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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 March 31, 1997.
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 9,513,467
(Class) (Outstanding at April 30, 1997)
Transitional Small Business Disclosure Format (check one): YES __ NO X
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AMERICAN TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Balance Sheets as of March 31, 1997 and
September 30, 1996 3
Statements of Operations for the three and six months ended
March 31, 1997 and 1996 4
Statements of Cash Flows for the six months ended
March 31, 1997 and 1996 5
Notes to Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION 11
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 11
Item 5. Other Information *
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
</TABLE>
* No information provided due to inapplicability of the item.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN TECHNOLOGY CORPORATION
BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,215,129 $ 657,331
Investment securities 91,471 190,153
Trade accounts receivable - net 268,388 195,457
Inventories 351,499 313,930
Notes receivable-officers (Note 7) 175,271 --
Prepaid expenses 2,015 58,906
----------- -----------
Total current assets 2,103,773 1,415,777
EQUIPMENT -NET 90,630 93,409
PURCHASED TECHNOLOGY - NET 30,000 40,000
OTHER ASSETS - NET 80,631 46,276
----------- -----------
$ 2,305,034 $ 1,595,462
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 514,587 $ 367,990
LONG-TERM DEBT (NOTE 6) 1,000,986 --
----------- -----------
Total Liabilities 1,515,573 367,990
STOCKHOLDERS' EQUITY:
Preferred stock $.00001 par value: authorized
5,000,000 shares; issued and outstanding - none -- --
Common stock $.00001 par value; authorized
20,000,000 shares; 9,499,222 and 8,611,759 shares
issued and outstanding, respectively 95 86
Additional paid-in capital 3,525,664 3,063,373
Accumulated deficit (2,827,566) (2,025,937)
Net unrealized gain on securities available for sale 91,268 189,950
----------- -----------
Total stockholders' equity 789,461 1,227,472
----------- -----------
$ 2,305,034 $ 1,595,462
=========== ===========
</TABLE>
See notes to interim financial statements.
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AMERICAN TECHNOLOGY CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $ 81,433 $ 136,543 $ 683,104 $ 664,887
Cost of goods sold 68,147 118,189 544,488 539,963
----------- ----------- ----------- -----------
GROSS PROFIT 13,286 18,354 138,616 124,924
OPERATING EXPENSES:
Selling, general and administrative 372,208 100,998 614,704 212,818
Research and development 107,662 39,057 205,608 50,953
----------- ----------- ----------- -----------
Total operating expenses 479,870 140,055 820,312 263,771
----------- ----------- ----------- -----------
Loss from operations (466,584) (121,701) (681,696) (138,847)
OTHER INCOME (EXPENSES):
Gain on sale of investment securities -- 27,509 -- 55,019
Interest expense (1,073) (1,941) (1,141) (5,195)
Non-cash interest expense (125,200) -- (125,200) --
Other 3,880 3,958 6,408 4,814
----------- ----------- ----------- -----------
Total other income (expense) (122,393) 29,526 (119,933) 54,638
----------- ----------- ----------- -----------
Loss before taxes on income (588,977) (92,175) (801,629) (84,209)
Taxes on income -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (588,977) $ (92,175) $ (801,629) $ (84,209)
=========== =========== =========== ===========
NET LOSS PER SHARE
OF COMMON STOCK $ (0.06) $ (0.01) $ (0.09) $ (0.01)
=========== =========== =========== ===========
AVERAGE WEIGHTED NUMBER OF
COMMON SHARES OUTSTANDING 9,144,518 7,376,393 8,901,276 7,333,578
=========== =========== =========== ===========
</TABLE>
See notes to interim financial statements.
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AMERICAN TECHNOLOGY CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH Six Months Ended
March 31,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (801,629) $ (84,209)
Adjustments to reconcile net loss
to cash used in operating activities:
Gain on sale of investment securities -- (55,019)
Amortization and depreciation 41,332 40,383
Warrants issued for services 4,500 --
Non-cash interest on long-term debt 125,200 --
Gain on sale of equipment -- (4,758)
Changes in operating assets and liabilities:
Prepaid expenses 56,891 (4,595)
Trade accounts receivable (72,931) 40,620
Inventories (37,569) 111,681
Accounts payable and accrued expenses 146,597 (168,625)
Accrued interest on long-term debt 986 3,878
----------- -----------
Net cash used in operating activities (536,623) (120,644)
INVESTING ACTIVITIES:
Proceeds received from sale of
investment securities -- 55,050
Proceeds from sale of equipment -- 4,605
Notes receivable - officers (175,271) --
Purchase of other assets (36,438) (3,220)
Purchase of equipment (26,470) (2,896)
----------- -----------
Net cash provided by (used in) investing activities (238,179) 53,539
----------- -----------
FINANCING ACTIVITIES:
Proceeds from convertible notes 1,000,000 --
Payment on bank line of credit -- (25,000)
Proceeds from sale of common stock -- 125,000
Proceeds from exercise of stock warrants 20,000
Proceeds from exercise of stock options 312,600 --
----------- -----------
Net cash provided by financing activities 1,332,600 100,000
----------- -----------
Increase in cash 557,798 32,895
CASH, BEGINNING OF PERIOD 657,331 58,903
----------- -----------
CASH, END OF PERIOD $ 1,215,129 $ 91,798
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ 87 $ 1,317
Non-cash financing activities:
Exchange of 350,000 options for 292,963 shares $ 192,500 $ --
</TABLE>
See notes to interim financial statements.
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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 and six month
periods are not necessarily indicative of the results that may be expected for
the year.
The Company's plan of operation for the next twelve months is to expand
distribution of its ear-radio products, seek additional products for
distribution, introduce to market the Company's sound reproduction technology
and to continue research and development on existing and new technologies.
Management estimates a base level of operating expenditures aggregating
approximately $1.6 million during the next twelve months. Based on that level of
expenditures, management anticipates that minimum additional funding of
approximately $400,000 is required. Additionally, expanded radio distribution
and the introduction of the Company's sound reproduction technology may require
additional personnel and resources, which currently, are not estimable by
management. Therefore, the Company believes it may require funds from sale or
licensing of products or technologies, the sale of equity securities, the
placement of debt securities, the exercise of outstanding warrants or other
sources.
There can be no assurance that any 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 the Company
to curtail or scale back operations and would therefore have an adverse effect
on the Company's business.
