- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
-----------------
Commission File Number 0-24248
-------
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
------------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
(858) 679-2114
--------------
(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 13,592,952
- -------------------------------- ----------
(Class) (Outstanding at February 9, 2001)
AMERICAN TECHNOLOGY CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of December 31, 2000 (unaudited)
and September 30, 2000 3
Statements of Operations for the three months ended
December 31, 2000 and 1999 (unaudited) 4
Statements of Comprehensive Loss for the three months
ended December 31, 2000 and 1999 (unaudited) 5
Statements of Cash Flows for the three months ended
December 31, 2000 and 1999 (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 12
PART II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
American Technology Corporation
BALANCE SHEETS
(unaudited)
December 31, September 30,
2000 2000
====================================================================================================
ASSETS
Current Assets:
Cash $ 3,469,980 $ 4,645,615
Trade accounts receivable, less allowance of
$20,000 and $8,000 for doubtful accounts 72,842 237,912
Inventories [note 5] 175,411 172,473
Prepaid expenses and other 172,262 184,482
- ---------------------------------------------------------------------------------------------------
Total current assets 3,890,495 5,240,482
- ---------------------------------------------------------------------------------------------------
Equipment, net [note 3] 247,962 237,327
Patents, net 692,181 640,513
Purchased technology, net [note 6] 1,052,085 1,157,292
- ---------------------------------------------------------------------------------------------------
Total assets $ 5,882,723 $ 7,275,614
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 256,952 $ 233,802
Accrued liabilities:
Payroll and related 129,430 182,048
Other 25,665 29,889
- ---------------------------------------------------------------------------------------------------
Total current liabilities 412,047 445,739
- ---------------------------------------------------------------------------------------------------
Commitments and contingencies [notes 6 and 8]
Stockholders' equity [note 8]:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized
Series B Preferred stock 250,000 shares designated: 192,260
issued and outstanding. 2 2
Series C Preferred stock 300,000 shares designated: 10,000
issued and outstanding. - -
Common stock, $0.00001 par value; 20,000,000 shares authorized
13,292,099 and 13,282,099 shares issued and outstanding 133 133
Additional paid-in capital 21,765,709 21,731,328
Note receivable, officer (27,895) (27,895)
Accumulated deficit (16,267,273) (14,873,693)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 5,470,676 6,829,875
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 5,882,723 $ 7,275,614
===================================================================================================
See accompany summary of accounting policies and notes to financial statements.
3
American Technology Corporation
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
December 31,
2000 1999
===========================================================================================================================
Revenues:
Product sales 159,416 566,147
Contract and license 33,306 55,772
- -------------------------------------------------------------------------------------------------------------------------
Total revenues 192,722 621,919
- -------------------------------------------------------------------------------------------------------------------------
Cost of revenues 175,110 394,166
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 17,612 227,753
- -------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative, (including $34,381 and $11,118 611,195 514,539
non-cash for 2000 and 1999, respectively)
Research and development 863,920 368,701
- -------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,475,115 883,240
- -------------------------------------------------------------------------------------------------------------------------
Loss from operations (1,457,503) (655,487)
- -------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 63,923 3,890
Gain on sales of investment securities - 110,917
Other - (855)
- -------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 63,923 113,952
- -------------------------------------------------------------------------------------------------------------------------
Net loss (1,393,580) (541,535)
=========================================================================================================================
Net loss available to common stockholders (1,432,190) (573,101)
=========================================================================================================================
Net loss per share of common stock - basic and diluted $ (0.11) $ (0.05)
=========================================================================================================================
Average weighted number of common shares outstanding 13,287,642 11,504,623
=========================================================================================================================
See accompanying summary of accounting policies and notes to financial
statements
4
American Technology Corporation
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
For the Three Months Ended December 31, 2000 1999
- ----------------------------------------------------------------------------
Net Loss $(1,393,580) $(541,535)
Reclassification adjustment for gains
included in net income - 208,954
---------------------------------
Comprehensive loss - $(332,581)
=================================
See accompanying summary of accounting policies and notes to financial
statements
5
American Technology Corporation
STATEMENTS OF CASH FLOWS
(Unaudited)
For the three months ended
December 31,
2000 1999
============================================================================================
Increase (Decrease) in Cash
Operating Activities:
Net loss $(1,393,580) $(541,535)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 140,992 29,651
Allowance for doubtful accounts - (9,000)
Gain on sales of investment securities - (110,917)
Stock issued for services 34,381 11,118
Changes in assets and liabilities:
Trade accounts receivable 165,071 (51,388)
Inventories (2,938) (27,988)
Prepaid expenses and other 12,217 159,830
Accounts payable 23,151 133,796
Accrued liabilities (56,842) (8,784)
- -------------------------------------------------------------------------------------------
Net cash used in operating activities (1,077,548) (415,217)
- -------------------------------------------------------------------------------------------
Investing Activities:
Purchase of equipment (39,567) (7,930)
Patent costs paid (58,520) (38,274)
Proceeds from sales of investment securities - 110,962
- -------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (98,087) 64,758
- -------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from exercise of common stock warrants - 135,000
Proceeds from exercise of stock options - 167,704
- -------------------------------------------------------------------------------------------
Net cash provided by financing activities - 302,704
- -------------------------------------------------------------------------------------------
Net decrease in cash (1,175,635) (47,755)
Cash, beginning of year 4,645,615 590,236
- -------------------------------------------------------------------------------------------
Cash, end of year $3,469,980 $542,481
===========================================================================================
Supplemental Disclosure of Cash Flow Information:
Non-cash financing activities:
Dividends on conversion of Series B Preferred Stock - 5,935
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
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 2,648,505 shares of common stock
were outstanding at December 31, 2000 and stock options, warrants, preferred
stock and debt convertible or exercisable into approximately 2,921,999 shares of
common stock were outstanding as of December 31, 1999. 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 three months ended December
31, 2000 was $38,610 and $31,566, respectively, which increases the net loss
available to common stockholders. Net loss available to common stockholders is
computed as follows:
Three months ended December
2000 1999
---- ----
Net Loss $(1,393,580) $(541,535)
Accretion on Series B and Series C Preferred
Stock at stated rate (38,610) (31,566)
----------- ---------
Net loss available to common stockholders $(1,432,190) $(573,101)
=========== =========
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.
