<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended December 31, 1996.
Commission File Number 0-24248
AMERICAN TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 87-0361799
-------- ----------
(State or other jurisdiction of (I.R.S. Empl.Ident. No.)
incorporation or organization)
12725 Stowe Drive, Poway, California 92064
------------------------------------------
(Address of principal executive offices)
(619) 679-2114
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.00001 par value 9,016,259
- ------------------------------- ---------
(Class) (Outstanding at February 3, 1996)
Transitional Small Business Disclosure Format (check one): YES __ NO X
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1
<PAGE> 2
AMERICAN TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (unaudited):
Balance Sheets as of December 31, 1996 and
September 30, 1996 3
Statements of Operations for the three months ended
December 31, 1996 and 1995 4
Statements of Cash Flows for the three months ended
December 31, 1996 and 1995 5
Notes to Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings *
Item 2. Changes in Securities *
Item 3. Defaults upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K *
SIGNATURES 9
</TABLE>
* No information provided due to inapplicability of the item.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN TECHNOLOGY CORPORATION
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
CURRENT ASSETS:
<S> <C> <C>
Cash $346,883 $657,331
Investment securities 88,092 190,153
Trade accounts receivable - net 508,105 195,457
Inventories 326,920 313,930
Prepaid expenses 49,789 58,906
--------- ---------
Total current assets 1,319,789 1,415,777
EQUIPMENT -NET 97,432 93,409
PURCHASED TECHNOLOGY - NET 35,000 40,000
OTHER ASSETS - NET 60,534 46,276
--------- ---------
$1,512,755 $1,595,462
========= =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and accrued liabilities $544,396 $367,990
STOCKHOLDERS' EQUITY:
Common stock $.00001 par value; authorized
20,000,000 shares; 8,713,759 and 8,611,759 shares
issued and outstanding, respectively 87 86
Additional paid-in capital 3,118,972 3,063,373
Accumulated deficit (2,238,589) (2,025,937)
Net unrealized gain on securities available for
sale 87,889 189,950
--------- ---------
Total stockholders' equity 968,359 1,227,472
--------- ---------
$1,512,755 $1,595,462
========= =========
</TABLE>
See notes to interim financial statements.
3
<PAGE> 4
AMERICAN TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
<S> <C> <C>
NET SALES $ 601,671 $ 528,344
Cost of goods sold 476,341 421,774
------- -------
GROSS PROFIT 125,330 106,570
OPERATING EXPENSES:
Selling, general and administrative 242,496 111,820
Research and development 97,946 11,896
------- -------
Total operating expenses 340,442 123,716
------- -------
Loss from operations (215,112) (17,146)
OTHER INCOME (EXPENSES):
Gain on sale of investment securities - 27,510
Interest expense (68) (3,254)
Other 2,528 856
------- -------
Total other income 2,460 25,112
------- -------
Income (loss) before taxes on income (212,652) 7,966
Taxes on income - -
------- -------
NET INCOME (LOSS) $ (212,652) $ 7,966
========== ==========
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK $(0.02) $ Nil
========= =========
AVERAGE WEIGHTED NUMBER OF
COMMON SHARES OUTSTANDING 8,665,440 7,291,228
========= =========
</TABLE>
See notes to interim financial statements.
4
<PAGE> 5
AMERICAN TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1996 1995
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $(212,652) $ 7,966
Adjustments to reconcile net income (loss)
to cash used in operating activities:
Gain on sale of investment securities - (27,510)
Amortization and depreciation 21,440 19,637
Changes in operating assets and liabilities:
Prepaid expenses 9,117 (4,452)
Trade accounts receivable (312,648) (92,181)
Inventories (12,990) 122,730
Accounts payable and accrued expenses 176,406 (31,118)
Accrued interest on long-term debt - 2,327
-------- --------
Net cash used in operating activities (331,327) (2,601)
INVESTING ACTIVITIES:
Proceeds received from sale of
investment securities - 27,525
Purchase of other assets (14,258) (3,220)
Purchase of equipment (20,463) -
-------- --------
Net cash provided by (used in) investing activities (34,721) 24,305
-------- --------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 55,600 -
-------- --------
Net cash provided by financing activities 55,600 -
-------- --------
Increase (decrease) in cash (310,448) 21,704
CASH, BEGINNING OF PERIOD 657,331 58,903
-------- --------
CASH, END OF PERIOD $346,883 $ 80,607
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $68 $927
</TABLE>
See notes to interim financial statements.
