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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AMERICAN TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other Jurisdiction of incorporation or organization)
87-0361799
(I.R.S. Employer Identification Number)
12725 STOWE13114 EVENING CREEK DRIVE POWAY,SOUTH
SAN DIEGO, CALIFORNIA 9206492128
(619) 679-2114
(Address, including zip code, and telephone number,including
area code, of registrant's principal executive offices)
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ROBERT PUTNAM, VICE PRESIDENT AND CEO
AMERICAN TECHNOLOGY CORPORATION
12725 STOWE13114 EVENING CREEK DRIVE POWAY,SOUTH
SAN DIEGO, CALIFORNIA 9206492128
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copy to:
JOHN D. BRASHER JR., ESQ.
BRASHER & COMPANY, ATTORNEYS AT LAW
90 MADISON STREET, SUITE 707, DENVER, COLORADO 80206
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Approximate date of commencement of proposed sale to public:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ X ][X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed maximum Proposed maximum Amount of
Securities to be Registered offering price per unit aggregate offering price registration fee
Registered (1) (2) (3) (3) (3)
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Common Stock, par 1,166,053 $4.53125 $5,283,678 $1,601.12
value,
$.00001 per share ====================================================================================================================================1,629,899 $5.36 $8,736,259 $2,647.36
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(1) This registration statement covers the resale by selling shareholders of (i)
a maximum of 1,116,0531,454,899 shares of Common Stock that may be acquired by selling security
holders upon the conversion of certain subordinated promissory notes
and accrued interest described herein,Series A Convertible Preferred Stock ("Preferred
Stock") and (ii) 50,000175,000 shares of Common Stock that may be acquired by selling
security holders upon the exercise of warrants described herein granted to the
noteselling security holders.
(2) PlusThere are also being registered, pursuant to Rule 416 under the Securities
Act of 1933, as amended, such indeterminate number of additional shares of the
Company's Common Stock as may be issuable upon conversion of the Preferred Stock
or upon exercise of the warrants by reason of the operation of the anti-dilution provisions of
the notesPreferred Stock and the warrants described herein.herein to prevent dilution
resulting from stock splits, stock dividends and similar transactions. This
Registration Statement relates to resales and reoffers of shares of the
Company's Common Stock to be purchased by holders of the notesPreferred Stock and
warrants described herein, who may be deemed
affiliates of the Company upon conversion of the notes or exercise of the
warrants.herein.
(3) Pursuant to Rule 457(g)(3) the registration fee is calculated pursuant to
Rule 457(c), computed based upon the average of the bid and asked prices of the
Company's Common Stock as reported on NASD's Electronic OTC Bulletin Board, on
May 19,September 18, 1997, which price is used solely for the purpose of calculating
the registration fee.
(4) The Company has agreed to pay certain expenses of this offering as described
in Part II, Item 14 of the Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" WHICH BEGIN ON PAGE 6 OF THE ACCOMPANYING PROSPECTUS.
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SUBJECT TO COMPLETION; DATED MAY ___,____________, 1997
PROSPECTUS
AMERICAN TECHNOLOGY CORPORATION
FOR UP TO 1,166,0531,629,899 SHARES
COMMON STOCK
The shares of common stock, par value $.00001 (the "Common Stock"), of American
Technology Corporation (the "Company") offered hereby represent shares issuable
from time to time upon the conversion of certain 6% Subordinated Promissory Notes due March 1,
1999350,000 shares of Series A Convertible
Preferred Stock (the "Notes""Preferred Stock") and any accrued interest thereon and the exercise of Common Stock
Purchase Warrants to purchase up to 175,000 shares of Common Stock (the
"Warrants", which NotesPreferred Stock and Warrants may be referred to herein
collectively as the "Convertible Securities"). Although the Company will not
receive any of the proceeds from the sale of the shares of Common Stock offered
hereby, the Company has received $1,000,000.00gross proceeds of loan proceeds$3,500,000 pursuant to the
Notes,sale of 350,000 shares of the Preferred Stock at $10.00 per preferred share, an
indeterminate amount of which may be retired upon the conversion of the
Notes toPreferred Stock into shares of Common Stock of the Company. The Company willmay
receive aggregate funds not exceeding $250,000.00$1,312,500.00 upon the exercise of
Warrants at an exercise price of $5.00$7.50 per share of Common Stock. See "Selling
Security Holders."
The number of shares of Common Stock issuable upon conversion of each share of
the Notes350,000 shares of Preferred Stock is determined by dividing the aggregate principal$10.00, plus an
amount plus any accrued interestaccruing at 6%$0.60 per annum, by the lesser of (i) 85% of the average of the closing bid
prices of the Company's Common Stock each day for the tenfive trading days
immediately preceding the date of conversion butprovided that in no event shall
such amount to be multiplied by 85% be less than $2.50$3.00 per share or (ii) for conversions on or after March 1, 1998 the average of the
closing bid prices of the Company's Common Stock each day for the thirty trading
days immediately preceding March 1, 1998 but in no event lessgreater than
$1.00 per
share, or (iii) $3.50$5.75 per share. The minimum number of shares issuable upon
conversioninto which the 350,000 shares of Preferred
Stock can be converted at the $1,000,000 principal amount is 285,715 based on the maximumminimum conversion price of $3.50 per share.$2.55 is 1,372,549.
The Company may force conversion of the Notes at $3.50 per sharePreferred Stock if the closing bid price
of the Common Stock equals or exceeds $9.00$14.00 per share for ten consecutive
trading days and certain other conditions are met. The maximumaforementioned number of
shares into whichwould be increased by certain adjustments including the principal amount$0.60 per share
of the
Notes can be converted is 400,000 shares until March 1, 1998 and the maximum
from March 1, 1998 to March 1, 1999 (the maturity date) is 1,000,000 shares
(assuming the average closing bid price for the thirty trading days preceding
March 1, 1998 is $1.00 or less).Preferred Stock per annum amount. For purposes of determining the initial
number of shares of Common Stock to be registered on this Registration
Statement, the Company has computed the maximum number of shares issuable pursuantupon
conversion of the Preferred Stock by adding $0.60 per share for one year (the
mandatory conversion date of August 25, 1998, subject to certain conditions) to
the Notes
by$10.00 per share purchase price and dividing the aggregate principal and interest at maturity of $1,116,053 by the $1.00 floorminimum conversion price
of $2.55 per share and multiplying by the number of shares of Preferred Stock
held by each Selling Security Holder, for a total of 1,454,899 shares. The
actual number of shares issuable on conversion may be less. This Registration
Statement and Prospectus also relates to such presently indeterminate number of
additional shares of Common Stock as may be issuable upon conversion of the
Preferred Stock, based upon fluctuations in the conversion price of the
Preferred Stock in accordance with Rule 416 under the Securities Act of 1933, as
amended (the "Securities Act"). The Preferred Stock, the Warrants and the shares
of Common Stock issuable upon conversion or 1,116,053 shares.exercise thereof have been and will
be issued in transactions exempt from the registration requirements of the
Securities Act. See "Selling Security Holders" and "Plan of Distribution".
The shares of Common Stock registered for resale hereby have been registered
pursuant to the Company's obligations contained in written agreements with the
Selling Security Holders. The Selling Security Holders may elect to sell all, a
portion or none of the Common Stock offered by them hereunder which is only
obtainable through the conversion of all or portion of the NotesPreferred Shares or
exercise of all or a portion of the Warrants.
The shares of Common Stock offered hereby may be sold from time to time by
Selling Security Holders namedreferred to herein under the caption "Selling Security
Holders" or by pledgees, donees, transferees or other successors in interest
that receive such shares as a gift, partnership distribution or other non-sale
related transfer. Such sales may be made through underwriters, dealers, agents,
or directly to one or more purchasers in fixed price offerings, in negotiated
transactions, at market prices prevailing at the time of sale or at prices
related to such market prices or at negotiated prices. This Prospectus also may be delivered in connection
with certain resales as described under "Plan of Distribution." The Company has agreed to
pay certain expenses of registering the shares of Common Stock offered hereby,
including filing fees, legal, 4
accounting and miscellaneous expenses in connection with registration. All
selling and other expenses incurred by the Selling Security Holders will be
borne by such Selling Security Holders.them. See "Plan of Distribution."
