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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of March 31, 2003 (unaudited)
and September 30, 2002 3
Statements of Operations for the three and six months ended
March 31, 2003 and 2002 (unaudited) 4
Statements of Cash Flows for the six months ended
March 31, 2003 and 2002 (unaudited) 5
Notes to Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION 25
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
AMERICAN TECHNOLOGY CORPORATION
BALANCE SHEETS
(Unaudited)
March 31, September 30,
2003 2002
========================================================================================================
ASSETS
CURRENT ASSETS:
Cash $ 1,866,335 $ 1,807,720
Trade accounts receivable, less allowance of
$8,091 and $20,191 for doubtful accounts 36,904 111,486
Subscription receivable 25,000 -
Inventories 431,756 136,881
Prepaid expenses and other 73,000 20,130
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,432,995 2,076,217
EQUIPMENT, net 165,247 363,448
PATENTS, net of accumulated amortization of $179,290 and $141,314 988,785 1,034,333
PURCHASED TECHNOLOGY, net of accumulated amortization of $1,157,278
and $946,864 105,222 315,636
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,692,249 $ 3,789,634
========================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 360,640 $ 733,531
Accrued liabilities:
Payroll and related 188,276 202,432
Deferred revenue 388,168 276,667
Other 60,264 59,632
Interest on notes 381,534 240,279
Capital lease short-term portion 9,110 8,963
12% Convertible Promissory Notes 1,725,000 -
Related party 12% Convertible Promissory Notes 300,000 -
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 3,412,992 1,521,504
LONG-TERM LIABILITIES:
12% Convertible Promissory Notes net of $0 and $345,000 debt discount - 1,380,000
Related party 12% Convertible Promissory Notes,
net of $0 and $60,000 debt discount - 240,000
8% Senior Secured Promissory Notes 1,000,000 1,500,000
Capital lease long-term portion 28,497 33,012
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 4,441,489 4,674,516
- --------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Series C Preferred stock 300,000 shares designated: 0 and 10,000
issued and outstanding respecitively. Liquidation preference
of $0 and $230,510, respectively. - -
Series D Preferred stock 235,400 shares designated: 65,000 and 235,400
issued and outstanding, respectively. Liquidation preference
of $685,474 and $2,412,046, respectively. 1 2
Series E Preferred stock 350,000 shares designated: 343,250 and 0
issued and outstanding, respectively. Liquidation preference
of $3,449,126 and $0, respectively. 3 -
Common stock, $0.00001 par value; 50,000,000 shares authorized
15,156,670 and 14,351,476 shares issued and outstanding 151 144
Additional paid-in capital 30,976,600 27,255,016
Accumulated deficit (31,725,995) (28,140,044)
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (749,240) (884,882)
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,692,249 $ 3,789,634
========================================================================================================
See accompanying notes to financial statements.
3
AMERICAN TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the six months ended
March 31, March 31,
2003 2002 2003 2002
===============================================================================================================
REVENUES:
Product sales $ 145,611 $ 99,155 $ 533,578 $ 324,110
Contract and 2002 (unaudited)4
| | | | | Statementslicense 92,331 100,278 127,663 131,944
- ---------------------------------------------------------------------------------------------------------------
Total revenues 237,942 199,433 661,241 456,054
- ---------------------------------------------------------------------------------------------------------------
Cost of Cash Flows forrevenues 350,784 122,385 672,419 238,845
- ---------------------------------------------------------------------------------------------------------------
GROSS (LOSS) PROFIT (112,842) 77,048 (11,178) 217,209
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, general and administrative 908,992 610,463 1,665,309 1,103,120
Research and development 727,298 987,060 1,308,719 1,880,997
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses 1,636,290 1,597,523 2,974,028 2,984,117
- ---------------------------------------------------------------------------------------------------------------
Loss from operations (1,749,132) (1,520,475) (2,985,206) (2,766,908)
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest income 1,321 9,910 3,652 12,556
Interest expense (104,828) (464,918) (602,730) (929,474)
Other (1,667) - (1,667) (800)
- ---------------------------------------------------------------------------------------------------------------
Total other income (expense) (105,174) (455,008) (600,745) (917,718)
- ---------------------------------------------------------------------------------------------------------------
NET LOSS $(1,854,306) $(1,975,483) $(3,585,951) $(3,684,626)
===============================================================================================================
Imputed dividends on convertible Preferred Stock 810,412 2,959 965,291 22,915
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS $(2,664,718) $(1,978,442) $(4,551,242) $(3,707,541)
===============================================================================================================
NET LOSS PER SHARE OF COMMON STOCK - BASIC AND DILUTED $ (0.18) $ (0.14) $ (0.31) $ (0.26)
===============================================================================================================
AVERAGE WEIGHTED NUMBER OF COMMON SHARES OUTSTANDING 14,897,662 14,273,238 14,629,077 14,074,903
===============================================================================================================
|
See accompanying notes to financial statements.
4
AMERICAN TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
March 31,
2003 2002
==================================================================================================
INCREASE (DECREASE) IN CASH
OPERATING ACTIVITIES:
Net loss $(3,585,951) $(3,684,626)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and 2002 (unaudited)5
| | | | | Notes to Interim Financial Statements
| 6
| | | | Item 2.
| Management’s Discussionamortization 339,290 362,826
Allowance for doubtful accounts (12,100) -
Warranty reserves 41,542 -
Common stock issued for services and Analysiscompensation 410,816 7,199
Write-down on patents 40,321 -
Options and warrants granted for services - 137,590
Amortization of Financial Condition and Results of Operations
| 13
| | | | Item 3.
| Quantitative and Qualitative Disclosures about Market Risk
| 23
| | | | Item 4.
| Controls and Procedures
| 24
| | | | PART II. OTHER INFORMATION
| 24
| | | Item 1.
| Legal Proceedings
| 24
| Item 2.
| debt discount 405,000 810,000
Changes in Securitiesassets and Useliabilities:
Trade accounts receivable 86,682 (48,551)
Inventories (294,875) 27,005
Prepaid expenses and other (52,870) 34,503
Accounts payable (255,891) 254,479
Accrued liabilities 197,690 112,081
- --------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,680,346) (1,987,494)
- --------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of equipment (9,700) (27,086)
Patent costs paid (32,749) (55,476)
- --------------------------------------------------------------------------------------------------
Net cash used in investing activities (42,449) (82,562)
- --------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on capital lease (4,368) -
Proceeds | 24
| Item 3.
| Defaults upon Senior Securities
| 25
| Item 4.
| Submission from issuance of Matters to a Voteconvertible promissory notes 500,000 -
Proceeds from the issuance of Security Holders
| 25
| Item 5.
| Other Information
| 25
| Item 6.
| Exhibits and Reportspreferred stock 2,407,500 -
Cash paid for offering costs (141,222) -
Proceeds from issuance of convertible promissory notes - 1,225,000
Proceeds from exercise of stock options 19,500 -
- --------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,781,410 1,225,000
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 58,615 (845,056)
Cash, beginning of year 1,807,720 1,354,072
- --------------------------------------------------------------------------------------------------
Cash, end of year $ 1,866,335 $ 509,016
==================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH INFORMATION:
Cash paid during the period for:
Interest $ 72,305 $ -
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of stock warrants in connection with convertible debt $ - $ 624,750
Increase in additional paid in capital for the beneficial conversion
feature of convertible debt $ - $ 600,250
Common stock issued on Form 8-K
| 25
| | | | SIGNATURES
| 26
| | | | | conversion of Series B preferred stock $ - $ 2,102,412
Sale of equipment for accounts payable $ 117,000 $ -
Secured Notes converted into Series E Preferred Stock $ 1,000,000 $ -
Issuance of Series E Preferred Stock for Subscription receivable $ 25,000 $ -
2
American Technology Corporation
BALANCE SHEETS
(Unaudited)
| | March 31, 2003 | | September 30, 2002 | | | |
| |
| | ASSETS | | | | | | | | Current Assets: | | | | | | | | Cash | | $ | 1,866,335 | | $ | 1,807,720 | | Trade accounts receivable, less allowance of $8,091 and $20,191 for doubtful accounts | | | 36,904 | | | 111,486 | | Subscription receivable | | | 25,000 | | | — | | Inventories | | | 431,756 | | | 136,881 | | Prepaid expenses and other | | | 73,000 | | | 20,130 | | | |
|
| |
|
| | Total current assets | | | 2,432,995 | | | 2,076,217 | | Equipment, net | | | 165,247 | | | 363,448 | | Patents, net of accumulated amortization of $179,290 and $141,314 | | | 988,785 | | | 1,034,333 | | Purchased technology, net of accumulated amortization of $1,157,278 and $946,864 | | | 105,222 | | | 315,636 | | | |
|
| |
|
| | Total assets | | $ | 3,692,249 | | $ | 3,789,634 | | | |
|
| |
|
| | LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | | | | Current Liabilities: | | | | | | | | Accounts payable | | $ | 360,640 | | $ | 733,531 | | Accrued liabilities: | | | | | | | | Payroll and related | | | 188,276 | | | 202,432 | | Deferred revenue | | | 388,168 | | | 276,667 | | Other | | | 60,264 | | | 59,632 | | Interest on notes | | | 381,534 | | | 240,279 | | Capital lease short-term portion | | | 9,110 | | | 8,963 | | 12% Convertible Promissory Notes | | | 1,725,000 | | | — | | Related party 12% Convertible Promissory Notes, | | | 300,000 | | | — | | | |
|
| |
|
| | Total current liabilities | | | 3,412,992 | | | 1,521,504 | | Long-Term Liabilities: | | | | | | | | 12% Convertible Promissory Notes net of $0 and $345,000 debt discount | | | — | | | 1,380,000 | | Related party 12% Convertible Promissory Notes, net of $0 and $60,000 debt discount | | | — | | | 240,000 | | 8% Senior Secured Promissory Notes | | | 1,000,000 | | | 1,500,000 | | Capital lease long-term portion | | | 28,497 | | | 33,012 | | | |
|
| |
|
| | Total liabilities | | | 4,441,489 | | | 4,674,516 | | | |
|
| |
|
| | Commitments and contingencies | | | | | | | | Stockholders’ deficit | | | | | | | | Series C Preferred stock 300,000 shares designated: 0 and 10,000 issued and outstanding respectively. Liquidation preference of $0 and $230,510, respectively. | | | — | | | — | | Series D Preferred stock 235,400 shares designated: 65,000 and 235,400 issued and outstanding, respectively. Liquidation preference of $685,474 and $2,412,046, respectively. | | | 1 | | | 2 | | Series E Preferred stock 350,000 shares designated: 343,250 and 0 issued and outstanding, respectively. Liquidation preference of $3,449,126 and $0, respectively. | | | 3 | | | — | | Common stock, $0.00001 par value; 50,000,000 shares authorized 15,156,670 and 14,351,476 shares issued and outstanding | | | 151 | | | 144 | | Additional paid-in capital | | | 30,976,600 | | | 27,255,016 | | Accumulated deficit | | | (31,725,995 | ) | | (28,140,044 | ) | | |
|
| |
|
| | Total stockholders’ deficit | | | (749,240 | ) | | (884,882 | | | |
|
| |
|
| | Total liabilities and stockholders’ deficit | | $ | 3,692,249 | | $ | 3,789,634 | | | |
|
| |
|
| |
See accompanying notes to financial statements. 3
American Technology Corporation
STATEMENTS OF OPERATIONS
(Unaudited)
| | For the three months ended March 31, | | For the six month ended March 31, | | | |
| |
| | | | 2003 | | 2002 | | 2003 | | 2002 | | | |
|
| |
|
| |
|
| |
|
| | Revenues: | | | | | | | | | | | | | | Product sales | | $ | 145,611 | | $ | 99,155 | | $ | 533,578 | | $ | 324,110 | | Contract and license | | | 92,331 | | | 100,278 | | | 127,663 | | | 131,944 | | | |
|
| |
|
| |
|
| |
|
| | Total revenues | | | 237,942 | | | 199,433 | | | 661,241 | | | 456,054 | | | |
|
| |
|
| |
|
| |
|
| | Cost of revenues | | | 350,784 | | | 122,385 | | | 672,419 | | | 238,845 | | | |
|
| |
|
| |
|
| |
|
| | Gross (loss) profit | | | (112,842 | ) | | 77,048 | | | (11,178 | ) | | 217,209 | | | |
|
| |
|
| |
|
| |
|
| | Operating expenses: | | | | | | | | | | | | | | Selling, general and administrative | | | 908,992 | | | 610,463 | | | 1,665,309 | | | 1,103,120 | | Research and development | | | 727,298 | | | 987,060 | | | 1,308,719 | | | 1,880,997 | | | |
|
| |
|
| |
|
| |
|
| | Total operating expenses | | | 1,636,290 | | | 1,597,523 | | | 2,974,028 | | | 2,984,117 | | | |
|
| |
|
| |
|
| |
|
| | Loss from operations | | | (1,749,132 | ) | | (1,520,475 | ) | | (2,985,206 | ) | | (2,766,908 | ) | | |
|
| |
|
| |
|
| |
|
| | Other income (expense): | | | | | | | | | | | | | | Interest income | | | 1,321 | | | 9,910 | | | 3,652 | | | 12,556 | | Interest expense | | | (104,828 | ) | | (464,918 | ) | | (602,730 | ) | | (929,474 | ) | Other | | | (1,667 | ) | | — | | | (1,667 | ) | | (800 | ) | | |
|
| |
|
| |
|
| |
|
| | Total other income (expense) | | | (105,174 | ) | | (455,008 | ) | | (600,745 | ) | | (917,718 | ) | | |
|
| |
|
| |
|
| |
|
| | Net loss | | $ | (1,854,306 | ) | $ | (1,975,483 | ) | $ | (3,585,951 | ) | $ | (3,684,626 | ) | | |
|
| |
|
| |
|
| |
|
| | Imputed dividends on convertible Preferred Stock | | | 253,685 | | | 2,959 | | | 412,483 | | | 22,915 | | Net loss available to common stockholders | | $ | (2,107,991 | ) | $ | (1,978,442 | ) | $ | (3,998,434 | ) | $ | (3,707,541 | ) | | |
|
| |
|
| |
|
| |
|
| | Net loss per share of common stock - basic and diluted | | $ | (0.14 | ) | $ | (0.14 | ) | $ | (0.27 | ) | $ | (0.26 | ) | | |
|
| |
|
| |
|
| |
|
| | Average weighted number of common shares outstanding | | | 14,897,662 | | | 14,273,238 | | | 14,629,077 | | | 14,074,903 | | | |
|
| |
|
| |
|
| |
|
| |
See accompanying notes to financial statements.
