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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
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Commission File Number 0-24248
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AMERICAN TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 87-03261799
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(State or other jurisdiction of (I.R.S. Empl. Ident. No.)
incorporation or organization)
13114 Evening Creek Drive South, San Diego, California 92128
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(Address of principal executive offices) (Zip Code)
(858) 679-2114
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO ____
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.00001 par value 11,665,428
- -------------------------------- ---------------------------------
(Class) (Outstanding at February 4, 2000)
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AMERICAN TECHNOLOGY CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of December 31, 1999
and September 30, 1999 (unaudited) 3
Statements of Operations for the three months ended
December 31, 1999 and 1998 (unaudited) 4
Statements of Comprehensive Income for the three months
ended December 31, 1999 and 1998 (unaudited) 5
Statements of Cash Flows for the three months ended
December 31, 1999 and 1998 (unaudited) 6
Notes to Interim Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
American Technology Corporation
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
1999 1999
-------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 542,481 $ 590,236
Investment securities available for sale (note 7) 508,602 299,648
Trade accounts receivable, less allowance of $8,000 and $17,000
for doubtful accounts, respectively 218,921 158,533
Inventories (note 6) 315,309 287,321
Prepaid expenses and other 44,751 204,581
-------------------------------
Total current assets 1,630,064 1,540,319
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Equipment, net 116,331 133,047
Patents, net 520,938 487,670
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Total assets $ 2,267,333 $ 2,161,036
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 467,550 $ 333,754
Accrued liabilities 101,306 110,090
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Total current liabilities 568,856 443,844
-------------------------------
Commitments and contingencies
Stockholders' Equity
Preferred stock, $0.00001 par value; 5,000,000 shares authorized:
Series B Preferred stock 250,000 shares designated: 240,000 and 250,000 issued
and outstanding, respectively 2 3
Common stock, $0.00001 par value; 20,000,000 shares
authorized: 11,549,489 and 11,464,213 shares issued and outstanding, 115 115
respectively
Additional paid-in capital 13,564,993 13,251,171
Notes receivable (27,895) (27,895)
Accumulated deficit (12,347,182) (11,805,647)
Accumulated other comprehensive income (note 7) 508,444 299,445
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Total stockholders' equity 1,698,477 1,717,192
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Total liabilities and stockholders' equity $ 2,267,333 $ 2,161,036
===============================
</TABLE>
3
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
American Technology Corporation
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1999 1998
------------------------------------
<S> <C> <C>
Revenues:
Product sales $ 566,147 $ 164,457
Contract and license 55,772 -
------------------------------------
Total revenue 621,919 164,457
------------------------------------
Cost of products sold 394,166 119,470
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Gross profit 227,753 44,987
------------------------------------
Operating expenses:
Selling, general and administrative 503,421 517,044
Research and development 368,701 238,341
Non-cash compensation expense 11,118 110,683
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Total operating expenses 883,240 866,068
------------------------------------
Loss from operations (655,487) (821,081)
------------------------------------
Other income (expense):
Interest income 3,890 8,368
Gain on sale of investment securities 110,917 -
Other (855) (231)
------------------------------------
Total other income (expense) 113,952 8,137
------------------------------------
Net loss $ (541,535) $ (812,944)
====================================
Net loss available to common stockholders (note 4) $ (573,101) $(1,294,979)
====================================
Net loss per share of common stock - basic and diluted $ (0.05) $ (0.11)
====================================
Average weighted number of common shares outstanding 11,504,623 11,363,724
====================================
</TABLE>
4
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
American Technology Corporation
STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended December 31, 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Net Loss $(541,535) $(812,944)
Unrealized holding gain (loss) on securities
available for sale 208,954 (225)
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Comprehensive loss $(332,581) $(813,169)
===========================
</TABLE>
5
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
American Technology Corporation
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1999 1998