3. NEW ACCOUNTING PRONOUNCEMENT
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128").
This pronouncement provides a different method of calculating earnings per share
than previously provided under Accounting Principles Board Opinion No. 15,
"Earnings Per Share." SFAS No. 128 provides for the calculation of "Basic" and
"Diluted" earnings per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. The Company
will adopt SFAS No. 128 in fiscal 1998 and its implementation is not expected to
have a material effect on the financial statements.
4. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. Inventories consist of the following at
March 31, 1997:
<TABLE>
<S> <C>
Finished goods $ 13,434
Work in process 304,832
Raw materials 33,233
--------
$351,499
========
</TABLE>
5. 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 March 31, 1997 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 $91,268 $91,471
</TABLE>
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The Company from time to time uses the shares as collateral for loans or through
brokerage arrangements loans shares for additional income.
6. LONG-TERM DEBT
Long-term debt consists of $1,000,000 of unsecured 6% convertible subordinated
promissory notes due March 1, 1999. Annual simple interest is payable upon
maturity or in common stock when and as converted. The principal and interest
amount of the notes may at the election of each Noteholder be converted one or
more times into common stock at a price which is the lower of (i) $3.50 per
share or (ii) 85% of the ten days average closing bid price prior to conversion
but not less than $2.50 per share or (iii) for any conversions on or after March
1, 1998 the average of the closing bid prices for the prior thirty days but in
no event less than $1.00 per share. The notes may be called by the Company for
conversion if the market price exceeds $9.00 per share for ten days and certain
conditions are met. At March 31, 1997 the notes and accrued interest would have
been convertible into approximately 300,300 common shares.
In connection with the notes the Company granted the holders warrants to
purchase an aggregate of 50,000 common shares at an exercise price of $5.00 per
share until March 1, 2000. (See Note 7).
The Company expensed $122,700 in the second quarter as embedded interest on the
notes based on the difference between the conversion price and the market price
at the issue date. A like amount has been recorded as paid in capital. An
additional $2,500 was expensed as non-cash interest to record the value of the
related warrants issued.
7. STOCKHOLDERS' EQUITY
The following summarizes equity transactions for the six months ended March 31,
1997:
<TABLE>
<CAPTION>
Shares Dollars
<S> <C> <C>
Balance October 1, 1996 8,611,759 $3,063,459
Exercise of stock options for cash 554,500 312,600
Cash-less exchange of options for
common shares 292,963 --
Exercise of warrants 40,000 20,000
Value assigned to 50,000 warrants with
subordinated notes -- 2,500
Value assigned to 90,000 warrants
as consulting services -- 4,500
Non-cash interest on notes -- 122,700
---------- ----------
Balance March 31, 1997 9,499,222 $3,525,759
========== ==========
</TABLE>
During the six months ended March 31, 1997, the Company issued 554,500 common
shares pursuant to the exercise of stock options for cash proceeds of $312,600.
An additional 292,963 shares were issued in connection with the cashless
exercise of stock options for 350,000 shares. At March 31, 1997 the Company had
446,000 options outstanding pursuant to its 1992 ISO Stock Option Plan
exercisable at prices ranging from $0.50 to $4.19 per share expiring beginning
1998 through 2001. The Company also had 301,500 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.
In January 1997 the Company made cash demand loans to two officers aggregating
$173,250 in connection with the exercise of stock options. Notes
receivable-officers, represents principal and accrued interest at 7% per annum
on these demand notes.
At March 31, 1997 the Company had the following warrants outstanding each
exercisable into one common share:
<TABLE>
<CAPTION>
Number Exercise Price Expiration Date
------ -------------- ---------------
<S> <C> <C>
210,000 $0.50 February 23, 1999
100,000 $1.00 May 31, 1998
50,000 $5.00 March 1, 2000
90,000 $5.00 February 5, 2000 (subject to vesting)
-------
450,000
=======
</TABLE>
Subsequent to March 31, 1997 an additional 2,000 stock options were exercised
for proceeds of $1,100 and the Company issued 12,245 common shares valued at
$48,980 pursuant to the 1997 Employee Stock Compensation Plan leaving a balance
of 87,755 shares issuable under this plan.
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8. INCOME TAXES
At March 31, 1997 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 2011 of which certain amounts are subject to limitations
under the Internal Revenue Code of 1986, as amended.
- - - - - - - - - - - - - - - - - -
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 commercialization 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 products and future 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 six months ended March 31, 1997 were $683,104, a 3% increase
from the first six months of the prior year. Net sales for the three months
ended March 31, 1997 were $81,433 compared to $136,543 for the comparable prior
period. Substantially all revenues in all 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 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 and the reduction in the
second quarter results partially from the impact of reliance on larger chain
orders which may be more seasonal.
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. 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. 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. 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
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strongest sales quarter and management expects this trend to continue. Also, the
reduction in unit prices requires higher volumes in current periods to achieve
or exceed historical period sales.
Cost of sales for the six months ended March 31, 1997 were $544,488 resulting in
a gross margin of $138,616 or 20%. This compares to a gross margin of 19% 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 volumes and costs and
manufacturing overhead allocations.
Research and development costs for the six months ended March 31, 1997 were
$205,608 compared to $50,953 for the comparable six months of the prior year.
The increase resulted primarily from an increase in HSS technology development
activities and related costs. In the current six month period personnel costs
increased by approximately $45,000, equipment and component costs by $35,000 and
outside design and consulting increased by approximately $77,000 as compared to
the prior comparable period.
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. The
Company is seeking additional engineering and support personnel to further
expand research and development in future periods.
Selling, general and administrative expenses increased from $212,818 for the six
months ended March 31, 1996 to $614,704 for the six months ended March 31, 1997.
The $401,886 increase included a $50,000 increase in commissions primarily
associated with large accounts, a $75,000 increase in personnel costs primarily
associated with HSS technology marketing, a $60,000 increase in marketing travel
and related costs, a $70,000 increase in costs associated with marketing and
promoting the HSS technology, a $60,000 increase in office related costs
primarily associated with new personnel, and an $85,000 increase in professional
and financing fees primarily associated with preparing HSS technology licensing
information and new financings. Management anticipates that selling, general and
administrative costs will continue at higher levels in fiscal 1997 due to recent
additions of HSS technology marketing personnel and related operations.
