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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
--------------
Commission File Number 0-24248
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AMERICAN TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 87-03261799
-------- -----------
(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
13114 Evening Creek Drive South, San Diego, California 92128
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(Address of principal executive offices) (Zip Code)
(858) 679-2114
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.00001 par value 13,880,044
- -------------------------------- --------------------
(Class) (Outstanding at May 7, 2001)
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AMERICAN TECHNOLOGY CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of March 31, 2001 (unaudited)
and September 30, 2000 3
Statements of Operations for the three and six months
ended March 31, 2001 and 2000 (unaudited) 4
Statements of Comprehensive Loss for the three and six
months ended March 31, 2001 and 2000 (unaudited) 5
Statements of Cash Flows for the three and six months
ended March 31, 2001 and 2000 (unaudited) 6
Notes to Interim Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 13
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
American Technology Corporation
BALANCE SHEETS
(unaudited)
March 31, September 30,
2001 2000
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 2,331,936 $ 4,645,615
Trade accounts receivable, less allowance of
$20,191 and $20,000 for doubtful accounts 146,374 237,912
Note receivable, officer [note 10] 40,000 -
Inventories 251,468 172,473
Prepaid expenses and other 267,405 184,482
- -----------------------------------------------------------------------------------------------------------------
Total current assets 3,037,183 5,240,482
- -----------------------------------------------------------------------------------------------------------------
Equipment, net 355,680 237,327
Patents, net 718,571 640,513
Purchased technology, net [note 6] 946,877 1,157,292
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 5,058,311 $ 7,275,614
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 304,977 $ 233,802
Accrued liabilities:
Payroll and related 163,093 182,048
Other 44,137 29,889
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 512,207 445,739
- -----------------------------------------------------------------------------------------------------------------
Commitments and contingencies [notes 6 and 7]
Stockholders' equity [note 7]:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized
Series B Preferred stock 250,000 shares designated: 178,860 2 2
and 192,260 issued and outstanding.
Series C Preferred stock 300,000 shares designated: 10,000
issued and outstanding. - -
Common stock, $0.00001 par value; 20,000,000 shares authorized
13,637,021 and 13,282,099 shares issued and outstanding 136 133
Additional paid-in capital 21,920,506 21,731,328
Note receivable, officer (27,895) (27,895)
Accumulated deficit (17,346,645) (14,873,693)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 4,546,104 6,829,875
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 5,058,311 $ 7,275,614
- -----------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial
statements.
3
American Technology Corporation
STATEMENTS OF OPERATIONS
(Unaudited)
For the three For the six
months ended months ended
March 31, March 31,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Revenues:
Product sales $ 135,334 $ 179,261 $ 294,750 $ 745,408
Contract and license [note 9] 205,000 - 238,306 55,772
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 340,334 179,261 533,056 801,180
- --------------------------------------------------------------------------------------------------------------------------
Cost of revenues 192,863 217,098 367,973 611,264
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 147,471 (37,837) 165,083 189,916
- --------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative, (including
$39,181 and $81,110 non-cash for 2001 and 2000
respectively) 537,718 702,472 1,148,913 1,217,011
Research and development 731,494 538,828 1,595,414 907,529
- --------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,269,212 1,241,300 2,744,327 2,124,540
- --------------------------------------------------------------------------------------------------------------------------
Loss from operations (1,121,741) (1,279,137) (2,579,244) (1,934,624)
- --------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 40,169 29,598 104,092 33,488
Gain on sale of asset 3,000 - 3,000 -
Gain on sale of investment securities - 877,195 - 988,112
Other (800) - (800) (855)
- --------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 42,369 906,793 106,292 1,020,745
- --------------------------------------------------------------------------------------------------------------------------
Net loss $(1,079,372) $ (372,344) $(2,472,952) $ (913,879)
- --------------------------------------------------------------------------------------------------------------------------
Net loss available to common stockholders [note 3] $(1,110,687) $(2,932,785) $(2,536,367) $ (3,505,886)
- --------------------------------------------------------------------------------------------------------------------------
Net loss per share of common stock - basic and diluted $(0.08) $(0.25) $(0.19) $(0.30)
- --------------------------------------------------------------------------------------------------------------------------
Average weighted number of common shares outstanding 13,578,428 11,702,323 13,434,584 11,602,933
- --------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial
statements.
