Filed
Pursuant to Rule 424(b)(3)
File
Number 333-127534
PROSPECTUS
4,603,270
SHARES
COMMON
STOCK
This
prospectus may be used only for the sale or other disposition of up to 4,603,270
shares of common stock or interests therein by the selling stockholders
identified in this prospectus. The selling stockholders will receive all of
the
proceeds from the sale or other disposition of the shares of common stock or
interests therein under this prospectus. We will, however, receive the proceeds
from the sale of shares of our common stock to certain selling stockholders
to
the extent they exercise for cash their warrants identified in this prospectus.
We will pay the expenses incurred in registering the shares, including legal
and
accounting fees.
The
selling stockholders may sell or otherwise dispose of the shares of common
stock
described in this prospectus or interests therein in public or private
transactions, on or off the NASDAQ SmallCap Market, at prevailing market prices,
or at privately negotiated prices. The selling stockholders may sell shares
directly to purchasers or through brokers or dealers. Brokers or dealers may
receive compensation in the form of discounts, concessions or commissions from
the selling stockholders. See the “Plan of Distribution” on page .
Our
common stock is quoted on the NASDAQ SmallCap Market under the symbol “ATCO.” On
September 27, 2005, the closing price for our common stock on the NASDAQ
SmallCap Market was $5.22 per share.
An
investment in our common stock involves a high degree of risk. See the heading
“Risk Factors” commencing on page of
this prospectus for a discussion of these risks.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is September 28, 2005
TABLE
OF CONTENTS
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Page
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The
Company
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1 |
|
Risk
Factors
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3 |
|
Special
Note Regarding Forward Looking Statements
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16 |
|
Use
of Proceeds
|
16 |
|
Issuance
of Securities to Selling Stockholders
|
16 |
|
Selling
Stockholders
|
18 |
|
Plan
of Distribution
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22 |
|
Legal
Matters
|
23 |
|
Experts
|
24 |
|
Where
You Can Find More Information
|
24 |
|
Information
Incorporated by Reference
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24 |
INFORMATION
CONTAINED IN THIS PROSPECTUS
You
should rely only on the information we have provided or incorporated by
reference in this prospectus. Neither we nor the selling stockholders have
authorized anyone to provide you with additional or different information.
The
selling stockholders are not making an offer of these securities in any
jurisdiction where the offer is not permitted. You should assume that the
information in this prospectus is accurate only as of the date on the front
of
the document and that any information we have incorporated by reference is
accurate only as of the date of the document incorporated by reference.
In
this
prospectus, unless otherwise indicated, “our company,” “we,” “us” or
“our” refer to American Technology Corporation.
THE
COMPANY
We
are an
innovator of proprietary sound reproduction technologies and products. We
believe our sound technologies provide us a significant competitive advantage
in
our principal markets. We believe we are the leader in developing and
commercializing parametric loudspeakers, branded as HyperSonic® sound or HSS®.
We believe we are also the leader in developing and commercializing high
intensity directed acoustical devices, branded as Long Range Acoustic Device
or
LRAD™ and Medium Range Acoustic Device or MRAD™. We have filed over 150 patent
applications in the United States, and we have filed over 300 patent
applications internationally covering our various sound technologies and
products. We have over 45 patents issued in the United States and more than
55
patents issued internationally.
We
make
significant investments in research and development to expand our technology
and
product portfolio. We have recently expanded our acoustic device product family
by (a) introducing a new force protection product, the MRAD, a smaller and
more
portable product that complements our existing LRAD device; (b) introducing
and
signing the first license agreement for our new SoundVector scaleable,
directional sound product; and (c) introducing a new NeoPlanar product line
for
emergency notification and general announcing markets that require high
intelligibility. In our fiscal quarter ending September 30, 2005, we expect
to
begin deliveries of the H450, our latest generation HSS product model employing
a new plastic emitter. The H450 provides improved performance over our previous
models at approximately half the cost. We are utilizing our technologies and
products to provide solutions for difficult acoustic challenges.
The
four
major products from our technology portfolio are listed below:
| · |
OurHyperSonic
sound, or HSS, technology is a new parametric speaker technology
that
creates sound “in the air.” Sound is generated along an air column using
ultrasonic frequencies, which are those above the normal range
of hearing.
The HSS sound beam is highly directional and maintains sound volume
over
longer distances than traditional loudspeakers. We believe our
substantial
intellectual property portfolio and pioneering HSS products support
our
leadership position in the field of parametric non-linear acoustics
for
sound reproduction, as we continue to improve and release higher
reliability, lower distortion and higher output level models of
our HSS
products.
|
| · |
Our
LRAD and MRAD products incorporate technology which produces variable
intensity acoustical sound intended for use in long-range and medium-range
delivery of directional sound information, effectively a supercharged
megaphone. Both LRAD and MRAD products are designed and used as
directed
hailing and warning systems by both government and commercial customers.
We believe our LRAD and MRAD product innovation, our growing engineering
capabilities, and our manufacturing and marketing competencies
have
established us as the leader in this new marketplace. We are marketing
these products throughout the U.S. Department of Defense as “The Sound of
Force Protection™”, and expanding target markets to include law
enforcement and commercial customers with significant security
concerns.
In fiscal 2004, we developed a remote controlled pan/tilt version
of LRAD
for critical infrastructure force protection applications, and
we
demonstrated our competency to engineer additional new sound solutions
for
the U.S. Department of Defense. In 2005, we introduced the MRAD.
MRAD is
about half the size and weight of LRAD, and provides effective
hailing and
warning at approximately half the range of LRAD. The portable MRAD
is
expected to be particularly effective on armored vehicles for urban
warfare, shorter-range checkpoints and access denial, plus multiple
applications for local, national and international law enforcement.
|
| · |
Our
NeoPlanar® technology is a thin film magnetic speaker that produces sound
of high quality, low distortion and high volume. NeoPlanar applications
include high-end sound, emergency notification and public address
systems.
In fiscal 2004, we began marketing NeoPlanar for use in large indoor
spaces and in outdoor environments for emergency notification.
NeoPlanar
offers customers a new capability by delivering remarkably intelligible
communications in difficult spaces such as aircraft hangar bays
and at
distances up to one-half
mile.
|
| · |
Our
SoundCluster™ technology is a new multi-element speaker cluster optimized
for even sound coverage over large areas. Our SoundCluster product
offers
an improved level of intelligibility and clarity in high ambient
noise
environments. The SoundCluster satisfies flight deck safety and
large area
emergency notification requirements. The flexible and ruggedized
SoundCluster design lends itself to installation in harsh environments,
where conventional speakers may fail. During fiscal 2004, we deployed
the
first SoundCluster for use on a U.S. naval
warship.
|
-1-
We
believe we are uniquely equipped to provide our technologies and products in
rapidly growing markets for new sound applications not currently served by
conventional sound devices and as an alternative to conventional loudspeakers.
We believe market factors such as the rapid growth of plasma and flat panel
screens offer significant growth opportunities for our HSS focused sound
solutions. We also believe that the growth in defense and homeland security
and
related protection spending by commercial customers provides a growing market
for our sound products to be used for intelligible communication over long
distances.
Our
primary products sold to date have been LRAD and HSS products. During the nine
months ended June 30, 2005, these products were manufactured for us
by
Pemstar, Inc., an established contract manufacturer with multiple locations
worldwide. However, during the quarter ended June 30, 2005, we terminated
the relationship with Pemstar, and starting in our fiscal fourth quarter expect
to start manufacturing LRAD and MRAD products at a new contract manufacturer.
We
are currently assembling HSS products at our San Diego facility from parts,
components, and subassemblies provided by various suppliers and outside
contractors.
Our
sales
have been highly dependent on large orders from a small number of
customers. We target our products for sale worldwide, but expect
the
largest markets to be the U.S., Europe and Asia. To date, our sales have been
made in U.S. dollars and we do not expect currency fluctuations to have a
material impact on our operations.
The
number of shares offered by this prospectus is approximately 19.0% of our common
shares outstanding on August 2, 2005, and 17.8% of our common stock assuming
the
issuance of the 1,686,919 shares offered by this prospectus which may be issued
pursuant to the exercise of various warrants described under the heading
“Issuance of Securities to Selling Stockholders”, commencing on page
of
this
prospectus.
Our
shares of common stock trade through the NASDAQ SmallCap Market under the symbol
“ATCO.” Our mailing address is 13114 Evening Creek Drive South, San Diego,
California, our telephone number is 858-679-2114 and our Internet website is
located at http://www.atcsd.com/ The information on our website is not part
of
this prospectus.