The shares of Common Stock offered hereby have not been registered under the
blue sky or securities laws of any jurisdiction, and any broker or dealer should
assure itself of the existence of an exemption from registration or effect of
such registration in connection with the offer and sale of such shares.
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The Common Stock is traded under the symbol "ATCO" in the over-the-counter
market on the "OTC Electronic Bulletin Board" operated by the National
Association of Securities Dealers, Inc. (the "OTC Bulletin Board"). On May 19,September
18, 1997 the closing "bid" price was $4.50.$5.3125. The price and trading volume of
the Company's Common Stock has been volatile. See "Risk Factors."
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. THE COMPANY HAS A HISTORY OF OPERATING LOSSES AND BASED ON
THE CURRENT LEVEL OF EXPENDITURES AND ANTICIPATED ADDITIONAL EXPENDITURES, THE
COMPANY DOES NOT HAVE SUFFICIENT FUNDS FOR THE NEXT TWELVE MONTHS.
SEE "RISK FACTORS" WHICH BEGINS ON PAGE 6.
Each Selling Security Holder and any broker executing selling orders on behalf
of the Selling Security Holder may be deemed to be an underwriter within the
meaning of the Securities Act. Commissions or other compensation received by any
such broker may be deemed to be underwriting commissionscompensation under the Securities
Act.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is MaySeptember ___, 1997.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING
SECURITY HOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO
MAKE SUCH OFFER, SOLICITATION OR SALE. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-3 under
the Securities Act with respect to the Common Stock offered by this Prospectus.
Certain portions of the Registration Statement have not been included in this
Prospectus. For further information, reference is made to the Registration
Statement and the exhibits thereto. Statements in this Prospectus as to the
contents of exhibits are not necessarily complete, and each statement is
qualified in all respects by reference to the copies of documents filed or
incorporated by reference as exhibits to the Registration Statement or otherwise
filed with the Commission. See also "Incorporation of Certain Documents by
Reference."
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. The Registration Statement (with exhibits), as
well as such reports, proxy statements and other information, can be inspected
and copied at the public reference facilities maintained by the Commission at
its principal offices at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C.
20549, and its regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60601 and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, D.C. 20549. The Commission maintains a web site (http://www.sec.gov)
that contains reports, proxy, and information statements and other information
regarding registrants, such as the Company, that file electronically with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been previously filed by the Company (file no.
0-24248) with the Commission are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1996, filed on December 13, 1996.
(2) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended December 31, 1996, filed on February 6, 1997.
(3) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1997, filed on May 13, 1997.
(4) The Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1997, filed on August 12, 1997.
(5) The Company's Proxy Statement in connection with the Annual Meeting
of Stockholders held March 25, 1997, filed on February 20, 1997.
(5)(6) Current Report on Form 8-K, filed on April 1, 1997.
(6)(7) Current Report on Form 8-K, filed on August 29, 1997.
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(8) Current Report on Form 8-K/A, Amendment No. 1, filed on September
18, 1997.
(9) The description of the Company's Common Stock contained in
registration statement on Form 10-SB, Item 11, of the Company, SEC file
No. 0-24248, and as amended by the Company's Amended Certificate of
Incorporation.
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All documents filed by the Company pursuant to Sections 13(a),13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and before the
termination of the offering covered hereby will be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference in this Prospectus shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference modifies or replaces such
statement.
The Company will provide without charge to each person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the documents incorporated by reference in this Prospectus, other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates. In
addition, a copy of the Company's most recent annual report to stockholders will
be promptly furnished, without charge, upon written or oral request. All such
requests should be directed to American Technology Corporation, 12725 Stowe13114 Evening
Creek Drive Poway,South, San Diego, California 92064,92128, telephone number (619) 679-2114,
attention Mr. Robert Putnam.Putnam, Vice President.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including all documents incorporated by reference, includes
"forward-looking" statements" within the meaning of Section 27A of the
Securities Act and Section 12E of the Exchange Act. In addition to historical
information, this Prospectus contains forward-looking statements within the
meaning of the private securities litigation reform act of 1995 and the Company
desires to take advantage of the "safe harbor" provisions thereof. Therefore the
Company is including this statement for the express purpose of availing itself
of the protections of such safe harbor with respect to all of such
forward-looking statements. The forward-looking statements in this Prospectus
reflect the company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed herein, that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "intends," "future" and
similar expressions identify forward-looking statements. Readers are cautioned
to consider the specific risk factors described herein and in "Risk Factors",
and not to place undue reliance on the forward-looking statements contained
herein, which speak only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to reflect events
or circumstances that may arise after the date hereof. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by this section.
THE COMPANY
BACKGROUND
American Technology Corporation ("Company") was incorporated in the State of
Utah on February 11, 1980 as Chasko, Inc. and on April 7, 1982 its name was
changed to American Technology Corporation. On June 19, 1992 the Company
redomiciled from the State of Utah to the State of Delaware. On July 14, 1992,
the Company completed a 1-for-5 reverse stock split resulting in 7,291,228
common shares, par value $.00001, being issued and outstanding after the reverse
split.
From its inception in 1980 to 1984 the Company was primarily engaged in the
development of a patented 2-speed long play cassette recorder ("X-TEN(R)"). On
September 30, 1984, the Company acquired 100% of the outstanding shares of
Norcom Electronics Corporation which was engaged in development of patented
ear-radio and ear-microphone technology. Both technologies feature small
electronics for placement in or around the entrance to the ear canal to perform
desired functions. From 1984 through 1987, the Company was engaged in various
licensing and development activities with respect to the X-TEN, ear-radio and
ear-microphone technology.
In March, 1988 the Company assigned certain ear-microphone technology to Norris
Communications, Inc. ("NCI") in return for 700,000 shares of NCI common stock
and a 1% royalty on gross sales resulting from the exploitation of certain
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products using the ear-microphone technology ("EarPHONE"). The Company retained
its ear-radio technology. The ear-microphone technology was subsequently sold by
NCI to Jabra Corporation which is commercializing the EarPHONE for cellular
phone, computer, multi-media and other customers. (See "Certain Relationships
and Related Transactions").
From 1988 to early 1992 the Company was inactive due to inadequate financial
resources. In early 1992 the Company was brought into good standing and
restructured to take advantage of new financing opportunities designed to allow
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Company to pursue development of its products and technologies. There were
no changes to management resulting from this reactivation.
Since the 1992 restructuring, Company operations have focused on developing its
various technology assets. The Company's address is 12725 Stowe13114 Evening Creek Drive
Poway,South, San Diego, California, and its telephone number is 619-679-2114. Its
Internet site is located at WWW.ATCSD.COM.
CURRENT BUSINESS
The Company is engaged in the development, manufacturing and marketing of
consumer electronic products and electronic technologies. The Company's
ear-radio technology was commercialized through the 1993 introduction of the FM
ear-radio and the 1995 introduction of the AM ear-radio. During fiscal 1996 and
to date in fiscal 1997 substantially all of the Company's revenues resulted from
the manufacturing and marketing of its "FM Sounds" FM digital scanning ear-radio
and its "AM Sounds" AM ear-radio. The Company seeks to expand its ear-radio
distribution while developing additional technology assets.
Management anticipates that its HyperSonic Sound (HSS) reproduction technology,
currently in development, will become its primary business focus, although there
can be no assurance the Company can successfully exploit this new technology.focus. HyperSonic
Sound is a new method of sound reproduction -- sound is generated in the air
using ultrasonic frequencies, those above the normal range of hearing. A
patent-pending process creates an ultrasonic wave that interacts in mid-air to
produce wide spectrum audio. Since traditional loudspeaker system elements such
as voice coils, magnets, cones/diaphragms, crossover networks, baffles and
speaker enclosures are eliminated, management believes HSS technology offers
higher quality sound with less distortion while using less power, space, and
weight and at a lower cost. The sound produced by the HSS technology is also
significantly more directional over greater distances than traditional sound
reproduction methods thereby offering a number of application advantages to
users. There can be no assurance the Company can successfully commercialize the
HSS technology (see "Risk Factors").