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.
7
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
4. RECENT ACCOUNTING PRONOUNCEMENTS (cont'd)
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.
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
December 31, 2000:
Finished goods $105,793
Raw materials 89,618
Reserve for obsolete inventory (20,000)
--------
$175,411
========
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. These shares reflect a
reduction for the amount paid by the Company for prepaid minimum royalties for
proprietary film purchases. The Company agreed to employ Mr. Williams and Mr.
Graebener for a term of three years subject to certain terms and conditions.
7. INVESTMENT SECURITIES
At December 31, 2000 the Company no longer holds available for sale investment
securities. During the first quarter ended December 31, 1999, the Company sold
50,000 shares of e.Digital Corporation for the gross proceeds of $110,962. At
December 31, 1999 the Company held 175,000 shares of e.Digital Corporation
common stock with an estimated fair value of $508,602.
8. STOCKHOLDERS' EQUITY
At December 31, 2000, the Company had 192,260 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 December 31, 2000 the Series B Stock would have been
convertible into 615,564 shares of Common Stock.
At December 31, 2000, 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 Series C Stock may
not be converted at an effective price of less than $8.00 per share until August
31, 2000. 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 December 31, 2000, the Series C Stock
would have been convertible into 36,441 shares of Common Stock.
8
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
8. STOCKHOLDERS' EQUITY (cont'd)
The following table summarizes changes in equity components
from transactions during the three months ended December 31,
2000:
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 - - 10,000 - 34,381
Net loss - - - - - (1,393,580)
- --------------------------------------------------------------- ---------- ------ ---------- ------ ----------- ------------
Balance as of December 31, 2000 192,260 $2 13,292,099 $133 $21,765,709 $(16,267,273)
========== ====== ========== ====== =========== ============
The following table summarizes information about stock option activity during
the first quarter ended December 31, 2000:
Weighted Average
Shares Exercise Price
------ --------------
Outstanding October 1, 2000 1,153,833 $5.20
Granted 165,000 $3.68
Canceled/expired (37,333) $3.85
---------
Outstanding December 31, 2000 1,281,500 $4.91
=========
Exercisable at December 31, 2000 989,866 $4.71
=========
Options outstanding are exercisable at prices ranging from $0.50 to $16.00 and
expire over the period from 2000 to 2005 with an average life of 2.41 years.
At December 31, 2000, 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 June 30, 2003
75,000 $11.00 June 30, 2005
-------
715,000
=======
9. INCOME TAXES
At December 31, 2000, 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.
10. 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 will
recognize revenue from this transaction in calendar 2001 when and as future
contractual conditions are met.
9
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 any
listening environment. 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 any 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. There can be no assurance we will be successful in
commercially exploiting our sound technologies.
We believe that our Stratified Field Technology, NeoPlanar and PureBass
technologies meet OEM requirements and can be transferred to production. We have
also recently obtained our first contract on HyperSonic Sound technology and are
commencing marketing of this technology. There can be no assurance that
commercially viable systems can be produced in the future due to the inherent
risks of new technology development and transfer, limitations on financing,
competition, obsolescence, loss of key technical personnel and other factors
beyond our control. We have not generated any significant revenues from our
sound technologies to date.
Our various 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.
There can be no assurance of timely completion of commercially viable sound
products by customers or that, if available, such products will perform on a
cost-effective basis, or that they will 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. There can be no assurance our
technologies will achieve market acceptance sufficient to sustain operations or
achieve future profits. See "Business Risks" below.