-2-
RISK
FACTORS
An
investment in our company involves a high degree of risk. In addition to the
other information included in this prospectus, you should carefully consider
the
following risk factors in determining whether or not to purchase the shares
of
common stock offered under this prospectus. You should consider these matters
in
conjunction with the other information included or incorporated by reference
in
this prospectus. Our results of operations or financial condition could be
seriously harmed, and the trading price of our common stock may decline due
to
any of these or other risks.
This
prospectus contains statements that constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements appear in a number of places in this prospectus and include
statements regarding the intent, belief or current expectations of our
management, directors or officers primarily with respect to our future operating
performance. Prospective purchasers of our securities are cautioned that these
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual results may differ materially from those in
the
forward-looking statements due to various factors. The accompanying information
contained in this prospectus, including the information set forth below,
identifies important factors that could cause these differences. See “Special
Note Regarding Forward-Looking Statements” on page below.
We
have a history of net losses. We expect to continue to incur net losses and
we
may not achieve or maintain profitability.
We
have
incurred significant operating losses and anticipate continued losses in the
remainder of fiscal 2005. At June 30, 2005, we had an accumulated deficit of
$49,060,128. We need to generate additional revenue to be profitable in future
periods. Failure to achieve profitability, or maintain profitability if
achieved, may cause our stock price to decline.
We
may need additional capital for growth.
Our
current plans indicate that depending on sales, we may need additional capital
to support our growth. We may generate a portion of these funds from
operations.
The
actual amount of funds that we will need will be determined by many factors,
some of which are beyond our control, and we may need funds sooner than
currently anticipated. Principal factors that could affect the
availability of our internally generated funds include:
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government
spending levels;
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introduction
of new competing technologies;
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failure
of sales from our Government Group and Commercial Group to meet
planned
projections;
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product
mix and effect on margins; and
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·
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acceptance
of our products in new markets.
|
When
we
require additional funds, general market conditions or the then-current market
price of our common stock may not support capital raising transactions.
If
we require additional funds and we are unable to obtain them on a timely
basis
or on terms favorable to us, we may be required to scale back our research
and
development efforts, sell or license some or all of our technology or assets
or
curtail or cease operations. If we raise additional funds by selling
additional shares of our capital stock or securities convertible into common
stock, the ownership interest of our stockholders will be diluted.
-3-
Our
equity financings impose certain liquidated damages which may impair our
liquidity and ability to raise capital.
In
connection with our July 2005 equity financing, we entered into a registration
rights agreement with some of the selling stockholders, pursuant to which
we
agreed to prepare and file the registration statement of which this prospectus
forms a part covering the resale of the shares of common stock sold in the
financing as well as the shares of common stock issuable upon the exercise
of
the warrants sold in the financing. If, among other reasons, those selling
stockholders are unable to re-sell their shares purchased in the financing
or
acquired upon exercise of their related warrants, we may be obligated to
pay
liquidated damages to those selling stockholders in an amount up to 0.5%
of the
gross proceeds we received in that financing per month until January 14,
2006,
and 1% of those gross proceeds per month thereafter. Similar provisions
regarding the payment of liquidated damages apply to a financing we entered
into
in July 2003. The registration statement for that financing has been filed
and
is currently effective.
Two
customers and their affiliates accounted for approximately 74% of our revenues
for the three months ended June 30, 2005, the same two customers and their
affiliates accounted for 89% of our revenues for the nine months ended June
30,
2005, and we continue to be dependent on a few large customers.
ADS,
Inc., a prime vendor to the U. S. military, accounted for 62% of net revenues
for the three months ended June 30, 2005 and a second customer and its
affiliates accounted for 12% of revenues for the period. For the nine months
ended June 30, 2005, ADS accounted for 79% of our revenues and a second customer
and its affiliates accounted for 10% of our revenues. These
customers have the
right
to cease doing business with us at any time. If this were to occur and we
could
not replace them, our net revenues would decline substantially. Any such
decline
could result in us incurring net losses, increasing our accumulated deficit
and
causing us to need to raise additional capital to fund our
operations.
We
must expand our customer base in order to grow our
business.
To
grow
our business, we must fulfill orders from our existing customers, obtain
additional orders from our existing customers, develop relationships with
new
customers and obtain and fulfill orders from new customers. We cannot guarantee
that we will be able to increase our customer base. Further, even if we do
obtain new customers, we cannot guarantee that those customers will purchase
from us enough quantities of our product or at product prices that will enable
us to recover our costs in acquiring those customers and fulfilling those
orders. Whether we will be able to sell more of our products will depend
on a
number of factors, including:
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our
ability to manufacture reliable products that have the features
that are
required by our customers;
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·
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our
ability to expand relationships with existing customers and to
develop
relationships with new customers that will lead to additional orders
for
our products;
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our
ability to develop and expand new markets for directed sound products;
and
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·
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our
ability to develop international product distribution directly
or through
strategic partners.
|
-4-
The
growth of our Government Group revenues is materially dependent on acceptance
of
our LRAD and MRAD products by government, military and developing force
protection and emergency response agencies, and if these agencies do not
purchase our products, our revenues will be adversely affected.
Although
our LRAD and MRAD products are designed for use by both government and
commercial customers, the products have, to date, been predominantly sold
for
government use. Within the Government Group, our largest customer is a reseller
of our products to end users in various branches of the military such as
the
U.S. Navy, U.S. Marine Corps, U.S. Army and the Department of Homeland Security.
We have only recently achieved significant sales of LRAD products and are
beginning to offer MRAD products for sale in our fiscal fourth quarter, and
neither of the products have been widely accepted in the government market.
Furthermore, the force protection and emergency response market is itself
an
emerging market which is changing rapidly. If our LRAD and MRAD products
are not
widely accepted by the government, military and the developing force protection
and emergency response markets, we may not be able to identify other markets,
and we may fail to achieve our sales projections.
Perceptions
that long range hailing devices are unsafe or may be used in an abusive manner
may hurt sales of our LRAD and MRAD products which could cause our revenues
to
decline.
Potential
customers for our LRAD and MRAD products, including government, military
and
force protection and emergency response agencies may be influenced by claims
or
perceptions that long range hailing devices are unsafe or may be used in
an
abusive manner. These claims or perceptions could cause our product sales
to
decline. In addition, if these agencies have these perceptions, it will be
difficult for us to grow our customer base beyond these markets. These factors
could reduce future revenues, adversely affecting our financial condition
and
results of operations.
We
are an early stage company introducing new products and technologies. If
commercially successful products are not produced in a timely manner, we
may be
unprofitable or forced to cease operations.
Our
HSS,
NeoPlanar, LRAD and MRAD technologies have only recently been introduced
to
market and are still being improved. Commercially viable sound technology
systems may not be successfully and timely produced by us due to the inherent
risks of technology development, new product introduction, limitations on
financing, manufacturing problems, competition, obsolescence, loss of key
technical personnel and other factors. Revenues from our sound products have
been limited to date and we cannot guarantee significant revenues in the
future.
The development and introduction of our products took longer than anticipated
by
management and the introduction of new products could also be subject to
delays.
Customers may not wait for newer versions of existing products or new products
and may elect to purchase products from competitors. We experienced quality
control problems with some of our initial commercial HSS units, and we may
not
be able to resolve future similar problems in a timely and cost effective
manner. Products employing our sound technology may not achieve market
acceptance. Our various sound projects are high risk in nature, and
unanticipated technical obstacles can arise at any time and result in lengthy
and costly delays or result in a determination that further exploitation
is
unfeasible. If we do not successfully exploit our technology, our financial
condition, results of operations and business prospects would be adversely
affected.
Our
products have never been produced in quantity, and we may incur significant
and
unpredictable warranty costs as these products are mass produced.
None
of
our products has been produced in sufficient quantities to be considered
mass
produced. Our technologies are substantially different from proven, mass
produced sound transducer designs. We may incur substantial and unpredictable
warranty costs from post-production product or component failures. We generally
warrant our products to be free from defects in materials and workmanship
for a
period up to one year from the date of purchase, depending on the product.
-5-
At
June
30, 2005, we had a warranty reserve of $228,487. We recorded substantial
warranty reserves in prior years for early versions of our HSS products and
have
little history to predict future warranty costs. Future warranty costs could
further adversely affect our financial position, results of operations and
business prospects.