4
American Technology Corporation
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
For the three For the six
months ended months ended
March 31, March 31,
2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Net Loss $ (1,079,372) $(372,344) $(2,472,952) $ (913,879)
Reclassification adjustment for gains
included in net income - (508,444) - (299,445)
----------------------------------------------------------------------
Comprehensive loss (1,079,372) (880,788) (2,472,952) (1,213,324)
======================================================================
See accompanying summary of accounting policies and notes to financial
statements.
5
American Technology Corporation
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended March 31,
2001 2000
- --------------------------------------------------------------------------------------------
Increase (Decrease) in Cash
Operating Activities:
Net loss $(2,472,952) $ (913,879)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 292,696 62,312
Allowance for doubtful accounts 191 12,000
Gain on sale of asset (3,000) -
Gain on sales of investment securities - (988,112)
Stock issued for services 39,181 81,110
Changes in assets and liabilities:
Trade accounts receivable 91,347 (9,831)
Inventories (78,995) 66,049
Prepaid expenses and other (82,923) 148,746
Accounts payable 71,175 (66,835)
Accrued liabilities (4,707) 78,466
- --------------------------------------------------------------------------------------------
Net cash used in operating activities (2,147,987) (1,529,974)
- --------------------------------------------------------------------------------------------
Investing Activities:
Purchase of equipment (186,928) (29,251)
Patent costs paid (91,764) (71,635)
Proceeds loaned on notes receivable - officer (40,000) -
Deposit on technology purchased - (150,000)
Proceeds from sale of assets 3,000 988,314
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (315,692) 737,428
- --------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of preferred stock, net - 5,925,000
Proceeds from exercise of common stock warrants - 1,023,500
Proceeds from exercise of stock options 150,000 440,065
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities 150,000 7,388,565
- --------------------------------------------------------------------------------------------
Net decrease in cash (2,313,679) 6,596,019
Cash, beginning of year 4,645,615 590,236
- --------------------------------------------------------------------------------------------
Cash, end of year $ 2,331,936 $ 7,186,255
- --------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information:
Non-cash financing activities:
Common stock issued on conversion of Series B
Preferred Stock $ 134,000 -
Dividends on conversion of Series B Preferred Stock 17,972 -
See accompanying summary of accounting policies and notes to financial
statements.
6
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS
American Technology Corporation (the "Company"), a Delaware corporation, is
engaged in design, development and commercialization of sound, acoustics and
other technologies and the sales and marketing of portable consumer products.
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles 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's audited financial statements and notes
thereto for the year ended September 30, 2000.
3. NET LOSS PER SHARE
The Company applies Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share." SFAS No. 128 provides for the calculation of "Basic"
and "Diluted" earnings per share ("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'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, stock options and warrants
convertible or exercisable into approximately 2,624,643 shares of common stock
were outstanding at March 31, 2001 and stock options, warrants, preferred stock
and debt convertible or exercisable into approximately 3,045,386 shares of
common stock were outstanding as of March 31, 2000. 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 provisions of the Company's Series B Preferred Stock provide for an
accretion in the conversion value (similar to a dividend) of 6% or $0.60 per
share per annum. The Series C Preferred Stock provides for an accretion in the
conversion value of 6% or $1.20 per share per annum. The accrued accretion of
the Series B and Series C Preferred Stock for the six months ended March 31,
2001 was $57,432 and $5,983, respectively, which 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
2001 2000 2001 2000
----------- ----------- ----------- ------------
Net Loss $(1,079,372) $ (372,344) $(2,472,952) $ (913,879)
Imputed deemed dividend on warrants
issued with Preferred Stock - (1,478,000) - (1,478,000)
Series B and C Preferred Stock imputed deemed
dividend based on discount at issuance - (1,031,250) - (1,031,250)
Accretion on Series B and Series C Preferred
Stock at stated rate (31,315) (51,191) (63,415) (82,757)
----------- ----------- ----------- -----------
Net loss available to common stockholders $(1,110,687) $(2,932,785) $(2,536,367) $(3,505,886)
=========== =========== =========== ===========
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities" ("SFAS No. 133") which establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133, as extended by SFAS No. 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company does not
expect the adoption of SFAS No. 133 to have a material effect on the Company's
consolidated financial statements.