4
American Technology Corporation
STATEMENTS OF CASH FLOWS
(Unaudited)
| | For the six months ended March 31, | | | |
| | | | 2003 | | 2002 | | | |
|
| |
|
| | Increase (Decrease) in Cash | | | | | | | | Operating Activities: | | | | | | | | Net loss | | $ | (3,585,951 | ) | $ | (3,684,626 | ) | Adjustments to reconcile net loss to net cash used in operations: | | | | | | | | Depreciation and amortization | | | 339,290 | | | 362,826 | | Allowance for doubtful accounts | | | (12,100 | ) | | — | | Warranty reserves | | | 41,542 | | | — | | Common stock issued for services and compensation | | | 410,816 | | | 7,199 | | Write-down on patents | | | 40,321 | | | — | | Options and warrants granted for services | | | — | | | 137,590 | | Amortization of debt discount | | | 405,000 | | | 810,000 | | Changes in assets and liabilities: | | | | | | | | Trade accounts receivable | | | 86,682 | | | (48,551 | ) | Inventories | | | (294,875 | ) | | 27,005 | | Prepaid expenses and other | | | (52,870 | ) | | 34,503 | | Accounts payable | | | (255,891 | ) | | 254,479 | | Accrued liabilities | | | 197,690 | | | 112,081 | | | |
|
| |
|
| | Net cash used in operating activities | | | (2,680,346 | ) | | (1,987,494 | ) | | |
|
| |
|
| | Investing Activities: | | | | | | | | Purchase of equipment | | | (9,700 | ) | | (27,086 | ) | Patent costs paid | | | (32,749 | ) | | (55,476 | ) | | |
|
| |
|
| | Net cash used in investing activities | | | (42,449 | ) | | (82,562 | ) | | |
|
| |
|
| | Financing Activities: | | | | | | | | Payments on capital lease | | | (4,368 | ) | | — | | Proceeds from issuance of convertible promissory notes | | | 500,000 | | | — | | Proceeds from the issuance of preferred stock | | | 2,407,500 | | | — | | Cash paid for offering costs | | | (141,222 | ) | | — | | Proceeds from issuance of convertible promissory notes | | | — | | | 1,225,000 | | Proceeds from exercise of stock options | | | 19,500 | | | — | | | |
|
| |
|
| | Net cash provided by financing activities | | | 2,781,410 | | | 1,225,000 | | | |
|
| |
|
| | Net increase (decrease) in cash | | | 58,615 | | | (845,056 | ) | Cash, beginning of year | | | 1,807,720 | | | 1,354,072 | | | |
|
| |
|
| | Cash, end of year | | $ | 1,866,335 | | $ | 509,016 | | | |
|
| |
|
| | Supplemental disclosures of cash information: | | | | | | | | Cash paid during the period for: | | | | | | | | Interest | | $ | 72,305 | | $ | — | | Supplemental disclosure of noncash investing and financing activities: | | | | | | | | Issuance of stock warrants in connection with convertible debt | | $ | — | | $ | 624,750 | | Increase in additional paid in capital for the beneficial conversion feature of convertible debt | | $ | — | | $ | 600,250 | | Common stock issued on conversion of Series B preferred stock | | $ | — | | $ | 2,102,412 | | Sale of equipment for accounts payable | | $ | 117,000 | | $ | — | | Secured Notes converted into Series E Preferred Stock | | $ | 1,000,000 | | $ | — | | Issuance of Series E Preferred Stock for Subscription receivable | | $ | 25,000 | | $ | — | |
See accompanying notes to financial statements.
5
AMERICAN TECHNOLOGY CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited) 1. OPERATIONS American Technology Corporation is engaged in design, development and
commercialization of sound, acoustic and other technologies. Our primary focus
is on marketing four of our proprietary sound reproduction technologies and
supplying components based on these technologies to customers. 2. STATEMENT PRESENTATION The accompanying unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. In the opinion of management, the
interim financial statements reflect all adjustments of a normal recurring
nature necessary for a fair presentation of the results for interim periods.
Operating results for the three and six month periods are not necessarily
indicative of the results that may be expected for the year. The interim
financial statements and notes thereto should be read in conjunction with the
Company’sCompany's audited financial statements and notes thereto for the year ended
September 30, 2002 included in the Company’sCompany's annual report on Form 10K. The Company’sCompany's financial statements are presented on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The ability of the Company to continue as a going
concern is contingent upon it obtaining sufficient financing to sustain its
operations and its ability to ultimately generate profits and positive cash flow
from operations. The Company has funded its operations primarily through the
issuance of securities and debt financings. Other than cash of $1,866,335 at
March 31, 2003 the Company has no other material unused sources of liquidity at
this time. Based on our current cash position and projections for future
revenues and currently planned expenditures, we will need to raise additional
capital of approximately $2 million to continue operations at planned levels
during the next twelve months. While we believe that investment capital in
sufficient amounts will be available to us, there can be no guarantee that we
will be able to raise funds on terms acceptable to us, or at all. The Company
has significant debt that comes due in December 2003 and December 2004. Based on its current plan and assumptions, the Company anticipates that it will
be able to meet its cash requirements for the next twelve months. Management
believes increased product sales may provide additional operating funds and
believes that any additional investment capital will be available if required.
Management has significant flexibility to adjust the level of research and
development and selling and administrative expenses based on the availability of
resources. Management expects to incur additional operating losses as a result of
expenditures for research and development and marketing costs for sound and
other products and technologies. The timing and amounts of these expenditures
and the extent of the Company’sCompany's operating losses will depend on many factors,
some of which are beyond management’smanagement's control. Management anticipates that the
commercialization of the Company’sCompany's technologies may require increased operating
costs, however management cannot currently estimate the amounts of these costs. There can be no assurance that any funds required during the next twelve months
or thereafter can be generated from operations or that such required funds would
be available from the aforementioned or other potential sources. The lack of
sufficient funds from operations or additional capital could force the Company
to curtail, scale back operations, or cease operations and would therefore have
a material adverse effect on the Company’sCompany's business. As such, there is substantial doubt about the Company’sCompany's ability to continue as a
going concern. The financial statements do not include any adjustments necessary
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the possible inability of the Company to continue as a going concern. 3. NET LOSS PER SHARE The Company applies Statement of Financial Accounting Standards (“SFAS”("SFAS") No.
128, “Earnings"Earnings Per Share.”" SFAS No. 128 provides for the calculation of “Basic”"Basic"
and “Diluted”"Diluted" earnings per share (“EPS”("EPS"). Basic EPS includes no dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution of securities that could share in the earnings of an
entity. The Company’sCompany's net losses for the periods presented cause the inclusion
of potential common stock instruments outstanding to be antidilutive and,
therefore, in accordance with SFAS No. 128, the Company is not required to
present a diluted EPS. Convertible preferred stock, convertible promissory
notes, stock options and warrants convertible or exercisable into approximately
6,745,4746,445,474 and 3,786,805 shares of common stock were outstanding at March 31,
6
AMERICAN TECHNOLOGY CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited) March 31,
2003 and 2002, respectively. These securities were not included in the
computation of diluted EPS because of the net losses but could potentially
dilute EPS in future periods.
The Series C Preferred Stock provides for an accretion in the conversion value
of 6% or $1.20 per share per annum. The Series D Preferred Stock provides for an
accretion in the conversion value of 6% or $0.60 per share per annum. The Series
E Preferred Stock provides for an accretion in the conversion value of 6% or
$0.60 per share per annum. The accrued accretion increases the net loss
available to common stockholders. Net loss available to common stockholders is
computed as follows: | | Three months ended March 31 | | Six months ended March 31 | | | |
| |
| | | | 2003 | | 2002 | | 2003 | | 2002 | | | |
|
| |
|
| |
|
| |
|
| | Net Loss | | $ | (1,854,306 | ) | $ | (1,975,483 | ) | $ | (3,585,951 | ) | $ | (3,684,626 | ) | Series D Preferred Stock imputed deemed dividends based on discount at issuance | | | (62,667 | ) | | — | | | (126,726 | ) | | — | | Imputed deemed dividends on warrants issued with Series D Preferred Stock | | | (59,255 | ) | | — | | | (115,370 | ) | | — | | Series E Preferred Stock imputed deemed dividends based on discount at issuance | | | (59,821 | ) | | — | | | (59,821 | ) | | — | | Imputed deemed dividends on warrants issued with Series E Preferred Stock | | | (16,883 | ) | | — | | | (16,883 | ) | | — | | Accretion on Series C, D, and E Preferred Stock at stated rate | | | (55,059 | ) | | (2,959 | ) | | (93,683 | ) | | (22,915 | ) | | |
|
| |
|
| |
|
| |
|
| | Net loss available to common stockholders | | $ | (2,107,991 | ) | $ | (1,978,442 | ) | $ | (3,998,434 | ) | $ | (3,707,541 | ) | | |
|
| |
|
| |
|
| |
|
| |
Three months ended March 31 Six months ended March 31
2003 2002 2003 2002
===================================================================================================================
Net Loss $ (1,854,306) $ (1,975,483) $(3,585,951) $ (3,684,626)
Series D Preferred Stock imputed deemed dividends
based on discount at issuance (616,477) - (678,447) -
Imputed deemed dividends on warrants issued with
Series D Preferred Stock (60,475) - (114,760) -
Series E Preferred Stock imputed deemed dividends
based on discount at issuance (61,145) - (61,145) -
Imputed deemed dividends on warrants issued with
Series E Preferred Stock (17,256) - (17,256) -
Accretion on Series C, D, and E Preferred
Stock at stated rate (55,059) (2,959) (93,683) (22,915)
- -------------------------------------------------------------------------------------------------------------------
Net loss available to common stockholders $ (2,664,718) $ (1,978,442) $(4,551,242) $ (3,707,541)
===================================================================================================================
4. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the FASB issued SFAS No. 143, “Accounting"Accounting for Asset Retirement
Obligations.”" SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 is effective for the Company for the fiscal year ending September
30, 2003. The Company adopted this statement effective October 1, 2002. The
adoption of this statement did not have a material impact on its financial
statements.
In October 2001, the FASB issued SFAS No. 144, “Accounting"Accounting for the Impairment or
Disposal of Long-Lives Assets”Assets". SFAS 144 requires that those long-lived assets
be measured at the lower of carrying amount or fair value, less cost to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, is to be applied prospectively. The
adoption of this statement did not have a material impact on its financial
statements. In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44 and
64, Amendment of FASB No.13, and Technical Corrections. SFAS rescinds FASB No. 4
Reporting Gains and Losses from Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This statement also rescinds SFAS No.44 Accounting
for Intangible Assets of Motor Carriers and amends SFAS No.13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. This statement is
effective for fiscal years beginning after May 15, 2002. The adoption of this
statement did not have a material impact on its financial statements. In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging
Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a
cost associated with an exit or disposal activity be recognized and measured
initially at fair value when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities that are initiated after March 31,
2003, with 7
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
early application encouraged. The Company does not expect the
7
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
adoption of this statement to have a material effect on its financial
statements. In December 2002, the FASB issued SFAS No. 148,, “Accounting "Accounting for Stock-Based
Compensation - Transition and Disclosure -- an Amendment of FASB Statement No.
123.”" This statement amends SFAS No. 123, “Accounting"Accounting for Stock-Based
Compensation”Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
adopted the disclosure requirements effective October 1, 2002, in its financial
statements. In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s"Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (“Others" ("FIN 45”45"). FIN 45 clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of FIN 45 are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements of FIN 45 are applicable for financial statements of
interim periods ending after December 15, 2002. The Company the disclosure
requirements of FIN 45 in the 1st1st quarter of 2002 and has include the new
disclosure requirements in the Notes to the Financial Statements (see Note 6). 5. INVENTORIES Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. Inventories consist of the following: | | March 31, 2003 | | September 30, 2002 | | | |
|
| |
|
| | Finished goods | | $ | 214,885 | | $ | 78,361 | | Raw materials | | | 236,871 | | | 78,520 | | Reserve for obsolete inventory | | | (20,000 | ) | | (20,000 | ) | | |
|
| |
|
| | | | $ | 431,756 | | $ | 136,881 | | | |
|
| |
|
| |
March 31, 2003 September 30,2002
================================================================================
Finished goods $ 214,885 $ 78,361
Raw materials 236,871 78,520
Reserve for obsolete inventory (20,000) (20,000)
- --------------------------------------------------------------------------------
$ 431,756 $ 136,881
================================================================================
6. PRODUCT WARRANTY COST At the time revenue is recognized, the Company provides for estimated cost of
product warranties as provided under contractual arrangements. Warranty
obligations are affected by product failure rates and service delivery costs
incurred in correcting a product failure. Should such failure rates or costs
differ from these estimates, accrued warranty costs would be adjusted in the
period that such events or costs become known.
