This Letter is a Direct Communication From the Chairman/CEO And the President of American Technology Corp.
SAN DIEGO--(BUSINESS WIRE)--March 25, 2002--American Technology Corp. (Nasdaq:ATCO - news):
To the Shareholders of American Technology Corp.:
As we approach our Annual Meeting, we are pleased to provide you with an update on ATC's technologies, business activities and new developments.
Annual Meeting
We have set Monday, May 20, 2002, 2:00 p.m. as the date of our Annual General Meeting of Shareholders. The meeting will be held in San Diego, at the Rancho Bernardo Inn.
Proxy materials are being prepared and will be mailed to Shareholders of Record as of the Record Date (April 5, 2002). We encourage you to read your proxy materials and return your ballot. All ballots must be received no later than 12:00 noon on May 20, 2002, to be counted before the Annual Meeting.
Our Business, Shaping the Future of Sound®
We own four exciting audio innovations we believe truly shape the future of sound. Award winning HSS® literally produces highly directed sound beams using the air itself, a major revolution in sound production. NeoPlanar® flat speakers are such an advancement that the technology was licensed first by the leading speaker supplier to the automobile industry, an incredible achievement for a new technology launch. PureBass® subwoofer technology enables higher crossover frequencies opening the door for small loudspeaker systems to compete with traditional high-end box systems. Stratified Field® is an important improvement in quality and in the cost reduction of electrostatic-type speakers. With these exciting technologies we are focused on a modified licensing business model. This business model includes royalties from traditional licensing supplemented by margins from supplying critical enabling components to customers. We believe this model overcomes some of the limitations associated with pure licensing while maximizing revenues and margins.
According to recent research by Deloitte and Touche, revenues from patent licensing in the U.S. grew from $15 billion to over $120 billion in the period from 1990 to 1999, and profit margins in this sector exceed 90% in the mature cases. Licensing revenues are expected to reach $500 billion by 2005. This model for extracting income from intellectual property is a proven one. At ATC, we expect strong growth in licensing revenues as multiple agreements mature to commercialization during this year and into 2003. At the same time, we will supplement this income by managing acoustic hardware development by supplying enabling HSS and NeoPlanar components.
During the first 60 days of this quarter, we received approximately $150,000 in licensing-related cash receipts, granted additional licenses that we expect to pay us more than $200,000 later this year, and recently booked approximately $200,000 in military-related research, development and sales. This increase in financial activity is a reflection of the growing maturity of our sound technologies. These transactions, combined with planned shipments of HSS components plus our retail products business, are expected to improve revenues during the final two quarters of our fiscal year ending Sept. 30, 2002.
We are pleased to announce that the manufacture of a new paradigm in sound has begun! We are now in production of HSS emitters and related electronics. We are proud that our shareholders own the first highly directive beam (parametric) loudspeaker system to ever be mass-produced. HSS is an incredible advancement in sound reproduction, refining a 200 year-old idea to the point of commercial viability.
As important as the invention itself, is the ability to move specific embodiments of it to mass production. While many treated HSS as a novelty, we are proving it to be a new paradigm with the capacity to achieve broad market acceptance. Along with our suppliers, we have innovated proprietary production methods that make HSS economical today and even more economical as volumes and applications expand. Before our meeting with you in May, we expect to announce further details regarding HSS volume production.
Our major U.S. HSS licensees and distributors, eSoundIdeas, International Robotics, Showorks Entertainment Group, Americhip, and our agents in Japan have been busy preparing their respective sales channels for the arrival of HSS production units for initial projects in major venues. These include retail store chains, entertainment facilities, government buildings, exhibits and marketing campaigns by well-known major consumer brands. In Europe, we have selected and licensed two distributors. We are currently evaluating inquiries from Israel, Germany, France, England, Australia, Korea, Russia, Argentina and Brazil. Our licensees and distributors have identified thousands of applications with hundreds of prospective customers. Some customer requirements for HSS could require volume of thousands of units per month. We are focused on achieving high volume applications featuring the unique benefits of HSS directed sound. As we introduce production units, we will be in a better position to assess market size and future results.
We are also very active in licensing our PureBass technology, for which we received a notice of patent allowance in December. This month, we closed a valuable agreement with Amtec Manufacturing in Canada, a large manufacturer of major OEM loudspeaker systems. We are building samples for other well-known firms and expect to see audio products on the market this year that utilize this new and effective method of bass reproduction. This month, we licensed another NeoPlanar customer as well, Dimension One Spas, who found our technology to be superior to conventional speakers both in audio performance and physical form, as well as being impervious to severe environments. Dimension One enjoys a leadership position in the high-end spa industry and plans to purchase and integrate NeoPlanar speaker devices into their premier products.
Strict confidentiality agreements with Harman International Industries, Thomson, and other companies with which we have license agreements or ongoing negotiations prevent us from disclosing specific details about their progress or intentions. It is in our customers' and ATC's best interest to keep this information confidential due to the fiercely competitive nature of the industry. This said, we look forward to updating you whenever opportunities arise for further public disclosure.
Retail Products
Over the past three years, our retail radio product efforts have been focused in the limited areas of sporting goods and personal electronics outlets. In April, we will begin shipping 7 new products exclusively designed and manufactured for ATC. These products will be marketed to major sports team logo programs, and in souvenir outlets located in zoos and sports stadiums. We believe that entering this space provides our Retail Division with significant growth opportunities. We are currently working with well-known sports teams and new retailers for placement of these products.
Military and Government
As we have indicated in the past, the company is committed to the full and complete development of our business model. We have developed a talented team capable of handling government contracting and technical issues along with directing our consumer and commercial efforts. At this time we have two revenue-producing contracts in place with a major Navy contractor, a Cooperative Research and Development Agreement with the U.S. Army related to our high intensity directed acoustic technology, and several proposals under evaluation by other government branches. Recently, in order to leverage our resources to achieve better military market penetration, we entered into a Memorandum of Understanding with a technology marketing firm that specializes in high-level government contract arrangements, and non-lethal weapons development. The agreement provides for sharing of revenues generated within the agreement, but does not bind the company to conduct business through their entity.
We both join the ATC Board of Directors and all of our employee-shareholders in expressing our sincere appreciation for your continued support. We look forward to meeting with you on May 20th and sharing further details on the progress and future plans of your company as we continue Shaping the Future of Sound.
Sincerely,
Elwood G. Norris,
Chairman and CEO
Terry Conrad,
President
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