7
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
4. RECENT ACCOUNTING PRONOUNCEMENTS (cont'd)
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements of all public registrants. The provisions of SAB 101 are
effective for transactions beginning in the Company's fiscal year 2001. The
Company believes its existing revenue recognition policies and procedures are in
compliance with SAB 101 and therefore, the adoption of SAB 101 had no material
impact on the Company's financial condition, results of operations or cash
flows.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which was
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 15, 1998 or January
12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. The Company believes its existing stock
based compensation policies and procedures are in compliance with FIN 44 and
therefore, the adoption of FIN 44 had no material impact on the Company's
financial condition, results of operations or cash flows.
In March 2000, the FASB issued Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs" ("EITF 00-2"), which is effective
for all such costs incurred for fiscal quarters beginning after June 30, 2000.
This Issue establishes accounting and reporting standards for costs incurred to
develop a web site based on the nature of each cost. The Company has
capitalized $64,080 in web site development costs during the current fiscal year
and amortized to expense $4,384 during the current quarter.
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 at
March 31, 2001:
Finished goods $ 156,481
Raw materials 114,987
Reserve for obsolete inventory (20,000)
---------
$ 251,468
=========
6. PURCHASED TECHNOLOGY
In April 2000, the Company acquired all rights to certain loudspeaker technology
owned by David Graebener ("Graebener"), Stephen M. Williams ("Williams") and
Hucon Limited, a Washington corporation ("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
will pay up to an additional 159,843 shares of Common Stock upon the achievement
of certain performance milestones relating to gross revenues received by the
Company from the purchased loudspeaker technology. The Company agreed to employ
Mr. Williams and Mr. Graebener for a term of three years subject to certain
terms and conditions.
7. STOCKHOLDERS' EQUITY
At March 31, 2001, the Company had 178,860 shares of Series B Preferred Stock,
par value $0.00001 ("Series B Stock") issued and outstanding. The dollar amount
of Series B 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 of the Company at a conversion price which is the lower of (i) $5.00 per
share or (ii) 92% of the average of the five days closing bid market price prior
to conversion, but in no event less than $3.50 per share. The shares of Series B
Stock may be called by the Company for conversion if the market price of the
Common Stock exceeds $12.00 per share for ten days and certain conditions are
met. The Series B Stock is subject to automatic conversion on November 30, 2001.
At March 31, 2001 the Series B Stock would have been convertible into 489,188
shares of Common Stock.
During the quarter, an aggregate of $13,400 shares of Series B Preferred Stock
were converted into 43,422 shares of Common Stock.
8
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
7. STOCKHOLDERS' EQUITY (cont'd)
At March 31, 2001, the Company had 10,000 shares of Series C Preferred Stock,
par value $0.00001 ("Series C Stock") issued and outstanding. The dollar amount
of Series C Stock, increased by $1.20 per share accretion per annum and other
adjustments, is convertible one or more times into fully paid shares of Common
Stock of the Company at a conversion price which is the lower of (i) $8.00 per
share or (ii) 92% of the average of the five days closing bid market price prior
to conversion, but in no event less than $5.75 per share. The shares of Series C
Stock may be called by the Company for conversion if the market price of the
Common Stock exceeds $20.00 per share for ten days and certain conditions are
met. The Series C Stock is subject to automatic conversion on March 31, 2003. At
March 31, 2001, the Series C Stock would have been convertible into 36,955
shares of Common Stock.
The following table summarizes changes in equity components from transactions
during the six months ended March 31, 2001:
Series B Additional
Preferred Stock Common Stock Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
- ---------------------------------------------------------------------------------------------------------------------------
Balance as of October 1, 2000 192,260 $ 2 13,282,099 $133 $21,731,328 $(14,873,693)
Issuance of Common Stock:
For compensation and services - - 11,500 - 39,181 -
Upon exercise of stock options - - 300,000 3 149,997 -
Conversion of Series B preferred stock
and cumulative dividends (13,400) - 43,422 - - -
Net loss - - - - - (2,472,952)
- ---------------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2001 178,860 $ 2 13,637,021 $136 $21,920,506 $(17,346,645)
===========================================================================================================================
The following table summarizes information about stock option activity during
the six months ended March 31, 2001:
Weighted Average
Shares Exercise Price
------ --------------
Outstanding October 1, 2000 1,153,833 $5.20
Granted 640,000 $3.17
Exercised (300,000) $0.50
Canceled/expired (110,333) $5.03
----------
Outstanding March 31, 2001 1,383,500 $2.16
==========
Exercisable at March 31, 2001 728,100 $1.63
==========
Options outstanding are exercisable at prices ranging from $3.00 to $16.00 and
expire over the period from 2001 to 2006 with an average life of 2.54 years.
