as Exhibit C to the
Company's July 3, 1996 Proxy Statement.
4.3 Form of Warrant Agreement dated June 7, 1996 for an aggregate of
$3,805,900 issued to a total of twelve investors and filed as an
Exhibit to the Company's Current Report on Form 8-K dated April 5,
1996.
4.3.1 Form of Amendment No. 1 to Common Stock Warrant between the Company and
three Warrant Holders holding an aggregate of $1,154,409 face value of
warrants granted in July and August 1996 (Each Amendment is identical
except for the dates and the name of the Warrant Holder), filed as
Exhibit 4.11.1 to the Company's Form 8-K, dated September 10, 1997.
II-4
<PAGE> 25
4.4 Warrant Agreement for 401,924 shares of Common Stock between the
Company and Klein Investment Group, L.P. (formerly known as Iacocca
Capital Partners, L.P.) dated August 7, 1997 and filed previously as an
Exhibit to the Company's Current Report on Form 8-K dated August 29,
1996.
4.4.1 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., filed as
Exhibit 4.12.1 to the Company's Form 10-QSB for the quarter ended
September 30, 1997.
4.5 Note Agreement and Form of Note between the Company and nine investors
dated August 23, 1997 and filed previously as Exhibit 10.33 to the
Company's Annual Report on Form 10-KSB dated March 31, 1997.
5.1 Opinion of Higham, McConnell & Dunning LLP.*
23.1 Consent of Higham, McConnell & Dunning LLP, included in Exhibit 5.1.
23.2 Consent of Ernst & Young.*
- ----------
* Each exhibit marked with an asterisk is filed concurrently herewith.
Each exhibit not marked with an asterisk is incorporated by reference
to an exhibit previously filed by the Company as indicated above.
II-5
<PAGE> 1
EXHIBIT 5.1
HIGHAM, McCONNELL & DUNNING LLP
28202 CABOT ROAD, SUITE 450
LAGUNA NIGUEL, CALIFORNIA 92677
(714) 365-5515
February 20, 1998
Norris Communications, Inc.
12725 Stowe Drive
Poway, California 92064
Re: Registration on Form S-3 of
36,661,766 Shares of Common Stock
of Norris Communications, Inc.
Gentlemen:
We have acted as counsel to Norris Communications, Inc., a Delaware
corporation (the "Company"), in connection with the Company's filing with the
Securities and Exchange Commission (the "Commission") of a registration
statement on Form S-3 (the "Registration Statement") under the Securities Act of
1933, as amended (the "1933 Act"), with respect to 36,661,766 shares ("Shares")
of its Common Stock, no par value, which may be sold from time to time by
certain shareholders of the Company described in the Registration Statement.
In connection with the opinion expressed below, we have examined and relied
upon, as to factual matters, originals and photostatic or certified copies of
such corporate records, including, without limitation, minutes of the meetings
of the Board of Directors of the Company and other instruments, certificates or
corporate officers, and such other documents as we have deemed necessary or
appropriate as a basis for the opinions hereinafter expressed. In making such
examinations, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals, and the conformity
to original documents of all documents submitted to us as certified or
photostatic copies. We also have assumed that appropriate action will be taken
prior to the offer and sale of the Common Stock to register and qualify the
Common Stock for issuance and sale under any applicable state "Blue Sky" or
securities laws.
<PAGE> 2
Norris Communications Corp.
February 20, 1998
Page 2
We have examined and relied upon, as matters of law, such considerations of
law as we, in our judgment, have deemed necessary or appropriate to render the
opinion expressed below. This opinion is limited to federal law and the
corporate laws of the States of California and Delaware, and we can assume no
responsibility for the law of any other jurisdiction.
Based upon the foregoing, we are of the opinion that the Shares of the
Company's Common Stock being registered under the 1933 Act pursuant to the
Registration Statement are, or upon exercise of warrants, convertible notes or
preferred stock described therein will be, legally issued, fully paid and
nonassessable shares of Common Stock of the Company.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving this opinion, we do not hereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
1933 Act or the rules and regulations of the Commission promulgated thereunder.
This opinion is being delivered solely in regard to the transactions
contemplated by the Registration Statement and is intended for use solely in
connection with the consummation of such transactions. This opinion should not
be relied upon for any other purpose without our prior written consent; this
opinion should not be quoted in whole or in part or distributed in any way.
Very truly yours,
HIGHAM, McCONNELL & DUNNING LLP
CCB:dc
<PAGE> 1
EXHIBIT 23.2
CONSENT OF
INDEPENDENT AUDITORS
We consent to the reference to our Firm under the caption "Experts" and to the
use of our report dated June 13, 1997 relating to the consolidated financial
statements of Norris Communications, Inc. for the years ended March 31, 1997
and March 31, 1996 incorporated by reference in the Form S-3 Registration
Statement and related Prospectus of Norris Communications, Inc. for the
registration of 36,661,766 shares of its Common Stock.
ERNST & YOUNG
Vancouver, Canada,
February 20, 1998. Chartered Accountants