As a result of the above factors, the Company experienced a loss from operations
of $681,696 during the six months ended March 31, 1997 compared to a loss from
operations of $138,847 for the comparable six months ended March 31, 1997. The
increase in the operating losses resulted primarily from increases in research
and development costs and selling, general and administrative costs.
During the six months ended March 31, 1996 the Company recognized a gain of
$55,019 from the sale of NCI shares. No sales were made in the first six months
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. During the fiscal quarter ended March 31, 1997 the
Company incurred $125,200 of non-cash interest expense consisting of $2,500 of
value assigned to stock purchase warrants and $122,700 as embedded interest on
convertible notes based on the difference between the conversion price and the
market price at the issue date. A like amount has been recorded as paid in
capital.
As a result of the above factors, the Company reported a net loss of $801,629
for the six months ended March 31, 1997, compared to a net loss of $84,209 for
the six month period ended March 31, 1996. The Company has federal net loss
carryforwards of approximately $1,959,000 for federal tax purposes expiring
through 2011. 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 $536,623 for the six months ended March 31, 1997. During the first six
months of fiscal 1997, in addition to the net loss of $801,629 as adjusted for
non-cash gains and expenses to a cash loss of $630,597, cash was used in
operating activities through an increase in accounts receivable of $73,000 from
customers resulting from first quarter sales offset by a $147,000 increase in
accounts payable primarily associated with product costs. At March 31, 1997 the
Company had approximately 70 days sales in accounts receivable as compared to 75
days at September 30,
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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.
For the six months ended March 31, 1997 the Company used approximately $63,000
for the purchase of equipment and investments in patents and $175,271 on cash
loans to officers with the principal used to exercise stock options.
At March 31, 1997, the Company had working capital of $1,589,186 and at
September 30, 1996 had working capital of $1,047,787. The net increase is due to
the $1.3 million from financing activities offset in part by 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 March 31, 1997 and September 30, 1996, the Company owned
225,300 shares of NCI with a market value of $91,471 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.
At March 31, 1997 the Company had placed orders or had planned orders of
approximately $150,000 for capital expenditures primarily for research and
development equipment.
Since the Company's reorganization in January 1992 and through March 31, 1997,
the Company has financed its operations primarily through the sale of common
equity and convertible notes and proceeds from the sale of shares of NCI. During
the first six months of fiscal 1997 the Company obtained $332,600 from the
exercise of stock options and warrants and $1,000,000 from convertible long-term
notes. During the same period the Company acquired $26,470 of new equipment and
invested $36,438 in capitalized patent costs.
Other than 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. The Company
anticipates that the commercialization of HSS technology will require increased
personnel and operating costs. At the current rate of expenditures, the Company
will require significantly improved gross margins from product sales, margins
from new technologies or additional funds for the next twelve months aggregating
an estimated $400,000. This estimate is subject to significant variability due
to management decisions and outside factors. Potential sources of any such
required funds may include the sale of additional NCI shares, 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 effect on the Company's business.
NEW ACCOUNTING PRONOUNCEMENT
On March 3, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128").
This pronouncement provides a different method of calculating earnings per share
than previously provided under Accounting Principles Board Opinion No. 15,
"Earnings Per Share." SFAS No. 128 provides for the calculation of "Basic" and
"Diluted" earnings per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. The Company
will adopt SFAS No. 128 in fiscal 1998 and its implementation is not expected to
have a material effect on the financial statements.
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.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's fiscal 1996 Annual Meeting of Shareholders held on March 25,
1997, the following members, constituting all the members, were elected to the
Board of Directors: Elwood G. Norris, Robert Putnam, Richard M. Wagner and Joel
A. Barker.
The following proposals were approved at the Company's Annual Meeting of
Shareholders:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
<S> <C> <C> <C>
1. Proposal to appoint BDO Seidman, LLP as Independent
auditors of the Company 7,506,519 5,400 9,845
2. Proposal to authorize 5,000,000 shares of preferred stock 5,101,564 83,068 15,800
3. Election of Directors
Elwood G. Norris 7,514,594 7,170 0
Robert Putnam 7,514,594 7,170 0
Richard M. Wagner 7,514,594 7,170 0
Joel A. Barker 7,514,594 7,170 0
4. Proposal to ratify the 1997 Employee Stock Compensation
Plan 7,521,764 0 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The following exhibits are filed with this Form 8-K.
3.1.1 Amendment to Certificate of Incorporation of American
Technology Corporation dated March 24, 1997 and filed on
April 22, 1997
4.9 Stock Purchase Warrant issued to Renwick Corporate Finance,
Inc. dated as of February 5, 1997 exercisable to purchase
90,000 common shares at $5.00 per share until February 5,
2000
10.11 Demand Promissory Note for $82,500 due from Robert Putnam
dated January 17, 1997
10.12 Demand Promissory Note for $90,750 due from Elwood G. Norris
dated January 21, 1997
(b) Reports on Form 8-K - 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: May 8, 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)
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EXHIBIT 3.11
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AMERICAN TECHNOLOGY CORPORATION
(A Delaware Corporation)
AMERICAN TECHNOLOGY CORPORATION, a corporation organized on March 5, 1992
and existing under and by virtue of the General Corporation Law of Delaware,
DOES HEREBY CERTIFY THAT:
A. The Board of Directors of the Corporation by the unanimous written
consent of its members, filed with the minutes of the Board, duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of the corporation, declaring such amendment to be advisable and
directing that the proposal be placed before the shareholders of the corporation
for consideration thereof and that the approval of the shareholders be solicited
at an annual meeting of shareholders. The resolution setting forth the proposed
amendment is as follows:
RESOLVED, that ARTICLE FIFTH of the Certificate of Incorporation of this
corporation be amended to provide as set forth below, and such provisions shall
supercede ARTICLE FIFTH of the existing Certificate of Incorporation in its
entirety:
"FIRST. The name of this corporation is AMERICAN TECHNOLOGY CORPORATION.
{CAPITAL STOCK}
FIFTH. The aggregate number of shares of capital stock of all classes which
the Corporation shall have authority to issue is TWENTY-FIVE MILLION
(25,000,000), of which TWENTY MILLION (20,000,000) shares having a par value of
$.00001 per share shall be of a class designated "Common Stock" (or "Common
Shares"), and FIVE MILLION (5,000,000) shares having a par value of $.00001 per
share shall be of a class designated "Preferred Stock" (or "Preferred Shares").