The Company's HSS technology was invented by Elwood G. Norris, Chief Technology
Officer and a director of the Company, who manages the Company's research and development and
technical activities and who has invented the Company's products and
technologies. Although theThe Company has additional products and technologies in various
stages of development with related pending patents including portable Global
Positioning System ("GPS") technology and a noise reduction system for jet
engines. However, substantially all product and market development efforts are
focused on the HSS technology and there can be no assurance additional
technologies can be proven or commercialized.
The Company acquired the basic concepts for the HSS technology (previously
called the Sonic Generator technology) from Mr. Norris in 1992. During fiscal
1996 and fiscal 1997 to date, the Company has devoted a significant portion of
its research and development activities on HSS technology. In July 1996 the
Company produced a laboratory proof-of-concept demonstration capable of
producing sound in the air using ultrasonics. In October 1996 the Company
produced a second generation portable demonstration system with improved
electronics. The portable system consists of a standard CD player, an
off-the-shelf amplifier modified by the Company, custom electronics and modified
commercial ultrasonic emitters. To date in 1997 research efforts have focused on
development of improved electronics and custom ultrasonic emitters which
management believes will be required to produce a commercially viable system.
The Company continues to improve its proprietary electronics and is working with
multiple producers of ultrasonic devices to develop custom emitters to the
Company's specifications. The Company believes, but there can be no assurance,
that it can have commercially acceptable designs and sources of materials for
use by licensees during fiscalby the end of calendar 1997.
CERTAIN RECENT DEVELOPMENTS
On May 31, 1997 the inventor of the HSS technology, Elwood G. Norris, was
awarded the 1997 Discover Magazine Award for Technical Innovation in the Sound
category for the Company's HSS technology. Winners in a total of eight
categories were selected from over 4,000 entries. The annual awards are designed
to recognize and promote new technological innovations and the winners are
selected by an expert panel of judges. Winners were also featured in the July
issue of
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Discovery magazine. This award and recognition have provided broad marketing
exposure for the HSS technology to prospective users. HSS technology has also
been featured in over 30 journal articles providing additional marketing
exposure.
The Company's marketing of the HSS technology continues to evolve as a result of
this awareness, technical developments, changes in patent and protection
strategies and reactions from prospective users of the technology. Rather than
broadly licensing large market segments or industries, the Company is focusing
its efforts on developing product partners, original equipment manufacturers ("OEMs") desiring to implement
the HSS technology in specific products. The Company's strategy is to establish
business relationships with leading participants in various segments of the
electronics and sound reproduction markets. The Company believes this strategy
will enable it to take advantage of the superior financial resources,
technological capabilities, proprietary positions and market presence of these
companies in establishing and maintaining HSS technology in sound reproduction.
In accordance with the above strategy, the Company has received non-binding
expressions of interest from more than twenty companies for a broad range of
product applications
including multimedia sound, personal computers, entertainment, telephones,
consumer products, toys, home theater, hearing aids and others. Although theapplications. The Company's initial strategy is to focus its efforts on
the computer (personal and portable), communication, and home audio and video
markets. The Company recently demonstrated the application of HSS technology in
a personal computer in connection with a prospective major customer to
demonstrate the advantages of directed sound, small size and high sound quality.
The Company intends to establish closer relationships 5
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with these and otherselected companies
through specific product collaborations, but there can be no assurance that the
HSS technology can be developed to commercialization for such uses or that the
Company can successfully collaborate to develop commercial products to exploit
the HSS technology. The Company anticipates that product license or component
supply relationships (incorporating licensing) will develop as individual
products are jointly designed and developed with product partners in the future.
The Company continues to devote significant resources on preparing and filing
patent applications related to various aspects of the HSS technology. A total of
sixeleven HSS technology patents have been filed and others are in various stages
of preparation.
Effective on May 12,On March 25, 1997 the Company sold $1,000,000 of convertible notes and on August
25, 1997 the Company sold $3,500,000 of Preferred Stock (the subject of this
Registration Statement) in private placement transactions, such fundings being
employed Michael E. Spencer, Ph.D., as an
executive officer (Vice President of Engineeringto further the development of the Company.HSS technology and provide working
capital.
On September 1, 1997 the Company appointed Dale Williams as Chairman, President
and Chief Executive Officer. In this
position he will be the program managerMay, 1997 Mr. Williams was engaged as a
strategic planning and business development consultant for the HSS technology.
Since March 1995, Mr. Williams age 58, through his wholly-owned Spectrum
Technology Inc., has been advising technology project.companies on business acquisition
and market development strategies. From 1985January 1990 to 1992March 1995 he was
founder and Chief Executive Officer of Beacon Light Products Inc., a senior staff engineer at TRW,private
company manufacturing advanced electronic control products. He has held
executive positions with technology companies including Intel, Monolithic
Memories Inc. (Advanced Micro Devices) and Rockwell International. Mr. Williams
has an Electronics Engineering (E.E.) from 1992 to 1994
he was a graduate research assistant at Los Alamos National Laboratories. Since
1989California State University and until joining the Company he has also been active in his own consulting
company, DSP Group. Mr. Spencer obtained his Masters in Electrical Engineering
from the Georgia Institute of Technology in 1985 and a Ph.D. in Electrical
EngineeringMBA
from the University of Southern California in 1995.California. In connection with Mr. William's
appointment, Mr. Norris was appointed Chief Technology Officer and Mr. Robert
Putnam, formerly President and Chief Executive Officer, was appointed as Vice
President and Treasurer and resigned as a director.
RISK FACTORS
The Common Stock offered hereby is speculative and involves a high degree of
risk and should be considered only by persons who can afford the loss of their
entire investment. In addition to the other information included elsewhere in
this Prospectus, prospective investors should give careful consideration to the
following factors before purchasing any shares of the Common Stock offered
hereby. This Prospectus includes forward-looking statements which include risks
and uncertainties. The Company's actual results could differ materially from
those anticipated as a result of a variety of factors, including those set forth
in the following risk factors and elsewhere in this Prospectus.
HISTORY OF LOSSES; ABSENCE OF PROFITABILITY; AND EXPECTATION OF FUTURE LOSSES
The Company has an accumulated deficit of $2,827,566$3,371,500 at March 31,June 30, 1997 with
increasing net losses of $801,629$1,345,563 for the sixnine months ended March 31,June 30, 1997,
$560,448 for fiscal 1996 and $368,201 for fiscal 1995. The Company expects to
incur additional operating losses in future quarters until and if it is able to
generate operating revenues and margins sufficient to
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support expenditures. There is no assurance that the Company will be able to
achieve or sustain significant periods of profitability in the future.
INSUFFICIENT FUNDSPOSSIBLE NEED FOR THE NEXT TWELVE MONTHS; ADDITIONAL CAPITAL REQUIREMENTS;
AND POSSIBLE CASH SHORTAGE
Based onFINANCING
The Company intends to meet its working capital needs from a portion of the
proceeds from the two private placements and option exercises completed in the
current rate of expendituresfiscal year and anticipated additional
expenditures,from funds generated from operations. Although
management believes the Company does notwill have sufficient funds to meet its working
capital needs for at least the next twelve months, and will require funds from the sale of products or licensing or sale of
technology or from other sources or willCompany may be required
to scale backseek additional financing sooner than currently anticipated or curtail
certain activities. The Company has not achieved profitability and has been
required to raise substantial amounts of capital to support its development
activities and operations. As the Company continues to focus on its new HSS
technology, it will continue to be dependent on outside financing sources.
