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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2001
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------------- ----------------
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 13,703,594
- -------------------------------- -------------------------------
(Class) (Outstanding at August 3, 2001)
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AMERICAN TECHNOLOGY CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of June 30, 2001 (unaudited)
and September 30, 2000 3
Statements of Operations for the three and nine months ended
June 30, 2001 and 2000 (unaudited) 4
Statements of Comprehensive Loss for the three and nine
months ended June 30, 2001 and 2000 (unaudited) 5
Statements of Cash Flows for the nine months ended
June 30, 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 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
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 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
American Technology Corporation
BALANCE SHEETS
(unaudited)
June 30, September 30,
2001 2000
- -------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $1,465,500 $4,645,615
Trade accounts receivable, less allowance of
$20,191 and $20,000 for doubtful accounts 137,211 237,912
Note receivable, officer 40,000 -
Inventories 172,820 172,473
Prepaid expenses and other 210,524 184,482
- -------------------------------------------------------------------------------------------------------
Total current assets 2,026,055 5,240,482
- -------------------------------------------------------------------------------------------------------
Equipment, net 339,071 237,327
Patents, net 772,571 640,513
Purchased technology, net [note 6] 841,671 1,157,292
- -------------------------------------------------------------------------------------------------------
Total assets $3,979,368 $7,275,614
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $207,988 $233,802
Accrued liabilities:
Payroll and related 134,977 182,048
Other 157,684 29,889
- -------------------------------------------------------------------------------------------------------
Total current liabilities 500,649 445,739
- -------------------------------------------------------------------------------------------------------
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: 168,860 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
13,703,296 and 13,282,099 shares issued and outstanding 137 133
Additional paid-in capital 22,109,668 21,731,328
Note receivable, officer (27,895) (27,895)
Accumulated deficit (18,603,193) (14,873,693)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,478,719 6,829,875
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,979,368 $7,275,614
=======================================================================================================
See accompanying summary of accounting policies and note to financial
statements.
3
American Technology Corporation
STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
June 30,
2001 2000
- ----------------------------------------------------------------------------------------------------------------
Revenues:
Product sales $128,688 $261,119
Contract and license [note 9] 21,630 78,955
- ----------------------------------------------------------------------------------------------------------------
Total revenues 150,318 340,074
- ----------------------------------------------------------------------------------------------------------------
Cost of revenues 109,516 164,931
- ----------------------------------------------------------------------------------------------------------------
Gross profit 40,802 175,143
- ----------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative, (including $132,420 and $81,110
non-cash for the nine months ended 2001 and 2000, respectively) 545,272 663,735
Research and development (including $20,924 non-cash for
the nine months ended 2001) 770,848 431,221
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 1,316,120 1,094,956
- ----------------------------------------------------------------------------------------------------------------
Loss from operations (1,275,319) (919,813)
- ----------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 18,770 95,338
Gain on sale of asset - -
Gain on sale of investment securities - -
Other - -
- ----------------------------------------------------------------------------------------------------------------
Total other income (expense) 18,770 95,338
- ----------------------------------------------------------------------------------------------------------------
Net loss $(1,256,548) $(824,475)
================================================================================================================
Net loss available to common stockholders [note 3] $(1,285,293) $(943,308)
================================================================================================================
Net loss per share of common stock - basic and diluted $(0.09) $(0.08)
================================================================================================================
Average weighted number of common shares outstanding 13,677,390 11,902,024
================================================================================================================
For the nine months ended
June 30,
2001 2000
- -------------------------------------------------------------------------------------------------------------
Revenues:
Product sales 423,438 $1,006,527
Contract and license [note 9] 259,936 134,727
- -------------------------------------------------------------------------------------------------------------
Total revenues 683,374 1,141,254
- -------------------------------------------------------------------------------------------------------------
Cost of revenues 477,489 776,195
- -------------------------------------------------------------------------------------------------------------
Gross profit 205,885 365,059
- -------------------------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative, (including $132,420 and $81,110
non-cash for the nine months ended 2001 and 2000, respectively) 1,694,185 1,880,746
Research and development (including $20,924 non-cash for
the nine months ended 2001) 2,366,262 1,338,750
- -------------------------------------------------------------------------------------------------------------
Total operating expenses 4,060,447 3,219,496
- -------------------------------------------------------------------------------------------------------------
Loss from operations (3,854,562) (2,854,437)
- -------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 122,862 128,826
Gain on sale of asset 3,000 -
Gain on sale of investment securities - 988,112
Other (800) (855)
- -------------------------------------------------------------------------------------------------------------
Total other income (expense) 125,062 1,116,083
- -------------------------------------------------------------------------------------------------------------
Net loss (3,729,500) $(1,738,354)
=============================================================================================================
Net loss available to common stockholders [note 3] (3,821,660) $(4,449,194)
=============================================================================================================
Net loss per share of common stock - basic and diluted $(0.28) $(0.38)
=============================================================================================================
Average weighted number of common shares outstanding 13,515,667 11,702,266
=============================================================================================================
See accompanying summary of accounting policies and note to financial
statements.