All shares of the Corporation shall be issued for such consideration or
considerations as the Board of Directors may from time to time determine. The
designations, voting powers, preferences, optional or other special rights and
qualifications, limitations, or restrictions of the above classes of stock shall
be as follows:
I. PREFERRED STOCK
(A) ISSUANCE IN CLASS AND SERIES. Shares of Preferred Stock may be issued
in one or more classes or series at such time or times as the Board of Directors
may determine. All shares of any one series shall be of equal rank and identical
in all respects.
(B) AUTHORITY OF BOARD FOR ISSUANCE. Authority is hereby expressly granted
to the Board of Directors to fix from time to time, by resolution or resolutions
providing for the issuance of any class or series of Preferred Stock, the
designation of such classes and series and the powers, preferences and rights of
the shares of such classes and series, and the qualifications, limitations or
restrictions thereof, including the following:
1. The distinctive designation and number of shares comprising such
class or series, which number may (except where otherwise provided by the
Board of Directors in creating such class or series) be increased or
decreased (but not below the number of shares then outstanding) from time
to time by action of the Board of Directors;
2. The rate of dividend, if any, on the shares of that class or
series, whether dividends shall be cumulative and, if so, from which date
or dates, the relative rights of priority, if any, of payment of dividends
on shares of that class or series over shares of any other class or series;
3. Whether the shares of that class or series shall be redeemable at
the option of the Corporation, at the option of the holder of shares of
that class or series, at the option of another person, or upon the
occurence of a designated event and, if so, the terms and conditions of
such redemption, including the date
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<PAGE> 13
or dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and different redemption dates;
4. Whether that class or series shall have a sinking fund for the
redemption or purchase of shares of that class or series and, if so, the
terms and amounts payable into such sinking fund;
5. The rights to which the holders of the shares of that class or
series shall be entitled in the event of voluntary or involuntary
liquidation, dissolution, distribution of assets or winding-up of the
Corporation, relative rights of priority; if any, of payment of shares of
that class or series;
6. Whether the shares of that class or series shall be convertible
into or exchangeable for shares of stock of any class or any other series
of Preferred Stock at the option of the Corporation or of the holder, or
upon the occurrence of a specified event and, if so, the terms and
conditions of such conversion or exchange, including the method of
adjusting the rates of conversion or exchange in the event of a stock
split, stock dividend, combination of shares or similar event;
7. Whether the issuance of any additional shares of such class or
series, or of any shares of any other class or series, shall be subject to
restrictions as to issuance, or as to the powers, preferences or rights of
any such other class or series;
8. Any other preferences, privileges and powers, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions of such class or series, as the Board of
Directors may deem advisable and as shall not be inconsistent with the
provisions of the Corporation's Charter, as from time to time amended, and
to the full extent now or hereinafter permitted by the laws of Delaware.
(C) DIVIDENDS. Payment of dividends shall be as follows:
1. The holders of Preferred Stock of each class or series, in
preference to the holders of Common Stock, shall be entitled to receive, as
and when declared by the Board of Directors out of funds legally available
therefor, all dividends, at the rate for such class or series fixed in
accordance with the provisions of this Article FIFTH and no more;
2. Dividends may be paid upon, or declared or set aside for, any class
or series of Preferred Stock in preference to the holders of any other
class or series of Preferred Stock in the manner determined by the
resolutions of the Board of Directors authorizing and creating such class
or series;
3. So long as any shares of Preferred Stock shall be outstanding, in
no event shall any dividend, whether in cash or in property, be paid or
declared nor shall any distribution be made, on the Common Stock, nor shall
any shares of Common Stock be purchased, redeemed or otherwise acquired for
value by the Corporation, unless all dividends on all cumulative classes
and series Preferred Stock with respect to all past dividend periods, and
unless all dividends on all classes and series of Preferred Stock for the
then current dividend period shall have been paid or declared, and provided
for, and unless the Corporation shall not be in default with respect to any
of its obligations with respect to any sinking fund for any class or series
of Preferred Stock. The foregoing provisions of this subparagraph (3) shall
not, however, apply to any dividend payable in Common Stock;
4. No dividend shall be deemed to have accrued on any share of
Preferred Stock of any class or series with respect to any period prior to
the date of the original issue of such share or the dividend payment date
immediately preceding or following such date of original issue, as may be
provided in the resolutions of the Board of Directors creating such class
or series. Preferred Stock shall not be entitled to participate in any
dividends declared and paid on Common Stock, whether payable in cash, stock
or otherwise. Accruals of dividends shall not pay interest.
(D) DISSOLUTION OR LIQUIDATION. In the event of any voluntary or
involuntary liquidation, dissolution of assets or winding-up of the Corporation,
the holders of the shares of each class and series of Preferred Stock then
outstanding shall be entitled to receive out of the net assets of the
Corporation, but only in accordance with the preferences, if any, provided for
such class or series, before any distribution or payment shall be made to the
holders
13
<PAGE> 14
of Common Stock, the amount per share fixed by the resolution or resolutions of
the Board of Directors to be received by the holder of each such share on such
voluntary or involuntary liquidation, dissolution, distribution of assets or
winding-up, as the case may be. If such payment shall have been made in full to
the holders of all outstanding Preferred Stock of all classes and series, or
duly provided for, the remaining assets of the Corporation shall be available
for distribution among the holders of Common Stock as provided in this Article
FIFTH. If upon any such liquidation, dissolution, distribution of assets or
winding-up, the net assets of the Corporation available for distribution among
the holders of any one or more classes or series of Preferred Stock which (i)
are entitled to a preference over the holders of Common Stock upon such
liquidation, dissolution, distribution of assets or winding-up, and (ii) rank
equally in connection therewith, shall be insufficient to make payment for the
preferential amount to which the holders of such shares shall be entitled, then
such assets shall be distributed among the holders of each such series of
Preferred Stock ratably according to the respective amounts to which they would
be entitled in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full. Neither the
consolidation nor merger of the Corporation, nor the exchange, sale, lease or
conveyance (whether for cash, securities or other property) of all,
substantially all or any part of its assets, shall be deemed a liquidation,
dissolution, distribution of assets or winding-up of the Corporation within the
meaning of this provision.