Changes in the warranty reserves during the six months ended March 31, 2003 were
as follows: Balance at October 1, 2002 | | $ | 6,313 | | Accruals for warranty during the six months ended March 31, 2003 | | | 41,542 | | | |
|
| | Balance at March 31, 2003 | | $ | 47,855 | | | |
|
| |
================================================================================
Balance at October 1, 2002 $ 6,313
Accruals for warranty during the six months
ended March 31, 2003 41,542
- --------------------------------------------------------------------------------
Balance at March 31, 2003 $47,855
================================================================================
7. PURCHASED TECHNOLOGY In April 2000, the Company acquired all rights to certain loudspeaker technology
owned by David Graebener (“Graebener”("Graebener"), Stephen M. Williams (“Williams”("Williams") and
Hucon Limited, a Washington corporation (“Hucon”("Hucon"). The purchase price consisted
of $300,000 cash plus 200,000 shares of common stock. The 200,000 shares of
common stock were issued in June 2000 and were valued at $962,500. The Company
agreed to pay up to an additional 159,843 shares of common stock to Williams and
Graebener contingent upon the achievement of certain performance milestones
relating to gross revenues received by the Company from the purchased
technology. Contingent shares are recorded as compensation expense when earned.
During fiscal 2002, a total of 50,000 contingent shares were issued. In fiscal
2003, the Company issued the balance of 109,843 contingent shares and recorded
$410,816 in compensation expense. The Company agreed to employ Mr. Williams and
Mr. Graebener for a term of three years subject to certain terms and conditions.
The Company did not renew the employment agreements, which terminated on
February 15, 2003.
8
AMERICAN TECHNOLOGY CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited) 8. SENIOR SECURED AND CONVERTIBLE SUBORDINATED PROMISSORY NOTES 8% Senior Secured Promissory Notes
- ----------------------------------
On September 30, 2002, the Company issued to accredited investors 8% Senior
Secured Promissory Notes (“("Senior Notes”Notes") for cash proceeds of $1,500,000. The
Senior Notes bear interest at a rate of eight percent (8%) per annum on the
principal outstanding until the earlier to occur of (i) December 31, 2003 or
(ii) when declared due and payable by the Holder upon the occurrence of an Event
of Default (the “Maturity Date”"Maturity Date"). Interest is payable on a quarterly basis with
the first payment due January 2, 2003. The Senior Notes are secured by accounts
receivable, certain equipment and inventory. The Senior Notes are convertible
at the option of the Company. In January 2003, the Company received an
additional $500,000 in cash proceeds from the issuance of a Senior Note to one
accredited investor. The terms of this note are the same as the 8% Senior
Secured Notes discussed above. In connection with the Series E Financing, the
Company amended its Senior Notes (i) to allow the holders of the Notes to
convert all or a portion of the principal balance of the Senior Notes into
Series E Preferred Stock and (ii) to extend the due date of the unconverted
balance of the Senior Notes from December 31, 2003 to December 31, 2004.The2004. The
Senior Notes were converted into Series E Preferred Stock at a conversion price
equal to the outstanding principal balance of the Senior Notes. All accrued but
unpaid interest on the converted principal balances plus an amount equal to two
months interest on the converted principal balances was paid in cash on the day
of conversion. At March 31, 2003 an aggregate of $1,000,000 was converted into
Series E Preferred Stock. The Senior Notes are also subject to mandatory
redemption upon the closing of a sale of equity securities in an amount
exceeding $3,000,000. The amendment to the Senior Notes clarified that Senior
Note balances converted to Series E Stock would not be included for purposes of
determining whether mandatory redemption of the remaining Senior Note balance is
required. 12% Convertible Subordinated Promissory Notes
- ---------------------------------------------
In September and October 2001, the Company sold for cash in a private offering
an aggregate of $2,025,000 of unsecured 12% Convertible Subordinated Promissory
Notes (“Notes”("Notes") to accredited investors and related parties. The Notes were
originally due December 31, 2002, but the maturity date was extended to December
31, 2003 by amendment dated November 19, 2002. The principal and interest amount
of each Note may, at the election of the Note holder, be converted one or more
times into fully paid and nonassessable shares of common stock, at a price of
$2.00 per share. The Notes may be called by the Company for conversion if the
market price exceeds $5.00 per share for five days and certain conditions are
met. Each purchaser was granted a warrant to purchase one common share of the
Company at $2.00 per share until September 30, 2006 (the “Warrant”"Warrant") for each
$2.00 of Notes (aggregate Warrants exercisable into 1,012,500 shares). At March
31, 2003, the Notes could have been converted into 1,193,738 shares of common
stock. The Notes and Warrants have antidilution rights reducing the conversion and
exercise price for certain issuances of equity securities by the Company at an
effective price below the applicable conversion or exercise price. In connection
with the Notes and Warrants, the Company recorded a $2,025,000 discount to the
notes to reflect the value of the beneficial conversion feature of the Notes and
the value of the Warrants. The Warrants were valued using the Black-Scholes
model with a dividend yield of zero percent; expected volatility of 89 to 90
percent; risk free interest rate of 4 percent; and an expected life of five
years. The value was reflected as a discount to the debt. This debt discount
was being amortized as non-cash interest expense over the original term of the
Notes. For the six month period ending March 31, 2003, $405,000 was amortized as
non-cash interest expense. 9. STOCKHOLDERS’STOCKHOLDERS' DEFICIT At March 31, 2003, the 10,000 shares of Series C Preferred Stock outstanding
were automatically converted into 41,130 shares of Common stock. In May 2002, the Company sold 235,400 shares of Series D Convertible Preferred
Stock (“("Series D Stock”Stock"), at $10.00 per share for gross cash proceeds of
$2,354,000. A total of 250,000 shares of Series D Stock have been authorized.
The dollar amount of Series D Stock, increased by $0.60 per share accretion per
annumandannum and other adjustments, is convertible one or more times into fully paid
shares of common stock at a conversion price which is the lower of (i) $4.50 per
share or (ii) 90% of the volume weighted average market price for the five days
prior to conversion, but in no event less than $2.00 per share, subject to
adjustment, provided however, that no such conversion could be made prior to
January 1, 2003 at a conversion price of less than $4.50 per share. The shares
of Series D Stock may be called by the Company for conversion if the market
price of the common stock exceeds $9.50 per share for ten days and certain
conditions are met. The Series D Stock is subject to automatic conversion on
March 31, 2006. The purchasers of the Series D Stock were granted warrants to
purchase an aggregate of 517,880 common shares of the Company at $4.50 per share
until March 31, 2007 (“("D Warrants”Warrants"). The Series D Stock and the D Warrants have
9
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
antidilution rights reducing the floor conversion 9
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
and warrant exercise price for
certain issuances of equity securities by the Company at an effective price
below the applicable floor conversion or warrant exercise price. In connection
with the Series D Stock financing, the Company incurred closing costs of
$78,752. During the six months ending March 31, 2003, 170,400 shares of Series D Stock
were converted into 647,720 shares of common stock. As of March 31, 2003 the
65,000 remaining outstanding shares of Series D Stock (based on 360-day year)
would have been convertible into 208,986 shares of common stock. In connection with the Series D Stock and D Warrants, the Company recorded
$994,310 and $871,000 as the value of the discount at issuance of the Series D
Stock and the value of the D warrants, respectively. The D warrants were valued
using the Black-Scholes model with a dividend yield of zero percent; expected
volatility of 78 percent; risk free interest rate of 4.94 percent; and an
expected life of five years. The Series E Financing resulted in a repricing of
the 517,880 outstanding D warrants from $4.50 per share to $3.01 per share in
accordance with repricing provisions of such warrants. In connection with the
repricing the Company recorded $158,519 in additional warrant value. For the six
months ended March 31, 2003, $126,726$678,447 and $115,370$114,760 were amortized as a deemed
dividend related to the value of the discount at issuance and the value of the D
warrants. Subsequent to March 31, 2003, 10,000 shares of Series D Stock were converted
into 35,624 shares of common stock. In March 2003, the Company sold $3,432,500 of Series E Preferred Stock, par
value $.00001, at $10.00 per share (the “Series"Series E Stock”Stock") to a limited number of
investors (the “Series"Series E Financing”Financing"). In connection with the Series E
Financing, the Company amended its 8% Senior Secured Promissory Notes (the
“Notes”"Notes") (i) to allow the holders of the Senior Notes to convert all or a
portion of the principal balance of the Notes into Series E Stock and (ii) to
extend the due date of the unconverted balance of the Senior Notes from December
31, 2003 to December 31, 2004. The Company raised an aggregate of $2,432,500 in
new cash, a subscription receivable and converted Senior Notes with an aggregate
value of $1,000,000. A total of $1,000,000 in principal amount of the Senior
Notes remains outstanding.
The dollar amount of Series E Stock, increased by $0.60 per share accretion per
annum and other adjustments, is convertible one or more times into fully paid
shares of common stock at a conversion price which is the lower of (i) $3.25 per
share or (ii) 90% of the volume weighted average market price for the five days
prior to conversion, but in no event less than $2.00 per share, subject to
adjustment, provided however, that no such conversion can be made prior to
September 30, 2003 at a conversion price of less than $3.25 per share. The
shares of Series E Stock may be called by the Company for conversion if the
market price of the common stock exceeds $9.50 per share for ten days and
certain conditions are met. The Series E Stock is subject to automatic
conversion on December 31, 2006. Each purchaser of Series E Preferred Stock was
also granted a warrant to purchase 1.5 shares of common stock for each share of
Series E Preferred Stock purchased, exercisable until December 31, 2007 at a
price of $3.25 per share. In connection with the Series E financing, we issued
warrants exercisable for an aggregate of 514,875 shares (“("E Warrants”Warrants"). In
connection with the Series E Stock financing, the Company incurred closing costs
of $141,222. As of March 31, 2003 the outstanding Series E Stock (based on 360-day year)
would have been convertible into 1,061,270 shares of common stock. In connection with the Series E Stock and E Warrants, the Company recorded
$2,677,000 and $755,500 as the value of the discount at issuance of the Series E
Stock and the value of the warrants, respectively. The warrants were valued
using the Black-Scholes model with a dividend yield of zero percent; expected
volatility of 76.5 percent; risk free interest rate of 4.0 percent; and an
expected life of five years. For the six months ended March 31, 2003, $59,821$61,145
and $16,883$17,256 were amortized as a deemed dividend related to the value of the
discount at issuance and the value of the E warrants. In March 2003, the Company issued a $25,000 subscription receivable related to
the sale of Series E Stock. The receivable was collected in April 2003.