5
<PAGE> 6
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS
American Technology Corporation is engaged in the development, manufacture and
marketing of electronic products and technologies.
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. They do not include all information and footnotes required by
generally accepted accounting principles. 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, 1996.
In the opinion of management, the interim financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement 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.
3. 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, 1996:
<TABLE>
<S> <C>
Finished goods $ 16,724
Work in process 92,448
Raw materials 217,748
-------
$326,920
========
</TABLE>
4. INVESTMENT SECURITIES
The Company's investment securities consists of 225,300 shares of Norris
Communications Inc. ("NCI") common stock, an affiliated corporation. These
securities are reported at fair value as a current asset with unrealized gains
and losses reported as a net amount as a separate component of stockholders'
equity. At December 31, 1996 the Company's market value of available for sale
securities consisted of:
<TABLE>
<CAPTION>
Gross Estimated
Unrealized Fair
Cost Gains Value
---- ----- -----
<S> <C> <C> <C>
Common stock $203 $87,889 $88,092
</TABLE>
5. LINE OF CREDIT
The Company has a $40,000 bank line of credit secured by receivables, inventory
and other assets. At December 31, 1996 the Company had no borrowings under the
line of credit.
6. STOCKHOLDERS' EQUITY
During the three months ended December 31, 1996, the Company issued 102,000
common shares pursuant to the exercise of stock options for proceeds of $55,600.
At December 31, 1996 the Company had 748,500 options outstanding pursuant to its
1992 ISO Stock Option Plan exercisable at prices ranging from $0.50 to $6.90 per
share expiring beginning 1997 through 2001. The Company also had 789,000 options
outstanding pursuant to its 1992 NSO Stock Option Plan exercisable at prices
ranging from $0.50 to $5.06 per share expiring beginning 1997 through 2001.
At December 31, 1996 the Company had the following warrants outstanding each
exercisable into one common share:
<TABLE>
<CAPTION>
Number Exercise Price Expiration Date
------ -------------- ---------------
<S> <C> <C>
250,000 $0.50 February 23, 1999
100,000 $1.00 May 31, 1998
-------
350,000
=======
</TABLE>
Subsequent to December 31, 1996 an additional 302,500 stock options were
exercised for proceeds of $174,500.
7. INCOME TAXES
At December 31, 1996 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 $1,959,000
which expire through 2010 of which certain amounts are subject to limitations
under the Internal Revenue Code of 1986, as amended.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S 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." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED SEPTEMBER 30, 1996.
OVERVIEW
From 1988 to early 1992 the Company was inactive. In early 1992 the Company
commenced its current business activities. Although the Company owns several
technologies, initial efforts concentrated on developing and producing the
ear-radios of which the FM version was introduced in September 1993 and the AM
version in July 1995.
The Company is focusing its primary efforts on expanding ear-radio distribution
and completing the development and licensing of its HyperSonic Sound (HSS)
technology. The introduction of new technologies and products and the
continuation of research will require additional funds to be generated from
operations, additional sales of the NCI stock, the sale of additional Company
equity or from other sources. There can be no assurance additional funding will
be available in the future.
Demand for the Company's ear-radios is subject to significant month to month
variability resulting from the limited marketing penetration achieved to date by
the Company. Initial sales have been concentrated on a few customers and there
can be no assurance of future orders from these or new customers. The markets
for the Company's product and proposed products and technologies are subject to
rapidly changing customer tastes and a high level of competition. Demand for the
Company's products is influenced by demographic trends in society, marketing and
advertising expenditures, product positioning in retail outlets, technological
developments, seasonal variations and general economic conditions. Because these
factors can change rapidly, customer demand can also shift quickly. The Company
may not be able to respond to changes in customer demand because of the time to
change or introduce products, production limitations and because of limited
financial resources. See also "Business Risks" below.