From its reorganization in January 1992 and through March 31, 1997, the Company
has financed its operations primarily through the sale of common equity and
convertible notes and proceeds from the sales of shares in Norris
Communications, Inc. (NCI). During the six months ended March 31, 1997, the
Company obtained $332,600 from the exercise of stock options and warrants and
$1,000,000 from convertible notes.
Other than the NCI shares valued at approximately $91,000 at March 31, 1997 and
cash on hand, the Company has no other material unused sources of liquidity at
this time. The Company expects to incur additional operating losses as a result
of continued product sale operations and as a result of expenditures for
research and development and marketing costs for HSS technology and other
products and technologies. The Company could be
required to curtail research and
development expenditures if there is a cash shortage. The timing and amounts of
the Company's expenditures and the extent of operating losses will depend on
many factors, some of which are beyond the Company's control. The Company
anticipates that the commercialization of HSS technology will require increased
personnel and operating costs. At the current rate of expenditures, the Company
will require significantly improved gross margins from product sales, margins
from new technologies or additional funds for the next twelve months aggregating
an estimated $500,000. This estimate is subject to significant variability due
to management decisions and outside factors. Potential sources of any such
required funds may
6
9
include the sale of additional NCI shares, bank financing, other debt financing,
and additional offerings of the Company's equity securities.its activities. There can be no assurance that any
fundsadditional financing will be available from theseto the Company on terms acceptable to the
Company, or other potential sources
and the lack of such capital could have a material adverse affect on the
Company's business.at all.
FUTURE DEPENDENT ON MARKET ACCEPTANCE OF THE COMPANY'S HSS TECHNOLOGY
The future of the Company is largely dependent upon the success of the Company's
HSS technology or the development of new technologies. There can be no assurance
the Company can introduce any of its technologies or that if introduced they
will achieve market acceptance sufficient to sustain the Company or achieve
profitable operations. Because the HSS technology currently represents the
Company's primary technology focus, if the HSS technology is not successful, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
HSS TECHNOLOGY IN DEVELOPMENT; NO ASSURANCE OF COMPLETION; MAY BE SUBJECT TO
DELAYS The Company's HSS technology is in development and has not been developed
to the point of commercialization. There can be no assurance that a commercially
viable system can be completed due to the inherent risks of new technology
development, limitations on financing, competition, obsolescence, loss of key
technical personnel and other factors. The Company has not generated any
revenues from its HSS technology to date, and has no agreements or arrangements
providing any assurance of revenues in the future. The Company's various
development projects are high risk in nature, where unanticipated technical
obstacles can arise at any time and result in lengthy and costly delays or
result in determination that further development is unfeasible. There can be no
assurance of timely completion of commercially viable HSS technology or that if
available that it will perform on a cost-effective basis, or that if introduced, that
it will achieve market acceptance.
HSS TECHNOLOGY WILL FACE SIGNIFICANT COMPETITION AND POSSIBLE OBSOLESCENCE
Technological competition from other and longer established electronic and
loudspeaker manufacturers is significant and expected to increase. Most of the
companies with which the Company expects 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 the
Company's competitors may succeed in developing technologies and products that
are more effective than any of those being developed by the Company, rendering
the Company's technology and products obsolete or noncompetitive.
NEW TECHNOLOGY FACES MANY BARRIERS AND RISKS
The introduction of new technology, such as the HSS technology, that is targeted
for wide use often faces barriers to commercialization and risks many that
cannot presentlycurrently be identified. The HSS technology employs ultrasonics and
although ultrasonics are employed in a wide variety of medical and industrial
applications, there can be no assurance that the Company will not face barriers
to introduction due to the use of ultrasonics. The Company's technology uses
relatively small amounts of ultrasonic energy which dissipates rapidly in air.
The Company employs frequencies above those that may be harmful to pets but
within those used by medical devices directly coupled to the body to image
fetuses and the brain. Although the Company believes the frequencies and the
amount of energy employed is harmless, and that the emission of such frequencies
is not presently subject to government regulation, there can be no assurance
that barriers to commercialization will not develop or that the use of such
ultrasonics will not be subject to future regulation or interpretation of
existing regulation.
DEPENDENCE ON THIRD PARTY STRATEGIC ALLIANCES AND BUSINESS RELATIONSHIPS
The Company's strategy is to establish business relationships with leading
participants in various segments of the electronics and sound reproduction
markets. The Company believes this strategy will enable it to take advantage of
the superior financial resources, technological capabilities, proprietary
positions and market presence of these companies in establishing and maintaining
HSS technology in sound reproduction. In accordance with this strategy, the
Company has received non-binding expressions of interest from more than twenty
companies for product applications including multimedia sound, personal
computers, entertainment, telephones, consumer products, toys, home theater,
hearing aids and others. Although the Company's strategy is to
establish closer relationships with these and otherselected companies through specific product
collaborations, there can be no assurance that the HSS
7
10
technology can be developed to commercialization for such uses or that the
Company can successfully collaborate to develop commercial products to exploit
the HSS technology.
The Company's success will depend not only on the Company's continued
relationships with these parties, but also on its ability to enter into additional
strategic arrangements with new partners on commercially reasonable terms. Any
future
7
10 relationships may require the Company to share control over its
development, manufacturing and marketing programs or to relinquish rights to
certain versions of its technology.
PRODUCTS IN DEVELOPMENT SUBJECT TO MANY RISKS
The markets for the Company's existing and future products and technologies are
characterized by rapidly changing technology, evolving industry standards,
frequent new product introductions and enhancements. The successful development
and commercialization of new products and technologies involve many risks,
including the correct and timely identification of new opportunities, the
successful completion of the developmental process, the retention and hiring of
appropriate research and development personnel, establishment of marketing and
distribution and other risks. The life cycle and demand for new products and
technologies is difficult to predict and is subject to the effects of
competition, technological change, price changes and other factors all of which
could have a material adverse effect on the Company's operations, business and
financial condition.
PRODUCT SALES SUBJECT TO SIGNIFICANT VARIABILITY; INSUFFICIENT TO SUPPORT
OPERATIONS The sales of the Company's existing ear-radio products are subject to
significant quarterly and seasonal variability. The Company has been in the past
and may, in the future, be reliant on a limited number of customers, the loss of
which could have an adverse effect on operating results. To date the Company's
sales have consisted almost entirely of ear-radio sales. The Company has been
unable to obtain sufficient volumes and margins to support operations and
management does not believe sufficient ear-radio product sales can be achieved
to achieve profitable operations at the current level of expenditures.
Accordingly, the Company will be reliant on revenues from new products or
technologies to achieve profitable operations. There can be no assurance the
Company can exploit new technologies.
EAR RADIO ASSEMBLY DEPENDENT ON SUBCONTRACTOR; POSSIBLE DISRUPTIONS IN
COMPONENTS With respect to the assembly of the Company's FM ear-radio which
accounts for substantially all of the Company's revenues, the Company is
dependent on a foreign subcontractor. The Company believes that there are a
number of electronic product subcontract assembly companies located in North
America and overseas that are qualified to produce the Company's ear-radio
should the existing supplier be unable or unwilling to do so, however any
disruption of supply could cause additional costs and delays and could have a
material adverse impact on the Company's results of operations. The assembly of
ear-radios is dependent upon the availability of electronic components. The
Company believes there are secondary suppliers of components and subassemblies
such that it is not reliant on one supplier, although delays could result should
the Company be required to change suppliers of longer lead time components or
subassemblies. Any significant delays in obtaining components from existing or
secondary suppliers through supplier changes or from component shortages, which
are common to the electronics industry, could have a material adverse impact on
the Company's results of operations.