4
American Technology Corporation
STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
For the three months ended For the nine months ended
June 30, June 30,
2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------
Net Loss $(1,256,548) $(824,475) $(3,729,500) $(1,738,354)
Reclassification adjustment for gains
included in net income - - - (299,445)
---------------------------------------------------------------
Comprehensive loss $(1,256,548) $(824,475) $(3,729,500) $(2,037,799)
===============================================================
See accompanying summary of accounting policies and note to financial
statements.
5
American Technology Corporation
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
2001 2000
- ----------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Cash
Operating Activities:
Net loss $(3,729,500) $(1,738,354)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 451,272 89,900
Allowance for doubtful accounts 191 12,000
Gain on sale of asset (3,000) -
Gain on sales of investment securities - (988,112)
Stock and stock options issued for services 153,344 81,110
Changes in assets and liabilities:
Trade accounts receivable 100,510 8,014
Inventories (347) 59,182
Prepaid expenses and other (26,042) 193,204
Accounts payable (25,814) (61,826)
Accrued liabilities 80,724 (17,813)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,998,662) (2,362,695)
- ----------------------------------------------------------------------------------------------------------------
Investing Activities:
Purchase of equipment (211,340) (99,270)
Patent and other intangibles costs paid (158,113) (115,788)
Proceeds loaned on notes receivable - officer (40,000) -
Deposit on technology purchased - (440,000)
Proceeds from sales of investment securities - 988,314
Proceeds from sale of assets 3,000 -
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (406,453) 333,256
- ----------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from issuance of preferred stock, net - 5,925,000
Proceeds from exercise of common stock warrants - 972,500
Proceeds from exercise of stock options 225,000 440,065
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 225,000 7,337,565
- ----------------------------------------------------------------------------------------------------------------
Net decrease in cash (3,180,115) 5,308,126
Cash, beginning of year 4,645,615 590,236
- ----------------------------------------------------------------------------------------------------------------
Cash, end of year $ 1,465,500 $ 5,898,362
================================================================================================================
Supplemental Disclosure of Cash Flow Information:
Non-cash financing activities:
Common stock issued on conversion of Series B Preferred Stock $234,000 $ -
Dividends on conversion of Series B Preferred Stock 32,076 -
Common stock issued for the purchase of technology - 962,500
See accompanying summary of accounting policies and note 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 nine 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 2,563,875 shares of common stock
were outstanding at June 30, 2001 and stock options, warrants, preferred stock
and debt convertible or exercisable into approximately 3,600,865 shares of
common stock were outstanding as of June 30, 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 nine months ended June 30,
2001 was $83,185 and $8,975, respectively, which increases the net loss
available to common stockholders. Net loss available to common stockholders is
computed as follows:
Three months ended June 30 Nine months ended June 30
2001 2000 2001 2000
---- ---- ---- ----
Net Loss $(1,256,548) $(824,475) $(3,729,500) $(1,738,354)
Imputed deemed dividend on warrants
issued with Preferred Stock - - - (1,478,000)
Series B and C Preferred Stock imputed deemed
dividend based on discount at issuance - - - (1,031,250)
Accretion on Series B and Series C Preferred
Stock at stated rate (28,745) (118,833) (92,160) (201,590)
-----------------------------------------------------------------
Net loss available to common stockholders $(1,285,293) $(943,308) $(3,821,660) $(4,449,194)
=================================================================
4. RECENT ACCOUNTING PRONOUNCEMENTS
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 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
$65,865 in web site development costs during the current fiscal year and
amortized to expense $8,477 during the current quarter.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, "Business Combinations", ("SFAS No.
141") improves the transparency of the accounting and reporting for business
combinations by requiring that all business combinations be accounted for under
a single method--the purchase method. This Statement is effective for all
business combinations initiated after June 30, 2001.
7
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
4. RECENT ACCOUNTING PRONOUNCEMENTS (cont'd)
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". This statement applies to intangibles and goodwill acquired after June
30, 2001, as well as goodwill and intangibles previously acquired. Under this
statement goodwill as well as other intangibles determined to have an infinite
life will no longer be amortized; however, these assets will be reviewed for
impairment on a periodic basis. This statement is effective for the Company for
the first quarter in fiscal year ended September 2002. Management is currently
evaluating the impact that this statement will have on the Company's financial
statements.