(E) VOTING RIGHTS. Except to the extent otherwise required by law or
provided in the resolution of the Board of Directors adopted pursuant to
authority granted in this Article FIFTH, the shares of Preferred Stock shall
have no voting power with respect to any matter whatsoever. The Board of
Directors may determine whether the shares of any class or series shall have
limited, contingent, full or no voting rights, in addition to the voting rights
provided by law and, if so, the terms of such voting rights. Whenever holders of
Preferred Stock are entitled to vote on a matter, each holder of record of
Preferred Stock shall be entitled to one vote for each share standing in his
name on the books of the Corporation and entitled to vote.
II. COMMON STOCK
(A) ISSUANCE. The Common Stock may be issued from time to time in one or
more classes or series in any manner permitted by law, as determined by the
Board of Directors and stated in the resolution or resolutions providing for
issuance thereof. Each class or series shall be appropriately designated, prior
to issuance of any shares thereof, by some distinguishing letter, number or
title. All shares of each class or series of Common Stock shall be alike in
every particular and shall be of equal rank and have the same power, preferences
and rights, and shall be subject to the same qualifications, limitations and
restrictions, if any.
(B) VOTING POWERS. The Common Stock may have such voting powers (full,
limited, contingent or no voting powers), such designations, preferences and
relative, participating, optional or other special rights, and be subject to
such qualifications, limitations and restrictions, as the Board of Directors
shall determine by resolution or resolutions. Unless otherwise resolved by the
Board of Directors at the time of issuing Common Shares, (i) each Common Stock
share shall be of the same class, without any designation, preference or
relative, participating, optional or other special rights, and subject to no
qualification, limitation or restriction, and (ii) Common Shares shall have
unlimited voting rights, including but not limited to the right to vote in
elections for directors, and each holder of record of Common Shares entitled to
vote shall have one vote for each share of stock standing in his name on the
books of the Corporation and entitled to vote. Cumulative voting shall not be
allowed in the election of directors or as to any other matter presented for
shareholder approval.
(C) DIVIDENDS. After the requirements with respect to preferential
dividends, if any, on Preferred Stock, and after the Corporation shall have
complied with all requirements, if any, with respect to the setting aside of
sums in a sinking fund for the purchase or redemption of shares of any class or
series of Preferred Stock, then and not otherwise, the holders of Common Stock
shall receive, to the extent permitted by law, such dividends as may be declared
from time to time by the Board of Directors.
(D) DISSOLUTION OR LIQUIDATION. After distribution in full of the
preferential amount, if any, to be distributed to the holders of Preferred
Stock, in the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding-up of the Corporation, the holders of Common
Stock shall be entitled to receive all the remaining assets of the Corporation
of whatever kind available for distribution to shareholders ratably in
proportion to the number of shares of Common Stock respectively held by them.
14
<PAGE> 15
(E) CONVERTIBILITY. Common Shares or other shares of any class or series
may be made convertible into or exchangeable for, at the option of the
Corporation or the holder or upon the occurrence of a specified event, shares of
any other class or classes or any other series of the same or any other class or
classes of shares of the Corporation, at such price or prices or at such rate or
rates of exchange and with such adjustments as shall be set forth in the
resolution or resolutions providing for the issuance of such convertible or
exchangeable shares adopted by the Board of Directors.
(F) REDEEMABILITY. Common Shares may be made redeemable at the option of
the Corporation, of the holder thereof, of another person, or upon the
occurrence of a designated event, if and to the extent now or subsequently
allowed by the General Corporation Law of Delaware, as such law may subsequently
be amended, and the terms and conditions of redemption, including the date or
dates upon or after which they shall be redeemable, the amount per share payable
in case of redemption and any variance in the amount or amounts payable, among
other terms, conditions and limitations which may be imposed, may be fixed and
established by the Board of Directors in the resolution or resolutions
authorizing the issuance of redeemable Common Shares.
III. GENERAL MATTERS
(A) CAPITAL. The portion of the consideration received by the Corporation
upon issuance of any of its shares that shall constitute "capital" within the
meaning of the General Corporation Law of Delaware shall be (1) in the case of
par-value shares, the par value thereof, and (2) in the case of shares without
par value, the stated value of such shares as determined by the Board of
Directors at the time of issuance; provided, that if no stated value is
determined at the time that shares without par value are issued, the entire
consideration to be received for the shares shall constitute capital.
(B) FULLY PAID AND NONASSESSABLE. Any and all shares of Common or Preferred
Stock or other shares issued by the Corporation for which not less than the
portion of the consideration to be received determined to be "capital" has been
paid to the Corporation, provided the Corporation has received a promissory note
or other binding legal obligation of the purchaser to pay the balance thereof,
shall be deemed fully paid and nonassessable shares.
(C) STATUS OF CERTAIN SHARES. Shares of Preferred or Common Stock or other
shares which have redeemed, converted, exchanged, purchased, retired or
surrendered to the Corporation, or which have been reacquired in any other
manner, shall have the status of authorized and unissued shares and may be
reissued by the Board of Directors as shares of the same or any other series,
unless otherwise provided herein or in the resolution authorizing and
establishing the shares.
(D) DENIAL OF PREEMPTIVE RIGHTS. No holder of any shares of the Corporation
shall be entitled as a matter of right to subscribe for or purchase any part of
any new or additional issue of stock of any class or of securities convertible
into or exchangeable for stock of any class, whether now or hereafter authorized
or whether issued for money, for a consideration other than money, or by way of
dividend."
END OF TEXT OF AMENDMENT
B. Pursuant to resolution of the Corporation's Board of Directors, the
Secretary of the corporation obtained the shareholders' approval of the proposed
amendment and restatement at an annual meeting of the shareholders by the
holders of 5,101,564 of the Corporation's 9,016,259 outstanding shares of common
stock, constituting at least a majority of all shares entitled to vote thereon
and therefore sufficient for approval, all in accordance with the General
Corporation Law of Delaware and the existing Certificate of Incorporation and
bylaws of the Corporation, as amended and corrected to date.
C. This amendment and restatement was duly adopted and has been duly
executed and acknowledged in accordance with the provisions of Section 245 of
the General Corporation Law of Delaware.
IN WITNESS WHEREOF, AMERICAN TECHNOLOGY CORPORATION has caused this
Certificate of Amendment to be signed by the duly authorized officers below on
March 24, 1997.