We
could incur charges for excess and obsolete
inventory.
Due
to
rapidly changing technology and uneven customer demand, product cycles tend
to
be short and the value of our inventory may be adversely affected by changes
in
technology that affect our ability to sell the products in our inventory.
Therefore, periodically, it may be necessary to write off inventory as excess
or
obsolete.
While
we
will make every attempt to successfully manage product transition, including
inventory control of older generation products when introducing new products,
we
have previously experienced and may, in the future, experience reductions
in
sales of older generation products as customers delay or defer purchases
in
anticipation of new product introductions. We currently have established
reserves for slow moving or obsolete inventory. The reserves we have established
for potential losses due to obsolete inventory may, however, prove to be
inadequate and may give rise to additional charges for obsolete or excess
inventory.
We
do not have the ability to predict future operating results. Our quarterly
and
annual revenues will likely be subject to fluctuations caused by many factors,
any of which could result in our failure to achieve our revenue expectations.
We
expect
our sound proprietary reproduction technologies will be the source of
substantially all of our future revenues. Revenues from our sound proprietary
reproduction technologies are expected to vary significantly due to a number
of
factors. Many of these factors are beyond our control. Any one or more of
the
factors listed below or other factors could cause us to fail to achieve our
revenue expectations. These factors include:
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our
ability to develop and supply sound reproduction components to
customers,
distributors or OEMs or to license our technologies;
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market
acceptance of and changes in demand for our products or products
of our
customers;
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gains
or losses of significant customers, distributors or strategic
relationships;
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unpredictable
volume and timing of customer orders;
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the
availability, pricing and timeliness of delivery of components
for our
products and OEM products;
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fluctuations
in the availability of manufacturing capacity or manufacturing
yields and
related manufacturing costs;
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-6-
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the
timing of new technological advances, product announcements or
introductions by us, by OEMs or licensees and by our competitors;
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product
obsolescence and the management of product transitions and inventory;
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unpredictable
warranty costs associated with new product models;
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production
delays by customers, distributors, OEMs or by us or our suppliers;
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seasonal
fluctuations in sales;
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the
conditions of other industries, such as military and commercial
industries, into which our technologies may be licensed;
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general
consumer electronics industry conditions, including changes in
demand and
associated effects on inventory and inventory practices;
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general
economic conditions that could affect the timing of customer orders
and
capital spending and result in order cancellations or rescheduling;
and
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general
political conditions in this country and in various other parts
of the
world that could affect spending for the products that we offer.
|
Some
or all of these factors could adversely affect demand for our products or
technologies, and therefore adversely affect our future operating results.
Most
of
our operating expenses are relatively fixed in the short term. We may be
unable
to rapidly adjust spending to compensate for any unexpected sales or license
revenue shortfalls, which could harm our quarterly operating results. We
do not
have the ability to predict future operating results with any certainty.
Our
expenses may vary from period to period, which could affect quarterly results
and our stock price.
If
we
incur additional expenses in a quarter in which we do not experience increased
revenue, our results of operations would be adversely affected and we may
incur
larger losses than anticipated for that quarter. Factors that could cause
our
expenses to fluctuate from period to period include:
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the
timing and extent of our research and development efforts;
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investments
and costs of maintaining or protecting our intellectual property;
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the
extent of marketing and sales efforts to promote our products and
technologies; and
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the
timing of personnel and consultant
hiring.
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Many
potential competitors who have greater resources and experience than we do
may
develop products and technologies that make ours obsolete.
Technological
competition from other and longer established electronic and loudspeaker
manufacturers is significant and expected to increase. Most of the companies
with which we expect to compete have substantially greater capital resources,
research and development staffs, marketing and distribution programs and
facilities, and many of them have substantially greater experience in the
production and marketing of products. In addition, one or more of our
competitors may have developed or may succeed in developing technologies
and
products that are more effective than any of ours, rendering our technology
and
products obsolete or noncompetitive.
-7-
Sound
reproduction markets are subject to rapid technological change, so our success
will depend on our ability to develop and introduce new technologies.
Technology
and standards in the sound reproduction markets evolve rapidly, making timely
and cost-effective product innovation essential to success in the marketplace.
The introduction of products with improved technologies or features may render
our technologies obsolete and unmarketable. If we cannot develop products
in a
timely manner in response to industry changes, or if our technologies do
not
perform well, our business and financial condition will be adversely affected.
The life cycles of our technologies are difficult to estimate, particularly
those such as HSS, LRAD and MRAD for which there are no well established
markets. As a result, our technologies, even if successful, may become obsolete
before we recoup our investment.
Our
competitive position will be seriously damaged if we cannot obtain patent
protection for important differentiating aspects of our products or otherwise
protect intellectual property rights in our technology.
We
rely
on a combination of contracts and trademark, patent and trade secret laws
to
establish and protect our proprietary rights in our technology. However,
we may
not be able to prevent misappropriation of our intellectual property, our
competitors may be able to independently develop and the agreements we enter
into may not be enforceable.
Our
success, in part, depends on our ability to obtain and enforce intellectual
property protection for our technology, particularly our patents. There is
no
guarantee any patent will issue on any patent application that we have filed
or
may file. Claims allowed from existing or pending patents may not be of
sufficient scope or strength to protect the economic value of our technologies.
Further, any patent that we may obtain will expire, and it is possible that
it
may be challenged, invalidated or circumvented. If we do not secure and maintain
patent protection for our technology and products, our competitive position
will
be significantly harmed because it will be much easier for competitors to
sell
products similar to ours. Alternatively, a competitor may independently develop
or patent technologies that are substantially equivalent to or superior to
our
technology. For example, patent protection on our LRAD and MRAD products
is
limited, and we may not be able to prevent others from introducing products
with
similar functionality. If this happens, any patent that we may obtain may
not
provide protection and our competitive position could be significantly harmed.
As
we
expand our product line or develop new uses for our products, these products
or
uses may be outside the protection provided by our current patent applications
and other intellectual property rights. In addition, if we develop new products
or enhancements to existing products we cannot assure you that we will be
able
to obtain patents to protect them. Even if we do receive patents for our
existing or new products, these patents may not provide meaningful protection.
In some countries outside of the United States where our products can be
sold or
licensed, patent protection is not available. Moreover, some countries that
do
allow registration of patents do not provide meaningful redress for violations
of patents. As a result, protecting intellectual property in these countries
is
difficult and our competitors may successfully sell products in those countries
that have functions and features that infringe on our intellectual property.
-8-
We
may
initiate claims or litigation against third parties in the future for
infringement of our proprietary rights or to determine the scope and validity
of
our proprietary rights or the proprietary rights of our competitors. These
claims could result in costly litigation and divert the efforts of our technical
and management personnel. As a result, our operating results could suffer
and
our financial condition could be harmed.
Our
competitive position will be seriously damaged if our products are found
to
infringe on the intellectual property rights of others.
Other
companies and our competitors may currently own or obtain patents or other
proprietary rights that might prevent, limit or interfere with our ability
to
make, use or sell our products. As a result, we may be found to infringe
the
intellectual property rights of others. The electronics industry is
characterized by vigorous protection and pursuit of intellectual property
rights
or positions, which have resulted in significant and often protracted and
expensive litigation. In the event of a successful claim of infringement
against
us and our failure or inability to license the infringed technology, our
business and operating results could be adversely affected. Any litigation
or
claims, whether or not valid, could result in substantial costs and diversion
of
our resources. An adverse result from intellectual property litigation could
force us to do one or more of the following:
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cease
selling, incorporating or using products or services that incorporate
the
challenged intellectual property;
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obtain
a license from the holder of the infringed intellectual property
right,
which license may not be available on reasonable terms, if at all;
and
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redesign
products or services that incorporate the disputed
technology.
|
If
we are
forced to take any of the foregoing actions, we could face substantial costs
and
shipment delays and our business could be seriously harmed. Although we carry
general liability insurance, our insurance may not cover potential claims
of
this type or be adequate to indemnify us for all liability that may be imposed.
In
addition, it is possible that our customers or end users may seek indemnity
from
us in the event that our products are found or alleged to infringe the
intellectual property rights of others. Any such claim for indemnity could
result in substantial expenses to us that could harm our operating results.
Our
HSS technology is subject to government regulation, which could lead to
unanticipated expense or litigation.
Our
HyperSonic
sound technology emits ultrasonic vibrations, and as such is regulated by
the
Food and Drug Administration.