The cash proceeds of the preferred stock were allocated prorata between the
relative fair values of the preferred stock and warrants at issuance using the
Black Scholes valuation model for valuing the warrants. After allocating the
proceeds between the preferred stock and warrant, an effective conversion price
was calculated for the convertible preferred stock to determine the beneficial
conversion discount for each share. The value of the beneficial conversion
10
AMERICAN TECHNOLOGY CORPORATION NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)
discount is recorded as a deemed dividend. The resultant combined discount to
the preferred stock is accreted as an deemed dividend over the conversion period
of the preferred stock. The following is a summary of the components of the
discount recorded upon issuance of the preferred stock and warrants:
COMPONENTS OF
DEEMED DIVIDEND
---------------------------------------
PREFERRED NUMBER OF
ISSUANCE STOCK PURCHASE PREFERRED NUMBER OF BENEFICIAL
DATE SERIES PRICE SHARES WARRANTS CONVERSION WARRANTS TOTAL
- ---------- --------- ---------- --------- --------- ---------------- --------- ----------
May 2002 Series D $2,354,000 235,400 517,880 $ 994,310 $ 871,000 $1,865,310
March 2003 Series E $3,432,500 343,250 514,875 $ 2,677,000 $ 755,500 $3,432,500
The following table summarizes information about the Series D Preferred Stock
and deemed dividend activity during the six months ended March 31, 2003:
SERIES D
--------------------------------------
PREFERRED
DEEMED SHARES WARRANTS
DIVIDEND OUTSTANDING OUTSTANDING
- -------------------------------------------------------------------------------------------------------
Deemed dividend for warrants and beneficial conversion May 2002 $1,865,310 235,400 517,880
Accretion of deemed dividend (195,936) - -
- -------------------------------------------------------------------------------------------------------
Balance as of September 30, 2002 1,669,374 235,400 517,880
Deemed dividend accreted on preferred stock converted (643,647) (170,400) -
Additional deemed dividend for Series D warrant repricing 158,519 - -
Accretion of deemed dividend (149,560) - -
- -------------------------------------------------------------------------------------------------------
Balance as of March 31, 2003 $1,034,686 65,000 517,880
=======================================================================================================
The following table summarizes information about the Series E Preferred Stock
and deemed dividend activity during the six months ended March 31, 2003:
SERIES E
-------------------------------------
PREFERRED
DEEMED SHARES WARRANTS
DIVIDEND OUTSTANDING OUTSTANDING
- ------------------------------------------------------------------------------------------------------------
Deemed dividend for warrants and beneficial conversion March, 2003 $3,432,500 343,250 514,875
Accretion of deemed dividend (78,401) - -
- ------------------------------------------------------------------------------------------------------------
Deemed dividend for warrants and beneficial conversion March 31, 2003 $3,354,099 343,250 514,875
============================================================================================================
11
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes changes in equity components from transactions
during the six months ended March 31, 2003: | | Preferred Stock | | Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | | |
| |
| | | | | | Shares | | Amount | | Shares | | Amount | | | | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | Balance as of October 1, 2002 | | | 245,400 | | $ | 2 | | | 14,351,476 | | $ | 144 | | $ | 27,255,016 | | $ | (28,140,044 | ) | Stock issued upon exercise of stock options | | | — | | | — | | | 6,500 | | | — | | | 19,500 | | | — | | Stock issued for services | | | — | | | — | | | 109,844 | | | 1 | | | 410,815 | | | — | | Stock issued on conversion of Series D Preferred Stock | | | (170,400 | ) | | (1 | ) | | 647,720 | | | 6 | | | (6 | ) | | — | | Stock issued on conversion of Series C Preferred Stock | | | (10,000 | ) | | — | | | 41,130 | | | — | | | — | | | — | | Issuance of Series E Preferred Stock, net of offering costs of $141,222 | | | 343,250 | | $ | 3 | | | — | | | — | | | 3,291,275 | | | — | | Net loss | | | — | | | — | | | — | | | — | | | — | | | (3,585,951 | ) | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | Balance as of March 31, 2003 | | | 408,250 | | $ | 4 | | | 15,156,670 | | $ | 151 | | $ | 30,976,600 | | $ | (31,725,995 | ) | | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
==============================================================================================================================
Balance as of October 1, 2002 245,400 $ 2 14,351,476 $ 144 $27,255,016 $(28,140,044)
Stock issued upon exercise of
stock options - - 6,500 - 19,500 -
Stock issued for services - - 109,844 1 410,815 -
Stock issued on conversion of
Series D Preferred Stock (170,400) (1) 647,720 6 (6) -
Stock issued on conversion of Series
C Preferred Stock (10,000) - 41,130 - - -
Issuance of Series E Preferred Stock,
net of offering costs of $141,222 343,250 $ 3 - - 3,291,275 -
Net loss - - - - - (3,585,951)
- ------------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2003 408,250 $ 4 15,156,670 $ 151 $30,976,600 $(31,725,995)
==============================================================================================================================
The following table summarizes information about stock option activity during
the six months ended March 31, 2003: | | Number of Options | | Weighted Average exercise price | | | |
|
| |
|
| | Outstanding October 1, 2002 | | | 1,459,175 | | $ | 3.97 | | Canceled/expired | | | (84,450 | ) | $ | 4.25 | | Exercised | | | (6,500 | ) | $ | 3.00 | | Granted | | | 293,000 | | $ | 3.37 | | | |
|
| |
|
| | Outstanding March 31, 2003 | | | 1,661,225 | | $ | 3.86 | | | |
|
| |
|
| | Exercisable at March 31, 2003 | | | 1,289,559 | | $ | 3.86 | | | |
|
| |
|
| |
Weighted
Number of Average
exercise
Options price
- ----------------------------------------------------
Outstanding October 1, 2002 1,459,175 $ 3.97
Canceled/expired (84,450) $ 4.25
Exercised (6,500) $ 3.00
Granted 293,000 $ 3.37
Outstanding March 31, 2003 1,661,225 $ 3.86
- ----------------------------------------------------
Exercisable at March 31, 2003 1,289,559 $ 3.86
====================================================
Options outstanding are exercisable at prices ranging from $2.50 to $9.03 and
expire over the period from 2003 to 2008 with an average life of 3 years.
The following table summarizes information about warrant activity during the six
months ended March 31, 2003:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
WARRANTS PRICE
Outstanding October 1, 2002 2,105,380 $ 4.85
- -----------------------------------------------
Canceled/expired (300,000) 11.00
Exercised - -
Granted 514,875 3.25
- -----------------------------------------------
Outstanding March 31, 2003 2,320,255 $ 3.36
===============================================
12
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
At March 31, 2003, the Company had the following warrants outstanding arising
from offerings and other transactions, each exercisable into one Common Share:Number | | | Exercise Price | | | Expiration Date | |
| |
|
| |
|
| | | 50,000 | | $ | 16.00 | | | May 12, 2003 | | | 50,000 | | $ | 10.00 | | | January 5, 2004 | | | 375,000 | | $ | 11.00 | | | March 31, 2005 | | | 1,012,500 | | $ | 2.00 | | | September 30, 2006 | | | 517,880 | | $ | 3.01 | | | March 31, 2007 | | | 100,000 | | $ | 4.25 | | | September 30, 2007 | | | 514,875 | | $ | 3.25 | | | December 31, 2007 | |
|
| |
|
| |
|
| | | 2,620,255 | | | | | | | |
|
| |
|
| |
|
| |
Number Exercise Price Expiration Date
================================================================================
50,000 $ 16.00 May 12, 2003
50,000 $ 10.00 January 5, 2004
75,000 $ 11.00 March 31, 2005
1,012,500 $ 2.00 September 30, 2006
517,880 $ 3.01 March 31, 2007
100,000 $ 4.25 September 30, 2007
514,875 $ 3.25 December 31, 2007
- --------------------------------------------------------------------------------
2,320,255 $ 3.36
================================================================================
At March 31, 2003, the Company has two stock-based employee compensation plans.
The Company accounts for those plans under the recognition and measurement
principles of APB Opinion No. 25, “Accounting"Accounting for Stock Issued to Employees, and
related Interpretations”Interpretations". No stock-based employee compensation cost is
reflected in net loss available to common shareholders, as all options granted
under those plans had an exercise price equal to or greater than the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net loss available to common shareholders and basic
and diluted loss per common share if the Company had applied the fair value
recognition provisions of SFAS No. 123: 11
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
| | For the three months ended March 31, | | For the six months ended March 31, | | | |
| |
| | | | 2003 | | 2002 | | 2003 | | 2002 | | | |
|
| |
|
| |
|
| |
|
| | Net loss available to common shareholders | | | | | | | | | | | | | | Net loss as reported | | $ | (2,107,991 | ) | $ | (1,978,442 | ) | $ | (3,998,434 | ) | $ | (3,707,541 | ) | Deduct: | | | | | | | | | | | | | | Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects | | | 136,076 | | | 148,718 | | | 258,152 | | | 297,436 | | | |
|
| |
|
| |
|
| |
|
| | Pro forma net loss | | $ | (2,244,067 | ) | $ | (2,127,160 | ) | $ | (4,256,586 | ) | $ | (4,004,977 | ) | | |
|
| |
|
| |
|
| |
|
| | Net loss per common share | | | | | | | | | | | | | | As reported | | $ | (0.14 | ) | $ | (0.14 | ) | $ | (0.27 | ) | $ | (0.26 | ) | | |
|
| |
|
| |
|
| |
|
| | Pro forma | | $ | (0.15 | ) | $ | (0.15 | ) | $ | (0.29 | ) | $ | (0.28 | ) | | |
|
| |
|
| |
|
| |
|
| |
For the three months ended For the six months ended
March 31, March 31,
2003 2002 2003 2002
===================================================================================================================
Net loss available to common shareholders
Net loss as reported $ (2,664,718) $ (1,978,442) $ (4,551,242) $ (3,707,541)
Deduct:
Total stock-based employee compensation
determined under fair value based method for all
awards, net of related tax effects 136,076 148,718 258,152 297,436
- -------------------------------------------------------------------------------------------------------------------
Pro forma net loss $ (2,800,794) $ (2,127,160) $ (4,809,394) $ (4,004,977)
===================================================================================================================
Net loss per common share
As reported $ (0.18) $ (0.14) $ (0.31) $ (0.26)
- -------------------------------------------------------------------------------------------------------------------
Pro forma $ (0.19) $ (0.15) $ (0.33) $ (0.28)
===================================================================================================================
10. INCOME TAXES At September 30, 2002, a valuation allowance has been provided to offset the net
deferred tax asset as management has determined that it is more likely than not
that the deferred tax asset will not be realized. The Company has for federal
income tax purposes net operating loss carryforwards of approximately
$23,259,000 which expire through 2022 of which certain amounts are subject to
limitations under the Internal Revenue Code of 1986, as amended.
12
Item
13
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR
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 UNDER THE SUB-HEADING, “BUSINESS"BUSINESS
RISKS.”" ALSO SEE OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30,
2002. Overview
OVERVIEW
We are focused on commercializing our proprietary HyperSonic Sound (“HSS”("HSS"),
NeoPlanar, PureBass and HIDA sound technologies. Our HyperSonic Sound technology
employs a laser-like beam to project sound to any listening environment. Our
NeoPlanar technology is a thin film magnetic speaker that uses unique films and
materials, which we believe results in superior sound quality and volume for any
given size with low distortion. PureBass is an extended range woofer designed to
complement our HSS, NeoPlanar technologies and other high performance satellite
systems. Our HIDA technology employs proprietary techniques and components to
produce variable intensity directional acoustical sound intended for use as a
hailing device or supercharged megaphone or as a non-lethal weapon. Our strategy
is to commercialize these technologies through licensing and product sales to
customers, distributors and OEMs. We believe our HSS, NeoPlanar and PureBass
technologies meet customer and OEM requirements. These technologies have been
licensed to OEMs and are being transferred to production. We expect product
sales and royalties to commence in fiscal 2003 from these technologies. We are
also producing HSS and NeoPlanar systems for sale to customers, distributors and
OEMs. We are in the early stage of sales and licensing of our sound technologies
with many customers purchasing systems for evaluation and demonstration.
We incurred net losses of $8,220,132, $5,046,219 and $3,068,046 in the fiscal
years ended September 30, 2002, 2001 and 2000 and a net loss of $3,585,951 for
the six months ended March 31, 2003. We have substantial research and
development and general administrative expenses, and our revenues from our audio
technologies and portable consumer products have not yet been sufficient to
offset these costs. We expect to incur additional operating losses during the
balance of fiscal 2003, and we anticipate that we will need to raise additional
capital of approximately $2 million to continue operations at planned levels
during the next twelve months. See “Liquidity"Liquidity and Capital Resources”Resources" below. As a
result of our need for capital and our net losses to date, our independent
auditors noted in their audit report on our financial statements for the fiscal
year ended September 30, 2002 substantial doubt about our ability to continue as
a going concern. We will need to generate additional revenue to achieve
profitability and generate positive cash flow from operations in future periods. We license our technologies for production by others. When we license an audio
technology, we typically receive a flat fee up-front, with the balance of
payments based upon a percentage of net revenues of the products in which our
technology is incorporated. Revenues from up-front license fees are recognized
ratably over the specified term of the particular license. Contract fees are
recorded as services are performed. In other instances we supply complete systems or components used in other
products to customers, distributors or OEMs. In these cases we include our
intellectual property fees in the selling prices of the systems or components.
We currently produce HSS systems and NeoPlanar panels which are installed as a
component of a sound system. Our various technologies are high risk in nature. Unanticipated technical
obstacles can arise at any time and disrupt sales or licensing activities and
result in lengthy and costly delays. There can be no assurance commercially
viable sound products offered by us or by our customers, distributors or OEMs
will meet with market acceptance or that such products will perform on a
cost-effective basis. Our future is largely dependent upon the success of our sound technologies. We
invest significant funds in research and development and on patent applications
related to our proprietary technologies. There can be no assurance our
technologies will achieve market acceptance sufficient to sustain operations or
achieve future profits. See “Business Risk”"Business Risk" below. Effective in October 2002, we discontinued our portable consumer product line in
order to focus financial, personnel and facility resources on our sound
technologies, which we expect to provide substantially all of our fiscal 2003
revenues. For the six months ended March 31, 2003 and for fiscal 2002 we
recorded revenues of $78,680 and $301,116, respectively for portable consumer
products. These revenues represented products sourced by us, private labeled
under our name and resold to sporting good stores and other retailers.
Historically, portable consumer product revenues accounted for the majority of
our revenues. 13
14
Demand for our sound technologies and products is subject to significant month
to month variability resulting from seasonal demand fluctuations and the limited
number of customers and market penetration achieved by us to date. Further, we
expect future sales may be concentrated with a limited number of customers. We
are also reliant on outside suppliers for components of our products and outside
manufacturers for assembly and there can be no assurance of future supply. The
markets for our products and future products and technologies are subject to
rapidly changing customer tastes and a high level of competition. Demographic
trends in society, marketing and advertising expenditures, and product
positioning in retail outlets, technological developments, seasonal variations
and general economic conditions influence demand for our products. Because these
factors can change rapidly, customer demand can also shift quickly. We may not
be able to respond to changes in customer demand because of the time required to
change or introduce products, production limitations and/or limited financial
resources. Critical Accounting Policies
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business operations and
the understandings of our results of operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout Management’sManagement's Discussion and Analysis of Financial Condition and
Results of Operations when such policies affect our reported and expected
financial results.