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
June 30, 2001:
Finished goods $125,219
Raw materials 67,601
Reserve for obsolete inventory (20,000)
---------
$172,820
=========
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 June 30, 2001, the Company had 168,860 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 June 30, 2001 the Series B Stock would have been convertible into 473,200
shares of Common Stock.
During the quarter, an aggregate of 10,000 shares of Series B Preferred Stock
were converted into 27,525 shares of Common Stock.
At June 30, 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 June 30, 2003. At
June 30, 2001, the Series C Stock would have been convertible into 37,475 shares
of Common Stock.
The following table summarizes changes in equity components from transactions
during the nine months ended June 30, 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 - - 35,250 - 153,344 -
Upon exercise of stock options - - 315,000 3 224,997 -
Conversion of Series B preferred stock
and cumulative dividends (23,400) - 70,947 1 - -
Accretion on Series B and C
preferred stock - - - - - 78,056
Net loss - - - - - (3,807,556)
- -------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 2001 168,860 $2 13,703,296 $137 $22,109,668 $(18,603,193)
===================================================================================================================
8
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
7. STOCKHOLDERS' EQUITY (cont'd)
The following table summarizes information about stock option activity during
the nine months ended June 30, 2001:
Weighted Average
Shares Exercise Price
------ --------------
Outstanding October 1, 2000 1,153,833 $5.20
Granted 660,000 $3.21
Exercised (315,000) $0.71
Canceled/expired (160,633) $6.09
-----------
Outstanding June 30, 2001 1,338,200 $2.23
=========
Exercisable at June 30, 2001 678,800 $1.90
==========
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 June 30, 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
300,000 $11.00 March 31, 2003
50,000 $16.00 May 12, 2003
50,000 $10.00 January 5, 2004
75,000 $11.00 March 31, 2005
--------
715,000
--------
8. INCOME TAXES
At June 30, 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. 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.
--------------------------------------
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 Original Equipment Manufactures ("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.
9
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:
. On July 23, 2001, we announced that we entered into a Collaboration
and Licensing agreement with Dolby Laboratories ("Dolby") for our
HyperSonic Sound technology. This agreement provides for the use of
HSS by Dolby and ATC and the joint exploration of HSS application
concepts by both companies. Dolby is the developer of signal
processing systems used worldwide in applications that include motion
picture sound, consumer entertainment products and media,
broadcasting, and music recording.
. In July 2001, we entered unto a licensing and representation agreement
with International Robotics, Inc. ("IRI") of New York. Under the
agreement, IRI has paid a licensing fee to incorporate our HSS audio
reproduction technology into their Techno-Marketing(TM)systems and has
agreed to an exclusive arrangement to purchase HSS components through
our Company. The agreement also includes provisions for IRI to
represent our HSS, SFT and PureBass audio technologies to IRI
customers in the market for unique special effects for business,
promotion, entertainment, and communication. IRI is a privately held,
full-service company that successfully employs cutting-edge
Technologies, Futuristic Icons, Special f/x, and advanced, interactive
Robotic Systems for Business, Promotion, Communication, Education.
Pioneers and specialists of Techno-Marketing(TM)for almost 30 years,
IRI has excelled at not only producing the finest adult-size
multi-lingual Communication Robots in the world, but also in creating
award-winning environments for Fortune 500 companies.
. In July 2001, Bath Iron Works installed our HSS, SFT and PMT
technologies aboard the Missile Destroyer USS Winston S. Churchill
(DDG-81). Bath Iron Works of Bath, Maine, a leader in surface
combatant design and construction and employs 7,000 people. It is a
subsidiary of General Dynamics (NYSE:GD), headquartered in Falls
Church, Virginia. General Dynamics has leading market positions in
shipbuilding and marine systems, land and amphibious combat systems,
information systems, and business aviation. The company employs 47,000
people and anticipates 2001 sales of approximately $11.5 billion.
. 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.
. 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.
. In October 2000 we licensed eSoundIdeas 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.
. We are working with SFT licensees Thomson Multimedia and HST to bring
initial products to market.
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 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 possible 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.
10
Results of Operations
Total revenues for the nine months ended June 30, 2001 were $683,374 a 40%
decrease from the comparable nine months of the prior year. Revenue for the
three month period ended June 30, 2001 and 2000 were $150,318 and $340,074,
respectively. Product sales for the nine months ended June 30, 2001 was $423,438
a 58% decrease from the comparable nine month of the prior year. The decrease in
product sales in fiscal 2001 can be primarily attributed to the absence of a
one-time seasonal consumer products order we shipped in the first quarter of
fiscal 2000. Contract and license revenue for the third quarter ending June 30,
2001 and 2000 were $259,936 and $134,727, respectively. The increase in contract
and license revenues 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 were requirements of customers.