To date substantially all of our revenues have 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. There can be no assurance that our line
of products can be marketed successfully.
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 there can be no assurance of
future supply. The markets for our products and future products and technologies
are subject to rapidly changing customer tastes and a high level of competition.
Demographic trends in society, marketing and advertising expenditures, and
product positioning in retail outlets, technological developments, seasonal
variations and general economic conditions influence demand for our products.
Because these factors can change rapidly, customer demand can also shift
quickly. We may not be able to respond to changes in customer demand because of
the time required to change or introduce products, production limitations and
because of our limited financial resources.
Results of Operations
Total revenue for the three months ended December 31, 2000 were $192,722 a 69%
decrease from the first three months of the prior year. Contract and service
revenue for the quarters ending December 31, 2000 and 1999 was $33,306 and
$55,772, respectively. 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.
10
Cost of sales for the three months ended December 31, 2000 was $175,110
resulting in a gross profit of $17,612 or 9%. This compares to a gross profit of
$227,753 or 37% for the comparable period of the prior year. The fiscal 2001
first quarter gross profit decrease is due to the sale of marked down and
closeout inventory. Gross profit percentage is highly dependent on sales prices,
volumes, purchasing costs and overhead allocations.
Selling, general and administrative expenses for the three months ended December
31, 2000 and 1999 were $611,195 and $514,539, respectively. The $96,656 increase
resulted from an increase of $58,312 in personnel and related costs; a $19,379
increase in rent; and a $15,313 increase in accounting and administration
related expenditures. We may expend additional resources on marketing SFT and
HSS technologies in future quarters, which may increase selling, general and
administrative expenses.
Research and development costs for the three months ended December 31, 2000 were
$863,920 compared to $368,701 for the comparable three months of the prior year.
The $495,219 increase resulted primarily from an increase in PMT, HSS and SFT
technology development activities and related personnel and component costs.
This increase was primarily due to increased research and development on HSS
evaluation units and amortization expense on the purchased technology.
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.
We recorded in selling, general and administrative expenses a non-cash
compensation expense of $34,381 for the three months ended December 31, 2000.
The $34,381 non-cash compensation expense for fiscal year 2001 is for services
paid through the issuance of 10,000 shares of common stock. Included in selling,
general and administrative expense for the three months ended December 31, 1999
is non-cash compensation expense of $11,118 which is the result of services paid
through the issuance of 1,589 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 $1,475,503 during the three months
ended December 31, 2000, compared to a loss from operations of $655,487 for the
comparable three months ended December 31, 1999. The $820,016 increase is
primarily due to increase in research and development expenditures.
The net loss available to common stockholders for the three months ended
December 31, 2000 and December 31, 1999 of $1,432,190 and $573,101,
respectively, included $38,610 and $31,566 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 three months ended
December 31, 2000, the Company experienced a net loss of $1,393,580. In addition
to this amount, $1,077,548 of cash was used in operating activities through a
$56,842 decrease in accrued liabilities and an increase of $2,938 in inventory.
Operating cash was provided by a $165,071 decrease in accounts receivable, a
$23,150 increase in accounts payable and a $12,217 decrease in prepaid expenses.
At December 31, 2000, we had gross accounts receivable of $92,842 as compared to
$226,921 at December 31, 1999. This represented approximately 136 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 three months ended December 31, 2000, the Company used approximately
$39,567 for the purchase of laboratory and computer equipment and made a $58,520
investment in patents and new patent applications. We
11
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 December 31, 2000, we had working capital of $3,478,448 compared to working
capital of $4,794,743 at September 30, 2000.
We have financed our operations primarily through the sale of preferred stock,
exercise of stock options, issuances of convertible notes, proceeds from the
sale of investment securities and margins from consumer product sales. At
December 31, 2000, we had cash of $3,469,980. As a result of our continuing
operating losses, our cash position decreased by approximately $1.2 million from
September 30, 2000. Based on our cash position assuming (a) currently planned
expenditures and level of operations, (b) continuation of sales to existing
retail customers and (c) royalty revenue against existing license agreements, we
believe we have sufficient capital resources for the next twelve months. Other
than cash and cash equivalents, we have no unused sources of liquidity at this
time. We expect to incur additional operating losses as a result of continued
liquidation of inventory below cost and as a result of expenditures for research
and development and marketing costs for our sound and other products and
technologies. The timing and amounts of these expenditures and the extent of our
operating losses will depend on many factors, some of which are beyond our
control. We anticipate that the commercialization of our technologies may
require increased operating costs, however we cannot currently estimate the
amounts of these costs.
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 certain risks and uncertainties that
could cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned to consider the specific 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 $3,469,980. 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
12
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Not applicable
(b) Reports on Form 8-K
We filed a Form 8-K on October 27, 2000 disclosing in Item 5 the contents of
a letter from our Chairman and our President to stockholders dated October 25,
2000.
13
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: February 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)
14