RESULTS OF OPERATIONS
Net sales for the three months ended December 31, 1996 were $601,671, a 14%
increase from the first fiscal quarter of the prior year. Substantially all
revenues in both periods were from ear-radio sales. During fiscal 1996 the
Company encountered competition for its FM ear-radio which due to the Company's
U.S. patent had a greater impact on foreign sales. The Company has taken and
expects to continue to take actions to preclude sale of infringing radios in the
U.S. The Company has also responded to increased competition by (1) contracting
for off-shore assembly to reduce production costs and (2) reducing prices to
make the ear-radios attractive to large chain retailers. The improved sales
results in the first fiscal quarter of 1997 include sales to several new large
chain retailers.
Management believes it has successfully completed the transition from in-house
FM ear-radio assembly to off-shore contract assembly for the current version of
the FM ear-radio. This transition resulted in short periods without supply
during fiscal 1996. Management believes the change has resulted in reduced per
unit costs, working capital requirements and increased capacity for future
periods. However, reliance on off-shore assembly imposes certain risks including
delays, shortages and quality issues.
Since the May 1996 employment of a full-time marketing executive focusing on
ear-radio sales, which coincided with the transition described above, the
Company has been successful in adding new sales representatives and obtaining
new ear-radio accounts. The Company's sales are affected by a variety of factors
including seasonal requirements of customers. The Company has been expanding its
radio distribution to limit the exposure to particular customers and to
seasonality. The Company's first fiscal quarter has traditionally been its
strongest sales quarter and management expects this trend to continue. Also, the
reduction in unit prices requires higher volumes to achieve or exceed historical
period sales.
Cost of sales for the three months ended December 31, 1996 were $476,341
resulting in a gross margin of $125,330 or 21%. This compares to a gross margin
of 20% for the comparable period of the prior year. Fiscal 1997 margins reflect
the impact of reduced selling prices offset by reduced manufacturing costs.
Gross margin percentage is highly dependent on sales prices, production costs
and manufacturing overhead allocations.
7
<PAGE> 8
Research and development costs for the three months ended December 31, 1996 were
$97,946 compared to $11,896 for the comparable three months of the prior year.
The increase resulted from an increase in HSS technology development activities
and related costs. In the current quarter personnel costs increased by
approximately $18,000, equipment costs by $15,000 and outside design and
consulting increased by approximately $50,000 as compared to the prior year.
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. The
Company expects fiscal 1997 research and development costs to be at higher
levels than the prior year due to increased staffing and use of outside design
and consultants primarily associated with HSS technology development.
Selling, general and administrative expenses increased from $111,820 for the
three months ended December 31, 1995 to $242,496 for the three months ended
December 31, 1996. The $130,676 increase included a $36,000 increase in
personnel costs primarily associated with HSS technology marketing, a $26,000
increase in marketing travel, a $26,000 increase in office related costs
associated with new personnel, and an $18,000 increase in professional fees
primarily associated with preparing HSS technology licensing information.
Management anticipates that selling, general and administrative costs will
increase in fiscal 1997 due to recent additions of HSS technology marketing
personnel and related operations.
The Company experienced a loss from operations of $215,112 during the three
months ended December 31, 1996 compared to a loss from operations of $17,146 for
the comparable three months ended December 31, 1995. The increase in the
operating losses resulted primarily from increases in research and development
costs and selling, general and administrative costs.
During the three months ended December 31, 1995 the Company recognized a gain of
$27,510 from the sale of NCI shares. No sales were made in the first quarter of
fiscal 1997. The timing and amount of NCI stock sales by the Company can have an
impact on net operations. The decision on timing of sales is dependent on NCI
stock prices, management's expectations as to NCI future operations and Company
financial requirements.
As a result of the above factors, the Company reported a net loss of $212,652
for the three months ended December 31, 1996, compared to net income of $7,966
for the three month period ended December 31, 1995. The Company has federal net
loss carryforwards of approximately $1,959,000 for federal tax purposes expiring
through 2010. The amount and timing of the utilization of the Company's net loss
carryforwards may be limited under Section 382 of the Internal Revenue Code.