PATENTS AND PROPRIETARY RIGHTS SUBJECT TO UNCERTAINTY
The Company has two U.S. patents on ear-radios which it relies on to protect its
markettechnology position in the U.S. The Company has three11 patents pending on its HSS
technology, 2 pending on its GPS technology and one pending on its noise
reduction system for jet engines and the Company is considering additional
patent applications. There can be no assurance that any patents held by the
Company will not be challenged and invalidated, that patents will issue from any
of the Company's pending applications or that any claims allowed from existing
or pending patents will be of sufficient scope or strength or be issued in all
countries where the Company's products can be sold or licensed to provide
meaningful protection or any commercial advantage to the Company. Competitors of
the Company may also be able to design around the Company's 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 the Company. There is no assurance
however, that the Company's technologies or products do not and will not
infringe the patents or proprietary rights of third parties. Problems with
patents or other rights could potentially increase the cost of the Company's
products, or delay or preclude new product development and commercialization by
the Company. If infringement claims against the Company are deemed valid, the
Company may seek 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 the Company's future patent and/or technology license positions, or to
defend against infringement claims. A successful challenge to the Company's HSS
technology could have a materially adverse effect on the Company and its
business prospects. There can be no assurance that any application of the
Company's technologies will
8
11
not infringe upon the proprietary rights of others or that licenses required by
the Company from others will be available on commercially reasonable terms, if
at all.
8
11
PERFORMANCE DEPENDENT ON KEY PERSONNEL; LIMITED KEY PERSON LIFE INSURANCE;
SUCCESS DEPENDENT ON ADDITIONAL PERSONNEL The Company's performance is
substantially dependent on the performance of its executive officers and key
technical employees. Given the Company's early stage of development, the Company
is dependent on its ability to retain and motivate high quality personnel,
especially its management and highly skilled technical personnel. Other than a
$2 million policy on Elwood G. Norris, Chief Technology Officer and inventor of
the Company's technologies, the Company does not have "key person" life
insurance policies on any other person. The loss of the services of Mr. Norris
could have a material adverse effect on the business, operating results or
financial condition of the Company. The Company's future success and growth also
depends on its continuing ability to identify, hire, train and retain other
highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
able to attract, assimilate or retain other highly qualified technical and
managerial personnel in the future. The inability to attract and retain the
necessary technical and managerial personnel could have a material adverse
effect upon the Company's business, operating results or financial condition.
MANAGEMENT OF GROWTH
Depending on the extent of its future growth, if any, the Company may experience
a significant strain on its management, operational and financial resources. The
Company's ability to manage its growth effectively may require it to continue to
implement and improve its operational and financial systems and may require the
addition of new management personnel. The failure of the Company's management
team to effectively manage growth, should it occur, could have a material
adverse impact on the Company's results of operations.
GENERAL CONFLICTS OF INTEREST DUE TO PART-TIME MANAGEMENT
Mr. Robert Putnam (President and CEO) and Mr. Elwood G. Norris (Director(a significant shareholder, Chief Technology Officer, Director
and inventor of the Company's technologies) and Robert Putnam (Vice President
and Treasurer) devote only part-time services to the Company and have other
employment and business interests to which they devote significant attention and
will continue to do so notwithstanding the fact that management time should be
devoted to the Company's business. Mr. Putnam devotes approximately 70% of his time25-30 hours
per week and Mr. Norris devotes approximately 20-3015-30 hours per week to the
Company. These management members generally expect to devote time to the Company
only on an as-needed basis over the next twelve months. Mr. Williams is a
full-time employee of the Company.
Certain conflicts of interest now exist and will continue to exist between the
Company and certain of its officers and directors due to the fact that each hasthey have
other employment or business interests to which he devotesthey devote some attention. The
Company has not established policies or procedures for the resolution of current
or potential conflicts of interest between the Company and certain of its
management or management-affiliated entities. There can be no assurance that
members of management will resolve all conflicts of interest in the Company's
favor.
SPECIAL CONFLICTS OF INTEREST DUE TO RELATIONSHIP OF EXECUTIVES
The Company's President and CEO, Mr. Robert Putnam, also acts as Secretary of
Norris Communications, Inc. (NCI), a company of which Mr. Norris is Chairman and
CEO. Mr. Norris is also a significant shareholder and director of the Company.
As a result of these relationships, Mr. Putnam is subordinate to Mr. Norris. The
possibility exists that these relationships will affect Mr. Putnam's
independence as a director of the Company.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
The Company's Certificate of Incorporation provides for the indemnification of
its officers, directors, employees and agents, under certain circumstances,
against attorney's fees and other expenses incurred by them and judgments
rendered against them in any litigation to which they become a party arising
from their association with or activities on behalf of the Company. The Company
may also bear the expenses of such litigation for any of its officers,
directors, employees or agents, upon their promise to repay such sums if it is
ultimately determined that they are not entitled to indemnification. This
indemnification policy could result in substantial expenditures by the Company
which it may be unable to recoup even if so entitled.
EXCLUSION OF DIRECTOR LIABILITY
The Company's Certificate of Incorporation excludes personal liability on the
part of its directors to the Company for monetary damages for breach of
fiduciary duty, except in certain specified circumstances. Accordingly, the
Company will have a much more limited right of action against its directors than
otherwise would be the case. This exclusionary provision does not affect the
liability of any director under federal or applicable state securities laws.
9
12
NO ACTIVE TRADING MARKET; MARKET VOLATILITY
The Company's shares are traded on the OTC Electronic Bulletin Board, a screen-based
trading system operated by the National Association of Securities Dealers, Inc.
Securities traded on the OTC Bulletin Board are, for the most part thinly traded
and are subject to special regulations not imposed on securities listed or
traded on the National Association of Securities Dealers Automated Quotation
("NASDAQ") system or on a national securities exchange. The Company's shares,
like that of the securities of other small, growth-oriented companies, have
experienced in the past and are expected to experience in the future significant
price and volume volatility thereby increasing the risk of ownership to
investors. Historically, the Common Stock has experienced low trading volume.
There can be no assurance that the market price of the Common Stock will remain
at its present level, and any future changes in market price cannot be predicted
as to timing or extent. Past performance of the Common Stock does not guarantee
and should not be construed to imply future performance. Factors such as
announcements by the Company or its competitors concerning technological
innovations, new commercial products or procedures, proposed government
regulations and developments or disputes relating to patents or proprietary
rights may have a significant effect on the market price of the Common Stock.
Changes in the market price of the Common Stock may have no connection with the
Company's actual financial results.
SHARES ELIGIBLE FOR FUTURE SALESALE; POSSIBLE ADVERSE EFFECT ON MARKET PRICE
As of the date of this Prospectus, the Company had outstanding 9,513,4679,758,779 shares
of Common Stock. As a result of such date, in addition tothis registration, based on the securities described in
this Prospectus, the Company has outstanding stock options to purchase 871,500
shares of its Common Stock and warrants to purchase an additional 450,000
shares, some subject to vesting. If all of the shares issuable upon exercise of
these options and warrants or upon conversion of the Notes and exercise of the
Warrants described herein are issued, the Company will have additionalSeptember 18,
1997 trading price, approximately 771,000 shares of Common Stock outstanding, most of which will be
eligible for resale into the
public markets. The sale of such shares in the public marketsmarket. In May, 1997 the Company registered
shares related to convertible notes of which 181,230 shares have been issued and
approximately 110,000 shares are currently issuable on the balance of $375,000
of notes at current prices, all freely tradable in the public market. If a large
number of the above mentioned shares, issued or issuable, were sold in the
public market, such sales could have a
materialan adverse effect on the tradingmarket price of
the Company's Common Stock.
NO DIVIDENDS WILL BE PAID IN FORESEEABLE FUTURE
The Company does not contemplate paying cash dividends in the foreseeable
future. Future dividends will depend on the Company's earnings, if any, and its
financial requirements.
NO ANTI-TAKEOVER MEASURES
Neither the Company's charter nor its bylaws contain any provision which is
designed or intended to serve as an anti-takeover measure or which is intended
to entrench Management or discourage mergers or other business combinations
involving the Company.
USE OF PROCEEDS
All proceeds from any sale of shares of Common Stock offered by the Selling
Security Holders will be received by the Selling Security Holders and not by the
Company. The proceeds to the Company from the exercise of the 175,000 Warrants
not to exceed $250,000,$1,312,500, if any, will be used for general corporate purposes.