In the ordinary course of business, we have made a number of estimates and
assumptions relating to the reporting of results of operations and financial
condition in the preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America. Actual
results could differ significantly from those estimates under different
assumptions and conditions. We believe that the following discussion addresses
our most critical accounting policies, which are those that are most important
to the portrayal of our financial condition and results of operations and
require our most difficult, subjective, and complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. We do not have off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also known as
“special"special purpose entities”entities" (SPEs). Revenue Recognition
REVENUE RECOGNITION
We derive our revenue primarily from two sources: (i) product revenue and (ii)
contract and license fee revenue. Product revenues are recognized in the periods
that products are shipped to customers, FOB shipping point, if a signed contract
exists, the fee is fixed and determinable, collection of resulting receivables
is probable and there are no resulting obligations. Revenues from ongoing per
unit license fees are earned based on units shipped incorporating our patented
proprietary technologies and are recognized in the period when the
manufacturers’manufacturers' units shipped information is available to us and collectibility
is reasonably assured. Revenues from up-front license and other fees and annual
license fees are recognized ratably over the specified term of the particular
license or agreement.
Research and Development Expenses
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are salaries and related expenses associated
with the development of our proprietary sound technologies and include
compensation paid to engineering personnel and fees to outside contractors and
consultants.
Deferred Tax Asset
DEFERRED TAX ASSET
We have provided a full valuation reserve related to our substantial deferred
tax assets. In the future, if sufficient evidence of our ability to generate
sufficient future taxable income in certain tax jurisdictions becomes apparent,
we may be required to reduce our valuation allowances, resulting in income tax
benefits in our consolidated statement of operations. We evaluate the
realizability of the deferred tax assets and assess the need for valuation
allowance quarterly. The utilization of the net operating loss carryforwards
could be substantially limited due to restrictions imposed under federal and
state laws upon a change in ownership.
Results of Operations
RESULTS OF OPERATIONS
Total revenues for the six month period ended March 31, 2003 and 2002 were
$661,241and $456,054, respectively. Total revenues for the three month period
ended March 31, 2003 and 2002 were $237,942 and $199,433, respectively. Product
revenues for the six months ended March 31, 2003 were $533,578 a 65% increase
from the comparable six month total of $324,110 for the prior year. For the six
months ended March 31, 2003 product sales included $78,680 of consumer portable
product sales and $454,898 from the sale of NeoPlanar, HIDA and HSS products.
For the six months ended March 31, 2002 product sales included $165,463 of
consumer portable product sales and $158,647 from the sale of NeoPlanar, HIDA
and HSS products. Product revenues for the second quarter ended March 31, 2003
and 2002 were $145,611 and $99,155, respectively. We experienced manufacturing
quality control problems with some of our initial
14
commercial HSS units, which
negatively impacted product sales during the second quarter of fiscal 2003. We
have worked closely with our contract manufacture to resolve these issues, but
15
because our HSS emitters are a new and unique product, we may continue to
experience manufacturing problems that could adversely impact product sales in
future periods. Consumer product revenues were historically volatile due to
changing customers and product offerings and reliance on a limited number of
customers. Since we have discontinued our portable consumer products line,
fiscal 2003 revenues for these products will be substantially below those for
fiscal 2002, and will be limited to sales of inventory on hand. Sales of sound
products are also expected to be volatile as a result of manufacturing startup
requirements and the need to recruit new customers for products not previously
available in the marketplace. Contract and license revenues for the quarters ended March 31, 2003 and 2002
were $127,663 and $131,944, respectively. We recognize upfront fees and advance
revenues over the term of respective license agreements. At March 31, 2003 and
September 30, 2002 we had $388,168 and $276,667, respectively, collected and
recorded as unrecognized revenue for existing contracts and licenses. At March 31, 2003, we received purchase orders for approximately $240,000 for
military product expected to ship during our fiscal third quarter ending June
30, 2003. Anticipated shipments are subject to change due to a variety of
factors, many outside our control. Our customers may modify or cancel orders and
delay or change schedules. Shipments may also be delayed due to production
delays, component shortages and other production related issues. Cost of revenues for the six months ended March 31, 2003 was $672,419 resulting
in a gross loss of $11,178 or 1.7%. This compares to a gross profit of $217,209
or 48% for the comparable period of the prior year. It is difficult to compare
historical gross profit percentages due to changes in contract and license
revenues as a percentage of total revenues and changes in the product mix in
each year. Cost of revenues for the three months ended March 31, 2003 and 2002
were $350,784 and $122,385 resulting in a gross loss of 47% and a gross profit
of 39%, respectively. The lower gross profit percentage in the six and three
months ended March 31, 2003 resulted from lower margins on consumer product
sales, and establishing a warranty reserve and startup production costs for HSS
and NeoPlanar products. Gross profit percentage is highly dependent on sales
prices, volumes, purchasing costs and overhead allocations. Overall gross
margins will also be impacted by future contract and licensing revenues and the
types of products sold to customers. Margins may vary significantly from period
to period. Selling, general and administrative expenses for the six months ended March 31,
2003 and 2002 were $1,665,309 and $1,103,120, respectively. The $562,189
increase resulted from an increase in legal costs and fees of $166,055, an
increase in professional services of $61,461, an increase in personnel and
related costs of $333,972 and an increase of $8,284 for print advertising. The
increase in personnel costs included four new hires. Selling, general and
administrative expense for the three month period ending March 31, 2003
increased by $298,529 or 49% from the comparable prior year period. We may
expend additional resources on marketing our sound technologies in future
quarters, which may increase selling, general and administrative expenses in
future periods. Research and development expenses for the six months ended March 31, 2003 were
$1,308,719 compared to $1,880,997 for the comparable six months of the prior
year. The $572,278 decrease resulted from a reduction of $386,470 for supplies
and materials used in the development of our sound technologies and a decrease
of $314,468 for consulting services offset by an increase in personnel and
related costs of $182,798. The increase in personnel and related costs can be
attributed to the addition of an engineer administrative assistant, two lab
technicians and a quality control director. Research and development costs for
the three months ended March 31, 2003 decreased by $259,762 or 26% from the
comparable prior year period. Research and development costs vary quarter by
quarter due to the timing of projects, the availability of funds for research
and development and the timing and extent of use of outside consulting, design
and development firms. We expect that fiscal 2003 research and development costs
may be at lower levels than the prior year based on current staffing and
budgeting as we focus resources on sales of products from developed
technologies. We recorded in selling, general and administrative expenses $3,600 for the six
months ended March 31, 2002 for services paid through the issuance of 1,425
shares of common stock. We experienced a loss from operations of $2,985,206 during the six months ended
March 31, 2003, compared to a loss from operations of $2,766,908 for the
comparable six months ended March 31, 2002. The $218,298 increase is primarily
due to the decrease in our gross profit on product sales reflecting production
start up costs. Interest expense of $602,730 for the six months ended March 31, 2003 included
$405,000 of noncash amortization of debt discount, $121,529 of accrued interest
on convertible subordinated promissory notes and $72,305 of paid interest on
senior secured promissory notes. 15
16
The net loss available to common stockholders for the six months ended March 31,
2003 of $3,998,434$4,551,242 included $93,683 of accretion on the Series C, D and E
Preferred Stock and also included $126,726$678,447 and $59,821$61,145 on Series D and Series E
Preferred Stock imputed deemed dividends based on discount at issuance,
respectively, and $115,370$114,760 and $16,883$17,256 on imputed deemed dividends on warrants
issued in connection with the Series D and Series E Preferred Stock,
respectively. The net loss available to common stockholders for the three months
ended March 31, 2003 of $2,107,991$2,664,718 included $55,059 of accretion on the Series
C, D and E Preferred Stock and also included $62,667$616,477 and $59,821$61,145 on Series D
and Series E Preferred Stock imputed deemed dividends based on discount at
issuance, respectively, and $59,255$60,475 and $16,883$17,256 on imputed deemed dividends on
warrants issued in connection with the Series D and Series E Preferred Stock,
respectively. The net loss available to common stockholders for the six months ended March 31,
2002 of $3,707,541 included $22,915 of accretion on the Series C Preferred
Stock. The net loss available to common stockholders for the three months ended
March 31, 2002 of $1,978,442 included $2,959 of accretion on the Series C
Preferred Stock. We have federal net loss carryforwards of approximately $23,259,000 for federal
tax purposes expiring through 2022. The amount and timing of the utilization of
our net loss carryforwards may be limited under Section 382 of the Internal
Revenue Code. A valuation allowance has been recorded to offset the related net
deferred tax asset as management was unable to determine that it is more likely
than not that the deferred tax asset will be realized. Future operations are subject to significant variability as a result of
licensing activities, product sales and margins, timing of new product
offerings, the success and timing of new technology exploitation, decisions
regarding future research and development and variability in other expenditures. Liquidity and Capital Resources
LIQUIDITY AND CAPITAL RESOURCES
We have experienced significant negative cash flow from operating activities
developing and introducing our sound technologies. Due to our need for
additional capital and our net losses, our independent auditors have noted in
their report on our financial statements a substantial doubt about our ability
to continue as a going concern. Our negative cash flow from operating activities
was $2,680,346 for the six months ended March 31, 2003. As of March 31, 2003,
the net loss of $3,585,951 included certain expenses not requiring the use of
cash totaling $1,124,869. In addition, cash was used in operating activities
through an increase of $294,875 in inventories, an increase of $52,870 in
prepaid expenses and other and a decrease of $255,891 in accounts payable. Cash
provided by operating activities included an $86,682 decrease in accounts
receivable and a $197,690 increase in accrued liabilities.
At March 31, 2003, we had gross accounts receivable of $44,995 as compared to
$131,677 at September 30, 2002. This represented approximately 25 days of sales.
Terms with individual customers vary greatly. We typically require pre-payment
or a maximum of thirty day terms for our sound technology products. Our
receivables can vary dramatically due to overall sales volumes and due to
quarterly and seasonal variations in sales and timing of shipments to and
receipts from large customers. For the six months ended March 31, 2003, we used approximately $9,700 for the
purchase of laboratory and computer equipment and made a $32,749 investment in
patents and new patent applications. We anticipate a continued investment in
patents in fiscal 2003. Dollar amounts to be invested on these patents are not
currently estimable by management. At March 31, 2003, we had negative working capital of $979,997 compared to
working capital of $554,713 at September 30, 2002. We have financed our operations primarily through the sale of preferred stock,
exercises of stock options, sale of convertible and non-convertible notes,
proceeds from the sale of investment securities and margins from product sales.
At March 31, 2003, we had cash of $1,866,335, representing an increase of
$58,615 from cash at September 30, 2002. The increase resulted from cash used
in operating activities offset by proceeds from Series E Preferred Stock, a
subscription receivable and an 8% Senior Note, in aggregate amount of
$2,932,500.
During the quarter ended March 31, 2003, we raised an additional $500,000
through the sale of an 8% Senior Secured Note. We previously issued $1,500,000
of such notes on September 30, 2002. In connection with our sale of Series E
Preferred Stock, all of the outstanding senior notes were amended in February
2003: | •
| to allow the holders of the senior notes to convert all or a portion of the principal balance of the senior notes into Series E Preferred Stock; and
| | •
| to extend the due date of the unconverted balance of the senior notes from December 31, 2003 to December 31, 2004.
|
16
- to allow the holders of the senior notes to convert all or a portion
of the principal balance of the senior notes into Series E Preferred
Stock; and
- to extend the due date of the unconverted balance of the senior notes
from December 31, 2003 to December 31, 2004.
17
The senior notes bear interest at a rate of eight percent per annum. Interest
is payable on a quarterly basis with the first payment due January 2, 2003. The
senior notes are secured by accounts receivable, certain equipment and
inventory. The senior notes are also subject to mandatory redemption upon the
closing of a sale of equity securities in an amount exceeding $3,000,000. The
February 2003 amendment clarified that senior note balances converted to Series
E Preferred Stock would not be included for purposes of determining whether
mandatory redemption of the remaining senior note balance is required. During the quarter ended March 31, 2003, we sold 343,250 shares of Series E
Preferred Stock at $10.00 per share, and issued 514,875 related common stock
purchase warrants exercisable at $3.25 per share. Through this sale, we raised
approximately $2,266,278 in new cash after deducting offering costs, a
subscription receivable and converted outstanding senior secured promissory
notes with an aggregate principal value of $1,000,000. The terms of the Series
E Preferred Stock and related warrants are described under Part II, Item 2
below. Based on our current cash position and assuming (a) currently planned
expenditures and level of operations, (b) continuation of product sales and (c)
expected royalty and licensing proceeds; we believe we will require
approximately $2 million of additional cash for operations for the next twelve
months. We believe increased sales of HSS and NeoPlanar products may provide a
portion of this cash. We believe that any required investment capital will be
available to us, but there can be no guarantee that we will be able to raise
funds on terms acceptable to us, or at all. We have significant flexibility to
adjust the level of research and development and selling and administrative
expenses based on the availability of resources. However reductions in
expenditures could delay development and adversely affect our ability to
generate future revenues. Any equity-based source of additional funds could be dilutive to existing equity
holders and the dilution could be material. The lack of sufficient funds from
operations or additional capital could force us to curtail or scale back
operations and would therefore have an adverse effect on our business. Other
than cash and cash equivalents, we have no unused sources of liquidity at this
time. We expect to incur additional operating losses as a result of expenditures
for research and development and marketing costs for our sound products and
technologies. The timing and amounts of these expenditures and the extent of our
operating losses will depend on many factors, some of which are beyond our
control. Accordingly, there can be no assurance that our current expectations
regarding required financial resources will prove to be accurate. We anticipate
that the commercialization of our technologies may require increased operating
costs; however, we cannot currently estimate the amounts of these costs. Contractual Commitments and Commercial Commitments
CONTRACTUAL COMMITMENTS AND COMMERCIAL COMMITMENTS
The following table summarizes our contractual obligations, including purchase
commitments at March 31, 2003, and the effect such obligations are expected to
have on our liquidity and cash flow in future periods:
Payments Due by Period
Contractual Obligations | | Less than 1 Year | | 1-3 Year | | 4-5 Years | | After 5 Years | |
| |
|
| |
|
| |
|
| |
|
| | Capital leases | | $ | 9,110 | | $ | 28,497 | | $ | — | | $ | — | | Operating lease | | | 63,964 | | | — | | | — | | | — | | Employment agreements | | | 386,000 | | | 536,250 | | | — | | | — | | Convertible promissory notes due December 31, 2003 | | | 2,569,890 | (1) | | — | | | — | | | — | | Senior secured promissory notes due December 31, 2004 | | | — | | | 1,159,726 | | | — | | | — | | | |
|
| |
|
| |
|
| |
|
| | Total contractual cash obligations | | $ | 3,028,964 | | $ | 1,724,473 | | $ | — | | $ | — | | | |
|
| |
|
| |
|
| |
|
| |
(1) Assumes notes are not sooner converted to common shares.