At June 30, 2001, we had open purchase orders for approximately $292,000 of
product of which approximately $115,000 has been received as customer deposits.
The product is expected to be shipped in the next four months. There was no
material backlog at June 30, 2000. Anticipated shipments are subject to change
due to a variety of factors, many outside our control. Our customers may modify
or cancel orders and delay or change schedules. Shipments may also be delayed
due to production delay, component shortages and other production related
issues.
Cost of revenues for the nine months ended June 30, 2001 was $477,489 resulting
in a gross profit of $205,885 or 43%. This compares to a gross profit of
$365,059 or 32% for the comparable period of the prior year. Cost of revenues
for the three months ended June 30, 2001 and 2000 were $109,516 and $164,931,
representing a gross profit of 27% and 52%, respectively. Retail product cost of
revenues for the nine months ended June 30, 2001 and 2000 were $344,164 and
$761,513, respectively, representing a gross profit of $79,274 and $245,014, or
19% and 24% respectively for retail product sales. Gross profit percentage is
highly dependent on sales prices, volumes, purchasing costs and overhead
allocations.
Selling, general and administrative expenses for the nine months ended June 30,
2001 and 2000 were $1,694,185 and $1,880,746, respectively. The $186,561
decrease resulted primarily from a reduction in personnel and related costs.
Selling, general and administrative expenses for the three month period ended
June 30, 2001 and 2000 were $545,272 and $663,735, respectively. The $118,463
decrease resulted from a $157,563 reduction in personnel and related costs, a
$28,853 reduction in accounting and legal costs offset by an increase of $14,505
in shareholder costs, an increase of $25,870 for depreciation and amortization
expense and a $32,597 increase for the HSS evaluation units utilized as a
marketing tool. 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 expenses for the nine months ended June 30, 2001 were
$2,366,262 compared to $1,338,750 for the comparable nine months of the prior
year. The $1,027,512 increase resulted primarily from a $44,861 increase in the
development of our HSS evaluation units, an increase of $56,932 for film, an
increase of $579,429 for our PMT technology, of which $90,000 and $315,622 is
attributed to prepaid royalties and amortization, respectively, and an increase
of $451,563 in engineering personnel and related costs; offset by a reduction of
$105,978 in SFT technology expenditures.
Research and development expenses 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 $153,344 for the nine months ended June 30, 2001. The
$153,344 non-cash compensation expense for fiscal year 2001 is for services paid
through the issuance of 35,250 shares of common stock and the granting of stock
options for 10,000 shares of common stock. Included in selling, general and
administrative expense for the nine months ended June 30, 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 $3,729,500 during the nine months ended
June 30, 2001, compared to a loss from operations of $1,738,354 for the
comparable nine months ended June 30, 2000. The $1,991,146 increase is primarily
due to the increase in research and development expenditures and a decrease in
retail revenue. The loss from operations for the three months ended June 30,
2001 was $1,256,548 compared to $824,475 for the third quarter of the prior
year.
The net loss available to common stockholders for the three and nine months
ended June 30, 2001 of $1,285,293 and $3,821,660, respectively, included $28,745
and $92,160 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
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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 nine months ended June
30, 2001, operating activities used cash of $2,998,662. This amount consisted of
a net loss of $3,729,500, adjusted by $451,272 for depreciation and amortization
expense and a $153,344 for non-cash compensation. Changes in assets and
liabilities consisted of a $25,814 decrease in accounts payable, an increase of
$347 in inventory and an increase of $26,042 in prepaid expenses and other,
offset by a $100,510 decrease in accounts receivable and an increase of $80,724
in accrued liabilities.
At June 30, 2001, we had gross accounts receivable of $157,402 as compared to
$257,912 at September 30, 2000. This represented approximately 54 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 nine months ended June 30, 2001, net cash used in investing activities
was $406,453, consisting primarily of $211,340 for the purchase of computer
equipment, website development costs, leasehold improvements and, $158,113 in
patents and new patent applications. We anticipate significant investments in
patents in fiscal 2001 and requirements for additional equipment for developing
HSS and other technologies. We cannot currently estimate the dollar amounts of
these patent investments and equipment additions.
At June 30, 2001, we had working capital of $1,525,406 compared to working
capital of $4,794,743 at September 30, 2000.
Other than cash of $1,465,500 at June 30, 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 may be
obtained through the sale or licensing of 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 adopted 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 and did not 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.
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We are exposed to some market risk through interest rates, related to our
investment of our current cash of $1,465,500. 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.
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
The foregoing proposal was approved and accordingly ratified.
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
The foregoing proposal was approved and accordingly ratified.
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 May 25, 2001 disclosing in Item 5 the
appointment of Mr. Dan Hunter to the Board of Directors and the Audit Committee.
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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: August 10 , 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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