Chairman's Message to the Shareholders of American Technology Corporation
SAN DIEGO--(BUSINESS WIRE)--May 9, 2000--
This letter is a direct communication from Con Brosnan to the
Shareholders of American Technology Corporation (NASDAQ: ATCO). The
purpose of this letter is to provide Shareholders with an update on
ATCO's business strategy and to summarize recent developments at the
company
CHAIRMAN'S MESSAGE
May 9, 2000
To the Shareholders of American Technology Corporation:
At our recent shareholder's meeting we reviewed the current status of our HyperSonic(TM) Sound (HSS(TM)) technology, our signed license with Thomson Multimedia and signed Letter Of Intent with Jamo for our Stratified Field(TM) Technology (SFT(TM)). We also announced our acquisition of important new planar magnetic speaker technology. This letter will provide an update on these developments as well as clarify and detail our progress going forward.
HyperSonic Sound
As previously announced our first generation HSS technology has developed to where we believe it has become commercially viable and we are in the process of finishing our digital modulation circuit which is an improvement over the analog circuit. As explained at the Annual Meeting, we decided to come to market with the digital solution and not with the initial analog solution. Our reasoning is that if potential licensees evaluate the analog system they will still want to evaluate the digital system before licensing and implementing HSS. We are continuing to refine our HSS technology through optimization of a matrix of transducer sizes, transducer configurations, electronics and modulation circuitry.
We expect to have digital evaluation kits available this summer for the first of the hundreds of companies who have expressed interest in HSS. We continue to progress in our relationship with Bath Iron Works, a General Dynamics company. We have prioritized our HSS work for them as we expect to outfit the first naval vessel with HSS technology this year for applications testing.
Many of you were unable to attend the Annual Meeting and experience Woody Norris' demonstration of HSS. The clear, highly directional beam of sound created a virtual speaker as Woody projected it off of the auditorium walls. When "within the beam of sound" shareholders heard lower frequency sounds than we have ever demonstrated before. Clarity was obvious to all in attendance. When the beam was projected off of the rear wall of the auditorium the sound reflected all of the way back to the stage with the apparent sound source being the back wall and not the HSS emitter. This simple but dramatic demonstration of our HSS technology illustrates its potential applications in a number of different areas, including theaters, drive-throughs, trade shows, galleries, theme parks, and special events venues.
Stratified Field Technology
Our Stratified Field(TM) Technology license agreement with Thomson Multimedia is a license for them to build Audio and Home Theater products under their global brands for global distribution. For investors who are unfamiliar with the Thomson brand name, the formal corporate name of Thomson is Thomson Multimedia; our license is not with a division that only makes multimedia products. Thomson is the fourth largest consumer electronics company in the world. They intend to manufacture and market products under one or more of their global brands which include: RCA, GE and ProScan in the United States; Thomson, Telefunken and Saba in Europe; and Thomson elsewhere. Thomson also has a growing OEM business that we are working to utilize for Licensees who choose to use outsourcing services to manufacture our technologies.
Thomson is a world class company, the number one producer of large and very large picture tubes in the world. They are number one in the United States for television, third largest in Europe. They have the number two market share for audio products in the United States. Despite their size ($6.7 Billion revenues 1999) they had a 46% increase in revenues the first quarter of this year. They are on a positive track with their business and we believe we can become an important part of that business. The principal shareholders of Thomson are: Thomson S. A. (100% state owned company owns 52%), Microsoft (6.8%), NEC (6.8%), DirecTV (5.19%), and Alcatel (6.8%).
Our Targeted Licensing Markets are Large
Shareholders should understand more about the markets we have targeted. The following numbers include the United States market only (unless otherwise noted). The rest of the world typically is three to five times these numbers depending on the category:
-- In audio products shelf systems sales are a 10 million plus unit,
$1.6 billion (factory shipments) category.
-- Home audio speakers (separates) sales are about a 4 million unit
category.
-- Home Theater in a box systems sales are over 500,000 units per
year.
-- Home Theater component sales are estimated at $10 Billion dollars
a year (much of that is the TV/Monitor, but there are substantial
dollars for speakers and there has been migration here from
"hi-fi" in classification).
-- Separate audio component sales are a $1.5 Billion market (factory
shipments).
-- Multimedia speakers are a rapidly growing category. In 1999 world
sales of PCs topped 113 million units with growth at 22% over
1998. In the United States alone the sales were 43.8 million
units. As Internet music, video and other multimedia usage grow
the speaker business will follow the trend.
Audio Product Annual Unit Sales Annual Dollar Sales
Shelf systems 10 million plus $1.6 billion (factory
sales)
Home audio speakers 4 million
Home theater in a box 500,000
Home theater
components(1) $10 billion
Audio components $1.5 billion
(factory sales)
PC's (multimedia) 43.8 million (U.S.)
113.0 million (Worldwide)
Television 200 million (worldwide)
(1) Home Theater includes TV/Monitor market as well as speakers. Some of the unit and dollar volumes for speakers formerly in "hi-fi" have migrated to this classification as well.
Our business model leverages our small R&D staff and overhead targeting an expected percentage of profits of world class brands with their sales and marketing expertise. For example, television is a global category with estimated annual shipments over 200 million units. These enormous volumes enable attractive returns with even small percentage points of market penetration. As an Intellectual Property company we intend to maintain a low cost basis that will allow high conversion of royalties to our bottom line.