In the event of certain unanticipated defects in an HSS product, a customer
or
we may be required to comply with FDA requirements to remedy the defect and/or
notify consumers of the problem. This could lead to unanticipated expense,
and
possible product liability litigation against a customer or us. Any regulatory
impediment to full commercialization of our HSS technology, or any of our
other
technologies, could adversely affect our results of operations.
We
may face personal injury and other liability claims that harm our reputation
and
adversely affect our sales and financial condition.
Some
of
our products are capable of sufficient acoustic output to cause damage to
human
hearing or human health if used improperly, such as when the products are
used
at close ranges or for long periods of exposure. A person injured in connection
with the use of our products may bring legal action against us to recover
damages on the basis of theories including personal injury, negligent design,
dangerous product or inadequate warning. We may also be subject to lawsuits
involving allegations of misuse of our products. Our product liability insurance
coverage may be insufficient to pay all such claims. Product liability insurance
may become too costly for us or may become unavailable for us in the future.
We
may not have sufficient resources to satisfy any product liability claims
not
covered by insurance which would materially and adversely affect our financial
position. Significant litigation could also result in a diversion of
management’s attention and resources, and negative publicity.
-9-
We
may not be successful in obtaining the necessary licenses required for us
to
sell some of our products abroad.
Licenses
for the export of certain of our products may be required from government
agencies in accordance with various statutory authorities, including, for
example, the Trading with the Enemy Act of 1917, the Arms Export Control
Act of
1976, the Export Administration Act of 1979, or the International Emergency
Economic Powers Act, as well as their implementing regulations and executive
orders.
In
the
case of certain agreements involving equipment or services controlled under
the
International Traffic in Arms Regulations (ITAR) and sold at specified dollar
volumes, the U.S. Department of State must notify Congress at least fifteen
to
thirty days, depending on the intended overseas destination, prior to
authorizing these sales. During that time, Congress may take action to block
the
proposed sale. Based on our current product lines, we do not anticipate the
congressional notification requirement to have an immediate impact; however,
as
our product lines expand, this notification requirement could impact our
ability
to sell certain controlled products or services in the international market.
The
need
for export licenses and, when required, Congressional notification, can
introduce a period of delay in our ability to consummate international
transactions. Because issuance of an export license is wholly within the
discretion of the controlling U.S. government agency, it is possible that,
in
some circumstances, we may not be able to obtain the necessary licenses for
some
potential transactions.
Our
operations could be harmed by factors including political instability, natural
disasters, fluctuations in currency exchange rates and changes in regulations
that govern international transactions.
We
expect
to sell our products worldwide. The risks inherent in international trade
may
reduce our international sales and harm our business and the businesses of
our
customers and our suppliers. These risks include:
|
·
|
changes
in tariff regulations;
|
|
·
|
political
instability, war, terrorism and other political risks;
|
|
·
|
foreign
currency exchange rate fluctuations;
|
|
·
|
establishing
and maintaining relationships with local distributors and dealers;
|
|
·
|
lengthy
shipping times and accounts receivable payment cycles;
|
|
·
|
import
and export licensing requirements;
|
-10-
|
·
|
compliance
with a variety of foreign laws and regulations, including unexpected
changes in taxation and regulatory requirements;
|
|
·
|
greater
difficulty in safeguarding intellectual property than in the U.S.;
and
|
|
·
|
difficulty
in staffing and managing geographically diverse
operations.
|
These
and
other risks may preclude or curtail international sales or increase the relative
price of our products compared to those manufactured in other countries,
reducing the demand for our products.
Commercialization
of our proprietary sound technologies depends on collaborations with other
companies. If we are not able to maintain or find collaborators and strategic
alliance relationships in the future, we may not be able to develop our
proprietary sound technologies and products.
An
important part of our strategy is to establish business relationships with
leading participants in various segments of the electronics, government and
sound reproduction markets to assist us in producing, distributing, marketing
and selling products that include our proprietary sound technologies.
Our
success will therefore depend on our ability to maintain or enter into new
strategic arrangements with partners on commercially reasonable terms. If
we
fail to enter into such strategic arrangements with third parties, our financial
condition, results of operations, cash flows and business prospects will
be
adversely affected. Any future relationships may require us to share control
over our development, manufacturing and marketing programs or to relinquish
rights to certain versions of our sound and other technologies.
We
are dependent on third party manufacturers.
We
do not
have the capacity to manufacture all of our products internally and we are
therefore dependent on third party manufacturers. At present, we manufacture
NeoPlanar and SoundCluster internally only in small quantities and would
need to
outsource our manufacturing if sales of these products were to increase
significantly. We have historically used a single third party contract
manufacturer to manufacture our other products, and we intend to continue
to use
a single manufacturer for these products in the future. A contract manufacturing
partner may not be able or willing to manufacture products for us in the
quantities and at the level of quality that we require. If we need to seek
additional third party manufacturers for our products, we may not be able
to
obtain acceptable replacement manufacturing sources on a timely basis. An
extended interruption in the supply of our products could result in a
substantial loss of sales. In addition, any actual or perceived degradation
of
product quality as a result of our reliance on third party manufacturers
may
have an adverse effect on sales or result in increased product returns and
buybacks. Failure to maintain quality contract manufacturing could reduce
future
revenues, adversely affecting financial condition and results of operations.
We
rely on outside suppliers to provide a large number of components incorporated
in our products.
Our
products have a large number of components produced by outside suppliers.
In
addition, for certain of these items, we qualify only a single source, which
can
magnify the risk of shortages and decrease our ability to negotiate with
our
suppliers on the basis of price. In particular, we depend on our HSS piezo-film
supplier to provide expertise and materials used in our proprietary HSS
emitters. If shortages occur, or if we experience quality problems with
suppliers, then our production schedules could be significantly delayed or
costs
significantly increased, which would have a material adverse effect on our
business, liquidity, results of operation and financial position.
-11-
Our
contracts and subcontracts that are funded by the U.S. government or foreign
governments are subject to government regulations and audits and other
requirements.
Government
contracts require compliance with various contract provisions and procurement
regulations. The adoption of new or modified procurement regulations could
have
a material adverse effect on our business, financial condition or results
of
operations or increase the costs of competing for or performing government
contracts. If we violate any of these regulations, then we may be subject
to
termination of these contracts, imposition of fines or exclusion from government
contracting and government-approved subcontracting for some specific time
period. In addition, our contract and subcontract costs and revenues may
be
subject to adjustment as a result of audits by government auditors.
We
derive revenue from government contracts and subcontracts, which are often
non-standard, may involve competitive bidding, may be subject to cancellation
with or without penalty and may produce volatility in earnings and revenue.
Our
Government Group business has involved and is expected in the future to involve
providing products and services under contracts or subcontracts with U.S.
federal, state, local and foreign government agencies. Obtaining contracts
and
subcontracts from government agencies is challenging, and contracts often
include provisions that are not standard in private commercial transactions.
For
example, government contracts may:
|
·
|
include
provisions that allow the government agency to terminate the contract
without penalty under some circumstances;
|
|
·
|
be
subject to purchasing decisions of agencies that are subject to
political
influence;
|
|
·
|
contain
onerous procurement procedures; and
|
|
·
|
be
subject to cancellation if government funding becomes
unavailable.
|
Securing
government contracts can be a protracted process involving competitive bidding.
In many cases, unsuccessful bidders may challenge contract awards, which
can
lead to increased costs, delays and possible loss of the contract for the
winning bidder.
If
our key employees do not continue to work for us, our business will be harmed
because competition for replacements is intense.
Our
performance is substantially dependent on the performance of our executive
officers and key technical employees, including Elwood G. Norris, our Chairman,
and Kalani Jones, our President and Chief Operating Officer. We are dependent
on
our ability to retain and motivate high quality personnel, especially highly
skilled technical personnel. Our future success and growth also depends on
our
continuing ability to identify, hire, train and retain other highly qualified
technical, managerial and sales personnel. Competition for such personnel
is
intense, and we may not be able to attract, assimilate or retain other highly
qualified technical, managerial or sales personnel in the future. The inability
to attract and retain the necessary technical, managerial or sales personnel
could cause our business, operating results or financial condition to suffer.
-12-
We
may not address successfully the problems encountered in connection with
any
potential future acquisitions.
We
expect
to continue to consider opportunities to acquire or make investments in other
technologies, products and businesses that could enhance our capabilities,
complement our current products or expand the breadth of our markets or customer
base. We have limited experience in acquiring other businesses and technologies.