------------------------------------
<S> <C> <C>
Increase (Decrease) in Cash
Operating Activities:
Net loss $ (541,535) $ (812,944)
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization 29,651 26,244
Allowance for bad debt (9,000)
Common stock issued for services and compensation - 33,683
Stock granted for services 11,118 77,000
Gain on available for sale securities (110,917) -
Changes in assets and liabilities:
Trade accounts receivable (51,388) (29,929)
Inventories (27,988) (24,667)
Prepaid expenses and other 159,830 10,113
Accounts payable 133,796 59,830
Accrued liabilities (8,784) (32,508)
----------------------------------
Net cash used in operating activities (415,217) (693,178)
----------------------------------
Investing Activities:
Purchase of equipment (7,930) (12,618)
Patent costs paid (38,274) (53,456)
----------------------------------
Net cash used in investing activities (46,204) (66,074)
----------------------------------
Financing Activities:
Proceeds from issuance of preferred stock, net - 2,000,000
Proceeds from sale of available for sale securities 110,962 -
Proceeds from exercise of common stock warrants 135,000 -
Proceeds from exercise of stock options 167,704 45,288
----------------------------------
Net cash provided by financing activities 413,666 2,045,288
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Net increase (decrease) in cash (47,755) 1,286,036
Cash, beginning of period 590,236 1,034,577
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Cash, end of period $ 542,481 $ 2,320,613
==================================
Supplemental Disclosure of Cash Flow Information:
Non-cash financing activities:
Dividends on conversion of Series B Preferred Stock 5,935 -
</TABLE>
6
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
1. OPERATIONS
American Technology Corporation (the "Company"), a Delaware corporation, is
engaged in design, development and commercialization of sound, acoustics and
other technologies and the sales and marketing of portable consumer products.
2. STATEMENT PRESENTATION
The accompanying unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In the opinion of management, the interim financial statements
reflect all adjustments of a normal recurring nature necessary for a fair
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. 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, 1999.
3. CONTINUED EXISTENCE AND MANAGEMENT'S PLAN
Other than cash of $542,481 at December 31, 1999, and the e.Digital 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 its sound and other products and
technologies. The timing and amounts of its expenditures and the extent of its
operating losses will depend on many factors, some of which are beyond the
Company's control. The Company anticipates that the commercialization of its
technologies may require increased operating costs, however the amounts are not
currently estimable by management.
Based on the above factors, including the current rate of expenditures,
anticipated additional expenditures and uncertainty as to future expenditures,
the Company does not have sufficient funds for the next twelve months and will
require funds from the sale or licensing of products or technology or from other
sources or will be required to scale back or curtail certain activities.
Management estimates the minimum additional funding required for the next twelve
months at approximately $1,400,000. Management has been successful in obtaining
equity financing in the past from existing shareholders and others based on the
strength and appeal of the Company's technologies Management is reviewing
financing proposals from prior investors and others and management is confident
that the required additional funding can be obtained. In addition to the sale of
equity securities, possible other sources for additional funding include the
sale or licensing by the Company of certain technologies. Margins from product
sales and revenues from licensing and other operations may also contribute
financial resources during the next twelve months. However any delays in funding
or the lack of sufficient funds could force management to curtail or scale back
operations and would therefore have an adverse effect on the Company's business.
There can be no guarantee 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.
4. NET LOSS PER SHARE
The Company has implemented Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." SFAS No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per share ("EPS"). Basic EPS includes no dilution
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
of an entity. The Company's net losses for the periods presented cause the
inclusion of potential common stock instruments outstanding to be antidilutive
and, therefore, in accordance with SFAS No. 128, the Company is not required to
present a diluted EPS. Convertible preferred stock, stock options and warrants
convertible or exercisable into approximately 2,921,999 shares of common stock
were outstanding at December 31, 1999 and stock options, warrants, preferred
stock and debt convertible or exercisable into approximately 2,365,000 shares of
common stock were outstanding as of December 31, 1998. These securities were not
included in the computation of diluted EPS because of the net losses but could
potentially dilute EPS in future periods.