Future operations are subject to significant variability as a result of product
sales and margins, timing of new product offerings, decisions regarding future
research and development, variability in other expenditures, and gains from NCI
stock sales when and if made.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company recommenced operations in January 1992, the Company has had
significant negative cash flow from operating activities. The negative cash flow
from operating activities was $611,350 for the fiscal year ended September 30,
1996 and $331,327 for the three months ended December 31, 1996. During the first
fiscal quarter of 1997, in addition to the net loss of $212,652 as adjusted for
non-cash gains and expenses to $191,212, the major use of cash in operating
activities was an increase in accounts receivable of $312,000 from first quarter
1997 shipments offset in part by a $176,000 increase in accounts payable
primarily associated with product costs. At December 31, 1996 the Company had
approximately 77 days sales in accounts receivable as compared to 75 days at
September 30, 1996. This is consistent with terms of retail chains which often
require 60-90 day terms on sales. However, receivables can vary dramatically due
to quarterly and seasonal variations in sales.
At December 31, 1996, the Company had working capital of $775,393 and at
September 30, 1996 had working capital of $1,047,787. The decrease is primarily
the result of operating losses and a decrease in the value of investment
securities. Included in working capital is the unrealized holding gain in the
shares held by the Company in NASDAQ quoted NCI. At December 31, 1996 and
September 30, 1996, the Company owned 225,300 shares of NCI with a market value
of $88,092 and $190,153, respectively. This investment is carried on the balance
sheet as a current asset of the Company at market value pursuant to Statement of
Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities" which was adopted by the Company
effective September 30, 1994. Although the shares of NCI have experienced
significant price and volume variability, these shares have provided and are an
unused source of liquidity for the Company.
The Company has no material commitments for capital expenditures.
8
<PAGE> 9
Since the Company's reorganization in January 1992 and through December 31,
1996, the Company has financed its operations primarily through the sale of
common equity and convertible notes and proceeds from the sale of shares of NCI.
During the first quarter of fiscal 1997 the Company obtained $55,600 from the
exercise of stock options and the Company acquired $20,463 of new equipment
primarily associated with HSS technology research and invested $14,258 in
capitalized patent costs.
The Company has a bank line of credit for $40,000 secured by substantially all
assets including inventories, accounts receivable, and equipment expiring in
March 1997. At December 31, 1996 the Company had no balance on this bank line of
credit.
Other than the unused bank line and the NCI shares, the Company has no other
material unused sources of liquidity at this time. The Company expects to incur
additional operating losses as a result of continued product sale operations and
as a result of expenditures for research and development and marketing costs for
HSS technology and other products and technologies. The Company could be
required to curtail research and development expenditures if there is a cash
shortage. The timing and amounts of the Company's expenditures and the extent of
operating losses will depend on many factors, some of which are beyond the
Company's control. At the current rate of expenditures, the Company will require
significantly improved gross margins from sales or additional funds for the next
twelve months. The Company anticipates that the commercialization of HSS
technology will require increased personnel and operating costs. Potential
sources of any such required funds may include the bank line of credit, sale of
additional NCI shares, additional bank financing, other debt financing, and
additional offerings of the Company's equity securities. There can be no
assurance that any funds will be available from these or other potential sources
and the lack of such capital could have a material adverse affect on the
Company's business.
BUSINESS RISKS
This report contains a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties
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 the Company's Annual Report on Form 10-KSB for the year ended
September 30, 1996 and not to place undue reliance on the forward-looking
statements contained herein, which speak only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements, to
reflect events or circumstances that may arise after the date hereof.
PART II. OTHER INFORMATION
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AMERICAN TECHNOLOGY CORPORATION
Date: February 6, 1997 By: /s/ ROBERT PUTNAM
-----------------
Robert Putnam, President,
CEO and Director
(Principal Executive, Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM STATEMENTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY THE REFERENCE TO SUCH QUARTERLY REPORT ON FORM
10-QSB FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 346,883
<SECURITIES> 88,092
<RECEIVABLES> 518,105
<ALLOWANCES> 10,000
<INVENTORY> 326,920
<CURRENT-ASSETS> 1,319,789
<PP&E> 304,833
<DEPRECIATION> 207,401
<TOTAL-ASSETS> 1,512,755
<CURRENT-LIABILITIES> 544,396
<BONDS> 0
0
0
<COMMON> 87
<OTHER-SE> 968,272
<TOTAL-LIABILITY-AND-EQUITY> 1,512,755
<SALES> 601,671
<TOTAL-REVENUES> 601,671
<CGS> 476,341
<TOTAL-COSTS> 476,341
<OTHER-EXPENSES> 340,442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> (212,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (212,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (212,652)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