AMERICAN TECHNOLOGY CORPORATION
15
<PAGE> 16
By /s/ ROBERT PUTNAM
ROBERT PUTNAM, PRESIDENT
ATTEST:
By /s/ RICHARD D. WAGNER
RICHARD D. WAGNER, SECRETARY
16
<PAGE> 1
EXHIBIT 4.9
THIS WARRANT AND THE SHARES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED
WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933 ("ACT"), AND THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT.
STOCK PURCHASE WARRANT
RIGHT TO PURCHASE UP TO 90,000 SHARES OF COMMON STOCK
THIS CERTIFIES THAT Renwick Corporate Finance, Inc. and all registered and
permitted assigns (collectively, "Holder") is entitled to purchase, on or before
February 5, 2000, up to 90,000 shares of the common stock ("Common Stock") of
AMERICAN TECHNOLOGY CORPORATION (the "Corporation" or "Company") upon exercise
of this Warrant along with presentation of the full purchase price as provided
herein. The purchase price of the common stock upon exercise of this Warrant
("Warrant Shares") is equal to Five Dollars ($5.00) per share (the "Exercise
Price"). This Warrant is granted to Holder in consideration of Holder's
execution of that certain letter agreement dated February 5, 1997 between the
Holder and the Company. The number of shares of Common Stock purchasable
pursuant to this Warrant is subject to vesting as provided in Section 3.
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part on any business day on or
before the expiration date listed above by presentation and surrender hereof to
the Company at its principal office of an exercise request and the Exercise
Price in lawful money of the United States of America in the form of a wire
transfer or check, subject to collection, for the number of Warrant Shares
specified in the exercise request. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant, execute and deliver a
new Warrant evidencing the rights of the Holder thereof to purchase the balance
of the Warrant Shares purchasable hereunder. Upon receipt by the Company of this
Warrant and an exercise request and representations, together with proper
payment of the Exercise Price, at such office, the Holder shall be deemed to be
the holder of record of the Warrant Shares, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Warrant Shares shall not then be actually delivered to the
Holder. The Company shall pay any and all transfer agent fees, documentary stamp
or similar issue or transfer taxes payable in respect of the issue or delivery
of the Warrant Shares.
(b) At any time during the Exercise Period, the Holder may, at its option,
exchange this Warrant, in whole or in part (a "Warrant Exchange"), into the
number of Warrant Shares determined in accordance with this Section (1)(b), by
surrendering this Warrant at the principal office of the Company, accompanied by
a written notice stating such Holder's intent to effect such exchange, the
number of Warrant Shares to be exchanged and the date on which the Holder
requests that such Warrant Exchange occur (the "Notice of Exchange"). The
Warrant Exchange shall take place on the date the Notice of Exchange is received
by the Company or such later date as may be specified in the Notice of Exchange
(the "Exchange Date"). Certificates for the shares issuable upon such Warrant
Exchange and, if applicable, a new Warrant of like tenor evidencing the balance
of the shares remaining subject to this Warrant, shall be issued as of the
Exchange Date and delivered to the Holder within seven (7) days following the
Exchange Date. In connection with any Warrant Exchange, this Warrant shall
represent the right to subscribe for and acquire the number of Warrant Shares
(rounded to the next highest integer) equal to (i) the number of Warrant Shares
specified by the Holder in its Notice of Exchange (the "Total Number") less (ii)
the number of Warrant Shares equal to the quotient obtained by dividing (A) the
product of the Total Number and the existing Exercise Price by (B) the current
market value of a share of Common Stock. Current market value shall be the
average closing price for the 5-day period prior to the Exchange Date.
2. Adjustment of Exercise Price and Number of Shares Deliverable Upon Exercise
of Warrant.
The Exercise Price and the number of Shares purchasable upon the exercise of
this Warrant are subject to adjustment from time to time upon the occurrence of
the events enumerated in this paragraph.
(a) In case the Corporation shall at any time after the date of this Warrant:
(i) Pay a dividend of its shares of its Common Stock or make a distribution
in shares, or rights or warrants to purchase shares of its Common Stock with
respect to its outstanding Common Stock;
(ii) Subdivide its outstanding shares of Common Stock;
17
<PAGE> 2
(iii) Combine its outstanding shares of Common Stock; or
(iv) Issue any other shares of capital stock by reclassification of its
shares of Common Stock
the Exercise Price in effect and the number of Warrant Shares purchasable at the
time of the record date of such dividend, subdivision, combination, or
reclassification shall be proportionately adjusted so that Holder shall be
entitled to receive the aggregate number and kind of shares which, if this
Warrant had been exercised prior to such event, Holder would have owned upon
such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination, or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case of any reorganization of the Corporation, or in case of any
reclassification or change of outstanding Common Stock issuable upon exercise of
this Warrant (other than a change in par value. or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
split-up or combination of the Common Stock), or in case of any consolidation or
merger of the Company with or into another entity (other than a consolidation or
merger with a subsidiary or a continuing corporation), or in case of any sale or
conveyance to another entity of all or substantially all of the property of the
Corporation, then, as a condition of such reorganization, reclassification,
change, consolidation, merger, sale, or conveyance, the Corporation or such
successor or purchasing entity, as the case may be, shall forthwith provide to
Holder a supplemental warrant (the "Supplement Warrant") which will make lawful
and adequate provision whereby Holder shall have the right thereafter to
receive, upon exercise of such Supplemental Warrant, the kind and amount of
shares and other securities and property which would have been received upon
such reorganization, reclassification, change, consolidation, merger, sale, or
conveyance by a holder of a number of shares of Common Stock equal to the number
of Shares issuable upon exercise of this Warrant immediately prior to such
reorganization, reclassification, change, consolidation, merger, sale, or
conveyance. Such Supplemental Warrant shall include provisions for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this paragraph. The above provisions of this paragraph shall
similarly apply to successive consolidations, mergers, sales, or conveyances.
3. Vesting.
The number of Warrant Shares described above shall vest and become exercisable
only at the rate of 15,000 Warrant Shares (as may be adjusted for events
outlined in this Warrant) for each full month of financial advisory services,
prorated for any partial month, pursuant to that certain letter agreement dated
February 5, 1997 between Holder and the Company. Accordingly 15,000 Warrant
Shares shall vest and become exercisable on March 5, 1997 and each full month of
service thereafter with all 90,000 Warrant Shares becoming fully vested and
exercisable on August 5, 1997. Any written termination of the letter agreement
by the Company or Holder shall serve as termination of vesting and any unvested
shares as of the date of termination shall be canceled and unexercisable for the
term of the Warrant. The Warrant shall remain in effect and fully exercisable
into the number of Warrant Shares so vested.