Net loss available to common stockholders was increased during the three months
ended December 31, 1998 in computing net loss per share by an imputed deemed
dividend based on the value of warrants issued in connection with
7
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AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
4. NET LOSS PER SHARE (cont'd)
Series B Preferred Stock (see Note 8). The Company calculated the fair value of
the warrants at $480,000. Such imputed dividends are not contractual obligations
of the Company to pay such imputed dividends.
The provisions of the Company's Series B Preferred Stock provided for an
accretion in the conversion value (similar to a dividend) of 6% or $0.60 per
share per annum. The accrued accretion for the period ended December 31, 1999
was $31,566, which increases the net loss available to common stockholders. Net
loss available to common stockholders is computed as follows:
<TABLE>
<CAPTION>
Three months ended December 31,
1999 1998
---- ----
<S> <C> <C>
Net loss $(541,535) $ (812,944)
Imputed deemed dividend on warrants
issued with Series B Preferred Stock - (480,000)
Accretion on Series B Preferred Stock at stated rate (31,566) (2,035)
------------ -----------
Net loss available to common stockholders $(573,101) $(1,294,979)
============ ===========
</TABLE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities" ("SFAS No. 133") which establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000.
The Company does not expect the adoption of SFAS No. 133 to have a material
effect on the Company's consolidated financial statements.
6. 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, 1999:
<TABLE>
<S> <C>
Finished goods $161,414
Raw materials 173,895
Reserve for obsolete inventory (20,000)
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$315,309
==========
</TABLE>
7. INVESTMENT SECURITIES
The Company's investment securities consist of 175,000 shares of e.Digital
Corporation ("EDIG") 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, 1999 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 $158 $508,444 $508,602
</TABLE>
8. STOCKHOLDERS' EQUITY
At December 31, 1999, the Company had 240,000 shares of Series B Preferred
Stock, par value $0.00001 ("Preferred Stock") issued at $10.00 per share. The
dollar amount of Preferred Stock, increased by $0.60 per share accretion per
annum and other adjustments, is convertible one or more times into fully paid
shares of Common Stock of the Company at a conversion price which is the lower
of (i) $5.00 per share or (ii) 92% of the average of the five days closing bid
market price prior to conversion, but in no event less than $3.50 per share. The
shares of Preferred Stock may be called by the Company for conversion if the
market price of the Common Stock exceeds $12.00 per share for ten days and
certain conditions are met. The Preferred Stock is subject to automatic
conversion on November 30, 2001.
8
<PAGE>
AMERICAN TECHNOLOGY CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
8. STOCKHOLDERS' EQUITY (cont'd)
At December 31, 1999 the Preferred Stock would have been convertible into
508,799 shares of Common Stock. During the first quarter of fiscal 2000, 10,000
shares of preferred stock were converted into 21,187 shares of Common Stock.
Subsequent to December 31, 1999, an aggregate of 47,740 shares of preferred
stock was converted into 101,529 shares of Common Stock.
The following table summarizes changes in equity components from transactions
during the three months ended December 31, 1999:
<TABLE>
<CAPTION>
Additional
Common Stock Series B Preferred Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance as of October 1, 1999 11,464,213 $115 250,000 $3 $13,251,171 $11,805,647
Issuance of Common Stock:
Upon exercise of stock options 37,500 - - - 167,704 -
For compensation and services 1,589 - - - 11,118 -
Upon exercise of warrants 25,000 - - - 135,000 -
Conversion of Series B preferred
stock 21,187 - (10,000) (1) - -
Net loss - - - - - 541,535
- ---------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1999 11,549,489 $115 240,000 $2 $13,564,993 $12,347,182
===============================================================================================================
</TABLE>
The following table summarizes information about stock option activity during
the period ended December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Outstanding October 1, 1999 1,582,300 $5.16
Granted - $0.00
Canceled/expired (1,600) $7.81
Exercised (37,500) $4.47
----------
Outstanding December 31, 1999 1,543,200 $5.17
==========
Exercisable at December 31, 1999 948,099 $3.41
==========
</TABLE>
Options outstanding are exercisable at prices ranging from $0.50 to $16.00 and
expire over the period from 2000 to 2004 with an average life of 2.93 years.