Employment Agreements
Payments Due by Period
Less than 1
Contractual Obligations Year 1-3 Year 4-5 Years After 5 Years
- -----------------------------------------------------------------------------------------
Capital leases $ 9,110 $ 28,497 $ - $ -
Operating lease 63,964 - - -
Employment agreements 386,000 536,250 - -
Convertible promissory notes
due December 31, 2003 2,569,890(1) - - -
Senior secured promissory notes
due December 31, 2004 - 1,159,726 - -
- -----------------------------------------------------------------------------------------
Total contractual cash obligations $ 3,028,964 $1,724,473 $ - $ -
=========================================================================================
(1) Assumes notes are not sooner converted to common shares.
EMPLOYMENT AGREEMENTS
The Company has entered into four employment agreements with executive officers
and key employees. These agreements are each for 90 days to three-year terms
expiring from May 2003 to October 2005. Certain of the agreements provide for
up to twelve months severance for certain terminations and payments for the term
of the agreement (or in one case twelve months, if longer) on certain changes in
control.
17
New Accounting Pronouncements
18
NEW ACCOUNTING PRONOUNCEMENTS
A number of new pronouncements have been issued for future implementation as
discussed in the footnotes to our interim financial statements (see page 7, Note
4). As discussed in the notes to the interim financial statements, the
implementation of these new pronouncements is not expected to have a material
effect on our financial statements.
Business Risks
BUSINESS RISKS
You should consider each of the following factors as well as the other
information in this Quarterly Report in evaluating our business and our
prospects. The risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to us or that we
currently consider immaterial may also impair our business operations. If any of
the following risks actually occur, our business and financial results could be
harmed. In that case the trading price of our common stock could decline. You
should also refer to the other information set forth in this Quarterly Report
and in our Annual Report on Form 10-K for the fiscal year ended September 30,
2002, including our financial statements and the related notes.
We have a history of net losses. We expect to continue to incur net losses and we may not achieve or maintain profitability. Our independent auditors have raised substantial doubt about our ability to continue as a going concern.
WE HAVE A HISTORY OF NET LOSSES. WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND
WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY. OUR INDEPENDENT AUDITORS HAVE
RAISED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
We have incurred significant operating losses and anticipate continued losses in
fiscal 2003. At March 31, 2003 we had an accumulated deficit of $31,725,995. Due
to our net losses and our need for additional capital to sustain operations, our
independent auditors have noted in their report on our financial statements a
substantial doubt about our ability to continue as a going concern. We need to
generate additional revenue to be profitable in future periods. Failure to
achieve profitability, or maintain profitability if achieved, may cause our
stock price to decline.
We will need additional capital to support our operations during the next twelve months. If additional capital is not available, we may have to curtail or cease operations.
WE WILL NEED ADDITIONAL CAPITAL TO SUPPORT OUR OPERATIONS DURING THE NEXT TWELVE
MONTHS. IF ADDITIONAL CAPITAL IS NOT AVAILABLE, WE MAY HAVE TO CURTAIL OR CEASE
OPERATIONS.
Our current plans indicate we will need approximately $2.0 million in additional
capital to support our planned level of operations for the next twelve months.
Due to our need for additional capital and our net losses, our independent
auditors have noted in their report on our financial statements a substantial
doubt about our ability to continue as a going concern. A portion of these funds
may be generated from operations from licensing and HSS product sales. The
actual amount of funds that we will need will be determined by many factors,
some of which are beyond our control, and we may need funds sooner than
currently anticipated. These factors include:
•
| the extent to which we receive royalties from existing license agreements for our sound technologies;
| | | •
| our success in entering into new licensing arrangements for our sound technologies;
| | | •
| our success in producing and selling HSS and NeoPlanar products to customers;
| | | •
| our progress with research and development; and
| | | •
| the costs and timing of obtaining new patent rights.
|
- - the extent to which we receive royalties from existing license agreements
for our sound technologies;
- - our success in entering into new licensing arrangements for our sound
technologies;
- - our success in producing and selling HSS and NeoPlanar products to
customers;
- - our progress with research and development; and
- - the costs and timing of obtaining new patent rights.
When we require additional funds, general market conditions or the then-current
market price of our common stock may not support capital raising transactions.
If we require additional funds and we are unable to obtain them on a timely
basis or on terms favorable to us, we may be required to scale back our research
and development efforts, sell or license some or all of our technology or assets
or curtail or cease operations. If we raise additional funds by selling
additional shares of our capital stock or securities convertible into common
stock, the ownership interest of our stockholders will be diluted. We have substantial debt which adversely affects us.
WE HAVE SUBSTANTIAL DEBT WHICH ADVERSELY AFFECTS US.
We have a substantial amount of debt, including the following as of March 31,
2003:
| •
| $1.0 million in senior secured promissory notes due December 31, 2004.
| | •
| $2.025 million in convertible subordinated promissory notes due December 31, 2003.
|
- - $1.0 million in senior secured promissory notes due December 31, 2004.
- - $2.025 million in convertible subordinated promissory notes due December
31, 2003.
The substantial amount of our indebtedness impacts us in a number of ways: | •
| We have to dedicate a portion of cash flow from operations to interest payments on the senior secured promissory notes, which reduces funds available for other purposes.
| | | |
18
| •
| We may not have sufficient funds to pay quarterly interest payments on the senior secured promissory notes, which could lead to a default.
| | | | | •
| The existing debt may make it difficult for us to obtain additional financing for working capital or other purposes.
| | | | | •
| If we default on the senior secured promissory notes, the holders could take control of all of our accounts receivable, equipment, goods, instruments and inventory.
|
- We have to dedicate a portion of cash flow from operations to interest
payments on the senior secured promissory notes, which reduces funds
available for other purposes.
19
- We may not have sufficient funds to pay quarterly interest payments on
the senior secured promissory notes, which could lead to a default.
- The existing debt may make it difficult for us to obtain additional
financing for working capital or other purposes.
- If we default on the senior secured promissory notes, the holders
could take control of all of our accounts receivable, equipment,
goods, instruments and inventory.
These factors generally place us at a disadvantage to our less leveraged
competitors. Any or all of these factors could cause our stock price to decline. We may not have sufficient funds to pay the balance on promissory notes due December
WE MAY NOT HAVE SUFFICIENT FUNDS TO PAY THE BALANCE ON PROMISSORY NOTES DUE
DECEMBER 31, 2003 and DecemberAND DECEMBER 31, 2004.
We have issued convertible subordinated promissory notes in the aggregate face
amount of $2.025 million which mature on December 31, 2003 and senior secured
promissory notes in the aggregate face amount of $1.0 million which mature on
December 31, 2004, and if they are not sooner paid or, in the case of the
convertible notes, converted, we will owe $2,569,890 in principal and accrued
interest on December 31, 2003 and $1,159,726 due on December 31, 2004.
We have a right to force conversion of the amounts due under the convertible
subordinated promissory notes to common shares at conversion price of $2.00 per
share, but we can exercise that right only if our stock price exceeds $5.00 per
share for five trading days in a row, and we have on file with the SEC an
effective registration statement for the resale of such shares. The convertible
note holders may voluntarily convert the notes to common shares at a conversion
price of $2.00 per share any time before payment, but they are not obligated to
do so unless the conditions for mandatory conversion are met. If our stock price
is below $2.00 per share at March 31, 2003, it is unlikely any remaining holders
will elect to convert, and the notes will be due and payable unless they are
renegotiated. Even if our stock price exceeds $2.00 per share on that date or
before, some or all of the holders may not elect to convert their notes. During
the last 30 trading days, the closing sale price of our common shares has ranged
from $3.12 to $3.70. We may not have sufficient funds available to make the required maturity
payments. If we do not have sufficient funds, one or more note holders could
declare its note in default. The senior secured promissory notes are secured by
our accounts receivable, equipment, goods, instruments and inventory. If we
default on the payment of such notes, the holders will have the right to take
control of all of the assets which secure the notes. Although the convertible subordinated notes are unsecured, those note holders
could obtain a judgment and enforce that judgment by taking control of some or
all of our assets. Upon default, note holders could also commence involuntary
bankruptcy proceedings, which could significantly impair our business and the
value of your stock. Even if we do have sufficient funds to pay those notes at
maturity, such payments could impair our ability to meet other critical
operating expenses, and could require us to scale back our research and
development efforts, sell or license some or all of our technology or assets or
curtail or cease operations. We are an early stage company introducing new technologies. If commercially successful products do not result from our efforts, we may be unprofitable or forced to cease operations.
WE ARE AN EARLY STAGE COMPANY INTRODUCING NEW TECHNOLOGIES. IF COMMERCIALLY
SUCCESSFUL PRODUCTS DO NOT RESULT FROM OUR EFFORTS, WE MAY BE UNPROFITABLE OR
FORCED TO CEASE OPERATIONS.
Our HSS, NeoPlanar, PureBass and HIDA technologies have only recently been
introduced to market and are still being improved. Commercially viable sound
technology systems may not be successfully and timely produced by OEMs due to
the inherent risks of technology development, new product introduction,
limitations on financing, manufacturing problems, competition, obsolescence,
loss of key technical personnel and other factors. Our revenues from our sound
technology have been limited to date, and we cannot guarantee significant
revenues in the future. The development and introduction of our sound technology
has taken longer than anticipated by management and could be subject to
additional delays. We have also experienced manufacturing quality control
problems with some of our initial commercial HSS units, and we may not be able
to resolve future manufacturing problems in a timely and cost-effective manner.
Products employing our sound technology may not achieve market acceptance. Our
various sound projects are high risk in nature, and unanticipated technical
obstacles can arise at any time and result in lengthy and costly delays or
result in a determination that further exploitation is unfeasible. If we do not
successfully exploit our technology, our financial condition and results of
operations and business prospects would be adversely affected.
Our portable consumer products have been the primary source of our historical revenues. You cannot rely on period-to-period comparisons of our results of operations as an indication of future performance.
19
OUR PORTABLE CONSUMER PRODUCTS HAVE BEEN THE PRIMARY SOURCE OF OUR HISTORICAL
REVENUES. YOU CANNOT RELY ON PERIOD-TO-PERIOD COMPARISONS OF OUR RESULTS OF
OPERATIONS AS AN INDICATION OF FUTURE PERFORMANCE.
20
We have derived most of our historical revenues from the sale of portable
consumer electronics products. We expect future revenues will primarily be
generated from our proprietary sound reproduction and other electronic
technologies, but there can be no assurance we will achieve substantial revenues
from these technologies. If we do not achieve substantial revenues from these
technologies, you may not be able to rely on period-to-period comparisons of our
results of operations as an indication of future performance. We do not have the ability to predict future operating results. Our quarterly and annual revenues will likely be subject to fluctuations caused by many factors, any of which could result in our failure to achieve our revenue expectations.
WE DO NOT HAVE THE ABILITY TO PREDICT FUTURE OPERATING RESULTS. OUR QUARTERLY
AND ANNUAL REVENUES WILL LIKELY BE SUBJECT TO FLUCTUATIONS CAUSED BY MANY
FACTORS, ANY OF WHICH COULD RESULT IN OUR FAILURE TO ACHIEVE OUR REVENUE
EXPECTATIONS.