The Warrants have a net issuance provision providing for cashless exercise
(resulting in no cash proceeds to the Company) should the Common Shares
underlying the Warrants not be registered as required under the terms of the
Common Stock Purchase Warrants.
SELLING SECURITY HOLDERS
An aggregate of up to 1,166,0531,629,899 shares of Common Stock are being offered for
resale by certain shareholders of the Company.Company plus such presently indeterminate
number of additional shares as may be issuable upon conversion of the Preferred
Stock based upon fluctuations in the conversion price of the Preferred Stock in
accordance with Rule 416 under the Securities Act. Up to 1,116,0531,454,899 of those
shares are issuable upon conversion by the holders of $1,000,000 aggregate principal
amount350,000 shares of
Notes and accrued interest thereon.Preferred Stock. Up to 50,000175,000 shares are issuable upon exercise of Warrants
held by the holders of the Notes.Preferred Stock. All shares, to the extent they are
being offered, are being offered for the account of the following shareholders
and their donees, pledgees, transferees or pledgeesother successors in interest (the
"Selling Security Holders").
The following table sets forth certain information with respect to the Selling
Security Holders for whom the Company is registering the Common Stock for resale
to the public, including: (i) beneficial ownership of common stock asCommon Stock prior to this
offering (excluding shares issuable upon conversion or exercise of the
dateConvertible Securities) of this prospectus,Prospectus, (ii) the principal amount of Notes owned by each
Selling Security Holder, (iii) the maximum number of shares
issuable upon conversion of the Notes and accrued interest thereon, (iv)Preferred Shares, (iii) the number of shares
issuable upon exercise of Warrants, (v) the percentage of class owned (assuming
the maximum number of shares were issued upon conversion); and (vi)(iv) the maximum number of shares offered by
each Selling Security Holder (assuming the maximum
10
13
number of shares were issued upon conversion); and (v) the number of shares and
percentage of class to be owned after the offering (assuming all shares offered
hereby are sold). The number of shares of Common Stock shown in the following
table as being offered by the Selling Security Holders does not include such
presently indeterminate number of shares of Common Stock as may be issuable upon
conversion of the Preferred Stock pursuant to the provisions thereof regarding
determination of the applicable conversion price but which shares are, in
accordance with Rule 416 under the Securities Act, included in the Registration
Statement of which this Prospectus forms a part. The Company has no knowledge of
the intentions of any Selling Security Holder to actually sell any of the shares
listed under the columns "Maximum Shares Issuable Upon Conversion" or "Shares
Issuable Upon 10
13
Exercise of Warrants." There are no material relationships between
any of the Selling Security Holders and the Company other than as disclosed
below.
BENEFICIAL OWNERSHIP BEFORE OFFERING (1)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Maximum
Shares
Issuable
Beneficial MaximumUpon
Ownership of Conversion Shares IssuableOwnership
Common Principal Upon
Stock at Amount of Conversion of SharesSeries A Issuable Maximum After Percent
Selling Prospectus Debenture Notes andPrior to Convertible Upon Exercise Shares Offering(s) of
Selling Offering Preferred Stock of Warrants Offered Shares Class
Security Holder Date(1) (2) Owned Interest (3) of Warrants (4) Offered (5) Class (6)
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Pangaea Fund Limited -0- 665,098 80,000 745,098 -0- -0-%
Banque du Credit
Agricole -0- 41,567 5,000 46,567 -0- -0-%
Paul Foti -0- 10,392 1,250 11,642 -0- -0-%
G.P.S. Fund, Ltd. -0- 41,567 5,000 46,567 -0- -0-%
Hull Overseas Ltd. -0- 124,706 15,000 139,706 -0- -0-%
J.M. Hull
Associates, L.P. -0- $ 225,000 251,112 11,250 262,362 2.8%
The Gifford Fund, Ltd.124,706 15,000 139,706 -0- 200,000 223,211 10,000 233,211 2.5%
G.P.S. Fund Ltd.-0-%
Legong Investments
N.V -0- 100,000 111,605 5,000 116,605 1.2%
CCL Holdings (USA)
Ltd.166,275 20,000 186,275 -0- 50,000 55,803 2,500 58,303 *
Jonathan A. Berg -0- 50,000 55,803 2,500 58,303 *
M.A. Corporation -0- 50,000 55,803 2,500 58,303 *
Odne Limited
Partnership -0- 50,000 55,803 2,500 58,303 *
D.J. Melvin &
Associates, Inc. 20,539 50,000 55,803 2,500 58,303 *
Jerry E. Polis Family
Trust -0- 50,000 55,803 2,500 58,303 *
Sunrise Management,
Inc. Profit Sharing Plan -0- 25,000 27,901%
Timothy Millhiser 7,274 10,392 1,250 29,151 *
Sunrise Capital, Inc. -0- 25,000 27,901 1,250 29,15111,642 7,274 *
John A. Parker -0- 25,000 27,90110,392 1,250 29,151 *
Paul M. Foti11,642 -0- 25,000 27,901 1,250 29,151 *
Timothy McG.
Millhiser-0-%
Renwick Alpha Fund
L.P. (7) -0- 25,000 27,901 1,250 29,151 *
Taishin Company
(H.K.)166,275 20,000 186,275 -0- 25,000 27,901 1,250 29,151 *
R. Kirk Avery-0-%
The Renwick Special
Situations Fund L.P.(7) -0- 25,000 27,901 1,250 29,15193,529 11,250 104,779 -0- -0-%
- ------------------------------------------------------------------------------------------------------------
Total 7,274 1,454,899 175,000 1,629,899 7,274 *
- ------------------------------------------------------------------------------------------------------------------------------------
Total 20,539 $ 1,000,000 1,116,053 50,000 1,166,053
- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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14
1) No information is given with respect to beneficial ownership after the
offering because the principal and interest amount of Notes that will be
converted into Common Stock, as well as the number of shares issuable upon
conversion, is currently indeterminate.
2)(1) The number of Common Shares reported above as beneficially owned by each
Selling Security Holder is based solely on a review of a list of the Company's
shareholders prepared by the Company's transfer agent and registrar. None of
these shares are being registered pursuant to this prospectus. (See the thirdProspectus. This column and the following footnote for the maximumdoes
not include shares beneficially owned which are issuable upon conversion of the
Notes).
3)Preferred Stock and exercise of the Warrants.
11
14
(2) Assumes conversion based on the lowest conversion price possible, or $2.55
per share of 100
percent of the principal amount of the Notes and the maximum accrued interest at
6% per annum, simple interest, from the issue date of March 25, 1997 to the date
of maturity of March 1, 1999.Common Stock. The Company has computed the maximum number of shares
issuable pursuant to the NotesPreferred Stock by dividingadding $0.60 per share for one year
(to the aggregate principalmandatory conversion date of August 25, 1998, subject to certain
conditions) to the $10.00 per share purchase price and interest at maturity of $1,116,053dividing by the $1.00 floorminimum
conversion price of $2.55 per share and multiplying by the number of shares of
Preferred Stock held by each Selling Security Holder or 1,116,053a total of 1,454,899
shares. The actual number of shares issuable on conversion may be less. The
number of shares of Common Stock issuable upon conversion of each share of the
Notes350,000 shares of Preferred Stock is determined by dividing the aggregate principal$10.00, plus an
amount plus any accrued interestaccruing at 6%$0.60 per annum, by the lesser of (i) 85% of the average of the closing bid
prices of the Company's Common Stock each day for the tenfive trading days
immediately preceding the date of conversion butprovided that in no event shall
such amount to be multiplied by 85% be less than $2.50$3.00 per share or (ii) for
conversions on or after March 1, 1998greater than
$5.75 per share. The Company may force conversion of the average ofPreferred Stock if the
closing bid pricesprice of the Company's Common Stock each dayequals or exceeds $14.00 per share for the thirtyten
consecutive trading days immediately
preceding March 1, 1998 but in no event less than $1.00 per share, or (iii)
$3.50 per share.and certain other conditions are met. The
maximumaforementioned number of shares thatwould be increased by certain adjustments
including the principal amount$0.60 per share of the
Notes can be converted is 400,000 shares until March 1, 1998 and the maximum
from March 1, 1998 to March 1, 1999 (the maturity date) is 1,000,000 shares
(assuming the average closing bid price for the thirty trading days preceding
March 1, 1998 is $1.00 or less). The minimum number of shares issuable upon
conversion of the $1,000,000 principal amount is 285,715 based on the maximum
conversion price of $3.50Preferred Stock per share.