Subsequent to December 31, 1999, stock options to purchase 23,000 shares of
Common Stock were exercised for cash proceeds of $131,860.
At December 31, 1999, the Company had warrants outstanding, exercisable into the
following number of common shares:
<TABLE>
<CAPTION>
Number Exercise Price Expiration Date
------ -------------- ---------------
<S> <C> <C>
60,000 $ 5.00 February 5, 2000
32,500 $ 5.00 March 1, 2000
172,500 $ 7.50 August 1, 2000
25,000 $16.00 June 18, 2000
240,000 $ 6.00 November 30, 2001
50,000 $16.00 May 12, 2003
50,000 $10.00 January 5, 2004
--------
630,000
========
</TABLE>
Subsequent to December 31, 1999, warrants to purchase 23,000 shares of Common
Stock were exercised for cash proceeds of $172,500. In addition, under the
cashless exercise provision, warrants to purchase 60,000 shares of Common Stock
were exercised into 33,452 shares of Common Stock.
9. INCOME TAXES
At December 31, 1999, 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
9
<PAGE>
income tax purposes net operating loss carryforwards of approximately
$10,500,000 which expire through 2019 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 OUR
FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF
FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "BUSINESS
RISKS." SEE ALSO OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30,
1999.
Overview
We are focused on completing the development and commercializing our proprietary
Stratified Field Technology and HyperSonic Sound technologies. Our Stratified
Field technology features a thin form factor, in a variety of shapes and sizes,
producing high fidelity, low distortion sound reproduction. Our HyperSonic Sound
technology employs a laser-like beam to project sound to any listening
environment. Our strategy is to commercialize these technologies through OEMs by
entering into licensing or contract supply agreements. There is no guarantee we
will be successful in commercially exploiting our sound technologies.
Other than an early license on our Stratified Field technology with Authentic in
Japan, we have only recently completed development of our latest designs, which
we believe will meet OEM requirements and can be readily transferred to
production. We have also only recently obtained our first contract on HyperSonic
Sound technology and are commencing marketing of this technology. There is no
guarantee that commercially viable systems can be produced by customers in the
future due to the inherent risks of new technology development and transfer,
limitations on financing, competition, obsolescence, loss of key technical
personnel and other factors beyond our control. We have not generated any
significant revenues from our sound technologies to date.
Our various development projects are high risk in nature. Unanticipated
technical obstacles can arise at any time and result in lengthy and costly
delays or result in determination that further development is unfeasible. There
is no guarantee of timely completion of commercially viable sound products by
customers or that, if completed, such products will perform on a cost-effective
basis, or achieve market acceptance.
Our future is largely dependent upon the success of our sound technologies,
other technologies or the development of new technologies. We invest significant
funds in research and development and on patent applications related to our
proprietary technologies. There is no guarantee our technologies will achieve
market acceptance sufficient to sustain operations or achieve future profits.
See "Business Risks" below.
To date substantially all of our revenues have been derived from the sale of
portable consumer products. We have sourced a total of ten products (including
FM and solar radios) targeted for niche markets at retail prices ranging from
$3.50 to $51.99. Sourcing is on both an exclusive and nonexclusive basis and for
different market territories on a product by product basis. Our market focus is
in North America. We inventory finished goods as well as provide direct factory
shipment to certain customers. We cannot guarantee that this new product can be
successfully marketed in any significant volume.
Demand for our portable consumer products is subject to significant month to
month variability resulting from seasonal demand fluctuations and the limited
number of customers and market penetration achieved by us to date. Further,
sales have been concentrated with a few customers. We are also reliant on
outside manufacturers to supply our products and there can be no assurance of
future supply. The markets for our products and future products and technologies
are subject to rapidly changing customer tastes and a high level of competition.