Our historical revenues derived almost exclusively from portable consumer
products, and we expect a majority of future revenues to be generated from our
sound reproduction technologies. Revenues from our sound reproduction
technologies are expected to vary significantly due to a number of factors. Many
of these factors are beyond our control. Any one or more of the factors listed
below or other factors could cause us to fail to achieve our revenue
expectations. These factors include:
| •
| our ability to develop and license our sound reproduction technologies or our ability to supply components to customers, distributors or OEMs;
| | | | | •
| market acceptance of and changes in demand for products of our licensees;
| | | | | •
| gains or losses of significant customers, distributors or strategic relationships;
| | | | | •
| unpredictable volume and timing of customer orders;
| | | | | •
| the availability, pricing and timeliness of delivery of components for our products and OEM products;
| | | | | •
| fluctuations in the availability of manufacturing capacity or manufacturing yields and related manufacturing costs;
| | | | | •
| the timing of new technological advances, product announcements or introductions by us, by our licensees and by our competitors;
| | | | | •
| product obsolescence and the management of product transitions and inventory;
| | | | | •
| production delays by customers, distributors, OEMs or by us or our suppliers;
| | | | | •
| seasonal fluctuations in sales;
| | | | | •
| the conditions of other industries, such as military and commercial industries, into which our technologies may be licensed;
| | | | | •
| general consumer electronics industry conditions, including changes in demand and associated effects on inventory and inventory practices; and
| | | | | •
| general economic conditions that could affect the timing of customer orders and capital spending and result in order cancellations or rescheduling.
|
- our ability to develop and license our sound reproduction technologies
or our ability to supply components to customers, distributors or
OEMs;
- market acceptance of and changes in demand for products of our
licensees;
- gains or losses of significant customers, distributors or strategic
relationships;
- unpredictable volume and timing of customer orders;
- the availability, pricing and timeliness of delivery of components for
our products and OEM products;
- fluctuations in the availability of manufacturing capacity or
manufacturing yields and related manufacturing costs;
- the timing of new technological advances, product announcements or
introductions by us, by our licensees and by our competitors;
- product obsolescence and the management of product transitions and
inventory;
- production delays by customers, distributors, OEMs or by us or our
suppliers;
- seasonal fluctuations in sales;
- the conditions of other industries, such as military and commercial
industries, into which our technologies may be licensed;
- general consumer electronics industry conditions, including changes in
demand and associated effects on inventory and inventory practices;
and
- general economic conditions that could affect the timing of customer
orders and capital spending and result in order cancellations or
rescheduling.
Some or all of these factors could adversely affect demand for OEM products
incorporating our sound reproduction technologies, and therefore adversely
affect our future operating results. Most of our operating expenses are relatively fixed in the short term. We may be
unable to rapidly adjust spending to compensate for any unexpected sales or
license revenue shortfalls, which could harm our quarterly operating results. We
do not have the ability to predict future operating results with any certainty. Our expenses may vary from period to period, which could affect quarterly results and our stock price.
OUR EXPENSES MAY VARY FROM PERIOD TO PERIOD, WHICH COULD AFFECT QUARTERLY
RESULTS AND OUR STOCK PRICE.
If we incur additional expenses in a quarter in which we do not experience
increased revenue, our results of operations would be adversely affected and we
may incur larger losses than anticipated for that quarter. Factors that could
cause our expenses to fluctuate from period to period include:
| •
| the timing and extent of our research and development efforts;
| | | | | •
|
- the timing and extent of our research and development efforts;
- the extent of marketing and sales efforts to promote our technologies; and | | | | | •
| the timing of personnel and consultant hiring.
|
Sound reproduction markets are subject to rapid technological change, sopromote our success will depend on our ability to developtechnologies;
and
introduce new technologies. - the timing of personnel and consultant hiring.
SOUND REPRODUCTION MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE, SO OUR
SUCCESS WILL DEPEND ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW TECHNOLOGIES.
Technology and standards in the sound reproduction markets evolve rapidly,
making timely and cost-effective product innovation essential to success in the
marketplace. The introduction of products with improved technologies or features
20
21
may render our technologies obsolete and unmarketable. If we cannot develop
products in a timely manner in response to industry changes, or if our
technologies do not perform well, our business and financial condition will be
adversely affected. The life cycles of our technologies are difficult to
estimate, particularly those such as HSS and HIDA for which there are no
established markets. As a result, our technologies, even if successful, may
become obsolete before we recoup our investment. Our
OUR HSS technology is subject to government regulation, which could lead to unanticipated expense or litigation. TECHNOLOGY IS SUBJECT TO GOVERNMENT REGULATION, WHICH COULD LEAD TO
UNANTICIPATED EXPENSE OR LITIGATION.
Our HyperSonic Sound technology emits ultrasonic vibrations, and as such is
regulated by the Food and Drug Administration. In the event of certain
unanticipated defects in an HSS product, a licensee or we may be required to
comply with FDA requirements to remedy the defect and/or notify consumers of the
problem. This could lead to unanticipated expense, and possible product
liability litigation against a licensee or us. Any regulatory impediment to full
commercialization of our HSS technology, or any of our other technologies, could
adversely affect our results of operations. For a further discussion of the
regulation of our HSS technology, see Part I, Item 1 of our Annual Report on
Form 10-K, under the heading “Government"Government Regulation.”
We may not be successful in obtaining the necessary licenses required for us to sell some of our products abroad. "
WE MAY NOT BE SUCCESSFUL IN OBTAINING THE NECESSARY LICENSES REQUIRED FOR US TO
SELL SOME OF OUR PRODUCTS ABROAD.
Licenses for the export of certain of our products may be required from
government agencies in accordance with various statutory authorities, including
the Export Administration Act of 1979, the International Emergency Economic
Powers Act, the Trading with the Enemy Act of 1917 and the Arms Export Control
Act of 1976. We may not be able obtain the necessary licenses in order to
conduct business abroad. In the case of certain sales of defense equipment and
services to foreign governments, the U.S. Department of State must notify
Congress at least 15 to 30 days, depending on the size and location of the sale,
prior to authorizing these sales. During that time, Congress may take action to
block the proposed sale. Failure to receive required licenses or authorization
would hinder our ability to sell our products outside the United States.
Many potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete.
MANY POTENTIAL COMPETITORS WHO HAVE GREATER RESOURCES AND EXPERIENCE THAN WE DO
MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAKE OURS OBSOLETE.
Technological competition from other and longer established electronic and
loudspeaker manufacturers is significant and expected to increase. Most of the
companies with which we expect to compete have substantially greater capital
resources, research and development staffs, marketing and distribution programs
and facilities, and many of them have substantially greater experience in the
production and marketing of products. In addition, one or more of our
competitors may have developed or may succeed in developing technologies and
products that are more effective than any of ours, rendering our technology and
products obsolete or noncompetitive.
Commercialization of our sound technologies depends on collaborations with other companies. If we are not able to maintain or find collaborators and strategic alliance relationships in the future, we may not be able to develop our sound technologies and products.
COMMERCIALIZATION OF OUR SOUND TECHNOLOGIES DEPENDS ON COLLABORATIONS WITH OTHER
COMPANIES. IF WE ARE NOT ABLE TO MAINTAIN OR FIND COLLABORATORS AND STRATEGIC
ALLIANCE RELATIONSHIPS IN THE FUTURE, WE MAY NOT BE ABLE TO DEVELOP OUR SOUND
TECHNOLOGIES AND PRODUCTS.
As we do not have the production, marketing and selling resources to
commercialize our products on our own, our strategy is to establish business
relationships with leading participants in various segments of the electronics
and sound reproduction markets to assist us in producing, marketing and selling
products that include our sound technologies.
Our success will therefore depend on our ability to maintain or enter into new
strategic arrangements with partners on commercially reasonable terms. If we
fail to enter into such strategic arrangements with third parties, our financial
condition, results of operations, cash flows and business prospects will be
adversely affected. Any future relationships may require us to share control
over our development, manufacturing and marketing programs or to relinquish
rights to certain versions of our sound and other technologies. We are dependent on outside suppliers, including
WE ARE DEPENDENT ON OUTSIDE SUPPLIERS, INCLUDING HST, Inc. Disruptions in supply could adversely affect us. INC. DISRUPTIONS IN SUPPLY
COULD ADVERSELY AFFECT US.
We have developed a strategic manufacturing relationship with HST, Inc.
providing for sub-contract manufacturing of our HSS and NeoPlanar products. The
loss or disruption of HST, Inc. as a supplier could have a negative impact on
our financial condition and results of operations. We also have a manufacturing
arrangement with Amtec Manufacturing for our PureBass subwoofer units. These are
sole supplier arrangements, and the loss or a disruption of supply could have a
negative impact on our ability to introduce these technologies in volume. Once
introduced in volume, the loss or disruption of supply could reduce future
revenues, adversely affecting financial condition and results of operations.
Any inability to adequately protect our proprietary technologies could harm our competitive position.
ANY INABILITY TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGIES COULD HARM OUR
COMPETITIVE POSITION.
We are heavily dependent on patent protection to secure the economic value of
our technologies. We have both issued and pending patents on our sound
reproduction technologies and we are considering additional patent applications.
Patents may not be issued from some or all of our pending applications. Claims
allowed from existing or pending patents may not be of sufficient scope or
strength to protect the economic value of our technologies. Issued patents may
22
be
21
challenged or invalidated. Further, we may not receive patents in all
countries where our products can be sold or licensed. Our competitors may also
be able to design around our patents. The electronics industry is characterized
by vigorous protection and pursuit of intellectual property rights or positions,
which have resulted in significant and often protracted and expensive
litigation. There is currently no pending intellectual property litigation
against us. Third parties may charge that our technologies or products infringe
their patents or proprietary rights. Problems with patents or other rights could
potentially increase the cost of our products, or delay or preclude our new
product development and commercialization. If infringement claims against us are
deemed valid, we may be forced to obtain licenses, which might not be available
on acceptable terms or at all. Litigation could be costly and time-consuming but
may be necessary to protect our future patent and/or technology license
positions, or to defend against infringement claims. A successful challenge to
our sound technology could have a negative effect on our business prospects. If our key employees do not continue to work for us, our business will be harmed because competition for replacements is intense.
IF OUR KEY EMPLOYEES DO NOT CONTINUE TO WORK FOR US, OUR BUSINESS WILL BE HARMED
BECAUSE COMPETITION FOR REPLACEMENTS IS INTENSE.
Our performance is substantially dependent on the performance of our executive
officers and key technical employees, including Elwood G. Norris, our Chairman,
and James M. Irish our CEO. We are dependent on our ability to retain and
motivate high quality personnel, especially highly skilled technical personnel.
Our future success and growth also depend on our continuing ability to identify,
hire, train and retain other highly qualified technical, managerial and sales
personnel. Competition for such personnel is intense, and we may not be able to
attract, assimilate or retain other highly qualified technical, managerial or
sales personnel in the future. The inability to attract and retain the necessary
technical, managerial or sales personnel could cause our business, operating
results or financial condition to suffer.
We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of your common stock.
WE MAY ISSUE PREFERRED STOCK IN THE FUTURE, AND THE TERMS OF THE PREFERRED STOCK
MAY REDUCE THE VALUE OF YOUR COMMON STOCK.
We are authorized to issue up to 5,000,000 shares of preferred stock in one or
more series. Our board of directors may determine the terms of future preferred
stock without further action by our stockholders. If we issue additional
preferred stock, it could affect your rights or reduce the value of your common
stock. In particular, specific rights granted to future holders of preferred
stock could be used to restrict our ability to merge with or sell our assets to
a third party. These terms may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, and sinking fund
provisions.
Our convertible subordinated note financing may result in dilution to our common stockholders. OUR CONVERTIBLE SUBORDINATED NOTE FINANCING MAY RESULT IN DILUTION TO OUR COMMON
STOCKHOLDERS.
Dilution of the per share value of our common shares could result from the
conversion of most or all of the convertible subordinated notes we sold in
September and October of 2001. Holders of these notes may convert the principal
balance of these notes and all accrued interest into shares of our common stock
at a conversion price of $2.00. The conversion price may be adjusted downward if
we sell securities for less than an effective price of $2.00 per share. We have
the right to require conversion of the notes after our stock trades above $5.00
per share for five consecutive trading days and we have an effective
registration statement for the resale of the conversion shares. We intend to
exercise this right as soon as we are able. In addition, the purchasers in
these transactions received warrants to purchase one common share for each $2.00
in note principal purchased. The exercise price is $2.00 per share, subject to
downward adjustment if we sell securities for less than an effective price of
$2.00 per share. We initially issued $2.025 million in principal amount of
convertible subordinated notes, which as of March 31, 2003 were convertible into
an aggregate of 1,193,738 common shares, and 1,012,500 warrants, all of which
are outstanding. The 12% convertible subordinated notes are due December 31,
2003, and accrue interest at 12% per annum.
Holders of our common stock could experience substantial dilution form the
conversion of the convertible subordinated notes and exercise of the related
warrants. In the event the conversion or exercise price is lower than the actual
trading price on the day of conversion or exercise, the holder could immediately
sell all of its converted common shares and exercised warrant shares, which
would have a dilutive effect on the value of the outstanding common shares.
Even the mere perception of eventual sales of common shares issued on the
conversion of the convertible subordinated notes or exercise of the related
warrants could lead to a decline in the trading price of our common stock. Our Series
OUR SERIES D and SeriesAND SERIES E Preferred Stock financings may result in dilution to our common stockholders. The holders of SeriesPREFERRED STOCK FINANCINGS MAY RESULT IN DILUTION TO
OUR COMMON STOCKHOLDERS. THE HOLDERS OF SERIES D and SeriesAND SERIES E Preferred Stock will receive more common shares on conversion if the market price of our common stock declines. PREFERRED STOCK
WILL RECEIVE MORE COMMON SHARES ON CONVERSION IF THE MARKET PRICE OF OUR COMMON
STOCK DECLINES.
Dilution of the per share value of our common shares could result from the
conversion of the outstanding Series D and Series E Preferred Stock. In May
2002, we issued a total of 235,400 shares of our Series D Preferred Stock.
180,400 shares have been converted into 683,344 common shares and 55,000 shares
remain outstanding as of May 7, 2003. We have also issued 343,250 shares of
Series E Preferred Stock.