The plans and projections of our licensees as well as the terms and conditions of the licenses are proprietary. The timing of product introductions, types of products, market position and branding strategy are our licensees' trade secrets. Our integrity in keeping this information proprietary is important to our success as a supplier to OEM manufacturers. After we sign a license agreement there are implementation cycles as licensees do their product planning, design and tooling to come to market. Each licensee has their own implementation schedule and lead times for each of these activities. Cash flows (in the form of royalties) to ATC will vary accordingly. We do, however, get up-front license fees from our licensees. We have not given licenses away. The near term measure of our success will be in the royalty-bearing licenses that we continue to sign and the quality of our licensees. Next will be revenues followed by expected profitability. Success of products in the market should spur additional models in the next generation or season.
A successful licensing model is very much one of inertia and quality.
Planar Magnetic Technology
ATC has been very focused on thin panel speakers and related technologies for over four years. The acquisition of our new planar magnetic, patent pending technology is an extension of that focus. The main areas that distance our new planar magnetic technology from previous forms is the unique combination of new cost effective materials coupled with a highly specialized production process that produces an advanced radiating diaphragm.
Historically planar magnetic speakers, like electrostatic speakers, were reserved for the highest end of the Hi-Fi marketplace and achieved limited distribution due to high cost. We believe our new technology is thermally, mechanically, and acoustically better than anything yet produced and is available at a cost that allows this superior technology to be introduced to consumer markets for the first time. Bringing the high quality of heretofore "expensive" speakers to the masses is an important part of our strategic marketing direction. Products in the mid to high range of markets have higher profit margins than the low price sector. There is little room for royalties in the low end.
The other main advance of our new planar magnetic technology involves the integration of powerful advanced magnetic materials. The increasing popularity of these materials for use by a variety of very large high technology companies has driven costs down and quality and availability up. This represents another instance of innovative Hi-Fi development benefiting from much larger and dissimilar industries. It makes possible small lightweight devices that are capable of tremendous output levels.
Unlike cone or dome type devices, magnetic planar drivers have very wide bandwidth. The same electrical element that converts the amplifier signal into acoustic energy launches the energy into the air. Cone and dome point sources use a coil of wire to force a separate radiating element back and forth to produce sound which also produces secondary resonance that color the signal (cause distortion).
When arranged in a line, the output level of our planar magnetic drivers decreases with distance at about half the rate of ordinary speakers which means that the evenness of coverage in a given space is much more uniform. People seated in the front row hear things at much the same intensity as those seated in the back. The smooth, even distribution of the acoustic energy in a given space also means that annoying (and costly to attempt to control) microphone feedback is reduced.
Planar Magnetic Technology, Stratified Field Technology and Magnified Force Woofer(TM) Technology are Complementary
We have a wide range of innovative audio technology solutions. Each technology has its particular strengths and offers solutions to OEM suppliers. SFT brings electrostatic technology and its well-documented superior audio characteristics with extremely clear, natural sound to many more consumers. SFT adds the benefit of easy, reliable manufacturing compared to traditional electrostatic speakers and the ability to shape speakers in a myriad of designs that enable an industrial design revolution in audio products. We believe our planar magnetic speakers are the world's thinnest speakers at less than 1/4 inch thickness. In automotive stereos where thickness and weight are critical factors the hi-fi sound of the planar speakers provides a competitive advantage in a huge marketplace. There are some 45 million plus automobiles built globally each year. In the United States alone, there are over 6 million aftermarket car speakers sold annually. For flat Television we believe we now have the two highest quality sound solutions, each with its own advantages. As mentioned above, TV shipments are estimated at over 200 million units a year. For TVs with better audio systems and as the market migrates to thin TVs, we are positioned with multiple, very attractive solutions.
Our planar magnetic speakers can be very narrow and, compared to traditional cone speakers, provide attractive options in industrial design. Our planar magnetic technology is ideal for many applications from hi-fi speakers to boom boxes with foldaway speakers with high fidelity sound. In multimedia, home theater and bookshelf audio both SFT and planar magnetic technologies have applications.
Our Magnified Force(TM) Subwoofer technology compliments the planar magnetic speakers as well as SFT. Because ATC now owns the planar magnetic technology we are positioned to sell incremental licenses for MFW in concert with the planar magnetic speakers.
Our strategy as an intellectual property company is to create or purchase technologies that enhance our portfolio and fit into our R&D capabilities and marketing relationships.
ATC's Audio Incubator Strategy
At the Shareholders Meeting I also discussed our incubator strategy. An incubator is a place where capable people nurture ideas, develop and commercialize them. In recent months we have added significant capabilities within our staff and we continue to seek out strategic additions. We are internalizing the capabilities needed to take us to the next level. Within these and every addition are new capabilities that should allow us to improve and expand our operations and scope. Today we are an incubator for audio technologies. As we continue to improve our marketing abilities and our relationships with OEM brands, we will build momentum and attract more people seeking our abilities to refine, develop, license, and commercialize technology.
We believe our business model and strategies are sound. Our focus on high quality sound solutions at mid-tier pricing and the innovation of HSS give us a robust, unique market position. Our technological portfolio is growing. Our roster of creative, expert engineers is dedicated and growing. The quality and enthusiasm of our first major licensee, Thomson Multimedia, serves to benchmark our progress. The markets available to us are enormous and growing. As Chairman I am confident that we have the right elements for success to the benefit of our owners.
Yours truly,
Con Brosnan,
Chairman
Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: This newsletter contains forward-looking statements relating to future revenues and product development that may impact on future results and the future viability of the company. Actual results could differ materially from those projected in the forward-looking statements as a result of risk factors such as future products and results, technological shifts, using contract manufacturers, potential technical difficulties that could delay new products, competition, pricing pressures and the uncertainty of market acceptance of new products by distributors, OEMs, licensees and end-user customers. |