Demographic trends in society, marketing and advertising expenditures, and
product positioning in retail outlets, technological developments, seasonal
variations and general economic conditions influence demand for our products.
Because these factors can change rapidly, customer demand can also shift
quickly. We may not be able to respond to changes in customer demand because of
the time required to change or introduce products, production limitations and
because of our limited financial resources.
Results of Operations
Total revenues for the three months ended December 31, 1999 were $621,919, a
278% increase from the first three months of the prior year. Substantially all
revenues in both periods were from retail consumer products.
10
<PAGE>
First quarter fiscal 2000 product sales consist of the line of sourced products
manufactured by others and introduced in 1999. We cannot guarantee that this new
product line can be successfully marketed in any significant volume. Consumer
product sales are subject to significant month to month and quarter to quarter
variability based on the timing of orders, new accounts, lost accounts and other
factors. Our sales are further affected by a variety of factors including
seasonal requirements of customers.
Cost of sales for the three months ended December 31, 1999 were $394,166
resulting in a gross profit of $227,753 or 37%. This compares to a gross profit
of $44,987 or 27% for the comparable period of the prior year. The fiscal 2000
gross profit is the result of the new product line. Gross profit percentage is
highly dependent on sales prices, volumes, purchasing costs and overhead
allocations.
Selling, general and administrative expenses were $503,421 for the three months
ended December 31, 1999, comparable to the prior year. We may expend additional
resources on marketing SFT and HSS technologies in future quarters, which may
increase selling, general and administrative expenses.
Research and development costs for the three months ended December 31, 1999,
were $368,701 compared to $238,341 for the comparable three months of the prior
year. The $130,360 increase resulted primarily from an increase in SFT and HSS
technology development activities and related personnel and component costs.
Research and development costs vary quarter by quarter due to the timing of
projects, the availability of funds for research and development and the timing
and extent of use of outside consulting, design and development firms. We expect
fiscal 2000 research and development costs to remain at higher levels than the
prior year due to increased staffing and the use of outside design and
consultants.
We recorded non-cash compensation expense of $11,118 for the three months ended
December 31, 1999 compared to $110,683 for the comparable prior period. Non-cash
compensation expense for the current period is the result of $11,118 of services
paid through the issuance of 1,589 shares of Common Stock.
During the first fiscal quarter of 2000, we sold 50,300 shares out of our
holdings of 225,300 shares of e.Digital Corporation ("EDIG") for a gain of
$110,962.
We experienced a loss from operations of $655,487 during the three months ended
December 31, 1999, compared to a loss from operations of $821,081 for the
comparable three months ended December 31, 1998. The $165,594 decrease is
primarily due to increase sales.
The net loss available to common stockholders for the three month ended December
31, 1999 of $573,101 includes $31,566 of accrued accretion on the Series B
preferred stock.
We have federal net loss carryforwards of approximately $10,500,000 for federal
tax purposes expiring through 2019. The amount and timing of the utilization of
our net loss carryforwards may be limited under Section 382 of the Internal
Revenue Code. A valuation allowance has been recorded to offset the related net
deferred tax asset as management was unable to determine that it is more likely
than not that the deferred tax asset will be realized.
Future operations are subject to significant variability as a result of
licensing activities, product sales and margins, timing of new product
offerings, the success and timing of new technology exploitation, decisions
regarding future research and development and variability in other expenditures.
Liquidity and Capital Resources
Since we recommenced operations in January 1992, we have had significant
negative cash flow from operating activities. During the three months ended
December 31, 1999, the net loss of $541,535 included non-cash expenses of
$79,148 resulting in an adjusted net cash loss from operations of $620,683. In
addition to this amount, $415,217 of cash was used in operating activities
through a $27,988 increase in inventories and $51,388 through an increase in
accounts receivable, as adjusted. Operating cash was provided by a $133,796
increase in accounts payable and a $159,830 decrease in prepaid expenses.