Potential and completed acquisitions and strategic investments involve numerous
risks, including:
|
·
|
problems
assimilating the purchased technologies, products or business operations;
|
|
·
|
problems
maintaining uniform standards, procedures, controls and policies;
|
|
·
|
unanticipated
costs associated with the acquisition;
|
|
·
|
diversion
of management’s attention from our core business;
|
|
·
|
adverse
effects on existing business relationships with suppliers and customers;
|
|
·
|
risks
associated with entering new markets in which we have no or limited
prior
experience;
|
|
·
|
potential
loss of key employees of acquired businesses; and
|
|
·
|
increased
legal and accounting costs as a result of the newly adopted rules
and
regulations related to the Sarbanes-Oxley Act of
2002.
|
If
we
fail to properly evaluate and execute acquisitions and strategic investments,
our management team may be distracted from our day-to-day operations, our
business may be disrupted and our operating results may suffer. In addition,
if
we finance acquisitions by issuing equity or convertible debt securities,
our
stockholders would be diluted.
We
are subject to increased costs as a result of newly adopted accounting and
Securities and Exchange Commission regulations.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, our management will be
required by the end of fiscal 2005 to perform an evaluation of our internal
control over financial reporting and have our independent auditor attest
to that
evaluation. Compliance with these requirements is expected to be expensive
and
time consuming. If we fail to timely complete this evaluation, or if our
independent registered public accounting firm cannot timely attest to our
evaluation, we could be subject to regulatory scrutiny and a loss of public
confidence in our internal control over financial reporting.
In
designing and evaluating our internal control over financial reporting, we
recognize that any internal control or procedure, no matter how well designed
and operated, can provide only reasonable assurance of achieving desired
control
objectives, and management is required to apply its judgment in evaluating
the
cost-benefit relationship of possible controls and procedures. No system
of
internal control can be designed to provide absolute assurance of effectiveness
and any material failure of internal control over financial reporting could
materially impact our reported financial results and the market price of
our
stock could significantly decline. In addition, adverse publicity related
to a
material failure of internal control over financial reporting would have
a
negative impact on our reputation and business.
-13-
Changes
in stock option accounting rules may adversely impact our reported operating
results prepared in accordance with generally accepted accounting principles,
our stock price and our competitiveness in the employee marketplace.
Technology
companies in general and our company in particular have a history of depending
upon and using broad based employee stock option programs to hire, incentivize
and retain employees in a competitive marketplace. Currently, we do not
recognize compensation expense for stock options issued to employees or
directors, except in limited cases involving modifications of stock options,
and
we instead disclose in the notes to our financial statements information
about
what such charges would be if they were expensed. An accounting standard
setting
body has recently adopted a new accounting standard that will require us
to
record equity-based compensation expense for stock options and employee stock
purchase plan rights granted to employees based on the fair value of the
equity
instrument at the time of grant. We will be required to record these expenses
beginning with our first quarter of fiscal 2006, which ends December 31,
2005.
The change in accounting rules will lead to increased reported net loss or,
should we become profitable, a decrease in reported earnings. This may
negatively impact our future stock price. In addition, this change in accounting
rules could impact our ability to utilize broad based employee stock plans
to
reward employees and could result in a competitive disadvantage to us in
the
employee marketplace.
There
are a large number of shares that we sold in our 2005 equity financing that
may
be resold under this prospectus, and the sale of these shares may depress
the
price of our common stock.
To
the
extent that the selling stockholders sell shares of our common stock under
this
prospectus, our stock price may decrease due to the additional selling pressure
in the market. The perceived risk of additional shares available for sale
in the
market may cause holders of our common stock to sell their shares, which
could
contribute to a decline in our stock price.
The
sale of material amounts of shares by the selling stockholders under this
prospectus could encourage short sales by third parties. These sales could
contribute to the future decline of our stock price.
The
sale
of material amounts of common stock by selling stockholders under this
prospectus could also encourage short sales by third parties. In a short
sale, a
prospective seller borrows stock from a stockholder or broker and sells the
borrowed stock. The prospective seller hopes that the stock price will decline,
at which time the seller can purchase shares at a lower price to repay the
lender. The seller profits when the stock price declines because the seller
can
purchase the shares at a price which is lower than the price at which the
seller
sold the borrowed stock. Short sales could place downward pressure on the
price
of our common stock by increasing the number of shares being sold, which
could
contribute to the future decline of our stock price.
We
may issue additional common stock in the future and this stock may reduce
the
value of your common stock.
We
may
issue additional shares of common stock without further action by our
stockholders. Moreover, the economic and voting interests of each stockholder
will be diluted as a result of such
issuances. Although the number of shares of common stock that stockholders
presently own will not decrease, such shares will represent a smaller percentage
of our total shares that will be outstanding after such events.
-14-
Sales
of common stock issuable on the exercise of outstanding options and warrants
may
depress the price of our common stock.
As
of
July 18, 2005, we had outstanding options granted to our employees, directors
and consultants to purchase 2,133,810 shares of our common stock, and had
outstanding warrants issued to investors and others to purchase 3,890,153
shares
of our common stock. The exercise prices for the options and warrants range
from
$2.00 to $11.00 per share. In the future we may issue additional convertible
securities, options and warrants. The issuance of shares of common stock
issuable upon the exercise of convertible securities, options or warrants
could
cause substantial dilution to holders of common stock, and the sale of those
shares in the market could cause the market price of our common stock to
decline. The potential dilution from these shares could negatively affect
the
terms on which we could obtain equity financing.
We
may issue preferred stock in the future, and the terms of the preferred stock
may reduce the value of your common stock.
We
are
authorized to issue up to 5,000,000 shares of preferred stock in one or more
series. Our board of directors may determine the terms of future preferred
stock
offerings without further action by our stockholders. If we issue additional
preferred stock, it could affect your rights or reduce the value of your
common
stock. In particular, specific rights granted to future holders of preferred
stock could be used to restrict our ability to merge with or sell our assets
to
a third party. These terms may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, and sinking
fund
provisions.
Our
stock price is volatile and may continue to be volatile in the future.
Our
common stock trades on the NASDAQ SmallCap Market. The market price of our
common stock has fluctuated significantly to date. In the future, the market
price of our common stock could be subject to significant fluctuations due
to
general market conditions and in response to quarter-to-quarter variations
in:
|
·
|
our
anticipated or actual operating results;
|
|
·
|
developments
concerning our sound reproduction technologies;
|
|
·
|
technological
innovations or setbacks by us or our competitors;
|
|
·
|
conditions
in the consumer electronics market;
|
|
·
|
announcements
of merger or acquisition transactions;
|
|
·
|
changes
in personnel within our company; and
|
|
·
|
other
events or factors and general economic and market
conditions.
|
The
stock
market in recent years has experienced extreme price and volume fluctuations
that have affected the market price of many technology companies, and that
have
often been unrelated or disproportionate to the operating performance of
companies.
-15-
SPECIAL
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Statements
in this prospectus and in the documents incorporated by reference in this
prospectus that are not statements of historical fact are forward-looking
statements. These statements relate to our future plans, objectives,
expectations and intentions. You may generally identify these statements
by the
use of words such as “expect,”“anticipate,”“may,”“will” and similar
expressions.
You
should not place undue reliance on our forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of numerous risks and uncertainties that are beyond
our
control, including those we discuss in “Risk Factors” and elsewhere in this
prospectus and in the documents incorporated by reference in this prospectus.
The information in this prospectus speaks only as of the date of this prospectus
and the information incorporated herein by reference speaks only as of its
date.
You should not rely on these statements without also considering the risks
and
uncertainties associated with these statements and our business.
USE
OF
PROCEEDS
We
will
not receive any proceeds from the sale or other disposition of the shares
of
common stock
or
interests therein offered by this prospectus. We will issue an aggregate
of
1,686,919 shares of common
stock potentially offered by this prospectus only upon the exercise of stock
purchase warrants by certain of the selling stockholders. If the selling
stockholders exercise the stock purchase
warrants for cash, we could receive proceeds of up to $10,813,299. There
can be
no
assurance that the selling stockholders
will exercise any of these warrants, or, if exercised, that they will be
exercised for cash, that any of the underlying shares of common stock will
be
sold under
this prospectus, or that we will receive any proceeds from the exercise of
the
stock purchase warrants.