At March 31, 2001, the Company had warrants outstanding, exercisable into the
following number of common shares:
Number Exercise Price Expiration Date
------ -------------- ---------------
240,000 $ 6.00 November 30, 2001
50,000 $16.00 May 12, 2003
50,000 $10.00 January 5, 2004
300,000 $11.00 March 31, 2003
75,000 $11.00 March 31, 2005
-------
715,000
=======
8. INCOME TAXES
At March 31, 2001, 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
$12,790,000 which expire through 2020 of which certain amounts are subject to
limitations under the Internal Revenue Code of 1986, as amended.
9
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
9. SALE OF PATENTED TECHNOLOGIES
On December 29, 2000, the Company entered into an agreement to sell one of its
patented technologies for $200,000 and future royalties. The Company recorded
the full amount of the purchase price excluding future royalties in the quarter
ended March 31, 2001.
10. NOTES RECEIVABLE - OFFICER
In March 2001, the Company entered into a six-month, $40,000 Promissory Note
Receivable with an officer of the Company. The note bears interest at the rate
of 6% per annum with interest and principal due September 26, 2001.
______________________________________________
Item 2. 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
RISKS." ALSO SEE OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30,
2000.
Overview
We are focused on commercializing our proprietary HyperSonic Sound(TM),
Stratified Field(TM), NeoPlanar(TM) and PureBass(TM) technologies. Our
HyperSonic Sound technology employs a laser-like beam to project sound to
listening environments. Our Stratified Field technology features a thin form
factor, in a variety of shapes and sizes, producing high fidelity and low
distortion sound reproduction. 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 a given size with low distortion. PureBass
is an extended range sub-woofer designed to complement our high performance
Stratified Field and NeoPlanar technologies. PureBass employs unique cabinet
construction and vent configurations along with multiple acoustic filters that
we believe produce improved performance. Our strategy is to commercialize these
technologies through OEMs by entering into licensing or contract supply
agreements. This strategy may not be successful. We have not generated any
significant revenues from these sound technologies to date.
We believe that our Stratified Field Technology, NeoPlanar and PureBass
technologies have been developed to meet OEM requirements. We are marketing
these technologies to a variety of customers. Recent marketing developments
include:
1. In April 2001, we announced that we entered into a Letter of Intent with
Harman International Industries, Incorporated for all rights to our
planar magnetic transducer technology (NeoPlanar(TM)) except for
military applications. There can be no assurance a definitive agreement
with acceptable terms can be concluded.
2. In March 2001 we entered into an exclusive marketing agreement with
Americhip Inc. to develop, market and distribute speaker devices for
point-of-purchase products and services utilizing our HSS technology.
3. In October 2000 we licensed SoundIdeas as a partner to develop and
market specific products and services utilizing HSS technology for use
within the Trade Show, Exhibit, Event, and Point-of-Purchase markets.
4. We are working with SFT licensees Thomson Multimedia and HST to bring
initial products to market.
5. We are working with Bath Iron Works (a General Dynamic company) for
military applications utilizing our HSS and SFT technologies.
In addition to improving our technologies we are developing additional
technologies. Our development projects are high risk in nature. Unanticipated
technical obstacles can arise at any time and result in lengthy and costly
delays or result in a determination that further development is unfeasible. Our
OEM customers may not produce commercially viable sound
10
products, and if produced, such products may not perform on a cost-effective
basis or achieve market acceptance. 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. Our technologies may not
achieve market acceptance sufficient to sustain operations or generate future
profits. See "Business Risks" below.
A significant portion of our revenue has been derived from the sale of portable
consumer products. We have sourced a total of 13 products (including FM and
solar radios) targeted for niche markets at retail prices ranging from $11.99 to
$29.99. Sourcing is on both an exclusive and nonexclusive basis and for
different market territories on a product by product basis. Our market focus is
in North America. We inventory finished goods as well as provide direct factory
shipment to certain customers.