At December 31, 1999, we had accounts receivable of $218,921 as compared to
$158,533 at September 30, 1999. This represented approximately 106 days of
sales. The increase in receivables resulted from increased product sales in the
current year. Receivables can vary dramatically due to quarterly and seasonal
variations in sales and timing of shipments to and receipts from large
customers, many of which demand extended terms of 90-120 days.
11
<PAGE>
For the three months ended December 31, 1999, the Company used approximately
$7,900 for the purchase of laboratory and computer equipment and made a $38,274
investment in patents and new patent applications. We anticipate significant
investments in patents in fiscal 2000 and requirements for additional equipment
for developing SFT, HSS and other technologies. We cannot currently estimate the
dollar amounts of these patent investments and equipment additions.
At December 31, 1999, we had working capital of $1,061,208 and at September 30,
1999, we had working capital of $1,096,475. Included in working capital is the
unrealized holding gain in EDIG. At December 31, 1999 and September 20, 1999, we
owned 175,000 and 225,300 shares of EDIG, respectively, with a market value of
$508,602 and $299,648, respectively. This investment is shown on the balance
sheet as a current asset at market value. The value of this asset is subject to
significant market risks see "Quantitative and Qualitative Disclosures about
Market Risk."
We have financed our operations primarily through the sale of common equity,
exercise of stock options, issuances of convertible notes, proceeds from the
sale of shares of EDIG and margins from consumer product sales. At December 31,
1999, we had cash of $542,481. Primarily as a result of the sale of our EDIG
shares in January 2000, our cash position increased by approximately $1,000,000
since December 31, 1999. Other than cash and cash equivalents, we have no unused
sources of liquidity at this time. We expect to incur additional operating
losses as a result of continued product sale operations and as a result of
expenditures for research and development and marketing costs for our sound and
other products and technologies. The timing and amounts of these expenditures
and the extent of our operating losses will depend on many factors, some of
which are beyond our control. We anticipate that the commercialization of our
technologies may require increased operating costs, however we cannot currently
estimate the amounts of these costs.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued a number of new
pronouncements for future implementation as discussed in the footnotes to the
Company's interim financial statements (see page 7, Note 4). As discussed in the
notes to the interim financial statements, the implementation of these new
pronouncements is not expected to have a material effect on the financial
statements.
Year 2000 Readiness Disclosure
We are aware of the issues associated with the programming code in existing
computer systems. The "Year 2000" problem is concerned with whether computer
systems will properly recognize date sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or cause a system to fail. To date, we have not experienced any
Year 2000 problems in our computer systems or operations. However, other
companies, including us, could experience latent Year 2000 problems.
We have identified the following areas, which could be impacted by the Year 2000
issue. They are: our designed and produced products; internally used systems and
software; products or services provided by key third parties; and the inability
of customers and prospective customers to process business transactions relating
to revenue and product sales.
While we are not currently aware of any internal or external Year 2000 failures
impacting our operations, we continue to monitor the compliance of our major
customers, suppliers and vendors. We believe that third-party relationships upon
which we rely represent the greatest risk with respect to the Year 2000 issue,
because we cannot guarantee that third parties have adequately assessed and
addressed their Year 2000 compliance issue in a timely manner. As a consequence,
we can give no guarantee that issues related to Year 2000 would not have
material adverse effect on future results of operations or financial conditions.
We will continue to monitor internal systems and external parties to ensure that
possible Year 2000 interruptions are identified and resolved.
Total costs relating to the our compliance efforts, based on management's best
estimates, have ranged up to $20,000, consisting primarily of obtaining,
installing and testing new computers and upgrades of third party "off-the-shelf"
software programs. During fiscal year 1999, we hired an Information Systems
("IS") director to address Year 2000 issues and monitor latent Year 2000 issues.