ISSUANCE
OF SECURITIES
TO SELLING STOCKHOLDERS
This
prospectus covers securities which we issued in four separate
transactions.
July
2005 Financing.
We
entered into a securities purchase agreement, dated as of July 14, 2005,
with
some of the selling stockholders. We refer to these selling stockholders
as the
July 2005 Financing stockholders. The July 2005 Financing stockholders paid
us
an aggregate of $14 million in gross proceeds in consideration for 2,868,851
shares of our common stock at a price of $4.88 per share. In connection with
this financing, we issued two warrants to each July 2005 Financing stockholder.
The “A” Warrants are exercisable for an aggregate of 717,213 shares of common
stock at an exercise price of $6.36 per share. These warrants are exercisable
from January 18, 2006 until July 18, 2009. The “B” Warrants are exercisable for
an aggregate of 864,706 shares of common stock at an exercise price of $7.23
per
share. These warrants are exercisable from the date the registration statement
of which this prospectus is a part becomes effective until the date six months
after that date. The exercise price of these warrants, and the number of
shares
of our common stock for which these warrants may be exercised, is subject
to
adjustment if in the future we sell shares of our common stock for, or issue
options, warrants or convertible securities which may be exercised or converted
into shares of our common stock at an exercise or conversion price, less
than
their respective effective exercise prices.
Each
of
the July 2005 Financing stockholders represented that it had acquired the
securities for investment purposes only and with no present intention of
distributing those securities, except in compliance with all applicable
securities laws. In addition, each of the July 2005 Financing stockholders
represented that it qualified as an “accredited investor”, as that term is
defined in Rule 501 under the Securities Act of 1933.
-16-
We
have
granted the July 2005 Financing stockholders a first right to participate
in any
proposed sale of equity securities by us until the one-year anniversary of
the
date the registration statement of which this prospectus is a part becomes
effective. This right does not apply to the issuance of securities upon exercise
or conversion of previously outstanding securities, to the grant of options
under company plans, including inducement grants, to certain strategic
transactions, or to a firm commitment underwriting that results in net proceeds
to us of at least $10 million.
We
also
agreed to file a registration statement, of which this prospectus is a part,
prior to August 17, 2005 to register for resale the shares purchased under
the
securities purchase agreement as well as the shares that may be purchased
under
the warrants. We also agreed to have this registration statement declared
effective as soon as possible and in any event within ninety days after July
18,
2005. Once the registration statement is declared effective, we have agreed
to
use our best efforts to keep it effective for five years after the date the
registration statement is declared effective, or the earlier date when all
of
the shares covered by this prospectus have been sold or may be sold without
volume restrictions in accordance with Rule 144(k) under the Securities Act
of
1933. If we do not comply with our registration obligations, we have agreed
to
pay to each selling stockholders liquidated damages of up to 1% of its
investment amount per month that we are out of compliance with our registration
obligations. We have also agree to pay liquidated damages in that amount
during
any time that the exercisability of the warrants is suspended.
December
2004 Financing.
We
entered into a promissory note and warrant purchase agreement, dated as of
December 23, 2004, with some of the selling stockholders. We refer to these
selling stockholders as the December 2004 Financing stockholders. The December
2004 Financing stockholders paid us an aggregate of $2 million in gross proceeds
in consideration for 8% unsecured subordinated promissory notes due December
31,
2006. In connection with this financing, we issued warrants to each December
2004 Financing stockholder exercisable for an aggregate of 75,000 shares
of our
common stock at an exercise price of $9.28 per share (for purchases by our
directors, officers, employees or consultants, or affiliates of such persons),
and for an aggregate of 75,000 shares of our common stock at an exercise
price
of $8.60 per share (for other purchasers). These warrants are exercisable
until
December 31, 2009.
Each
of
the December 2004 Financing stockholders represented that it had acquired
the
securities for investment purposes only and with no present intention of
distributing those securities, except in compliance with all applicable
securities laws. In addition, each of the December 2004 Financing stockholders
represented that it qualified as an “accredited investor”, as that term is
defined in Rule 501 under the Securities Act of 1933.
We
granted the December 2004 Financing stockholders the right to be included
on any
registration statement we file, subject to customary exceptions and cut-back
rights.
ESI
Settlement.
We
entered into a settlement agreement and mutual release, on April 27, 2005,
with
three of the selling stockholders, which stockholders we refer to as the
ESI
stockholders, to settle litigation between us, eSoundIdeas, Inc. and its
principles. As part of the settlement, we agreed to issue 17,500 shares of
our
common stock to the ESI stockholders.
Each
of
the ESI stockholders represented that it had acquired the securities for
investment purposes only and with no present intention of distributing those
securities, except in compliance with all applicable securities laws.
We
also
granted the ESI stockholders “piggyback” rights to have their shares included on
future registration statements we might file.
-17-
Jackson
Strategic.
As
partial payment for its consulting services, we issued Jackson Strategic,
Inc. a
stock option to acquire 30,000 shares of our common stock at an exercise
price
of $2.75 per share. Jackson Strategic exercised this option in January 2005.
We
are including these shares in this prospectus as an accommodation to Jackson
Strategic.
SELLING
STOCKHOLDERS
We
are
registering for sale or other disposition shares of our common stock held
by the
selling stockholders. The term “selling stockholders” includes the stockholders
listed below and their transferees, pledgees, donees or other
successors.
The
following table sets forth information regarding beneficial ownership of
our
common stock by the selling stockholders as of July 18, 2005. This information
is based upon information provided by the selling stockholders. The selling
stockholders identified below may have sold, transferred or otherwise disposed
of all or a portion of their shares of common stock in transactions exempt
from
the registration requirements of the Securities Act since the date as of
which
they provided this information.
Except
as
described below, none of the selling stockholders has held any position or
office or had any other material relationship with us or any of our predecessors
or affiliates within the past three years other than as a result of the
ownership of our securities. We may amend or supplement this prospectus from
time to time to update the disclosure set forth in it.
Each
of
the selling stockholders that is affiliated with a registered broker-dealer
purchased the securities described under the heading “Issuance of Securities to
Selling Stockholders” in the ordinary course of business and, at the time of
purchase of those securities, did not have any plans to dispose of the shares
offered by this prospectus.
|
Selling
Stockholder
|
Common
Stock Beneficially Owned Prior to Offering
|
Common
Stock Underlying Warrants Beneficially Owned Prior to
Offering
|
Common
Stock to be Offered Pursuant to this Prospectus
(1)
|
Common
Stock Beneficially Owned After the Offering
(2)
|
|||
|
Special
Situations Fund III, L.P. (3)
|
726,458
|
(4)
|
395,479
|
1,112,692
|
--
|
--
|
|
|
Special
Situations Private Equity Fund, L.P. (3)
|
301,229
|
166,101
|
467,330
|
--
|
--
|
||
|
Special
Situations Technology Fund, L.P. (3)
|
72,599
|
(5)
|
31,638
|
89,015
|
--
|
--
|
|
|
Special
Situations Technology Fund II, L.P. (3)
|
452,986
|
(6)
|
197,739
|
556,345
|
--
|
--
|
|
|
SDS
Capital Group SPC, Ltd. (7)
|
204,918
|
169,813
|
(8)
|
317,913
|
--
|
--
|
|
|
Iroquois
Master Fund Ltd. (9)
|
614,754
|
338,983
|
953,737
|
--
|
--
|
||
|
Pequot
Scout Fund, L.P. (10)
|
405,023
|
223,335
|
628,358
|
--
|
--
|
||
|
Pequot
Mariner Master Fund, L.P. (10)
|
209,731
|
115,649
|
325,380
|
--
|
--
|
||
|
E.