Demand for our portable consumer 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,
sales have been concentrated with a few customers. We are also reliant on
outside manufacturers to supply our products and our supply is therefore subject
to this disruption. 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 because of our limited financial resources.
Results of Operations
Total revenue for the six months ended March 31, 2001 were $533,056 a 33%
decrease from the comparable six months of the prior year. Revenue for the three
month period ended March 31, 2001 and 2000 were $340,334 and $179,261,
respectively. Product revenue for the six months ended March 31, 2001 was
$294,750 a 60% decrease from the comparable six month of the prior year. The
decrease in product revenue in fiscal 2001 can be mainly attributed to the
absence of a one-time seasonal consumer products order the Company shipped in
the first quarter of fiscal 2000. Contract and service revenue for the second
quarter ending March 31, 2001 and 2000 was $238,306 and $55,772, respectively.
The increase in contract and service revenue is due primarily to the sale of
patented technology. Consumer product sales are subject to significant month to
month and quarter to quarter variability based on the timing of orders, new
accounts, lost accounts and other factors. Our sales are further affected by a
variety of factors including seasonal requirements of customers.
Cost of sales for the six months ended March 31, 2001 was $367,973 resulting in
a gross profit of $165,083 or 31%. This compares to a gross profit of $189,916
or 24% for the comparable period of the prior year. Cost of sales for the three
months ended March 31, 2001 and 2000 were $192,863 and $217,098, representing
gross profit of 43% and 17%, respectively. The fiscal 2001 second quarter gross
profit increase is due to the sale of the patented technology. Product cost of
sales for the six months ended March 31, 2001 and 2000 were $249,795 and
$600,651, respectively, representing a gross profit of 15% and 19% on product
sales. Gross profit percentage is highly dependent on sales prices, volumes,
purchasing costs and overhead allocations.
Selling, general and administrative expenses for the six months ended March 31,
2001 and 2000 were $1,148,913 and $1,217,011, respectively. The $68,098 decrease
resulted primarily from a reduction in personnel and related costs. Selling,
general and administrative expenses for the three month period ended March 31,
2001 and 2000 were $537,718 and $702,472, respectively. The $164,754 decrease
resulted from an $89,520 reduction in personnel and related costs, a $46,778
reduction in travel and related costs and $15,088 reduction in shareholder
costs. We may expend additional resources on marketing HSS, PMT and other
technologies in future quarters, which may increase selling, general and
administrative expenses.
Research and development costs for the six months ended March 31, 2001 were
$1,595,414 compared to $907,529 for the comparable six months of the prior year.
The $687,885 increase resulted from a $34,623 increase in the development of our
HSS evaluation units, an increase of $365,452 for our PMT technology, of which
$210,415 is attributed to amortization, and an increase of $297,466 in
engineering personnel and related costs; offset by a reduction of $51,335 in SFT
technology expenditures.
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
fiscal 2001 research and development costs to remain at higher levels than the
prior year due to increased staffing and the use of outside design and
consultants.
11
We recorded in selling, general and administrative expenses a non-cash
compensation expense of $39,181 for the six months ended March 31, 2001. The
$39,181 non-cash compensation expense for fiscal year 2001 is for services paid
through the issuance of 11,500 shares of common stock. Included in selling,
general and administrative expense for the six months ended March 31, 2000 is
non-cash compensation expense of $81,110 which is the result of services paid
through the issuance of 8,233 shares of common stock. Non-cash compensation
costs vary depending on elections regarding the use of common stock to pay
services and other factors related to warrant and option valuations.
We experienced a loss from operations of $2,579,244 during the six months ended
March 31, 2001, compared to a loss from operations of $1,934,624 for the
comparable six months ended March 31, 2000. The $644,620 increase is primarily
due to the increase in research and development expenditures. The loss from
operations for the three months ended March 31, 2001 was $1,121,741 compared to
$1,279,137 for the second quarter of the prior year. During the second quarter
of fiscal 2001 the increase in research and development costs was offset by
reductions in selling, general and administrative expenses.
The net loss available to common stockholders for the three and six months ended
March 31, 2001 of $1,110,687 and $2,536,367, respectively, included $31,315 and
$63,415 of accrued accretion on the Series B and Series C Preferred Stock,
respectively. These amounts are included in net loss available to common
stockholders.