4)annum amount.
(3) Assumes conversion of 100 percent of the Warrants granted to each Note holderPreferred
Shareholder based on the exercise price of $5.00$7.50 per share.
5)(4) Assumes issuance of the maximum shares on conversion of the Notes350,000 shares
of Preferred Stock at the lowest conversion price (see note 2 above) and the
exercise of 100 percent of the Warrants.
6) Represents maximum shares over current outstanding shares as(5) The terms of the datePreferred Stock and the Warrants provide that the Selling
Security Holders may not convert their Preferred Stock or exercise their
Warrants at any time to acquire a number of this prospectusshares of 9,513,467.Common Stock in excess of
that number which would result in beneficial ownership of more than 4.9% of the
Company's outstanding Common Stock at any time.
(6) An asterisk (*) represents less than 1%.
(7) The Renwick Alpha Fund L.P. and the Renwick Special Situations Fund L.P. are
under common control with Renwick Corporate Finance, Inc., a financial
consultant and advisor to the Company.
PLAN OF DISTRIBUTION
The purpose of this Prospectus is to permit the Selling Security Holders, if
they desire, to offer and sell up to 1,166,153the shares of Common Stock offered hereby (the
"Selling Security Holder"Resale Shares") at such times and at such places as the Selling Security
Holders choose.
The decision to convert the NotesPreferred Stock into common shares, to exercise the
Warrants, or to sell any shares, is within the sole discretion of the holders
thereof. There can be no assurance that any of the Notesshares of Preferred Stock
will be converted or any of the Warrants will be exercised, or that any shares will be
sold by the Selling Security Holders.
The Selling Security HolderResale Shares offered hereby isare being sold by the Selling Security Holders
acting as principalprincipals for their own accounts. The distribution of the Resale
Shares is not currently subject to any underwriting agreement.agreement though the Selling
Security Holders may, under certain circumstances, elect to sell their shares in
an underwritten offering. The Company expects the Selling Security Holders will
sell the Resale Shares covered by this Prospectus through customary brokerage
channels, either through broker-dealers acting as principals, who may then
resell the shares in the over-the-counter market, or at private sales or
otherwise, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. Such sales may be
effected in one or more transactions, including, without limitation, (a) a block
trade in which the broker-dealer so engaged will attempt to sell the Resale
Shares as agent, but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to the Prospectus;
(c) ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and (d) face-to-face or other direct transactions between
the Selling Security Holders and purchasers without a broker-dealer or other
intermediary. In effecting sales, broker-dealers or agents engaged by the
Selling Security Holders may arrange for other broker-dealers or agents to
participate. The Selling Security Holders may effect such transactions by
selling sharesResale Shares through broker-dealers, and such broker-dealers will
receive compensation in the form of commissions from the Selling Security
Holders and/or the purchasers of the Resale Shares for whom they may act as
12
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agent (which compensation may be in excess of customary commissions). The
Selling Security Holders and any broker-dealers that participate with such
Selling Security Holders in the distribution of the Resale Shares may be deemed
to be underwriters and any commissions received by such broker-dealers and any
profit on resale of the Resale Shares sold by them might be deemed to be
underwriting discounts or commissions under the 12
15
Securities Act. In addition, any
Selling Security HolderResale Shares covered by this Prospectus that qualify for sale pursuant to Rule
144 under the Securities Act may be sold under Rule 144 rather than pursuant to
this Prospectus.
The Selling Security Holders are not restricted as to the price or prices at
which they may sell the Resale Shares. Sales of Resale Shares at less than
market prices may depress the market price of the Company's Common Stock.
Moreover, the Selling Security Holders are not restricted as to the number of
sharesResale Shares which may be sold at any one time, and it is possible that a
significant number of shares could be sold at the same time.
From time to time, one or more of the Selling Security Holders may pledge,
hypothecate or grant a security interest in some or all of the Resale Shares
owned by them, and the pledgees, secured parties or persons whom such securities
have been hypothecated shall, upon foreclosure in the event of default, be
deemed to be Selling Security Holders hereunder. In addition, the Selling
Security Holders may from time to time sell short the Common Stock of the
Company, and in such instances, this Prospectus may be delivered in connection
with such short sale and the Common Stock offered hereby may be used to cover
such short sale.
Including and without limiting the foregoing, in connection with distributions
of the Resale Shares, a Selling Security Holder may enter into hedging
transactions with broker-dealers and the broker-dealers may engage in short
sales of the Common Stock in the course of hedging the positions they assume
with such Selling Security Holder. A Selling Security Holder may also enter into
option or other transactions with broker-dealers that involve the delivery of
the Resale Shares to the broker-dealers, who may then resell or otherwise
transfer such Resale Shares. A Selling Security Holder may also loan or pledge
the Resale Shares to a broker-dealer and the broker-dealer may sell the Resale
Shares so loaned or upon default may sell or otherwise transfer the pledged
Resale Shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Resale Shares may not simultaneously engagebid for or purchase
shares of Common Stock during a period which commences one business day (5
business days, if the Company's public float is less than $25 million or its
average daily trading volume is less than $100,000) prior to such person's
participation in the distribution, subject to exceptions for certain passive
market making activities with respect to the Common Stock for a period of nine business
days prior to the commencement of such distribution.activities. In addition and without limiting the foregoing, theeach
Selling Security HoldersHolder will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
rules 10b-6 and 10b-7,Regulation M which provisions may limit the timing of purchasespurchase and sales of
shares of the sharesCompany's Common Stock by thesuch Selling Security Holders.Holder.
The Company will not receive any proceeds from any sales of the Selling Security
HolderResale Shares,
but will receive the proceeds from the exerciseexercises of the Warrants held by the Selling
Security Holders, which proceeds, if any, will be used for general corporate
purposes.
In connection with the registration by the Company, the Company shall use its
best efforts to prepare and file with the Commission such amendments and
supplements to thethis registration statement and the prospectus used in connection
therewithincluded Prospectus as may be
necessary to keep suchthis registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of the shares
covered by the registration statement for the period required to effect the
distribution of such shares.
The Company is paying certain expenses (other than commissions and discounts of
underwriters, dealers or agents) incident to the offeringoffer and sale of the Sharesshares to
the public, which are estimated to be approximately $8,000. If the Company is
required to update this Prospectus during such period, it may incur additional
expenses in excess of the amount estimated above.
The Company has agreed to indemnify the Selling Security Holders in certain
circumstances, against certain liabilities, including liabilities arising under
the Securities Act.
In order to comply with certain states' securities laws, if applicable, the
shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states the Shares may not be sold unless they
have been registered or qualify for sale in such state or an exemption from
registration or qualification is available and is complied with.
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DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock, $.00001
par value per share. As of the date of this Prospectus there were 9,513,4679,758,779
shares outstanding. The holders of Common Stock are entitled to one vote for
each share held. The affirmative vote of a majority of votes cast at a meeting
which commences with a lawful quorum is sufficient for approval of most matters
upon which shareholders may or must vote, including the questions presented for
approval or ratification at the Annual Meeting. However, removal of a director
from office or repeal of the certificate of incorporation in its entirety
require the affirmative vote of a majority of the total voting power for
approval, and certain other matters (such as shareholder amendment of the
bylaws, and amendment, repeal or adoption of any provision inconsistent with
provisions in the certificate of incorporation regarding indemnification of
directors, officers and others, exclusion of director liability, and the
Company's election not to be governed by statutory provisions concerning
business combinations with interested shareholders) require the affirmative vote
of two-thirds of the total voting power for approval. Common Shares do not carry
cumulative voting rights, and holders of more than 50% of the Common Stock have
the power to elect all directors and, as a practical matter, to control the
Company. Holders of Common Stock are not entitled to preemptive rights, and the
Common Stock is not subject to redemption.