H. Hitchcock Charitable Foundation (11)
|
--
|
3,750
|
3,750
|
--
|
--
|
||
|
George
A. Long (12)
|
51,200
|
(13)
|
7,500
|
7,500
|
--
|
--
|
|
|
James
& Josephine Zolin (12)
|
328,900
|
(13)
|
101,800
|
(14)
|
7,500
|
--
|
--
|
|
Patience
Partners LP (15)
|
5,000
|
(13)
|
3,750
|
3,750
|
--
|
--
|
|
|
Richard
G. Daniels (12)
|
64,102
|
(13)
|
36,250
|
(16)
|
3,750
|
--
|
--
|
|
Robert
D. van Roijen Jr. (15)
|
20,000
|
(13)
|
15,000
|
15,000
|
--
|
--
|
|
|
Urban
LaRiccia (12)
|
--
|
3,750
|
3,750
|
--
|
--
|
||
|
Norris
Family 1997 Trust (17)
|
3,629,015
|
(13)
|
37,500
|
37,500
|
|||
|
Sunrise
Capital, Inc. (18)
|
35,000
|
(13)
|
122,500
|
(19)
|
7,500
|
--
|
--
|
|
Sunrise
Management, Inc. Profit Sharing Plan (18)
|
38,000
|
(13)
|
33,500
|
(20)
|
7,500
|
--
|
--
|
|
Philip
& Thea Putnam (21)
|
33,500
|
(13)
|
7,500
|
7,500
|
--
|
--
|
|
|
Greg
Endsley (22)
|
5,250
|
--
|
5,250
|
--
|
--
|
||
|
Douglas
Paschall (22)
|
5,852
|
(23)
|
--
|
5,250
|
--
|
--
|
|
|
Gordon
& Holmes, A Partnership of Professional Corporations
(24)
|
7,000
|
--
|
7,000
|
--
|
--
|
||
|
Jackson
Strategic, Inc. (25)
|
30,000
|
--
|
30,000
|
--
|
--
|
||
-18-
|
(1)
|
Includes
the shares of common stock which are the subject of this
prospectus as
follows: 2,916,351 shares of common stock previously issued
and 1,686,919
shares of common stock that may be acquired by the selling
stockholders
upon exercise of their respective warrants.
|
|
(2)
|
Assumes
that all shares included in this prospectus and any other
shares held
before the commencement of the offering are sold and that
the selling
stockholders do not acquire any additional shares of our
common
stock..
|
|
(3)
|
Each
of these selling stockholders is a July 2005 Financing
stockholder. MGP
Advisors Limited Partnership, or MGP, is the general partner
of the
Special Situations Fund III, L.P. AWM Investment Company,
Inc., or AWM, is
the general partner of MGP. SST Advisers, L.L.C., or SSTA,
is the general
partner of, and investment adviser to, the Special Situations
Technology
Fund, L.P. and Special Situations Technology Fund II, L.P.
MG Advisers,
L.L.C., or MG, is the general partner of, and investment
adviser to, the
Special Situations Private Equity Fund, L.P. Austin W.
Marxe and David M.
Greenhouse are the principal owners of MGP, AWM, SSTA and
MG, and are
principally responsible for the selection, acquisition,
voting and
disposition of the portfolio securities by each investment
adviser on
behalf of its fund. Both Messrs. Marxe and Greenhouse share
voting and
dispositive power with respect to shares held by these
selling
stockholders.
|
|
(4)
|
9,245
of these shares were acquired in open market transactions
prior to the
July 2005 Financing and are not being offered under this
prospectus.
|
|
(5)
|
15,222
of these shares were acquired in open market transactions
prior to the
July 2005 Financing and are not being offered under this
prospectus.
|
|
(6)
|
94,380
of these shares were acquired in open market transactions
prior to the
July 2005 Financing and are not being offered under this
prospectus.
|
|
(7)
|
A
July 2005 Financing stockholder. SDS Management, LLC, or
SDSM, is the
investment manager of SDS Capital Group SPC, Ltd. Mr. Steve
Darby is the
Managing Member of SDSM. Mr. Steve Darby and SDSM each
may be deemed to
have shared voting and dispositive power with respect to
shares held by
SDS Capital Group SPC, Ltd. BayStar Capital II, L.P., an
affiliate of SDS
Capital Group SPC, Ltd., owns a warrant issued in connection
with a
previous financing. Mr. Steve Darby may be deemed to have
voting and
dispositive power with respect to shares held by BayStar
Capital II,
L.P.
|
|
(8)
|
56,818
of these shares are subject to a warrant issued to SDS
Merchant Fund, L.P.
in connection with the July 2003 Financing, and are not
being offered
under this prospectus.
|
|
(9)
|
A
July 2005 Financing stockholder. Mr. Joshua Silverman has
voting and
dispositive power with respect to shares held by Iroquois
Master Fund
Ltd.
|
-19-
|
(10)
|
Each
of these selling stockholders is a July 2005 Financing
stockholder. Pequot
Capital Management, Inc., or PCM, is the investment manager
of Pequot
Scout Fund, L.P. and Pequot Mariner Master Fund, L.P.
and the beneficial
owner of the listed securities. Mr. Arthur J. Samberg
is the sole
shareholder of PCM and has voting and dispositive power
with respect to
shares held by Pequot Scout Fund, L.P. and Pequot Mariner
Master Fund,
L.P. In August 2004, an affiliate of these selling stockholders
purchased
shares in a private placement of a broker-dealer admitted
to membership in
the National Association of Securities Dealers, Inc.
|
|
(11)
|
A
December 2004 Financing stockholder. Mr. Harrison H.
Augur is the trustee
of E. H. Hitchcock Charitable Foundation and has both
voting and
dispositive power with respect to shares held by E. H.
Hitchcock
Charitable Foundation.
|
|
(12)
|
A
December 2004 Financing stockholder.
|
|
(13)
|
None
of these shares is being offered under this prospectus.
|
|
(14)
|
94,300
of these shares are subject to warrants issued to James
and/or Josephine
Zolin in connection with various financings, and are
not being offered
under this prospectus.
|
|
(15)
|
Each
of these selling stockholders is a December 2004 Financing
stockholder.
Messrs. Robert D. van Roijen Jr. and Harrison Augor are
the general
partners of Patience Partners LP and share voting and
dispositive power
with respect to shares held by Patience Partners LP.
|
|
(16)
|
7,500
of these shares are subject to a warrant issued to Mr.
Richard G. Daniels
in connection with a previous financing, and are not
being offered under
this prospectus. 25,000 of these shares are subject to
a warrant issued to
Richard and Mary Daniels Family Trust in connection with
a previous
financing, and are not being offered under this prospectus.
|
|
(17)
|
The
Norris Family 1997 Trust is a December 2004 Financing
stockholder. The
trust has two trustees, Mr. Elwood G. Norris and Ms.
Stephanie A. Norris,
who share voting and dispositive power with respect to
shares held by the
Norris Family 1997 Trust. Mr. Elwood G. Norris has been
one of our
directors since August 1990 and currently serves as the
chairman of our
board. Ms. Stephanie A. Norris is the wife of Mr. Elwood
G.
Norris.
|
|
(18)
|
Each
of these selling stockholders is a December 2004 Financing
stockholder.
Mr. James Barnes and Ms. Takako Barnes are the sole trustees
of Sunrise
Management, Inc. Profit Sharing Plan and are officers
and directors of
Sunrise Capital, Inc. Mr. James Barnes and Ms. Takako
Barnes are also
trustees of the Palermo Trust, which owns 124,500 shares
of our common
stock and warrants to acquire 29,500 shares of our common
stock issued in
connection with several of our previous financings. Mr.
James Barnes and
Ms. Takako Barnes share voting and dispositive power
with respect to
shares held by these selling stockholders and the Palermo
Trust.
|
|
(19)
|
115,000
of these shares are subject to warrants issued to Sunrise
Capital, Inc. in
connection with various financings and as payment for
services, and are
not being offered under this prospectus.
|
|
(20)
|
26,000
of these shares are subject to warrants issued to Sunrise
Management, Inc.
Profit Sharing Plan in connection with various financings,
and are not
being offered under this prospectus.
|
-20-
|
(21)
|
A
December 2004 Financing stockholder. Mr. Philip Putnam
is a principal of
Flagstone Securities, a broker-dealer admitted to membership
in the
National Association of Securities Dealers, Inc.
|
|
(22)
|
An
ESI stockholder.
|
|
(23)
|
602
of these shares are held by the children of Mr. Douglas
Paschall, with
respect to which he has voting and dispositive power,
and are not being
offered under this prospectus.
|
|
(24)
|
An
ESI stockholder. Mr. Frederic L. Gordon and Ms. Rhonda
J. Holmes are
partners of Gordon & Holmes, A Partnership of Professional
Corporations, and share voting power with respect to
shares held by the
firm.
|
|
(25)
|
Mr.