We have federal net loss carryforwards of approximately $12,790,000 for federal
tax purposes expiring through 2020. 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
Since we recommenced operations in January 1992, we have had significant
negative cash flow from operating activities. During the six months ended March
31, 2001, operating activities used cash of $2,147,988. This amount consisted
primarily of a net loss of $2,472,952, an increase of $78,995 in inventory and
an increase of $82,923 in prepaid expenses and other, offset by a $91,538
decrease in accounts receivable and a $71, 175 increase in accounts payable.
At March 31, 2001, we had gross accounts receivable of $166,565 as compared to
$257,912 at September 30, 2000. This represented approximately 100 days of
sales. Receivables can vary dramatically due to quarterly and seasonal
variations in sales and timing of shipments to and receipts from large
customers, many of which demand extended terms of 90-120 days.
For the six months ended March 31, 2001, net cash used in investing activities
was $275,691, consisting primarily of $186,928 for the purchase of computer
equipment, website development costs, leasehold improvements and, $91,764 in
patents and new patent applications. We anticipate significant investments in
patents in fiscal 2001 and requirements for additional equipment for developing
SFT, HSS and other technologies. We cannot currently estimate the dollar amounts
of these patent investments and equipment additions.
At March 31, 2001, we had working capital of $2,524,976 compared to working
capital of $4,794,743 at September 30, 2000.
Other then cash of $2,331,936 at March 31, 2001, we have no other material
unused sources of liquidity at this time. We expect to incur additional
operating losses as a result of continued product sales operations and as a
result of expenditures for research and development and marketing costs for its
sound reproduction technologies and other products and technologies. The timing
and amounts of our expenditures and the extent of our operating losses will
depend on many factors, some of which are beyond our control. We anticipate that
the commercialization of our technologies may require increased operating costs,
however the amounts are not currently estimable by management.
Based on the above factors, including the current rate of expenditures,
anticipated additional expenditures and uncertainty as to future expenditures,
we do not have sufficient funds for the next twelve months and will require
funds from the sale or licensing of products or technology or from other sources
or will be required to scale back or curtail certain activities. Management
estimates the minimum additional funding required for the next twelve months at
approximately $2 million. Management believes that the required funds will be
obtained through the sale or licensing of
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its technologies and royalty and licensing fee payments. Management has also
been successful in obtaining equity financing in the past from existing
shareholders and others based on the strength and appeal of our technologies.
However, there can be no guarantee that the funds required during the next
twelve months or thereafter can be generated from operations or that such
required funds will be available from the aforementioned or other potential
sources. 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.
New Accounting Pronouncements
A number of new pronouncements have been issued for future implementation as
discussed in the footnotes to the Company's 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 the Company's financial statements.
Business Risks
This report contains a number of forward-looking statements, which reflect our
current views with respect to future events and financial performance. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned to consider the specific risk factors described in our
Annual Report on Form 10-K for the year ended September 30, 2000 and not to
place undue reliance on the forward-looking statements contained herein, which
speak only as of the date hereof. We undertake no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that may
arise after the date hereof.
Item 3. 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 current cash of $2,331,936. 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.
We have no activities in long-term indebtedness and our other investments are
insignificant as of the date of this report.
PART II. OTHER INFORMATION
Item 1. 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 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's fiscal 2001 Annual Meeting of Stockholders held on April 5,
2001, the following individuals, constituting all of the members of the Board of
Director were elected: Elwood G. Norris, Terry Conrad, Richard M. Wagner, David
J. Carter, O'Connell J. Benjamin.
The following proposals were approved at the Company's Annual Meeting of
Stockholders:
1. Election of Directors:
Affirmative Votes Negative Votes Votes Withheld
----------------- -------------- --------------
Elwood G. Norris 11,563,118 -0- 81,530
Terry Conrad 11,605,378 -0- 39,270
Richard M. Wagner 11,603,618 -0- 41,030
David J. Carter 11,621,093 -0- 23,555
O'Connell J. Benjamin 11,576,493 -0- 68,155
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2. To ratify the selection of BDO Seidman, LLP as independent auditors of the
Company for the fiscal year ended September 30, 2001.
Affirmative Votes Negative Votes Votes Withheld
----------------- -------------- --------------
11,617,146 6,661 20,841
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable
(b) Reports on Form 8-K
We filed no reports on Form 8-K during the quarter ended March 31, 2001.
14
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, 2001 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)
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