4. Registration Rights.
If the shares underlying this Warrant can be registered within the same
registration statement selected by the Company for the securities issued in
connection with the Private Placement Memorandum dated March 6, 1997 then the
Company shall include such Warrant Shares. Otherwise;
(1) The Company shall advise the Holder of this Warrant or of the Warrant Shares
or any then holder of Warrants or Warrant Shares (such persons being
collectively referred to herein as "holders") by written notice at least two
weeks prior to the filing of any new registration statement ("Registration
Statement") under the Securities Act of 1933 (the "Act") covering securities of
the Company, other than a Registration Statement filed with respect to any
employee benefit plan or an offering solely related to an acquisition for which
such Warrant Shares cannot be appropriately registered or which does not permit
registration of the Warrants or Warrant Shares, and will for a period of five
years, from the date of this Warrant upon the request of any such holder,
include in any such registration statement the number of Warrant Shares holder
desires to include in the Registration Statement. In the event the managing
underwriter for any said registration advises the Company that the inclusion of
the Warrant Shares would be detrimental to the offering, then such Warrant
Shares shall be included in the Registration Statement only if the Holder agrees
in writing, for a period of up to 120 days following such offering, not to sell
or otherwise dispose of the Warrant Shares. The Company shall supply
prospectuses and other documents as the Holder may request in order to
facilitate the public sale or other disposition of the Warrant Shares for sale
in such states where the Company qualifies its other securities pursuant to the
Registration Statement for sale and do any and all other acts and things which
may be necessary or desirable to enable such Holders to consummate the public
sale or other disposition of the Warrant or Warrant Shares. The Holder need not
18
<PAGE> 3
exercise the Warrant to have the Warrant Shares included in a registration
statement. Nothing in this Section shall be construed to extend the expiration
date of this Warrant.
(2) The following provision of this Section shall also be applicable:
(A) The Company shall bear the entire cost and expense of any registration
of securities initiated by it notwithstanding that Warrants Shares subject to
this Warrant may be included in any such registration. Any holder whose Warrant
Shares are included in any such registration statement shall, however, bear the
fees of his own counsel, transfer taxes or underwriting discounts or commissions
applicable to the Warrant Shares sold by him pursuant thereto.
(B) Neither the giving of any notice by any holder nor making of any
request for prospectus shall impose upon such holder or owner making such
request any obligation to sell any Warrant Shares, or exercise any Warrants.
The Company's agreements with respect to Warrant Shares in this Section
shall continue in effect regardless of the exercise and surrender of this
Warrant.
5. Assignment or Loss of Warrant.
(a) Any sale, transfer, assignment, hypothecation or other disposition of this
Warrant or of the Warrant Shares shall only be made if any such transfer,
assignment or other disposition will comply with the rules and statutes
administered by the Securities and Exchange Commission and (i) a Registration
Statement under the Act including such Shares is currently in effect, or (ii) in
the opinion of counsel, which counsel and which opinion shall be reasonably
satisfactory to the Company, a current Registration Statement is not required
for such disposition of the shares. Each stock certificate representing Warrant
Shares issued upon exercise or exchange of this Warrant shall bear the following
legend (unless, in the opinion of counsel, which counsel and which opinion shall
be reasonably satisfactory to the Company, such legend is not required):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED EXCEPT
UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY
IN FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE
SECURITIES ACT OF 1933, AS AMENDED."
(b) The Holder understands that the Company may place, and may instruct any
transfer agent or depository for the Shares to place, a stop transfer notation
in the securities records in respect of the Shares.
(c) Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnification satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
6. Reservation of Shares.
The Company hereby agrees that at all times there shall be reserved for issuance
and delivery upon exercise or exchange of this Warrant all shares of its Common
Stock or other shares of capital stock of the Company from time to time issuable
upon exercise or exchange of this Warrant. All such shares shall be duly
authorized and, when issued upon the exercise or exchange of the Warrant in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale (other than as provided in the
Company's articles of incorporation and any restrictions on sale set forth
herein or pursuant to applicable federal and state securities laws) and free and
clear of all preemptive rights.
7. Notices to Warrant Holders. No Shareholder Rights.
So long as this Warrant shall be outstanding, (i) if the Company shall pay any
dividend or make any distribution upon the Common Stock or (ii) if the Company
shall offer to the holders of Common Stock for subscription or purchase by them
any share of any class or any other rights or (iii) if any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then in
any such case, the Company shall cause to be mailed by certified mail to the
Holder, at least fifteen days prior the date, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which such action is to take place
19
<PAGE> 4
and the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
Nothing in this Warrant shall be construed as conferring upon the Holder or its
transferees any rights as a stockholder in the Company, including the right to
vote, receive dividends, consent or receive notices as a stockholder in respect
to any meeting of stockholders.
8. Arbitration.
In the event that a dispute arises between the Corporation and the Holder of
this Warrant as to any matte relating to this Warrant, the matter shall be
settled by arbitration in San Diego, California in accordance with the Rules of
the American Arbitration Association and the award rendered by such
arbitrator(s) shall not be subject to appeal and may be entered in any federal
or state court located in California having jurisdiction thereof, and actions or
proceedings shall be brought in no other forum or venue.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by
its duly authorized officers effective this 5th day of February 1997.
AMERICAN TECHNOLOGY CORPORATION
BY /s/ ROBERT PUTNAM
Robert Putnam, President
BY /s/ RICHARD M. WAGNER
Richard M. Wagner, Secretary
ACKNOWLEDGMENT OF REPRESENTATION:
/s/ RICHARD MRGDCHIAN
Warrant Holder
20
<PAGE> 1
EXHIBIT 10.11
PROMISSORY NOTE
POWAY, CALIFORNIA
JANUARY 17, 1997
For value received, ROBERT PUTNAM, an individual (hereinafter referred to as
"Maker"), promises to pay to the order of AMERICAN TECHNOLOGY CORPORATION, a
Delaware corporation (hereinafter referred to as "Holder"), the sum appearing in
the Unpaid Balance column of Schedule "A" attached hereto and by this reference
made a part hereof, plus accrued interest, on demand, but no later than
September 30, 1997. Interest shall be accrued from the date hereof, at an annual
rate equal to seven percent (7%) per annum, compounded annually.