Jonathan A. Berg is the sole stockholder of Jackson Strategic,
Inc. and
has voting and dispositive power with respect to shares
held by Jackson
Strategic, Inc. Mr. Jonathan A. Berg beneficially owns
25,400 shares of
our common stock and a warrant to acquire 50,000 additional
shares of our
common stock. Mr. Jonathan A. Berg’s IRA additionally holds 120,809 shares
of our common stock and warrants to acquire 37,000 additional
shares of
our common stock.
|
-21-
PLAN
OF DISTRIBUTION
The
selling stockholders may, from time to time, sell any or all
of their shares of
common stock on any stock exchange, market or trading facility
on which the
shares are traded or in private transactions. These sales may
be at fixed or
negotiated prices. The selling stockholders may use any one or
more of the
following methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the
broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell
the shares as agent
but may position and resell a portion of the block
as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules
of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
short
sales;
|
|
·
|
through
the writing or settlement of options or other hedging
transactions,
whether through an options exchange or
otherwise;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified
number of such
shares at a stipulated price per share;
and
|
|
·
|
a
combination of any such methods of
sale.
|
The
selling stockholders may also sell shares under Rule 144 under
the Securities
Act, if available, rather than under this prospectus.
The
selling stockholders may also engage in short sales against the
box, puts and
calls and other transactions in our securities or derivatives
of our securities
and may sell or deliver shares in connection with these trades.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions
or discounts from
the selling stockholders (or, if any broker-dealer acts as agent
for the
purchaser of shares, from the purchaser) in amounts to be negotiated.
The
selling stockholders do not expect these commissions and discounts
to exceed
what is customary in the types of transactions involved. Any
profits on the
resale of shares of common stock by a broker-dealer acting as
principal might be
deemed to be underwriting discounts or commissions under the
Securities Act.
Discounts, concessions, commissions and similar selling expenses,
if any,
attributable to the sale of shares will be borne by the applicable
selling
stockholder. The selling stockholders may agree to indemnify
any agent, dealer
or broker-dealer that participates in transactions involving
sales of the shares
if liabilities are imposed on that person under the Securities
Act.
In
connection with the sale of our common stock or interests therein,
the selling
stockholders may enter into hedging transactions with broker-dealers
or other
financial institutions, which may in turn engage in short sales
of the common
stock in the course of hedging the positions they assume. The
selling
stockholders may also sell shares of our common stock short and
deliver these
securities to close out their short positions, or loan or pledge
the common
stock to broker-dealers that in turn may sell these securities.
The selling
stockholders may also enter into option or other transactions
with
broker-dealers or other financial institutions or the creation
of one or more
derivative securities which require the delivery to such broker-dealer
or other
financial institution of shares offered by this prospectus, which
shares such
broker-dealer or other financial institution may resell pursuant
to this
prospectus (as supplemented or amended to reflect such
transaction).
-22-
The
selling stockholders may from time to time pledge or grant
a security interest
in some or all of the shares of common stock owned by them
and, if they default
in the performance of their secured obligations, the pledgees
or secured parties
may offer and sell the shares of common stock from time to
time under this
prospectus after we have filed an amendment to this prospectus
under Rule
424(b)(3) or other applicable provision of the Securities
Act of 1933 amending
the list of selling stockholders to include the pledgee,
transferee or other
successors in interest as selling stockholders under this
prospectus.
The
selling stockholders also may transfer the shares of common
stock in other
circumstances, in which case the transferees, pledgees or
other successors in
interest will be the selling beneficial owners for purposes
of this prospectus
and may sell the shares of common stock from time to time
under this prospectus
after we have filed an amendment to this prospectus under
Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933
amending the list of
selling stockholders to include the pledgee, transferee or
other successors in
interest as selling stockholders under this prospectus.
The
selling stockholders and any broker-dealers or agents that
are involved in
selling the shares of common stock may be deemed to be “underwriters” within the
meaning of the Securities Act in connection with such sales.
In such event, any
commissions received by such broker-dealers or agents and
any profit on the
resale of the shares of common stock purchased by them may
be deemed to be
underwriting commissions or discounts under the Securities
Act.
We
are
required to pay all fees and expenses incident to the registration
of the shares
of common stock. We have agreed to indemnify the selling
stockholders against
certain losses, claims, damages and liabilities, including
liabilities under the
Securities Act.
The
selling stockholders have advised us that they have not entered
into any
agreements, understandings or arrangements with any underwriters
or
broker-dealers regarding the sale of their shares of common
stock, nor is there
an underwriter or coordinating broker acting in connection
with a proposed sale
of shares of common stock by any selling stockholder. If
we are notified by any
selling stockholder that any material arrangement has been
entered into with a
broker-dealer for the sale of shares of common stock, if
required, we will file
a supplement to this prospectus. If the selling stockholders
use this prospectus
for any sale of the shares of common stock, they will be
subject to the
prospectus delivery requirements of the Securities Act.
The
anti-manipulation rules of Regulation M under the Securities
Exchange Act of
1934 may apply to sales of our common stock and activities
of the selling
stockholders.
LEGAL
MATTERS
Certain
legal matters relating to the offering will be passed upon
for us by Sheppard,
Mullin, Richter & Hampton LLP, San Diego, California.
-23-
EXPERTS
The
audited financial statements and schedules incorporated by
reference in this
prospectus have been audited by BDO Seidman, LLP, independent
registered public
accounting firm, to the extent and for the periods set forth
in their report
incorporated herein by reference, and are incorporated herein
in reliance upon
such report given the authority of said firm as experts in
auditing and
accounting.
On
June
29, 2005, BDO Seidman, LLP, the independent registered public
accounting firm
previously engaged as the principal accountant to audit our
financial
statements, resigned as our independent registered public
accounting firm. On
July 6, 2005 we engaged Swenson Advisors, LLP as our new
principal independent
registered public accounting firm to audit
our
financial statements for the fiscal year ending September
30, 2005. Swenson
Advisors, LLP has not audited any financial statements or
schedules incorporated
by reference in this prospectus.
WHERE
YOU CAN FIND MORE
INFORMATION
This
prospectus is part of a registration statement on Form S-3
that was filed with
the Securities and Exchange Commission, which we sometimes
refer to as the SEC.
This prospectus and any subsequent prospectus supplements
do not contain all of
the information in the registration statement. We have omitted
from this
prospectus some parts of the registration statement as permitted
by the rules
and regulations of the SEC. In addition, we file annual,
quarterly and current
reports, proxy statements and other information with the
SEC. You may read and
copy any documents that we have filed with the SEC at the
SEC’s
Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on
the public reference
room. The SEC also maintains an Internet site (http://www.sec.gov/)
that
contains reports, proxy and information statements, and other
information
regarding issuers that file electronically with the SEC.
INFORMATION
INCORPORATED
BY REFERENCE
We
have
elected to “incorporate by reference” certain information into this prospectus.
By incorporating by reference, we can disclose important
information to you by
referring you to another document we have filed with the
SEC. The information
incorporated by reference is deemed to be part of this prospectus,
except for
information incorporated by reference that is superseded
by information
contained in this prospectus. This prospectus incorporates
by reference the
documents set forth below that we have previously filed with
the
SEC:
|
·
|
Annual
report on Form 10-K, as amended, for our fiscal
year ended September 30,
2004;
|
|
·
|
Quarterly
Reports on Form 10-Q, as amended, for our fiscal
quarters ended December
31, 2004 and March 31, 2005;
|
|
·
|
Quarterly
Report on Form 10-Q, as amended, for our fiscal
quarter ended June 30,
2005;
|
|
·
|
Current
Reports on Form 8-K filed with the Securities and
Exchange Commission on
November 22, 2004, December 17, 2004, January 18,
2005 (amended January
21, 2005), January 31, 2005, March 21, 2005, March
24, 2005, March 25,
2005, April 1, 2005, May 3, 2005 (with respect
to disclosure made under
Items 1.01 and 3.02 only), June 17, 2005, July
1, 2005, July 6, 2005, July
13, 2005, July 19, 2005 and August 23, 2005;
and
|
|
·
|
Registration
Statement on Form 10-SB, effective August 1, 1994,
which includes a
description of our common stock.
|
|
·
|
We
also incorporate by reference all documents we
file in the future pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of
1934 after the date of this prospectus and prior
to the termination of the
offering are also incorporated by reference and
are an important part of
this prospectus.
|
You
may
obtain copies of these documents on the web site maintained
by the SEC at
www.sec.gov, or from us without charge (other than exhibits
to such documents,
unless such exhibits are specifically incorporated by reference
into such
documents) by contacting us at American Technology Corporation,
13114 Evening
Creek Drive South, San Diego, California 92128, Attn: Director,
Investor
Relations.
24