Should we not be completely successful in mitigating internal and external Year
2000 risks, the likely worst case scenario could be a system failure causing
disruptions of operations, including, among other things, a temporary inability
to distribute products or to process transactions, develop products, send
invoices or engage in similar normal business activities at our location or with
vendors and suppliers. We currently have no other contingency plans with respect
to potential Year 2000 failures of our suppliers or customers. If the above
failures occur, depending upon their duration and severity, they could have a
material adverse effect on our business, results of operations and financial
condition.
12
<PAGE>
The information set forth above under this caption "Year 2000 Readiness
Disclosure" relates to our efforts to address the Year 2000 concerns regarding
our (a) operations, (b) products and technologies licensed or sold to third
parties and (c) major suppliers and customers. Such statements are intended as
Year 2000 Statements and Year 2000 Readiness Disclosures and are subject to the
"Year 2000 Information Readiness and Disclosure Act."
Business Risks
This report contains a number of forward-looking statements, which reflect our
current views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned to consider the specific risk factors described in our
Annual Report on Form 10-K for the year ended September 30, 1999 and not to
place undue reliance on the forward-looking statements contained herein, which
speak only as of the date hereof. We undertake no obligation to publicly revise
these forward-looking statements, to reflect events or circumstances that may
arise after the date hereof.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk represents the risk of loss that may impact our financial position,
results of operations or cash due to adverse changes in market prices, including
interest rate risk and other relevant market rate or price risks.
We are exposed to some market risk through interest rates, related to our
investment of our current cash and cash equivalents of approximately $542,400.
The risk is not considered material and we manage such risk by continuing to
evaluate the best investment rates available for short-term high quality
investments.
We have no activities in long-term indebtedness and our other investments are
insignificant as of the date of this report.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we are involved in routine litigation incidental to the
conduct of our business. There are currently no material pending legal
proceedings to which we are a party or to which any of our property is subject.
Item 2. Changes in Securities
(a) Not applicable
(b) Not applicable
(c) Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
The Company has scheduled its 2000 annual meeting of stockholders for April 11,
2000. The Company's last annual meeting was held March 5, 1999. The proxy
statement for the 1999 annual meeting stated a deadline of October 22, 1999 for
inclusion, pursuant to Rule 14a-8 of the Securities and Exchange Commission, of
stockholder proposals in the Company's proxy statement and form of proxy for the
2000 annual meeting. The Company did not receive any stockholder proposals for
inclusion in the proxy materials for the 2000 annual meeting prior to that date,
and as of the date of this report, has not received notice of any stockholder
proposals to be presented at the 2000 annual meeting. Although the date of the
Company's annual meeting has been moved forward by more than 30 days from the
date of the 1999 annual meeting, the Company will not include any new
stockholder proposals for the 2000 annual meeting in its proxy materials and
form of proxy, as it would not be reasonable to include such a proposal prior to
printing and mailing of the proxy materials. The form of proxy will give
management discretionary authority to vote against any matter submitted by a
stockholder at or before the 2000 annual meeting, as it would not be reasonable
to include such matter in the proxy materials to be mailed for the 2000 annual
meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN TECHNOLOGY CORPORATION
Date: February 11, 2000 By: /s/ RENEE' WARDEN
--------------------------
Renee' Warden, Chief Accounting
Officer, Treasurer and Corporate
Secretary
(Principal Financial and
Accounting Officer and duly
authorized to sign on behalf
of the Registrant)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 542,481
<SECURITIES> 508,602
<RECEIVABLES> 226,921
<ALLOWANCES> 8,000
<INVENTORY> 315,309
<CURRENT-ASSETS> 1,630,064
<PP&E> 619,516
<DEPRECIATION> 503,185
<TOTAL-ASSETS> 2,267,333
<CURRENT-LIABILITIES> 568,856
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0
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<COMMON> 115
<OTHER-SE> 1,698,360
<TOTAL-LIABILITY-AND-EQUITY> 2,267,333
<SALES> 566,147
<TOTAL-REVENUES> 621,919
<CGS> 394,166
<TOTAL-COSTS> 394,166
<OTHER-EXPENSES> 883,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (541,535)
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