Said principal and accrued interest shall be paid at such place as Holder hereof
may in writing designate on demand, and shall be payable in lawful money of the
United States of America.
In the event of default hereunder, interest is to be computed and payable on the
entire unpaid principal and accrued interest from the date of such default, at
the rate of ten percent (10%) per annum.
All notices provided for herein shall be validly given if in writing and
delivered personally or sent by certified mail, postage prepaid, to Maker c/o
Robert Putnam, 14238 Bounty Way, Poway, California 92064, or to such other
address as Maker may from time to time designate in writing delivered to Holder.
Notice given by mail as set out above shall be deemed delivered at the time and
on the date the same is mailed.
In the event that garnishment, attachment, levy, execution, foreclosure,
forfeiture, or notice of sale is issued or commenced, jointly or severally,
against any of the property or assets of Maker, or in the event Maker shall
become insolvent or make a general assignment for the benefit of creditors, or
any insolvency proceeding be instituted against Maker, such event shall be
deemed a default hereunder. Should suit be brought to recover on this Note, or
should the same be placed in the hands of an attorney for collection, Maker
promises to pay all attorney's fees and costs incurred in connection therewith.
Failure of Holder to exercise any option hereunder shall not constitute a waiver
of the right to exercise the same in the event of any subsequent default, or in
the event of continuance of any existing default after demand for strict
performance hereof.
Maker hereby waives demand, diligence, presentment for payment, protest, and
notice of demand, protest, nonpayment, and exercise of any option hereunder.
Maker further agrees that the granting without notice of any extension or
extensions of time for payment of any sum or sums due hereunder, or under any
instrument securing this Note, or for the performance of any covenant,
condition, or agreement hereof or thereof, or the taking or release of other or
additional security, shall in no way release or discharge the liability of
Maker.
This Note shall be governed and construed in accordance with the laws of the
State of California.
/s/ ROBERT PUTNAM /s/ ELWOOD G. NORRIS
Robert Putnam Witness
Maker
ROBERT PUTNAM PROMISSORY NOTE TO AMERICAN TECHNOLOGY CORPORATION
SCHEDULE A
TRANSACTIONS ON WITHIN NOTE*
<TABLE>
<CAPTION>
DATE ADVANCE PAYMENT UNPAID BALANCE
- ---- ------- ------- --------------
<S> <C> <S> <C>
1/17/97 $82,500.00 $82,500.00
</TABLE>
21
<PAGE> 1
EXHIBIT 10.12
PROMISSORY NOTE
POWAY, CALIFORNIA
JANUARY 21, 1997
For value received, ELWOOD G. NORRIS, an individual (hereinafter referred to as
"Maker"), promises to pay to the order of AMERICAN TECHNOLOGY CORPORATION, a
Delaware corporation (hereinafter referred to as "Holder"), the sum appearing in
the Unpaid Balance column of Schedule "A" attached hereto and by this reference
made a part hereof, plus accrued interest, on demand, but no later than
September 30, 1997. Interest shall be accrued from the date hereof, at an annual
rate equal to seven percent (7%) per annum, compounded annually.
Said principal and accrued interest shall be paid at such place as Holder hereof
may in writing designate on demand, and shall be payable in lawful money of the
United States of America.
In the event of default hereunder, interest is to be computed and payable on the
entire unpaid principal and accrued interest from the date of such default, at
the rate of ten percent (10%) per annum.
All notices provided for herein shall be validly given if in writing and
delivered personally or sent by certified mail, postage prepaid, to Maker c/o
Elwood G. Norris, 13824 San Sebastian Way, Poway, California 92064, or to such
other address as Maker may from time to time designate in writing delivered to
Holder. Notice given by mail as set out above shall be deemed delivered at the
time and on the date the same is mailed.
In the event that garnishment, attachment, levy, execution, foreclosure,
forfeiture, or notice of sale is issued or commenced, jointly or severally,
against any of the property or assets of Maker, or in the event Maker shall
become insolvent or make a general assignment for the benefit of creditors, or
any insolvency proceeding be instituted against Maker, such event shall be
deemed a default hereunder. Should suit be brought to recover on this Note, or
should the same be placed in the hands of an attorney for collection, Maker
promises to pay all attorney's fees and costs incurred in connection therewith.
Failure of Holder to exercise any option hereunder shall not constitute a waiver
of the right to exercise the same in the event of any subsequent default, or in
the event of continuance of any existing default after demand for strict
performance hereof.
Maker hereby waives demand, diligence, presentment for payment, protest, and
notice of demand, protest, nonpayment, and exercise of any option hereunder.
Maker further agrees that the granting without notice of any extension or
extensions of time for payment of any sum or sums due hereunder, or under any
instrument securing this Note, or for the performance of any covenant,
condition, or agreement hereof or thereof, or the taking or release of other or
additional security, shall in no way release or discharge the liability of
Maker.
This Note shall be governed and construed in accordance with the laws of the
State of California.
/s/ ELWOOD G. NORRIS /s/ ROBERT PUTNAM
Elwood G. Norris Witness
Maker
ELWOOD G. NORRIS PROMISSORY NOTE TO AMERICAN TECHNOLOGY CORPORATION
SCHEDULE A
TRANSACTIONS ON WITHIN NOTE*
<TABLE>
<CAPTION>
DATE ADVANCE PAYMENT UNPAID BALANCE
- ---- ------- ------- --------------
<S> <C> <S> <C>
1/21/97 $90,750.00 $90,750.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
INTERIM STATEMENTS FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,215,129
<SECURITIES> 91,471
<RECEIVABLES> 274,838
<ALLOWANCES> 6,450
<INVENTORY> 351,499
<CURRENT-ASSETS> 2,103,773
<PP&E> 310,838
<DEPRECIATION> 220,208
<TOTAL-ASSETS> 2,305,034
<CURRENT-LIABILITIES> 514,587
<BONDS> 1,000,986
0
0
<COMMON> 95
<OTHER-SE> 789,366
<TOTAL-LIABILITY-AND-EQUITY> 2,305,034
<SALES> 683,104
<TOTAL-REVENUES> 683,104
<CGS> 544,488
<TOTAL-COSTS> 544,488
<OTHER-EXPENSES> 820,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,341
<INCOME-PRETAX> (801,629)
<INCOME-TAX> 0
<INCOME-CONTINUING> (801,629)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (801,629)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