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23
The holders of our outstanding shares of Series D Preferred Stock may convert
these shares into shares of our common stock at a conversion price equal to the
lower of $4.50 or 90% of volume-weighted average price of our common stock for
the five trading days prior to conversion. The conversion rate cannot however
be lower than lower than $2.00. The $2.00 floor price may however be adjusted
downward if we sell securities for less than an effective price of $2.00 per
share. As of May 7, 2003, the outstanding 55,000 shares of Series D Preferred
Stock are convertible into an aggregate of 193,598 common shares. In addition,
the Series D Preferred Stock purchasers received warrants to purchase 2.2 common
shares for each share of Series D Preferred Stock purchased. The exercise price
of the warrants was initially $4.50 per share, but was reduced to $3.01 per
share as a result of anti-dilution provisions in the warrants. The exercise
price will be subject to further reduction if we sell securities for less than
an effective price of $3.01 per share. The holders of our outstanding shares of Series E Preferred Stock may convert
these shares into shares of our common stock at a conversion price equal to the
lower of $3.25 or 90% of volume-weighted average price of our common stock for
the five trading days prior to conversion. The conversion rate cannot however
be lower than $3.25 before September 30, 2003, or lower than $2.00 after such
date. As of May 7, 2003, the 343,250 outstanding shares of Series E Preferred
Stock are convertible into an aggregate of 1,067,782 common shares. In
addition, the Series E Preferred Stock purchasers received warrants to purchase
1.5 common shares for each share of Series E Preferred Stock purchased at an
exercise price of $3.25 per share.
Holders of our common stock could experience substantial dilution from the
conversion of the Series D and Series E Preferred Stock and exercise of the
related warrants. As a result of the floating conversion price, the holders of
Series D and Series E Preferred Stock will receive more common shares on
conversion if the price of our common shares declines. To the extent that the
Series D or Series E stockholders convert and then sell their common shares, the
common stock price may decrease due to the additional shares in the market.
This could allow the Series D or Series E stockholders to receive greater
amounts of common stock, the sales of which would further depress the stock
price. Furthermore, the significant downward pressure on the trading price of
our common stock as Series D and Series E Preferred Stock and related warrant
holders convert or exercise these securities and sell the common shares received
could encourage short sales by the holders of Series D and Series E Preferred
Stock and the related warrants, or other stockholders. This would place further
downward pressure on the trading price of our common stock. Even the mere
perception of eventual sales of common shares issued on the conversion of the
Series D and Series E Preferred Stock or exercise of the related warrants could
lead to a decline in the trading price of our common stock.
Our stock price is volatile and may continue to be volatile in the future. Our common stock trades on the NASDAQ SmallCap Market. The market price of our
common stock has fluctuated significantly to date. In the future, the market
price of our common stock could be subject to significant fluctuations due to
general market conditions and in response to quarter-to-quarter variations in: | •
| our anticipated or actual operating results;
| | | | | •
| developments concerning our sound reproduction technologies;
| | | | | •
| technological innovations or setbacks by us or our competitors;
| | | | | •
| conditions in the consumer electronics market;
| | | | | •
| announcements of merger or acquisition transactions; and
| | | | | •
| other events or factors and general economic and market conditions.
|
- our anticipated or actual operating results;
- developments concerning our sound reproduction technologies;
- technological innovations or setbacks by us or our competitors;
- conditions in the consumer electronics market;
- announcements of merger or acquisition transactions; and
- other events or factors and general economic and market conditions.
The stock market in recent years has experienced extreme price and volume
fluctuations that have affected the market price of many technology companies,
and that have often been unrelated or disproportionate to the operating
performance of companies. Item
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact our financial position,
results of operations or cash due to adverse changes in market prices, including
interest rate risk and other relevant market rate or price risks. We are exposed to some market risk through interest rates, related to our
investment of our cash of $1,866,335 at March 31, 2003. Based on this balance, a
change of one percent in interest rate would cause a change in interest income
of $18,663. We do not consider this risk to be material, and we manage the risk
by continuing to evaluate the best investment rates available for short-term
high quality investments. 23
24
We have long-term debt of $1,000,000 earning an 8% fixed interest rate, this
rate is not affected by the change in the market. At the present time we do not
have any significant foreign sales or foreign currency transactions. Item
ITEM 4. ControlsCONTROLS AND PROCEDURES
(a) Under the supervision and Procedures
| (a)
| Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), within 90 days of the filing date of this report. Based on their evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures are effective.
| | | | | (b)
| There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.
|
with the participation of our management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13a-14(c) promulgated
under the Securities Exchange Act of 1934, as amended (the Exchange
Act), within 90 days of the filing date of this report. Based on their
evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and
procedures are effective.
(b) There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our
internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation referenced in
paragraph (a) above.
PART II. OTHER INFORMATION Item
ITEM 1. Legal Proceedings
LEGAL PROCEEDINGS
From time to time we are involved in routine litigation incidental to the
conduct of our business. There are currently no material pending legal
proceedings to which we are a party or to which any of our property is subject. Item
ITEM 2. Changes in Securities
CHANGES IN SECURITIES
(a) Not applicable (b) As more particularly described below, we issued 343,250 shares of Series E
Preferred Stock during the quarter ended March 31, 2003. The Series E Preferred
Stock is entitled to a liquidation preference over the common stock equal to the
purchase price of the Series E Preferred Stock increased by 6% per annum. The
Series E Preferred Stock is also entitled to a cash dividend equal 6% of the
liquidation preference when, as and if a cash dividend is declared on the common
stock. The Series E Preferred Stock dividend must be paid in preference and
priority to a dividend on the common stock. The liquidation preference could
materially diminish the rights of the common stockholders in the event of a
liquidation, and the dividend preference will impair our ability to declare a
dividend on the common stock were we to choose to do so. At this time, we do not
intend to declare dividends on the common stock in the foreseeable future. (c) The following is a description of the equity securities sold by us during
the second fiscal quarter ended March 31, 2003 that were not registered under
the Securities Act: During the quarter ended March 31, 2003, we sold in a private offering
$3,432,500 of Series E Preferred Stock, par value $.00001, at $10.00 per share
to a limited number of investors. In connection with the Series E financing, we
amended our 8% Senior Secured Promissory Notes: | •
| to allow the holders of the senior notes to convert all or a portion of the principal balance of the senior notes into Series E Preferred Stock; and
| | •
| to extend the due date of the unconverted balance of the senior notes from December 31, 2003 to December 31, 2004.
|
- to allow the holders of the senior notes to convert all or a portion
of the principal balance of the senior notes into Series E Preferred
Stock; and
- to extend the due date of the unconverted balance of the senior notes
from December 31, 2003 to December 31, 2004.
We raised an aggregate of $2,432,500 in new cash and converted senior notes with
an aggregate value of $1,000,000. A total of $1,000,000 in principal amount of
the senior notes remains outstanding. The amendment to the senior notes also
clarified that senior note balances converted to Series E Preferred Stock would
not be included for purposes of determining whether mandatory redemption of the
remaining senior note balance is required. The purchase price of the 343,250 shares of Series E Preferred Stock, increased
by $0.60 per share per year, may be converted at the election of a Series E
Preferred shareholder one or more times into fully paid and non-assessable
shares of common stock at a conversion price of $3.25. If after September 30,
2003, 90% of the volume weighted average price of our common stock for the five
trading days prior to conversion (the “Discount"Discount Market Price”Price") is less than
$3.25, the conversion price will be reduced to the Discount Market Price;
provided, however, that the conversion price cannot be below $2.00 per share.
We may call the Series E Preferred Stock for conversion if the market price of
\
25
our common 24
stock exceeds $9.50 per shares for ten consecutive trading days and
certain conditions are met. The Series E Preferred Stock will be subject to
mandatory conversion on December 31, 2006. Each purchaser of Series E Preferred Stock was also granted a warrant to
purchase 1.5 shares of common stock for each share of Series E Preferred Stock
purchased, exercisable until December 31, 2007 at a price of $3.25 per share.
In connection with the Series E financing, we issued warrants exercisable for an
aggregate of 514,875 shares. The Series E financing resulted in a repricing of the 517,880 warrants
previously issued in connection with our Series D Preferred Stock financing from
$4.50 per share to $3.01 per share in accordance with repricing provisions of
such warrants. The Series E Preferred and the related warrants were offered and sold without
the registration under the Securities Act to a limited number of accredited
investors in reliance upon the exemption provided by Rule 506 of Regulation D
thereunder, and to a limited number of foreign investors in sales outside the
United States in accordance with Regulation S thereunder. An appropriate legend
was placed on the Series E Preferred Stock and the warrants and will be placed
upon the shares issuable upon conversion of the Series E Preferred Stock or upon
exercise of the warrants unless registered under the Securities Act prior to
issuance. We have agreed to file a registration statement covering the stock
issuable upon conversion of the Series E Preferred Stock and exercise of the
warrants on or before May 31, 2003. The 8% Senior Secured Notes were modified
without registration under the Securities Act in reliance on Section 3(a)(9) of
the Securities Act. The modification involved solely existing security holders
and no commission or other remuneration was paid or given directly or indirectly
for soliciting such modification. Net proceeds from the Series E financing of $2,266,278 (excluding estimated
finders fees, offering costs and the value of converted senior notes) are
intended primarily for working capital.
During the quarter ended March 31, 2003, we issued 54,922 shares to each of
Stephen M. Williams and David Graebener pursuant to the terms of an Asset
Purchase Agreement dated April 11, 2000. These shares were issued in reliance on
Section 4(2) of the Securities Act of 1933, as amended. Each recipient of shares
was a senior level employee of the company who had access to the kind of
information normally provided in a prospectus. Item
ITEM 3. Defaults Upon Senior Securities DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item
ITEM 4. SubmissionSUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10.1 Form of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. ExhibitsSeries E Preferred Stock and ReportsWarrant Purchase Agreement.
Filed as Exhibit 4.1 on Form 8-K
(a) Exhibits:
| 10.1
| Form of Series E Preferred Stock and Warrant Purchase Agreement. Filed as Exhibit 4.1 on Form 8-K filed March 6, 2003.
| | | | | 10.2
| Certificate of Designation of Series E Preferred Stock filed with Delaware on February 28, 2003. Filed as Exhibit 4.2 on Form 8-K filed March 6, 2003.
| | | | | 10.3
| Form of Common Stock Warrant. Filed as Exhibit 4.3 on Form 8-K filed March 6, 2003.
| | | | | 10.4
| Form of Amendment to 8% Senior Secured Promissory Note. Filed as Exhibit 4.6 on Form 8-K filed March 6, 2003.
| | | | | 10.5
| Employment agreement/offer letter of James M. Irish dated January 27, 2003. *
| | | | 99.1
| | Certification of Chief Executive Officer and Principal Financial Officer.
| | | | |
filed March 6, 2003.
10.2 Certificate of Designation of Series E Preferred Stock filed with
Delaware on February 28, 2003. Filed as Exhibit 4.2 on Form 8-K
filed March 6, 2003.
10.3 Form of Common Stock Warrant. Filed as Exhibit 4.3 on Form 8-K
filed March 6, 2003.
10.4 Form of Amendment to 8% Senior Secured Promissory Note. Filed as
Exhibit 4.6 on Form 8-K filed March 6, 2003.
10.5 Employment agreement/offer letter of James M. Irish dated January
27, 2003. *
99.1 Certification of Chief Executive Officer and Principal Financial
Officer.
* Filed concurrently herewith. Reports on Form
REPORTS ON FORM 8-K On March 6, 2003, we filed a Form 8-K containing disclosure in Item 5.
25
26
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. | AMERICAN TECHNOLOGY CORPORATION
| | | Date: May 14, 2003
| By:
| /s/ RENÉE WARDEN
| | |
| | | RenéeWarden, Chief Accounting
Officer, Treasurer and Corporate Secretary
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
|
26
AMERICAN TECHNOLOGY CORPORATION
Date: August 15, 2003 By: /s/ RENEE WARDEN
--------------------------
Renee Warden, Chief Accounting
Officer, Treasurer and Corporate Secretary
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
27
CERTIFICATIONS I, James M. Irish, certify that:
| | | 1.
| I have reviewed this quarterly report on Form 10-Q of American Technology Corporation;
| | | 2.
| Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | | 3.
| Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | | 4.
| The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14) for the registrant and have:
| | | | a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | | | b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
| | | | c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | | 5.
| The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
| | | | a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
| | | | b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
| | | 6.
| The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|
I, James M. Irish, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of American Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 13,August 15, 2003 | /s/ JAMES M. IRISH
| | |
| | | James M. Irish,
Chief Executive Officer (Principal Executive Officer)
| |
27
I, Renee Warden, certify that:
| | | 1.
| I have reviewed this quarterly report on Form 10-Q of American Technology Corporation;
| | | 2.
| Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
| | | 3.
| Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
| | | 4.
| The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14) for the registrant and have:
| | | | a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | | | b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
| | | | c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | | 5.
| The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
| | | | a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
| | | | b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
| | | 6.
| The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|
/s/ JAMES M. IRISH
James M. Irish,
Chief Executive Officer (Principal Executive Officer)
28
I, Renee Warden, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of American Technology
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 13,August 15, 2003 | /s/ RENEE WARDEN
| | |
| | | Renee Warden,
Chief Accounting Officer,
Treasurer and Corporate Secretary (Principal Financial Officer)
| |
28
/s/ RENEE WARDEN
Renee Warden,
Chief Accounting Officer,
Treasurer and Corporate Secretary (Principal Financial Officer)
29
|