The Company's board of directorsCompany is authorized to issue 5,000,000 shares of undesignated preferred stock, $.00001
par value, without any further action by the stockholders. The board of directors may alsohas
the authority to divide any and all shares of preferred stock into series and to
fix and determine the relative rights and preferences of the preferred stock,
such as the designation of series and the number of shares constituting such
series, dividend rights, redemption and sinking fund provisions, liquidation and
dissolution preferences, conversion or exchange rights and voting rights, if
any. With respect to voting rights, if the
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vote in the election of directors or on other matters, each such share would be
entitled to one vote, and such shares may vote with the shares of Common Stock
or may vote as a separate class. Issuance of preferred stock by the board of
directors could result in such shares having dividend and/or liquidation
preferences senior to the rights of the holders of Common Stock and could dilute
the voting rights of the holders of Common Stock.
The Company has designated 350,000 shares of its preferred stock as Series A
Convertible Preferred Stock ("Preferred Stock") all of which have been issued
and are currently outstanding. The Preferred Stock is non-voting except in
certain matters affecting the Preferred Stockholders. The holders of Preferred
Stock shall be entitled to dividends, when, as, and if declared by the Board of
Directors. The Preferred Stock is convertible as described in note (2) under the
caption "SELLING SECURITY HOLDERS" above. As of September 18, 1997 the shares of
Preferred Stock were convertible into approximately 771,000 shares of Common
Stock. The Preferred Stock has a liquidation preference of $10.00 per preferred
share plus $0.60 per share per annum from issuance and certain other
adjustments. There is no further participation after the liquidation preference
is paid. There are currently no mandatory or optional redemption rights. In a merger or
consolidation, the Preferred Stock shall retain the same economic benefits as
the Preferred Stock just prior to such transaction. As long as the Company is in
compliance in all material respects with its obligations to the Preferred
Stockholders and the underlying common shares of preferred stock issued and outstanding.are registered, all the Preferred
Stock not already converted shall be converted to Common Stock in accordance
with the conversion terms on August 25, 1998.
The Company has not paid any cash dividends to date, and no cash dividends will
be declared or paid on the Common Shares in the foreseeable future. Payment of
dividends is solely at the discretion of the Company's board of directors.
Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt Lake
City, Utah 84117, acts as transfer agent and registrar for the Common Stock of
the Company. Their telephone number is (801) 272-9294.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Company's certificate of incorporation and bylaws provide broadly for the
indemnification of the directors and officers of the Company for certain
liabilities and costs incurred by them in connection with the performance of
their duties. This indemnification may include indemnification for liabilities
arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
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LEGAL OPINION
The validity of the Common StockResale Shares offered hereby will be passed on for the
Company by Brasher & Company, Attorneys at Law, 90 Madison Street, Suite 707,
Denver, Colorado 80206.
EXPERTS
The financial statements incorporated by reference in this Prospectus have been
audited by BDO Seidman, LLP, independent certified public accountants, to the
extent and for the periods set forth in their report incorporated herein by
reference, and are incorporated herein in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
1415
17
====================================== ======================================18
================================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representation not contained in, or incorporated by reference in,
this Prospectus, and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an For Up to
offer to sell or a solicitation of an 1,166,503
offer to buy any of
the securities of
offered hereby in any jurisdiction to Common Stock any person to whom it is
unlawful to make such offer in such jurisdiction. offered by
Neither the delivery of this
Prospectus nor any sale made hereunder Selling Shareholders shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof, or that there has been no change in the affairs
of the Company since such date.
TABLE OF CONTENTS
Available Information................3
Available Information......................3
Incorporation of Certain Documents
by Reference.............................3
Disclosure Regarding Forward-Looking
Statements...............................4
The Company................................4
Risk Factors...............................6
Use of Proceeds...........................10
Selling Security Holders..................10
Plan of Distribution......................12
Description of Securities.................14
Indemnification for Securities
Act Liabilities.........................14
Legal Opinion.............................15
Experts...................................15
================================================================================
For Up to
1,629,899 Shares
of
Certain
DocumentsCommon Stock
offered by
Reference.............3
Disclosure RegardingSelling Security Holders
AMERICAN TECHNOLOGY Forward-Looking Statements.........4 CORPORATION
The Company..........................4
Risk Factors.........................6
Use of Proceeds.....................10
Selling Security Holders............10
Plan of Distribution................12 PROSPECTUS
Description of Securities...........13
Indemnification for Securities
Act Liabilities...................14
Legal Opinion.......................14
Experts.............................14
MaySeptember ___, 1997
====================================== ======================================================================================================================
1819
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the offering of
the shares of Common Stock to be registered and offered hereby are as follows:
SEC registration fee $2,000$2,648
Legal fees and expenses 3,0003,000*
Accounting fees and expenses 1,5001,000*
Miscellaneous (including printing
and transfer fees) 1,5001,352*
------
Total $8,000
======
* Indicates estimate for the purpose of this filing.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Delaware law, the Company's Certificate of Incorporation
provides that the Company will indemnify its officers, directors, employees and
agents against attorneys' fees and other expenses and liabilities they incur to
defend, settle or satisfy any civil or criminal action brought against them
arising out of their association with or activities on behalf of the Company
unless, in any such action, they are adjudged to have acted with gross
negligence or to have engaged in willful misconduct. The Company may also bear
the expenses of such litigation for any such persons upon their promise to repay
such sums if it is ultimately determined that they are not entitled to
indemnification. Such expenditures could be substantial and may not be recouped,
even if the Company is so entitled. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable.
Pursuant to the General Corporation Law of Delaware, the Company's Certificate
of Incorporation excludes personal liability on the part of its directors to the
Company for monetary damages based upon any violation of their fiduciary duties
as directors, except as to liability for any breech of the duty of loyalty, acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, acts in violation of Section 174 of the General
Corporation Law of Delaware, or any transaction from which a director receives
an improper personal benefit. This exclusion of liability does not limit any
right which a director may have to be indemnified and does not affect any
director's liability under federal or applicable state securities laws.
ITEM 16. EXHIBITS.
The following is a list of all the exhibits filed as part of the Registration
Statement:
4.11 Form of Registration Rights Agreement dated as of August 12, 1997
by and between the Company and Eleven Purchasers of Series A
Convertible Preferred Stock
5.1 Opinion of Brasher & Company, Attorneys at Law
23.1 Consent of BDO Seidman, LLP
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ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that it will:
1
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(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement (or the most
recent post-effective amendment thereof);
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement; provided, however, that
paragraphs (1)(i) and (1)(ii) do not apply if the information
required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act and are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
For purposes of determining any liability under the Securities Act, (i) the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and (ii) each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
2
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Poway, and the State of California, as of the 20th19th
day of May,September, 1997.
AMERICAN TECHNOLOGY CORPORATION
By: /s/ ROBERT PUTNAM
Robert PutnamDALE WILLIAMS
Dale Williams
Chairman, President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and as of
the dates indicated.
Date: May 20,September 19, 1997 By /s/ Robert Putnam
Robert Putnam,DALE WILLIAMS
-----------------------------------
Dale Williams, Chairman, President and
Chief Executive Officer and Director
(Principal Executive Officer)
Date: September 19, 1997 By /s/ ROBERT PUTNAM
-----------------------------------
Robert Putnam, Vice President and
Treasurer
(Principal Financial and Accounting Officer)
Date: May 20,September 19, 1997 By /s/ Richard M. Wagner
-----------------------------------
Richard M. Wagner
Secretary and Director
Date: May 20,September 19, 1997 By /s/ Elwood G. Norris
-----------------------------------
Elwood G. Norris
Chief Technology Officer and Director
Date: May 20,September 19, 1997 By /s/ Joel A. Barker
-----------------------------------
Joel A. Barker
Director
3